As filed with the Securities and Exchange Commission on May 1, 1996
Registration No.__
==============================================================================
U.S. Securities and Exchange Commission
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. ___ / / Post-Effective Amendment No. ___
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
THE WOODWARD FUNDS
Area Code and Telephone Number:
(313) 259-0729
Address of Principal Executive Offices:
c/o NBD Bank
900 Tower Drive
P. O. Box 7058
Troy, MI 48007-7058
Name and Address of Agent for Service:
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on May 31, 1996 pursuant
to Rule 488 under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing
fee is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration Nos. 33- 13990, 811-5148) pursuant to
Rule 24f-2 under the Investment Company Act of 1940. The Registrant is filing
as an exhibit to this Registration Statement a copy of its earlier declaration
under Rule 24f-2. Pursuant to Rule 429, this Registration Statement relates to
the aforesaid Registration Statement on Form N-1A.
<PAGE>
THE WOODWARD FUNDS
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
Item No. Heading
- -------- -------
Part A
<S> <C> <C>
1. Beginning of Registration Statement
and Outside Front Cover Page................................... Cover Page
2. Beginning and Outside
Back Cover Page................................................ Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors............................................... Summary; Comparative Fee Tables; Risk
Factors; Comparison of Investment Policies
and Risk Factors; Appendix III
4. Information About the Transaction.............................. Summary; Risk Factors; Information Relating
to the Proposed Reorganization; Comparison
of Investment Policies and Risk Factors;
Appendix III
5. Information About the Registrant............................... Summary; Risk Factors; Comparison of
Investment Policies and Risk Factors;
Additional Information About Woodward;
Additional Information About Prairie;
Appendix III
5A. Management's Discussion of
Fund Performance............................................... Appendix II
6. Information About the Company
Being Acquired................................................. Summary; Risk Factors; Comparison of
Investment Policies and Risk Factors;
Additional Information About Woodward;
Additional Information About Prairie;
Appendix III
7. Voting Information............................................. Summary; Information Relating to Voting
Matters
8. Interest of Certain Persons
and Experts.................................................... Additional Information About Woodward;
Additional Information About Prairie
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<PAGE>
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters............................................. Inapplicable
Part B
10. Cover Page.................................................... Statement of Additional Information Cover
Page
11. Table of Contents.............................................. Table of Contents
12. Additional Information
About the Registrant........................................... Statement of Additional Information of
Woodward dated April 15, 1996*
13. Additional Information
About the Company Being
Acquired........................................................ Statement of Additional Information of Prairie
Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc. dated April
11, 1996*
14. Financial Statements............................................. Pro Forma Financial Statements
</TABLE>
Part C
Items 15-17. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration Statement.
* Incorporated herein by reference thereto.
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<PAGE>
PRAIRIE FUNDS
PRAIRIE INTERMEDIATE BOND FUND
PRAIRIE MUNICIPAL BOND FUND, INC.
Three First National Plaza
Chicago, Illinois 60670
Dear Prairie Shareholder:
The Boards of Trustees of the Prairie Funds, Prairie
Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc. have
called a Special Meeting of Shareholders on June 25, 1996
concerning matters that are important to you.
As you may be aware, First Chicago Corporation
recently completed a merger with NBD Bancorp, Inc. ("NBD") on November 30,
1995. As a result, the new organization has since taken steps to consolidate
the mutual fund investment advisory activities of both bank holding companies.
First Chicago Investment Management Company currently provides investment
advisory services to the Prairie Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc. NBD Bank currently provides investment
advisory services to The Woodward Funds.
As the next step in the consolidation process, you are
asked to consider and approve a proposed Agreement and Plan of Reorganization
(the "Reorganization Agreement"). The Reorganization Agreement provides that
initially each of the following seven investment portfolios of Prairie will
transfer substantially all its assets and liabilities to the existing Woodward
investment portfolio identified below opposite its name:
Prairie Woodward
- ------- --------
Money Market Fund Money Market Fund
U.S. Government Money Market Fund Treasury Money Market Fund
Municipal Money Market Fund Tax-Exempt Money Market Fund
Growth Fund Capital Growth Fund
Bond Fund Bond Fund
Municipal Bond Fund Municipal Bond Fund
Managed Assets Fund Balanced Fund
The Reorganization Agreement also provides that
subsequently each of the following seven investment portfolios of Prairie will
transfer all its assets and liabilities to the newly organized Woodward
investment portfolio identified below opposite its name:
Prairie Woodward
- ------- --------
Equity Income Fund Equity Income Fund
International Equity Fund International Major Markets
Fund
International Bond Fund International Bond Fund
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<PAGE>
Special Opportunities Fund Small-Cap Opportunities Fund
Intermediate Municipal Bond Fund Intermediate Municipal Bond
Fund
Intermediate Bond Fund Income Fund
Managed Assets Income Fund Managed Assets Conservative
Fund
The transaction is expected to occur on or after
_______, 1996. The combined investment company will be renamed
_______ sometime after the completion of the transaction.
What do these changes mean to you?
o Although the number of shares you hold may change, the value of the
shares you hold at the time of the Reorganization will not change
as a result of the transaction, and will be the same immediately
after the Reorganization.
o The Reorganization will be tax-free and will not involve
any sales loads, commissions or transaction charges.
o Following the Reorganization, the investment objectives and
policies of the new portfolios under the Woodward registered
investment company will be substantially similar to the current
investment objectives and policies of your Prairie Funds, Prairie
Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc.,
except as stated in the enclosures.
o Shareholders will benefit from improved shareholder
servicing and the elimination of redundant administration
costs to the funds.
As a result, the Boards of Trustees and Directors of
the Prairie Funds, Prairie Intermediate Bond Fund and Prairie
Municipal Bond Fund, Inc. have voted in favor of the proposed
Reorganization Agreement and strongly encourage that you vote
"For" the proposal as well.
The Reorganization Agreement and other related matters
are discussed in detail in the enclosed materials, which you
should read carefully.
Voting Instructions
Enclosed is a proxy card for the meeting. We urge you
to read the enclosed proxy statement and to vote by completing, signing and
returning the enclosed proxy ballot form(s) in the prepaid envelope. If you
are a stockholder of more than one Fund, you will receive a proxy card for
each of your Funds. Please vote and return each proxy card you receive. Every
vote counts.
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<PAGE>
First Chicago NBD Corporation is pleased with the
opportunities the Reorganization will provide to better serve our mutual fund
investors. If you have any questions, your account manager will be happy to
assist you. Otherwise, you may call us at (800) ___-____. Thank you for your
cooperation.
Sincerely,
Mark A. Dillon
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<PAGE>
PRAIRIE FUNDS
PRAIRIE INTERMEDIATE BOND FUND
PRAIRIE MUNICIPAL BOND FUND, INC.
Three First National Plaza
Chicago, IL 60670
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on June 25, 1996
To Prairie Shareholders:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders
("Shareholders") of each Portfolio of Prairie Funds, Prairie Intermediate Bond
Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie") will be
held at the offices of BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
Ohio, on June 25, 1996 at ______ a.m./p.m. (Eastern time) for the following
purposes:
ITEM 1. With respect to each investment portfolio (a
"Prairie Portfolio") of Prairie:
To consider and act upon a proposal to approve an
Agreement and Plan of Reorganization (the
"Reorganization Agreement") and the transactions
contemplated thereby, including (a) the transfer of
substantially all of the assets and liabilities of the
Money Market Fund, U.S. Government Money Market Fund,
Municipal Money Market Fund, Growth Fund, International
Equity Fund, International Bond Fund, Equity Income
Fund, Special Opportunities Fund, Bond Fund,
Intermediate Municipal Bond Fund, Municipal Bond Fund,
Intermediate Bond Fund, Managed Assets Fund and Managed
Assets Income Fund to corresponding investment
portfolios of The Woodward Funds (the "Woodward Funds")
in exchange for Class A, Class B or Class I shares, as
applicable, of the Woodward Funds; (b) the distribution
of such Woodward Fund shares to the shareholders of the
Prairie Portfolios according to their respective
interests; and (c) the termination under state law and
the Investment Company Act of 1940, as amended, of
Prairie.
ITEM 2. With respect to each Prairie Portfolio:
To transact such other business as may properly come
before the Special Meeting or any adjournment(s)
thereof.
The proposed reorganization and related matters are described in
the attached Combined Proxy Statement/Prospectus. Appendix I to the Combined
Proxy Statement/Prospectus is a copy of the Reorganization Agreement.
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<PAGE>
Shareholders of record as of the close of business on April 11,
1996 are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE EACH ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
PRAIRIE'S BOARDS OF TRUSTEES AND DIRECTORS, AS APPLICABLE. THIS IS IMPORTANT
TO ENSURE A QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME
BEFORE THEY ARE EXERCISED BY SUBMITTING TO PRAIRIE A WRITTEN NOTICE OF
REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
-----------------------------
George O. Martinez
Secretary
May __, 1996
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<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated May __, 1996
PRAIRIE FUNDS
PRAIRIE INTERMEDIATE BOND FUND
PRAIRIE MUNICIPAL BOND FUND, INC.
Three First National Plaza
Chicago, Illinois 60670
(800) 370-9446
THE WOODWARD FUNDS
900 Tower Drive
P. O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Boards of Trustees and Directors of
Prairie Funds, Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund,
Inc. (collectively, "Prairie") in connection with a Special Meeting (the
"Meeting") of Shareholders ("Shareholders") to be held on June 25, 1996 at
______a.m./p.m. (Eastern time) at the offices of BISYS Fund Services, Inc.,
3435 Stelzer Road, Columbus, Ohio at which Shareholders will be asked to
consider and approve a proposed Agreement and Plan of Reorganization dated May
___, 1996 (the "Reorganization Agreement"), by and between Prairie and The
Woodward Funds ("Woodward") and the matters contemplated therein. A copy of
the Reorganization Agreement is attached as Appendix I.
Prairie and Woodward are each open-end, management investment
companies. First Chicago Investment Management Company ("FCIMCO") currently
provides investment advisory services to Prairie. NBD Bank ("NBD") currently
provides investment advisory services to Woodward. In reviewing the proposed
reorganization (the "Reorganization"), the Prairie Boards considered, among
other things, the recently completed merger of First Chicago Corporation, the
parent company of FCIMCO, and NBD Bancorp, Inc., the parent company of NBD;
the effect of such merger on Prairie; the fact that FCIMCO and NBD would serve
as co-advisers to Woodward after the Reorganization; the recommendations of
FCIMCO and NBD with respect to the proposed consolidation of Prairie and
Woodward; the fact that the Reorganization would constitute a tax-free
reorganization; and the fact that the interests of Shareholders would not be
diluted as a result of the Reorganization.
The Reorganization Agreement provides that initially each of the
following seven investment portfolios of Prairie (collectively, the
"Reorganizing Portfolios") will transfer substantially all its assets and
liabilities to the existing Woodward investment portfolio (collectively, the
"Existing Woodward Funds") identified below opposite its name:
<PAGE>
Reorganizing Portfolios Existing Woodward Funds
- ----------------------- -----------------------
Money Market Fund Money Market Fund*
U.S. Government Money Market Fund Treasury Money Market Fund*
Municipal Money Market Fund Tax-Exempt Money Market Fund*
Growth Fund* Capital Growth Fund
Bond Fund Bond Fund*
Municipal Bond Fund* Municipal Bond Fund
Managed Assets Fund Balanced Fund*
The Reorganization Agreement also provides that subsequently each
of the following seven investment portfolios of Prairie (collectively, the
"Continuing Portfolios") will transfer all its assets and liabilities to the
newly organized Woodward investment portfolio (collectively, the "New Woodward
Funds") identified below opposite its name:
Continuing Portfolios New Woodward Funds
- --------------------- ------------------
Equity Income Fund* Equity Income Fund
International Equity Fund* International Major Markets Fund
International Bond Fund* International Bond Fund
Special Opportunities Fund* Small-Cap Opportunity Fund
Intermediate Municipal Bond Fund* Intermediate Municipal Bond Fund
Intermediate Bond Fund* Income Fund
Managed Assets Income Fund* Managed Assets Conservative
Fund
- ---------
* Denotes the surviving or continuing portfolio for the purposes of
maintaining the financial statements and performance history in the
post-reorganization portfolios.
In exchange for the transfers of these assets and liabilities,
Woodward will issue shares in the fourteen Woodward investment portfolios
listed above (collectively, the "Woodward Funds") to the corresponding Prairie
investment portfolios listed above (collectively, the "Prairie Portfolios").
The transaction between the Reorganizing Portfolios and the Existing Woodward
Funds is referred to herein as the "Reorganizing Portfolios Transaction" and
the subsequent transaction between the Continuing Portfolios and the New
Woodward Funds is referred to herein as the "Continuing Portfolios
Transaction." The transactions are expected to occur on or after August 9,
1996 and August 30, 1996, respectively.
Most of the Prairie Portfolios have three classes of shares
outstanding. After the Reorganization, Woodward will offer comparable classes
of shares. Holders of each class of shares of a Prairie Portfolio will receive
the class of shares of the corresponding Woodward Fund as set forth in the
table on page ___
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<PAGE>
under "Information Relating to the Proposed Reorganization -- Description of
the Reorganization Agreement."
The Prairie Portfolios will make liquidating distributions of the
Woodward Funds' shares to the Shareholders of the Prairie Portfolios, so that
a holder of a class of shares in a Prairie Portfolio will receive a class of
shares (as described herein) of the corresponding Woodward Fund with the same
aggregate net asset value as the Shareholder had in the Prairie Portfolio
immediately before the transaction. Following the Reorganization, Shareholders
of the Prairie Portfolios will be Shareholders of their corresponding Woodward
Funds, and Prairie will be terminated under state law and the Investment
Company Act of 1940, as amended (the "1940 Act").
The Existing Woodward Funds currently are conducting investment
operations as described in this Combined Proxy Statement/Prospectus. The New
Woodward Funds have recently been organized for the purpose of continuing the
investment operations of the Prairie Equity Income Fund, International Equity
Fund, International Bond Fund, Special Opportunities Fund, Intermediate
Municipal Bond Fund, Intermediate Bond Fund and Managed Assets Income Fund,
and have no substantial assets or prior history of investment operations.
This Combined Proxy Statement/Prospectus sets forth the information
that a Shareholder of Prairie should know before voting on the Reorganization
Agreement (and related transactions), and should be retained for future
reference. The Prospectuses relating to the shares of the Existing Woodward
Funds, which describe those Funds' operations, accompany this Combined Proxy
Statement/Prospectus. Additional information is set forth in the Statements of
Additional Information relating to those Funds and this Combined Proxy
Statement/Prospectus, which are dated April 15, 1996 and May __, 1996,
respectively, and in the Prospectus and Statement of Additional Information,
each dated April 11, 1996 relating to Prairie. Each of these documents is on
file with the Securities and Exchange Commission (the "SEC"), and is available
without charge upon oral or written request by writing or calling either
Prairie or Woodward at the respective addresses or telephone numbers indicated
above. The information contained in the Prospectus and Statement of Additional
Information, dated April 11, 1996 relating to Prairie is incorporated herein
by reference.
This Combined Proxy Statement/Prospectus constitutes the Proxy
Statement of Prairie for the meeting of its Shareholders, and Woodward's
Prospectus for the shares of its Existing Woodward Funds that have been
registered with the SEC and are to be issued in connection with the
Reorganization.
This Combined Proxy Statement/Prospectus is expected to first be
sent to Shareholders on or about May __, 1996.
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<PAGE>
THE SECURITIES OF THE WOODWARD FUNDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRAIRIE OR WOODWARD.
SHARES OF THE WOODWARD FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FIRST CHICAGO NBD CORPORATION OR ANY OF ITS AFFILIATES. SHARES
OF THE WOODWARD FUNDS ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS
OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET
CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE WOODWARD FUNDS, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN INVESTMENT IN
THE WOODWARD FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE WOODWARD MONEY
MARKET FUND, TREASURY MONEY MARKET FUND OR TAX-EXEMPT MONEY MARKET FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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<PAGE>
TABLE OF CONTENTS
Page
----
Summary.....................................................................
Proposed Reorganization..........................................
Reasons for Reorganization.......................................
Federal Income Tax Consequences..................................
Overview of the Prairie Portfolios and
Woodward Funds.................................................
Voting Information...............................................
Risk Factors.....................................................
Information Relating to the Proposed Reorganization.........................
Description of the Reorganization Agreement......................
Capitalization...................................................
Federal Income Tax Consequences..................................
Comparison of Investment Policies and Risk Factors..........................
Prairie Money Market Fund and Woodward Money
Market Fund....................................................
Prairie U.S. Government Money Market Fund and
Woodward Treasury Money Market Fund............................
Prairie Municipal Money Market Fund and
Woodward Tax-Exempt Money Market Fund..........................
Prairie Growth Fund and Woodward Capital Growth Fund.............
Prairie Bond Fund and Woodward Bond Fund.........................
Prairie Municipal Bond Fund and Woodward
Municipal Bond Fund............................................
Prairie Managed Assets Fund and Woodward
Balanced Fund .................................................
Prairie Equity Income Fund and Woodward
Equity Income Fund ............................................
Prairie International Equity Fund and Woodward
International Major Markets Fund...............................
Prairie International Bond Fund and Woodward
International Bond Fund........................................
Prairie Special Opportunities Fund and Woodward
Small-Cap Opportunity Fund.....................................
Prairie Intermediate Municipal Bond Fund and
Woodward Intermediate Municipal Bond Fund......................
Prairie Intermediate Bond Fund and Woodward Income Fund..........
Prairie Managed Assets Income Fund and Woodward Managed
Assets Conservative Fund.......................................
Investment Policies and Risks -- General.........................
Investment Limitations...........................................
Purchase and Redemption Information, Exchange
Privileges, Distribution and Pricing...........................
Other Information................................................
Information Relating to Voting Matters......................................
General Information..............................................
Shareholder and Board Approvals..................................
Appraisal Rights.................................................
Quorum...........................................................
Annual Meetings..................................................
Additional Information about Woodward.......................................
Additional Information about Prairie........................................
Litigation..................................................................
Financial Statements........................................................
Other Business..............................................................
Shareholder Inquiries.......................................................
Appendix I--Agreement and Plan of Reorganization.........................A-1
Appendix II - Manager's Discussion of Fund Performance -
Existing Woodward Funds.......................................B-1
Appendix III - Shareholders Transactions and Services....................C-1
<PAGE>
SUMMARY
The following is a summary of certain information relating to the
Reorganization, the parties thereto and the related transactions, and is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of Prairie and Woodward, and the Reorganization
Agreement attached to this Combined Proxy Statement/Prospectus as Appendix I.
Prairie's Annual Reports to Shareholders may be obtained free of charge by
calling 1-800-370-9446 or writing Three First National Plaza, Chicago,
Illinois 60670. Woodward's Annual Reports to Shareholders may be obtained free
of charge by calling 1-800-688-3350 or writing P.O.
Box 7058, Troy, Michigan 48007-7058.
Proposed Reorganization. Based upon their evaluation of the relevant
information presented to them, and in light of their fiduciary duties under
federal and state law, Prairie's and Woodward's Boards, including their
members who are not "interested persons" within the meaning of the 1940 Act,
have unanimously determined that the proposed Reorganization is in the best
interests of their Funds' respective Shareholders and that the interests of
such Shareholders will not be diluted as a result of such Reorganization.
The Cover Page and pages ___-___ hereof summarize the proposed
Reorganization.
PRAIRIE'S BOARDS OF TRUSTEES AND DIRECTORS RECOMMEND THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE REORGANIZATION AGREEMENT.
Reasons for the Reorganization. The primary reason for the Reorganization is
the recently completed merger between NBD Bancorp, Inc., the parent of NBD,
and First Chicago Corporation, the parent of FCIMCO. This Reorganization
presents the opportunity to combine the separate Prairie and Woodward mutual
fund families into a single, larger consolidated group. NBD and FCIMCO have
recommended that each of the Prairie Portfolios be reorganized as described in
this Combined Proxy Statement/Prospectus. In light of this recommendation,
after consideration of the reasons therefor and the proposed operations of the
combined funds after the Reorganization, and in consideration of the fact that
the Reorganization will be tax-free and will not dilute the interests of
Prairie Shareholders, the Boards of Trustees and Directors of Prairie have
authorized the Agreement and Plan of Reorganization and recommended approval
of the Reorganization by Shareholders.
Federal Income Tax Consequences. Drinker Biddle & Reath, independent outside
counsel to Woodward and to its Board of Trustees, will issue an opinion (based
on certain assumptions) as of the effective time of the Reorganization that
the transaction will not give rise to the recognition of income, gain or loss
for
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<PAGE>
federal income tax purposes to the Prairie Portfolios, the Woodward Funds or
their respective shareholders. See "Information Relating to the Proposed
Reorganization -- Federal Income Tax Consequences."
Overview of the Prairie Portfolios and Woodward Funds. The investment
objectives and policies of the Prairie Portfolios are similar to those of the
corresponding Woodward Funds. There are no material differences between the
investment objectives and policies of the corresponding Prairie Portfolios and
Woodward Funds except as noted below.
Prairie Money Market Fund and Woodward Money Market Fund.
The Prairie Money Market Fund's investment objective is to seek to
provide as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity. The Woodward Money
Market Fund's investment objective is to seek to provide a high level of
current income consistent with the preservation of capital and liquidity. Each
Fund pursues its investment objective by investing in a diversified portfolio
of high quality money market instruments.
Prairie U.S. Government Money Market Fund and Woodward
Treasury Money Market Fund.
The Prairie U.S. Government Money Market Fund's investment
objective is to seek to provide as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
The Woodward Treasury Money Market Fund's investment objective is to seek to
provide a high level of current income consistent with the preservation of
capital and liquidity. The Prairie U.S. Government Money Market Fund invests
only in short-term securities issued or guaranteed as to principal or interest
by the U.S. Government, its agencies or instrumentalities and may enter into
repurchase agreements. The Woodward Treasury Money Market Fund invests only in
short-term obligations of the U.S. Treasury and in repurchase agreements
relating to direct Treasury obligations.
Prairie Municipal Money Market Fund and Woodward Tax-Exempt
Money Market Fund.
The Prairie Municipal Money Market Fund's investment objective is
to seek to provide as high a level of current income exempt from federal
income tax as is consistent with the preservation of capital and the
maintenance of liquidity. The investment objective of the Woodward Tax-Exempt
Money Market Fund is to seek to provide a high level of current interest
income that is exempt from federal income taxes consistent with the
preservation of capital and liquidity. Both Funds intend, under normal market
conditions, to invest at least 80% of their assets in short-term, high quality
obligations issued by states, territories and possessions of the United
States, by the District
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<PAGE>
of Columbia, and by their respective political subdivisions, agencies,
instrumentalities and authorities, the interest on which is exempt from
regular federal income tax ("Municipal Securities").
In connection with the Reorganization, the Woodward Tax-Exempt
Money Market Fund is expected to change its name to the Woodward Municipal
Money Market Fund.
Prairie Growth Fund and Woodward Capital Growth Fund.
The Prairie Growth Fund's investment objective is to seek long-term
capital appreciation. The Woodward Capital Growth Fund's current investment
objective is to seek to maximize long-term capital appreciation with current
income not a significant consideration. Under normal market conditions, each
Fund expects to invest at least 65% of its total assets in equity securities.
The Woodward Capital Growth Fund is expected to change certain of
its investment policies before the Reorganizing Portfolios Transaction to more
closely resemble the investment policies of the Prairie Growth Fund.
Specifically, pending the approval of its shareholders, the Woodward Capital
Growth Fund is expected to amend its investment objective to delete any
reference to current income, such that its new investment objective would be
identical to that of the Prairie Growth Fund. In addition, it is intended that
the Woodward Capital Growth Fund will change its name to the Woodward Growth
Fund in connection with its Reorganization.
Prairie Bond Fund and Woodward Bond Fund.
The Prairie Bond Fund's investment objective is to seek to provide
as high a level of current income as is consistent with the preservation of
capital. The investment objective of the Woodward Bond Fund is to maximize
total rate of return by investing predominantly in intermediate and long-term
debt securities. In connection with its Reorganization, the Woodward Bond
Fund's investment objective will change slightly so that it will seek to
maximize total rate of return by investing predominantly in intermediate and
long-term debt securities. Under normal market conditions, each Fund expects
to invest at least 65% of its total assets in debt obligations.
Prairie Municipal Bond Fund and Woodward Municipal Bond
Fund.
The Prairie Municipal Bond Fund's investment objective is to seek
to provide as high a level of current income exempt from federal income tax as
is consistent with the preservation of capital. The Woodward Municipal Bond
Fund's investment objective is to seek as high a level of current income
exempt from federal income tax as is consistent with relative stability of
principal.
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<PAGE>
Under normal conditions, each Fund invests at least 80% of its assets in
investment grade Municipal Securities.
In connection with the Reorganization and subject to the approval
of its shareholders, the Woodward Municipal Bond Fund is expected to change
certain of its investment policies to more closely resemble those of the
Prairie Municipal Bond Fund.
Prairie Managed Assets Fund and Woodward Balanced Fund.
The Prairie Managed Assets Fund's investment objective is to seek
to maximize total return, consisting of capital appreciation and current
income, without assuming undue risk. The Woodward Balanced Fund's investment
objective is to achieve long-term total return through a combination of
capital appreciation and current income. Both Funds pursue their objectives by
following an asset allocation strategy of investing in equity securities,
fixed income securities and cash equivalent or short-term securities.
The Woodward Balanced Fund is expected to change its name before
the Reorganizing Portfolios Transaction to the Woodward Managed Assets
Balanced Fund.
Prairie Equity Income Fund and Woodward Equity Income Fund.
The investment objectives of the Prairie Equity Income and Woodward
Equity Income Funds are identical. The Funds attempt to achieve their
objectives by investing primarily in income-producing equity securities of
domestic issuers.
Prairie International Equity Fund and Woodward International
Major Markets Fund.
Each Fund's investment objective is to seek to achieve long-term
capital appreciation. The Funds invest primarily in equity securities of
foreign issuers.
Prairie International Bond Fund and Woodward International
Bond Fund.
The investment objectives of these Funds are identical. Each Fund
seeks to provide both long-term capital appreciation and current income. They
invest primarily in investment grade debt securities of foreign issuers.
Prairie Special Opportunities Fund and Woodward Small-Cap
Opportunity Fund.
Both the Prairie Special Opportunities Fund's and Woodward
Small-Cap Opportunity Fund's investment objective is to seek long-term capital
appreciation. The Prairie Special Opportunities Fund pursues its investment
objective investing primarily in equity securities of small to medium-sized
emerging
-4-
<PAGE>
growth domestic issuers. The Woodward Small-Cap Opportunity Fund pursues its
investment objective by investing primarily in equity securities of companies
with small capitalizations.
Prairie Intermediate Municipal Bond Fund and Woodward
Intermediate Municipal Bond Fund.
The Prairie Intermediate Municipal Bond Fund's investment objective
is to seek to provide as high a level of current income exempt from federal
income tax as is consistent with the preservation of capital. The Woodward
Intermediate Municipal Bond Fund's investment objective is to seek to provide
as high a level of current income exempt from federal income tax as is
consistent with relative stability of principal. Both Funds seek to achieve
their objectives by investing in investment grade Municipal Securities with
dollar-weighted average maturities between three and ten years under normal
market conditions.
Prairie Intermediate Bond Fund and Woodward Income Fund.
The Prairie Intermediate Bond Fund's investment objective is to
seek to provide as high a level of current income as is consistent with the
preservation of capital. The investment objective of the Woodward Income Fund
is to seek to provide as high a level of current income as is consistent with
relative stability of principal. Both Funds invest primarily in U.S. dollar
denominated investment grade fixed income securities which, under normal
conditions, have dollar-weighted average maturities between three and ten
years.
Prairie Managed Assets Income Fund and Woodward Managed
Assets Conservative Fund.
The Prairie Managed Assets Income Fund's investment objective is to
seek to maximize current income; capital appreciation is a secondary, but
nonetheless important, goal. The Woodward Managed Assets Conservative Fund's
investment objective is to seek to provide long-term total return; capital
appreciation is a secondary consideration. Both Funds pursue their objectives
by following an asset allocation strategy of investing in equity securities,
fixed income securities and short-term instruments of domestic and foreign
issuers.
See "Comparison of Investment Policies and Risk Factors" below and
the Prairie and Woodward Prospectuses, which are incorporated by reference
herein, for a more detailed description of the similarities and differences
between the investment objectives and policies of the Prairie Portfolios and
the corresponding Woodward Funds.
Certain Arrangements with Service Providers - The Prairie Portfolios. FCIMCO
serves as investment adviser for the Prairie Portfolios and is entitled to
receive advisory fees from them, computed daily and paid monthly, at the
following annual rates,
-5-
<PAGE>
expressed as a percentage of a Portfolio's average daily net
assets:
<TABLE>
<CAPTION>
Actual Advisory Fee
Received for Fiscal
Year or Period
Ended December 31,
Prairie Portfolios Advisory Fee 1995 (after waivers)
- ------------------ ------------ --------------------
<S> <C> <C>
Money Market Fund 0.40% 0.13%
U.S. Government Money Market Fund 0.40% 0.14%
Municipal Money Market Fund 0.40% 0.17%
Growth Fund 0.65% 0.53%
International Equity Fund 0.80% 0.47%
International Bond Fund 0.70% 0.09%
Equity Income Fund 0.50% 0.37%
Special Opportunities Fund 0.70% 0.46%
Bond Fund 0.55% 0.40%
Intermediate Municipal Bond Fund 0.40% 0.30%
Municipal Bond Fund 0.40% 0.27%
Intermediate Bond Fund 0.40% 0.27%
Managed Assets Fund 0.65% 0.05%
Managed Assets Income Fund 0.65% 0.30%
</TABLE>
- -----------------------------------------------------------------
Pursuant to the Prairie investment advisory contracts, FCIMCO
provides the day-to-day management of each Prairie Portfolio's investments,
subject to the overall authority of the Boards and in conformity with
applicable state law and the stated policies of the Portfolio. FCIMCO is
responsible for making investment decisions for each Prairie Portfolio,
placing purchase and sale orders and providing research, statistical analysis
and continuous supervision of each Portfolio's investments.
FCIMCO has engaged ANB-Investment Management and Trust Company
("ANB-IMC"), a wholly-owned subsidiary of American National Bank and Trust
Company, which in turn is a wholly-owned subsidiary of First Chicago NBD
Corporation, to serve as sub-investment adviser to the Prairie International
Equity Fund under a sub-advisory agreement between FCIMCO and ANB-IMC. Subject
to the supervision and approval of FCIMCO, the sub-adviser provides investment
advisory assistance and the day-to-day management of the Prairie International
Equity Fund's investments, as well as investment research and statistical
information. ANB-IMC provides the services under this agreement in accordance
with the Prairie International Equity Fund's investment objective,
-6-
<PAGE>
policies, and limitations. For the services provided as the Prairie
International Equity Fund's sub-adviser, ANB-IMC is entitled to receive a fee
from FCIMCO, computed daily and paid monthly, at the annual rate of 0.40% of
the Fund's average daily net assets.
FCIMCO also serves as each Prairie Portfolio's administrator
pursuant to a separate administration agreement. For its services as
administrator, FCIMCO is entitled to receive a fee, calculated daily and paid
monthly, at the annual rate of 0.15% of the average daily net assets of each
Prairie Portfolio. For the fiscal year or period ended December 31, 1995,
FCIMCO received administration fees (after fee waivers) at the effective
annual rates of 0.15%, 0.13%, 0.15%, 0.15%, 0.15%, 0.12%, 0.15%, 0.15%, 0.15%,
0.15%, 0.15%, 0.14%, 0.09% and 0.15% of the average daily net assets of the
Money Market, U.S. Government Money Market, Municipal Money Market, Growth,
International Equity, International Bond, Equity Income, Special
Opportunities, Bond, Intermediate Municipal Bond, Municipal Bond, Intermediate
Bond, Managed Assets and Managed Assets Income Funds, respectively. FCIMCO has
engaged Concord Holding Corporation ("Concord"), a wholly-owned subsidiary of
The BISYS Group, Inc., to assist it in providing certain administrative
services for the Prairie Portfolios. FCIMCO, and not the Prairie Portfolios,
bears the fees for Concord's services as sub-administrator.
Primary Funds Service Corp. ("PFSC") serves as Prairie's
transfer agent.
The Bank of New York currently provides custodial services to each
Prairie Portfolio. It is anticipated that on or about ___________, 1996, NBD
will begin providing custodial services to each Prairie Portfolio.
Concord Financial Group, Inc. ("CFG") is the principal
underwriter and distributor for Prairie. CFG is a wholly-owned
subsidiary of Concord.
Prairie has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Prairie 12b-1 Plan"). Under the Prairie 12b-1 Plan,
the Class B Shares of each of the Prairie Portfolios (except the U.S.
Government Money Market and Municipal Money Market Funds) have agreed to pay
CFG for advertising, marketing and distributing shares of each Portfolio at an
aggregate annual rate of 0.75% of the average daily net asset value of such
Portfolio's outstanding Class B Shares. CFG may pay institutions, including
FCIMCO, ANB-IMC and their affiliates (including First NBD Investment Services,
Inc.), certain banks, securities dealers and other industry professionals such
as investment advisers, accountants and estate planning firms (collectively,
"Service Agents") for distribution services to Class B shareholders. CFG
determines the amounts, if any, to be paid to Service Agents under the Prairie
12b-1 Plan and the basis on which such payments are made. The fees payable
under the
-7-
<PAGE>
Prairie 12b-1 Plan are payable without regard to actual expenses incurred.
For the fiscal year or period ended December 31, 1995, Prairie
paid, in the aggregate, fees to CFG pursuant to the Prairie 12b-1 Plan of
$13,831, which represents 0.60% of the average net assets of Prairie's Class B
Shares during that period.
Prairie has adopted a Shareholder Services Plan for each of its
Class A and Class B Shares (each a "Shareholder Services Plan"). Under each
Shareholder Services Plan, each Prairie Portfolio pays CFG for the provision
of certain administrative support services to the shareholders of these shares
a fee at the annual rate of 0.25% of the value of the average daily net assets
of such Class A or Class B Shares. The services provided may include personal
services related to shareholder accounts, such as answering shareholder
inquiries regarding the applicable Portfolio and providing reports and other
information, and services related to the maintenance of shareholder accounts.
Under each Shareholder Services Plan, CFG may make payments to Service Agents
in respect of those services. FCIMCO, ANB-IMC, NBD, First National Bank of
Chicago and their affiliates may act as Service Agents and receive fees under
the Shareholder Services Plans.
For the fiscal year or period ended December 31, 1995, Prairie
paid, in the aggregate, fees to CFG pursuant to each Shareholder Services Plan
of $1,380,591 and $10,195, of the Class A and Class B Shares, respectively.
Such payments represented 0.10% and 0.01% of the average net assets of the
Class A and Class B Shares, respectively.
Certain Arrangements with Service Providers - Woodward Funds. NBD currently
serves as investment adviser to the Existing Woodward Funds and is entitled to
receive advisory fees computed daily and paid monthly, at the following annual
rates, expressed as a percentage of each Fund's average daily net assets:
-8-
<PAGE>
<TABLE>
<CAPTION>
Actual Advisory
Fee Received For
Existing Year Ended
Woodward Funds Advisory Fee December 31, 1995
- -------------- ------------ (after waivers)
-----------------
<S> <C> <C>
Money Market Fund 0.45% of the Fund's 0.44%
first billion in net
assets, plus 0.425% of
the Fund's next billion
in assets, plus 0.40%
of the Fund's net
assets in excess of
$2 billion.
Treasury Money Market Fund 0.45% of the Fund's 0.45%
first billion in net
assets, plus 0.425% of
the Fund's next billion
in assets, plus 0.40%
of the Fund's net
assets in excess of
$2 billion.
Tax-Exempt Money Market 0.45% of the Fund's 0.45%
Fund* first billion in net
assets, plus 0.425% of
the Fund's next billion
in assets, plus 0.40%
of the Fund's net
assets in excess of
$2 billion.
Capital Growth Fund** 0.75% 0.71%
Bond Fund 0.65% 0.65%
Municipal Bond Fund 0.65% 0.51%
Balanced Fund*** 0.75% 0.57%
<FN>
=============================================================================
* Fund will be renamed "Municipal Money Market Fund" in connection with
the Reorganization.
** Fund will be renamed "Growth Fund" in connection with the
Reorganization.
*** Fund will be renamed "Managed Assets Balanced Fund" in connection with
the Reorganization.
</TABLE>
As investment adviser, NBD currently manages the investments of
each Woodward Fund, makes decisions with respect to and places orders for all
purchases and sales of a Fund's securities, and maintains certain records
relating to such purchases and sales.
In connection with the Reorganization, Woodward expects to present
a proposal to its shareholders to approve a new advisory agreement. Pursuant
to the new agreement, FCIMCO and NBD have jointly agreed to provide day-to-day
management of each Woodward Fund's investments as co-adviser, subject to the
overall authority of Woodward's Board and in conformity with
-9-
<PAGE>
Massachusetts law and the stated policies of each Fund. FCIMCO and NBD have
advised Woodward's Board that investment management for the Woodward Funds
will be provided by NBD's investment management staff. Under the new advisory
agreement, FCIMCO and NBD will be jointly entitled to receive a fee from the
Woodward Funds, computed daily and payable monthly, at the following annual
rates, expressed as a percentage of each Fund's average daily net assets:
==============================================================================
Woodward Funds Advisory Fee
- ------------------------------------------------------------------------------
Money Market Fund 0.30% of the first $1.0 billion, 0.275%
of the next $1 billion and 0.25% of the
Fund's average daily net assets in excess
of $2 billion.
- ------------------------------------------------------------------------------
Treasury Money Market Fund 0.30% of the first $1.0 billion, 0.275%
of the next $1 billion and 0.25% of the
Fund's average daily net assets in excess
of $2 billion.
- ------------------------------------------------------------------------------
Municipal Money Market Fund 0.30% of the first $1.0 billion, 0.275%
of the next $1 billion and 0.25% of the
Fund's average daily net assets in excess
of $2 billion.
- ------------------------------------------------------------------------------
Growth Fund 0.60%
- ------------------------------------------------------------------------------
Bond Fund 0.40%
- ------------------------------------------------------------------------------
Municipal Bond Fund 0.40%
- ------------------------------------------------------------------------------
Managed Assets Balanced Fund 0.65%
- ------------------------------------------------------------------------------
Equity Income Fund* 0.50%
- ------------------------------------------------------------------------------
International Major Markets Fund* 0.80%
- ------------------------------------------------------------------------------
International Bond Fund* 0.70%
- ------------------------------------------------------------------------------
Small-Cap Opportunity Fund* 0.70%
- ------------------------------------------------------------------------------
Intermediate Municipal Bond Fund* 0.40%
- ------------------------------------------------------------------------------
Income Fund* 0.40%
- ------------------------------------------------------------------------------
Managed Assets Conservative Fund* 0.65%
==============================================================================
* These are new portfolios which have not commenced investment
operations as of the date hereof.
Under the current advisory agreement, NBD also provides each
Woodward Fund with various administrative services without additional
compensation. In connection with the Reorganization, it is expected that
Woodward will enter into a new administration agreement with NBD, FCIMCO and
BISYS Fund Services ("BISYS"), under which these parties will jointly agree to
provide administrative services to Woodward as co-administrators, subject to
the overall authority of Woodward's Board in accordance with Massachusetts
law. BISYS is a wholly-owned subsidiary of The
-10-
<PAGE>
BISYS Group, Inc. and is affiliated with Concord, the current
sub-administrator of Prairie. This new administration arrangement is expected
to be effective at the time of the Reorganization. For their services as
co-administrators, NBD, FCIMCO and BISYS will be jointly entitled to receive a
fee, computed daily and paid monthly, at the annual rate of 0.15% of the
average daily net assets of each Woodward Fund.
See "Management--Investment Adviser, Custodian and Transfer Agent"
in Woodward's Prospectuses accompanying this Combined Proxy
Statement/Prospectus, which are incorporated herein by reference, for
additional information on NBD. For additional information on FCIMCO, see
"Management of the Funds - Investment Adviser and Administrator" in Prairie's
Prospectus, which is incorporated herein by reference.
NBD also receives compensation as Woodward's Custodian and Transfer
Agent under separate agreements. As Custodian and as Transfer Agent for
Woodward, NBD (i) maintains separate accounts in the name of each Fund, (ii)
collects and makes disbursements of money on behalf of each Fund, (iii) issues
and redeems shares of each Fund, (iv) collects and receives all income and
other payments and distributions on account of the portfolio securities of
each Fund, (v) addresses and mails all communications by Woodward to its
shareholders, including reports to shareholders, dividend and distribution
notices and proxy materials for any meeting of shareholders, (vi) maintains
shareholder accounts, (vii) makes periodic reports to the Board of Trustees
concerning Woodward's operations, and (viii) maintains on-line computer
capability for determining the status of shareholder accounts.
For its services as Custodian, NBD is also entitled to receive a
fee from each Woodward Fund, other than the Money Market, Treasury Money
Market and Tax-Exempt Money Market Funds, at the following annual rate based
on the aggregate market value of such Fund's portfolio securities NBD holds as
Custodian: .03% of the first $20 million; .025% of the next $20 million; .02%
of the next $20 million; .015% of the next $40 million; .0125% of the next
$200 million; and .01% of the balance over $300,000,000. NBD is also entitled
to receive an annual account fee of $1,000 and $1.54 per month per asset held
in each of these Funds. In addition, NBD, as Custodian, is entitled to receive
$50 for each cash statement and inventory statement and $13 for each
pass-through certificate payment, $30 ($35 for the Equity Index Fund and Bond
Funds) for each option transaction requiring escrow receipts and $20 for all
other security transactions.
For its services as Custodian to the Money Market, Treasury Money
Market and Tax-Exempt Money Market Funds, NBD is entitled to receive from such
Funds $11.00 for each clearing and settlement transaction and $23.00 for each
accounting and safekeeping service with respect to investments, in addition to
activity changes for master control and master settlement accounts.
-11-
<PAGE>
For its services as Transfer Agent, NBD is also entitled to receive
a minimum annual fee from each Woodward Fund of $11,000, $12 annually per
account from the Capital Growth and Balanced Funds for the preparation of
statements of account, $15 annually per account from the Money Market,
Treasury Money Market, Tax-Exempt Money Market, Bond and Municipal Bond Funds
for the preparation of statements of account, and $1.00 for each confirmation
of purchase and redemption transactions. Charges for providing computer
equipment and maintaining a computerized investment system are expected to
approximate $350 per month for each Fund.
In connection with the Reorganization, it is expected that
First Data Investor Services Group, Inc. ("First Data") will
replace NBD as Woodward's Transfer Agent.
Woodward's shares are currently offered on a continuous basis
through First of Michigan Corporation ("FoM") and Essex National Securities,
Inc. ("Essex" and collectively with FoM as the "Co-Distributors").
Woodward has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Woodward 12b-1 Plan"). Under the Woodward 12b-1 Plan,
shares of each Woodward Fund bear expenses of distribution fees payable in an
amount not to exceed 0.35% of the value of the Trust's average daily net
assets to finance activities primarily intended to result in the sale of
Woodward shares. Additionally, Woodward has adopted a Shareholder Servicing
Plan under which Woodward may enter into servicing agreements with banks and
financial institutions, including NBD, FCIMCO, FNBC and their affiliates
("Shareholder Servicing Agents") requiring such institutions to provide
shareholder administrative support services for their customers who
beneficially own Woodward Fund Class A Shares. For these services, Woodward
may pay fees at an annual rate of up to 0.25% of the average daily net asset
value of the Class A Shares held by Shareholder Servicing Agents for the
benefit of their customers. At Woodward's option, it may also reimburse such
agents for their out-of-pocket expenses. See "Management- Sponsors and
Co-Distributors," "Service and Distribution Plan" and "Shareholder Servicing
Plan" in the Woodward Prospectuses accompanying this Combined Proxy
Statement/Prospectus, which are incorporated herein by reference, for
additional information on the Co-Distributors, the Woodward 12b-1 Plan and the
Shareholder Servicing Plan.
For the fiscal year ended December 31, 1995, Woodward paid, in the
aggregate, fees pursuant to the Woodward 12b-1 Plan of $1,289,788, which
represented 2% of the Woodward Funds' average net assets during that period.
For the fiscal year ended December 31, 1995, Woodward paid, in the
aggregate, fees pursuant to the Shareholder Servicing Plan
-12-
<PAGE>
of $376,700, which represented 1% of the Woodward Funds' average net assets
during that period.
In connection with the Reorganization, it is expected that the
Distribution Agreement with FoM and Essex will be terminated and the Woodward
12b-1 Plan and Shareholder Servicing Plan will be cancelled. At the time of
the Reorganization, BISYS will enter into a distribution agreement to act as
sponsor and principal underwriter for Woodward. Additionally, Woodward is
expected to adopt a share class structure substantially similar to Prairie's,
a Distribution Plan pursuant to Rule 12b-1 for its Class B Shares (the "New
12b-1 Plan"), and a Shareholder Administrative Services Plan for its Class A
and Class B Shares (the "New Shareholder Services Plan"). Class I Shares will
bear no 12b-1 or shareholder servicing fees.
The New 12b-1 Plan and Shareholder Services Plan will be
substantially similar to those currently in place for Prairie. Under the New
12b-1 Plan, the Class B Shares of each of the Woodward Funds (other than the
Woodward Treasury Money Market and Tax-Exempt Money Market Funds which will
not issue Class B Shares) will bear the expense of distribution fees payable
to BISYS at an annual rate of up to 0.75% of the average daily net asset value
of such Fund's outstanding Class B Shares to finance activities which are
primarily intended to result in the sale of Class B Shares. BISYS may enter
into agreements with Service Agents which provide distribution services to
Class B shareholders. Services provided by such Service Agents will include
advertising, marketing and distributing Class B Shares. Additionally, BISYS
may use payments under the New 12b-1 Plan to defray the costs of commissions
paid to Service Agents for the sale of Class B Shares.
The New 12b-1 Plan is a "compensation" plan as opposed to a
"reimbursement" type plan. Accordingly, payments by Class B Shares under the
New 12b-1 Plan will be based on the stated fee rather than on the specific
amounts expended by BISYS for distribution purposes. BISYS may be able to
recover such amounts or may earn a profit from payments made by Class B Shares
of Woodward under the New 12b-1 Plan.
Under the New Shareholder Services Plan, each Woodward Fund will
pay BISYS for the provision of certain services to the shareholders of Class A
and Class B Shares a fee at the annual rate of up to 0.25% of the value of the
average daily net assets of such shares. The services provided may include
personal services related to shareholder accounts, such as answering
shareholder inquiries regarding the applicable Woodward Fund, providing
beneficial shareholders reports and other information, and providing services
related to the maintenance of shareholder accounts. Under the New Shareholder
Services Plan, BISYS may make payments to Service Agents in respect of those
services. NBD, FCIMCO, FNBC, ANB-IMC and their affiliates may act as
-13-
<PAGE>
Service Agents and receive fees under the New Shareholder Services Plan.
Comparative Fee and Expense Tables. The tables below show (i) information
regarding the fees and expenses paid by each class of shares of each Prairie
Portfolio and by each class of shares of each Woodward Fund as of their most
recent fiscal years or periods, restated as of April 11, 1996 and April 15,
1996 to reflect expenses the Prairie Portfolio and the Woodward Fund,
respectively, expect to incur during the current fiscal year, and (ii)
estimated fees and expenses on a pro forma basis giving effect to the proposed
Reorganization.
-14-
<PAGE>
<TABLE>
<CAPTION>
Comparative Fee Table For Each Portfolio
Prairie Woodward
Money Market Money Market Pro Forma
Fund Fund Combined
------------ ------------ ---------
Class A Class B Class A Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of
average net assets)
Advisory Fees .40% .40% .44% .44% .29%(1) .29%(1) .29%(1)
12b-1 Fees N/A .75% .025% .025% N/A .75% N/A
Other Expenses
(after fee waivers
and/or expense
reimbursements) .40%(2)(4) .40%(2)(4) .285%(3)(7) .055% .46%(2)(4) .46%(2)(4) .21%(5)
Total Operating Expenses
(after fee waivers
and/or expense
reimbursements) .80%(6) 1.55%(6) .75%(7) .52% .75%(8) 1.50%(8) .50%(8)
<FN>
- --------------------------
(1) Absent voluntary waivers, the Advisory Fees for the Pro Forma Combined
Fund would be 0.30% for each of the Class A, Class B and Class I Shares,
respectively.
(2) Includes administration fees of 0.15% and shareholder servicing fees of
0.25%.
(3) Includes shareholder servicing fees of 0.25%.
(4) Other Expenses, before fee waivers and/or expense reimbursements, would
have been 0.67% and 0.87%, respectively, for the Class A and Class B
Shares of the Prairie Money Market Fund.
(5) Includes administration fees of 0.15%.
(6) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the total operating expenses for the Class A
Shares and Class B Shares of the Prairie Money Market Fund would have
been 1.07% and 2.02% , respectively.
(7) Absent voluntary waivers and reimbursements, which can be
terminated at any time, the other expenses and total expenses for
the Class A Shares of the Woodward Money Market Fund would have
been .293% and .758%, respectively.
(8) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the total operating expenses for the Class
A, Class B and Class I Shares of the Pro Forma Combined Fund would
be 0.76%, 1.51% and 0.51%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Money Market Fund
Class A Shares $ 8 $26 $44 $ 99
Class B Shares $16 $49 $84 $155
Woodward Money Market Fund
Class A Shares $ 8 $24 $42 $ 93
Class I Shares $ 5 $17 $29 $ 65
Pro Forma Combined
Class A Shares $ 8 $24 $42 $ 93
Class B Shares $15 $48 $82 $160
Class I Shares $ 5 $16 $28 $ 63
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Prairie U.S. Woodward Woodward Treasury
Government Government Money Market Pro Forma
Money Market Fund+ Fund Combined
------------ ---------- ----------------- ---------
Class A Class A Class I Class A Class I Class A Class I
Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees .40% .45% .45% .45% .45% .30% .30%
12b-1 Fees N/A .007% .007% .024% .024% N/A N/A
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(1)(4) .293%(2)(5) .083% .276%(2)(5) .076% .43%(1) .18%(3)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .80%(4) .75%(5) .54% .75%(5) .55% .73% .48%
<FN>
- ---------
+ The Woodward Government Fund is expected to merge into the Woodward
Treasury Money Market Fund in connection with the Reorganization.
The merger of the Woodward Government Fund into the Woodward
Treasury Money Market Fund and the Reorganization of the Prairie
U.S. Government Money Market Fund and Woodward Treasury Money
Market Fund will occur only if the shareholders of the appropriate
funds approve each transaction.
(1) Includes administration fees of 0.15% and shareholder servicing fees of
0.25%.
(2) Includes shareholder servicing fees of 0.25%.
(3) Includes administration fees of 0.15%.
(4) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the other expenses and total operating expenses
for the Class A Shares of the Prairie U.S. Government Money Market Fund
would have been 0.67% and 1.07%, respectively.
(5) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the other expenses and total operating expenses
for the Class A Shares of the Woodward Government Fund would have been
.30% and .757%, respectively, and for the Woodward Treasury Money Market
Fund, such expenses would have been .312% and .786%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie U.S. Government Money Market Fund
Class A Shares $8 $26 $44 $99
Woodward Government Fund
Class A Shares $8 $24 $42 $93
Class I Shares $6 $17 $30 $68
Woodward Treasury Money Market Fund
Class A Shares $8 $24 $42 $93
Class I Shares $6 $18 $31 $69
Pro Forma Combined
Class A Shares $7 $23 $41 $91
Class I Shares $5 $15 $27 $61
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Municipal Tax-Exempt
Money Market Money Market Pro Forma
Fund Fund* Combined
------------ ------------ ---------
Class A Class A Class I Class A Class I
Shares Shares Shares Shares Shares
------- ------- ------- ------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
<S> <C> <C> <C> <C> <C>
Advisory Fees .40% .45% .45% .30% .30%
12b-1 Fees N/A .017% .017% N/A N/A
Other Expenses
(after fee waivers and/or
expense reimbursements) .30%(1)(4) .283%(2)(5) .053% .44%(1) .19%(3)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .70%(4) .75%(5) .52% .74% .49%
<FN>
- --------------------------
* It is expected that the Woodward Tax-Exempt Money Market Fund will
change its name in connection with the Reorganization to the Woodward
Municipal Money Market Fund.
(1) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(2) Includes shareholder servicing fees of 0.25%.
(3) Includes administration fees of 0.15%.
(4) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the other expenses and total operating
expenses for the Class A Shares of the Prairie Municipal Money
Market Fund would have been 0.54% and 0.94%, respectively.
(5) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, the other expenses and total operating
expenses for the Class A Shares of the Woodward Tax-Exempt Money
Market Fund would have been .307% and .774%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Municipal Money Market Fund
Class A Shares $7 $22 $39 $87
Woodward Tax-Exempt Money Market Fund
Class A Shares $8 $24 $42 $93
Class I Shares $5 $17 $29 $65
Pro Forma Combined
Class A Shares $8 $24 $41 $92
Class I Shares $5 $16 $27 $62
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Equity Income Equity Income Pro Forma
Fund Fund* Combined
------------- ------------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None N/A N/A N/A 5.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None N/A N/A N/A None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .50% .50% .50% N/A N/A N/A .50% .50% .50%
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses(1)
(after fee waivers and/or
expense reimbursements) .40%(2)(3) .40%(2)(3) .15%(1)(3) N/A N/A N/A .54%(2) .54%(2) .20%(1)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .90%(4) 1.65%(4) .65%(4) N/A N/A N/A 1.04% 1.79% .70%
<FN>
- --------------------------
* The Woodward Equity Income Fund has not yet commenced investment
operations. The Woodward Equity Income Fund will continue the
operations of the Prairie Equity Income Fund upon consummation of
the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15%.
(2) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(3) Other Expenses, before fee waivers and/or expense reimbursements,
would have been 0.94%, 1.40%, and 0.27%, respectively, for the
Class A, Class B and Class I Shares of the Prairie Equity Income
Fund.
(4) Absent voluntary waivers and expense reimbursements, which can be
terminated at any time, total operating expenses for the Class A,
Class B and Class I Shares of the Prairie Equity Income Fund would
have been 1.44%, 2.65%, and 0.77%, respectively.
</TABLE>
-18-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Equity Income Fund
Class A Shares $54 $72 $ 93 $151
Class B Shares $67 $82 $110 $166
Class I Shares $ 7 $21 $ 36 $ 81
Woodward Equity Income Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $60 $82 $105 $171
Class B Shares $68 $87 $118 $192
Class I Shares $ 7 $22 $ 39 $ 87
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Growth Capital Growth Pro Forma
Fund Fund* Combined*
------ -------------- ---------
Class A Class B Class I Class A Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None 5.00% None 5.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None None None None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None None None
Exchange Fee None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .65% .65% .65% .75% .75% .60% .60% .60%
12b-1 Fees None .75% None .005% .005% None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(1)(3) .40%(1)(3) .15%(3)(4) .375%(2)(5) .125%(5) .65%(1) .65%(1) .18%(4)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.05%(6) 1.80%(6) .80%(6) 1.13%(7) .88%(7) 1.25% 2.00% .78%
<FN>
- --------------------------
* It is expected that the Woodward Capital Growth Fund will change
its name and investment policies upon consummation of the
Reorganization and that it will continue the operations of the
Prairie Growth Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an
initial sales charge.
(1) Includes administration fees of 0.15% and shareholder servicing
fees of 0.25%.
(2) Includes shareholder servicing fees of 0.25%.
(3) Other Expenses, before fee waivers and/or expense reimbursements,
would have been 0.74%, 1.20% and 0.27%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Growth Fund.
(4) Includes administration fees of 0.15%.
(5) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.395% and 0.145%, respectively, for the Class A
and Class I Shares of the Woodward Capital Growth Fund.
(6) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie Growth Fund would have been 1.39%, 2.60% and 0.92%,
respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A and Class I Shares of the
Woodward Capital Growth Fund would have been 1.15% and 0.90%,
respectively.
</TABLE>
-20-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Growth Fund
Class A Shares $55 $77 $100 $167
Class B Shares $68 $87 $117 $183
Class I Shares $ 8 $26 $ 44 $ 99
Woodward Capital Growth Fund
Class A Shares $61 $84 $109 $181
Class I Shares $ 9 $28 $ 49 $109
Pro Forma Combined
Class A Shares $62 $88 $115 $194
Class B Shares $71 $93 $129 $214
Class I Shares $ 8 $25 $ 43 $ 97
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Special Opportunities Small-Cap Opportunity Pro Forma
Fund Fund* Combined
--------------------- --------------------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None N/A N/A N/A 5.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None N/A N/A N/A None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .70% .70% .70% N/A N/A N/A .70% .70% .70%
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(2)(3) .40%(2)(3) .15%(1)(3) N/A N/A N/A .85%(2) .85%(2) .24%(1)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.10%(4) 1.85%(4) .85%(4) N/A N/A N/A 1.55% 2.30% .94%
<FN>
- --------------------------
* The Woodward Small-Cap Opportunity Fund has not yet commenced
investment operations. The Woodward Small- Cap Opportunity Fund
will continue the operations of the Prairie Special Opportunities
Fund upon consummation of the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15%.
(2) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 1.86%, 8.07% and 0.39%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Special Opportunities
Fund.
(4) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A , Class B and Class I Shares
of the Prairie Special Opportunities Fund would have been 2.56%,
9.52% and 1.09%, respectively.
</TABLE>
-22-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Special Opportunities Fund
Class A Shares $56 $78 $103 $173
Class B Shares $69 $88 $120 $188
Class I Shares $ 9 $27 $ 47 $105
Woodward Small-Cap Opportunity Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $65 $ 97 $131 $226
Class B Shares $74 $103 $144 $246
Class I Shares $10 $ 30 $ 52 $116
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward International
International Equity Major Markets Pro Forma
Fund Fund* Combined
-------------------- ---------------------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None N/A N/A N/A 5.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None N/A N/A N/A None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .80% .80% .80% N/A N/A N/A .80% .80% .80%
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .50%(2)(3) .50%(2)(3) .25%(1)(3) N/A N/A N/A .80%(2) .80%(2) .28%(1)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.30%(4) 2.05%(4) 1.05%(4) N/A N/A N/A 1.60% 2.35% 1.08%
<FN>
- --------------------------
* The Woodward International Major Markets Fund has not yet commenced
investment operations. The Woodward International Major Markets Fund will
continue the operations of the Prairie International Equity Fund upon
consummation of the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15%.
(2) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 1.16%, 2.28% and 0.58%, respectively, for the Class
A, Class B and Class I Shares of the Prairie International Equity
Fund.
(4) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A Shares, Class B Shares and
Class I Shares of the Prairie International Equity Fund would have
been 1.96%, 3.83% and 1.38%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie International Equity Fund
Class A Shares $58 $ 84 $113 $195
Class B Shares $71 $ 94 $130 $210
Class I Shares $11 $ 33 $ 58 $128
Woodward International Major Markets Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $66 $ 98 $133 $231
Class B Shares $74 $104 $147 $251
Class I Shares $11 $ 35 $ 60 $132
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
International Bond International Bond Pro Forma
Fund Fund* Combined
------------------ ------------------ ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None N/A N/A N/A 4.50% N/A N/A
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None N/A N/A N/A None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .70% .70% .70% N/A N/A N/A .28%(1) .28%(1) .28%(1)
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .50%(3)(4) .50%(3)(4) .25%(2)(4) N/A N/A N/A 1.20%(3) 1.20%(3) .55%(2)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.20%(5) 1.95%(5) .95%(5) N/A N/A N/A 1.48%(6) 2.23%(6) .83%(6)
<FN>
- --------------------------
* The Woodward International Bond Fund has not yet commenced investment
operations. The Woodward International Bond Fund will continue the
operations of the Prairie International Bond Fund upon consummation of
the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Absent voluntary waivers, the Advisory Fees for the Pro Forma
Combined Fund would be 0.70% for each of the Class A, Class B and
Class I Shares, respectively.
(2) Includes administration fees of 0.15%.
(3) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(4) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 2.95%, 7.24% and 1.23%, respectively, for the Class
A, Class B and Class I Shares of the Prairie International Bond
Fund.
(5) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie International Bond Fund would have been 3.65%, 8.69%,
and 1.93%, respectively.
(6) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A , Class B and Class I Shares
of the Pro Forma Combined Fund would be 1.90%, 2.65%, and 1.25%,
respectively.
</TABLE>
-25-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie International Bond Fund
Class A Shares $57 $ 81 $108 $184
Class B Shares $70 $ 91 $125 $199
Class I Shares $10 $ 30 $ 53 $117
Woodward International Bond Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $59 $ 90 $123 $215
Class B Shares $73 $100 $140 $239
Class I Shares $ 9 $ 27 $ 46 $103
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Intermediate Bond Income Pro Forma
Fund Fund* Combined
----------------- -------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 3.00% None None N/A N/A N/A 3.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 3.00% None N/A N/A N/A None+ 3.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .40% .40% .40% N/A N/A N/A .40% .40% .40%
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(2)(3) .40%(2)(3) .15%(1)(3) N/A N/A N/A .50%(2) .50%(2) .21%(1)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .80%(4) 1.55%(4) .55%(4) N/A N/A N/A .90% 1.65% .61%
<FN>
- --------------------------
* The Woodward Income Fund has not yet investment commenced
operations. The Woodward Income Fund will continue the operations
of the Prairie Intermediate Bond Fund upon consummation of the
Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15%.
(2) Includes administration fees of 0.15% and shareholder servicing
fees of 0.25%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.75%, 0.63% and 0.27%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Intermediate Bond
Fund.
(4) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B Shares and Class I
Shares of the Prairie Intermediate Bond Fund would have been 1.15%,
1.78%, and 0.67%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Intermediate Bond Fund
Class A Shares $38 $55 $ 73 $126
Class B Shares $46 $70 $ 94 $146
Class I Shares $ 6 $18 $ 31 $ 69
Woodward Income Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $39 $58 $ 79 $138
Class B Shares $47 $72 $100 $176
Class I Shares $ 6 $20 $ 34 $ 76
</TABLE>
-27-<PAGE>
<TABLE>
<CAPTION>
Prairie Bond Woodward Bond Pro Forma
Fund Fund Combined
------------ ------------- ---------
Class A Class B Class I Class A Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None 4.75% None 4.50% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None None None None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None None None
Exchange Fee None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .55% .55% .55% .65% .65% .40% .40% .40%
12b-1 Fees None .75% None .01% .01% None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(1)(2) .40%(1)(2) .15%(2)(3) .31%(4) .06% .65%(1) .65%(1) .18%(3)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .95%(5) 1.70%(5) .70%(5) .97% .72% 1.05% 1.80% .58%
<FN>
- --------------------------
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an
initial sales charge.
(1) Includes administration fees of 0.15% and shareholder servicing
fees of 0.25%.
(2) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 1.02%, 2.61% and 0.32%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Bond Fund.
(3) Includes administration fees of 0.15%.
(4) Includes shareholder servicing fees of 0.25%.
(5) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A , Class B and Class I Shares
of the Prairie Bond Fund would have been 1.57%, 3.91%, and 0.87%,
respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Bond Fund
Class A Shares $54 $74 $ 95 $156
Class B Shares $67 $84 $112 $186
Class I Shares $ 7 $22 $ 39 $ 87
Woodward Bond Fund
Class A Shares $57 $77 $ 99 $161
Class I Shares $ 7 $23 $ 40 $ 90
Pro Forma Combined
Class A Shares $55 $77 $101 $168
Class B Shares $68 $87 $118 $193
Class I Shares $ 6 $19 $ 33 $ 73
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Municipal Bond Municipal Bond Pro Forma
Fund Fund* Combined
-------------- -------------- ---------
Class A Class B Class I Class A Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None 4.75% None 4.50% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None None None None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None None None
Exchange Fee None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .40% .40% .40% .65% .65% .40% .40% .40%
12b-1 Fees None .75% None .017% .017% None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(1)(2) .40%(1)(2) .15%(2)(3) .303%(4)(5) .153%(4) .54%(1) .54%(1) .19%(3)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .80%(6) 1.55%(6) .55%(6) .97%(7) .82%(7) .94% 1.69% .59%
<FN>
- --------------------------
* It is expected that the Woodward Municipal Bond Fund will change
its investment policies upon consummation of the Reorganization and
that it will continue the operations of the Prairie Municipal Bond
Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(2) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.64%, 0.89% and 0.27%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Municipal Bond Fund.
(3) Includes administration fees of 0.15%.
(4) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.51% and 0.263%, respectively, for the Class A and
Class I Shares of the Woodward Municipal Bond Fund.
(5) Includes shareholder servicing fees of 0.25%.
(6) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie Municipal Bond Fund would have been 1.04%, 2.04%, and
0.67%, respectively.
(7) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A and Class I Shares of the
Woodward Municipal Bond Fund would have been 1.18% and 0.93%,
respectively.
</TABLE>
-29-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Municipal Bond Fund
Class A Shares $53 $69 $ 87 $140
Class B Shares $66 $79 $104 $155
Class I Shares $ 6 $18 $ 31 $ 69
Woodward Municipal Bond Fund
Class A Shares $57 $77 $ 99 $161
Class I Shares $ 8 $26 $ 46 $102
Pro Forma Combined
Class A Shares $54 $74 $ 95 $156
Class B Shares $67 $83 $112 $181
Class I Shares $ 6 $19 $ 33 $ 74
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Intermediate Intermediate
Municipal Bond Municipal Bond Pro Forma
Fund Fund* Combined
-------------- -------------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- --------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 3.00% None None N/A N/A N/A 3.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 3.00% None N/A N/A N/A None+ 3.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .40% .40% .40% N/A N/A N/A .40% .40% .40%
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(2)(3) .40%(2)(3) .15%(1)(3) N/A N/A N/A .52%(2) .52%(2) .20%(1)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) .80%(4) 1.55%(4) .55%(4) N/A N/A N/A .92% 1.67% .60%
<FN>
- --------------------------
* The Woodward Intermediate Municipal Bond Fund has not yet commenced
investment operations. The Woodward Intermediate Municipal Bond Fund will
continue the operations of the Prairie Intermediate Municipal Bond Fund
upon consummation of the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Includes administration fees of 0.15%.
(2) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.57%, 0.86% and 0.28%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Intermediate Municipal
Bond Fund.
(4) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie Intermediate Municipal Bond Fund would have been 0.97%,
2.01%, and 0.68%, respectively.
</TABLE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Intermediate Municipal Bond Fund
Class A Shares $38 $55 $ 73 $126
Class B Shares $46 $69 $ 94 $146
Class I Shares $ 6 $18 $ 31 $ 69
Woodward Intermediate Municipal Bond Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $39 $59 $ 80 $140
Class B Shares $47 $73 $101 $179
Class I Shares $ 6 $19 $ 34 $ 75
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Managed Managed
Assets Income Assets Conservative Pro Forma
Fund Fund* Combined
------------- ------------------- ---------
Class A Class B Class I Class A Class B Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- --------------- ------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None N/A N/A N/A 5.00% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None N/A N/A N/A None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None N/A N/A N/A None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None N/A N/A N/A None None None
Exchange Fee None None None N/A N/A N/A None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .65% .65% .65% N/A N/A N/A .55%(1) .55%(1) .55%(1)
12b-1 Fees None .75% None N/A N/A N/A None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(3)(4) .40%(3)(4) .15%(2)(3) N/A N/A N/A .70%(4) .70%(4) .30%(2)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.05%(5) 1.80%(5) .80%(5) N/A N/A N/A 1.25%(6) 2.00%(6) .85%(6)
<FN>
- --------------------------
* The Woodward Managed Assets Conservative Fund has not yet commenced
investment operations. The Woodward Managed Assets Conservative Fund will
continue the operations of the Prairie Managed Assets Income Fund upon
consummation of the Reorganization relating to that Fund.
+ A contingent deferred sales charge of up to 1.00% may be assessed on
certain redemptions of Class A Shares purchased without an initial
sales charge.
(1) Absent voluntary waivers, the Advisory Fees for the Pro Forma
Combined Fund would be 0.65% for each of the Class A, Class B and
Class I Shares, respectively.
(2) Includes administration fees of 0.15%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.89%, 0.72% and 0.57%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Managed Assets Income
Fund.
(4) Includes administration fees of 0.15% and shareholder servicing fees
of 0.25%.
(5) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie Managed Assets Income Fund would have been 1.54%,
2.12%, and 1.22%, respectively.
(6) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for the Class A, Class B and Class I
Shares of the Pro Forma Combined Fund would be 1.35%, 2.10% and
0.95%, respectively.
</TABLE>
-32-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Managed Assets Income Fund
Class A Shares $55 $77 $100 $167
Class B Shares $68 $87 $117 $183
Class I Shares $ 8 $26 $ 44 $ 99
Woodward Managed Assets Conservative Fund
Class A Shares N/A N/A N/A N/A
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A N/A
Pro Forma Combined
Class A Shares $62 $88 $115 $194
Class B Shares $71 $93 $129 $214
Class I Shares $ 9 $27 $ 47 $105
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Prairie Managed Woodward
Assets Balanced Pro Forma
Fund Fund Combined
-------------- -------- ---------
Class A Class B Class I Class A Class I Class A Class B Class I
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% None None 5.00% None 4.50% None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable) None+ 5.00% None None None None+ 5.00% None
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None None None None None None
Exchange Fee None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees .65% .65% .65% .75% .75% .54%(1) .54%(1) .54%(1)
12b-1 Fees None .75% None .013% .013% None .75% None
Other Expenses
(after fee waivers and/or
expense reimbursements) .40%(2)(3) .40%(2)(3) .15%(3)(4) .437%(5)(6) .187%(5) .71%(2) .71%(2) .30%(4)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements) 1.05%(7) 1.80%(7) .80%(7) 1.20%(8) .95%(8) 1.25%(9) 2.00%(9) .84%(9)
<FN>
- --------------------------
+ A contingent deferred sales charge of up to 1.00% may be assessed
on certain redemptions of Class A Shares purchased without an
initial sales charge.
(1) Absent voluntary waivers, the Advisory Fees for the Pro Forma
Combined Fund would be 0.65% for each of the Class A, Class B and
Class I Shares, respectively.
(2) Includes administration fees of 0.15% and shareholder servicing
fees of 0.25%.
(3) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 2.50%, 5.44% and 3.47%, respectively, for the Class
A, Class B and Class I Shares of the Prairie Managed Assets Fund.
(4) Includes administration fees of 0.15%.
(5) Other Expenses, absent fee waivers and/or expense reimbursements,
would have been 0.577% and 0.327%, respectively, for the Class A
and Class I Shares of the Woodward Balanced Fund.
(6) Includes shareholder servicing fees of 0.25%.
(7) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for Class A, Class B and Class I Shares of
the Prairie Managed Assets Fund would have been 3.15%, 6.84%, and
4.12%, respectively.
(8) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses of the Class A Class I Shares of the
Woodward Balanced Fund would have been 1.34% and 1.09%,
respectively.
(9) Absent voluntary waivers, which can be terminated at any time, the
total operating expenses for the Class A, Class B and Class I
Shares of the Pro Forma Combined Fund would be 1.36%, 2.11% and
0.95%, respectively.
</TABLE>
-34-
<PAGE>
Example: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prairie Managed Assets Fund
Class A Shares $55 $77 $100 $190
Class B Shares $68 $87 $117 $183
Class I Shares $ 8 $26 $ 44 $ 99
Woodward Balanced Fund
Class A Shares $62 $86 $113 $189
Class I Shares $10 $30 $ 53 $117
Pro Forma Combined
Class A Shares $57 $83 $111 $190
Class B Shares $71 $93 $129 $214
Class I Shares $ 9 $27 $ 47 $104
</TABLE>
-35-
<PAGE>
Expense Ratios -- Prairie Portfolios. The following table sets forth (i) the
ratios of operating expenses to average net assets of the Prairie Portfolios
for the fiscal year or period ended December 31, 1995 (a) after fee waivers
and expense reimbursements, and (b) absent fee waivers and expense
reimbursements:
<TABLE>
<CAPTION>
Fiscal Year or Period Ended December 31, 1995
---------------------------------------------
Ratio of Operating Ratio of Operating
Expenses to Average Expenses to Average
Net Assets After Net Assets Absent
Fee Waivers and Fee Waivers and
Expense Expense
Reimbursements Reimbursements
------------------- -------------------
Prairie Portfolios
- ------------------
<S> <C> <C>
Money Market Fund
Class A Shares 0.79% 1.07%
Class B Shares 1.51% 2.02%
U.S. Government Money Market Fund
Class A Shares 0.78% 1.07%
Municipal Money Market Fund
Class A Shares 0.70% 0.94%
Growth Fund
Class A Shares 1.21% 1.39%
Class B Shares 2.04% 2.60%
Class I Shares 0.80% 0.92%
International Equity Fund
Class A Shares 1.50% 1.96%
Class B Shares 2.28% 3.83%
Class I Shares 1.05% 1.38%
International Bond Fund
Class A Shares 1.33% 3.65%
Class B Shares 2.03% 8.69%
Class I Shares 0.95% 1.93%
Equity Income Fund
Class A Shares 1.11% 1.44%
Class B Shares 1.90% 2.65%
Class I Shares 0.65% 0.77%
Special Opportunities Fund
Class A Shares 1.25% 2.56%
Class B Shares 2.00% 9.52%
Class I Shares 0.85% 1.09%
Bond Fund
Class A Shares 1.02% 1.57%
Class B Shares 1.87% 3.91%
Class I Shares 0.70% 0.87%
-36-
<PAGE>
Intermediate Municipal Bond Fund
Class A Shares 0.83% 0.97%
Class B Shares 1.71% 2.01%
Class I Shares 0.55% 0.68%
Municipal Bond Fund
Class A Shares 0.89% 1.04%
Class B Shares 1.66% 2.04%
Class I Shares 0.54% 0.67%
Intermediate Bond Fund
Class A Shares 0.94% 1.15%
Class B Shares 1.60% 1.78%
Class I Shares 0.55% 0.67%
Managed Assets Fund
Class A Shares 1.26% 3.15%
Class B Shares 2.00% 6.84%
Class I Shares 0.80% 4.12%
Managed Assets Income Fund
Class A Shares 1.17% 1.54%
Class B Shares 1.92% 2.12%
Class I Shares 0.77% 1.22%
</TABLE>
Expense Ratios -- Woodward Funds. The following tables set forth (i) the
ratios of operating expenses to average net assets of the Woodward Funds for
the fiscal year ended December 31, 1995 (a) after fee waivers and expense
reimbursements, and (b) absent fee waivers and expense reimbursements:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1995
-----------------------------------
Ratio of Operating Ratio of Operating
Expenses to Average Expenses to Average
Net Assets After Net Assets Absent
Fee Waivers and Fee Waivers and
Expense Expense
Reimbursements Reimbursements
------------------- -------------------
Woodward Funds
- --------------
<S> <C> <C>
Money Market Fund N/A 0.51%
Government Fund N/A 0.51%
Treasury Money Market Fund N/A 0.53%
Tax-Exempt Money Market Fund N/A 0.53%
Capital Growth Fund 0.86% 0.90%
International Major Markets Fund --(1) --(1)
International Bond Fund --(1) --(1)
Equity Income Fund --(1) --(1)
Small-Cap Opportunity Fund --(1) --(1)
-37-
<PAGE>
Bond Fund N/A 0.74%
Intermediate Municipal Bond Fund --(1) --(1)
Municipal Bond Fund 0.79% 0.93%
Income Fund --(1) --(1)
Balanced Fund 0.91% 1.09%
Managed Assets Conservative Fund --(1) --(1)
<FN>
(1) The Woodward International Major Markets, International Bond, Equity
Income, Small-Cap Opportunity, Intermediate Municipal Bond, Income and
Managed Assets Conservative Funds will not commence investment
operations until the Reorganization is effective.
</TABLE>
-38-
<PAGE>
Expense Caps. Although under no contractual obligation, FCIMCO, NBD and
BISYS have informed Woodward and Prairie that they expect to waive fees and
reimburse expenses for the current fiscal year ending December 31, 1996 to the
extent the total operating expenses applicable to each class of shares of each
Fund exceed the amount set forth in the table below.
<TABLE>
<CAPTION>
Post-Reorganization Expense
Portfolio Limitation
- ------------------- ----------
<S> <C>
Money Market Fund
Class A 0.75%
Class B 1.50%
Class I 0.50%
Treasury Money Market Fund
Class A 0.75%
Class I 0.50%
Municipal Money Market Fund (formerly, Tax-Exempt
Money Market Fund)
Class A 0.75%
Class I 0.50%
Growth Fund (formerly, Capital Growth Fund)
Class A 1.34%
Class B 2.09%
Class I 0.98%
Bond Fund
Class A 1.09%
Class B 1.84%
Class I 0.93%
Municipal Bond Fund
Class A 0.97%
Class B 1.72%
Class I 0.70%
Managed Assets Balanced Fund (formerly, Balanced Fund)
Class A 1.25%
Class B 2.00%
Class I 0.96%
Equity Income Fund
Class A 1.14%
Class B 1.89%
Class I 1.01%
International Major Markets Fund
Class A 1.71%
Class B 2.46%
Class I 1.18%
International Bond Fund
Class A 1.48%
Class B 2.23%
Class I 0.84%
Small-Cap Opportunity Fund
Class A 1.75%
Class B 2.50%
Class I 1.10%
Intermediate Municipal Bond Fund
Class A 0.99%
Class B 1.74%
Class I 0.75%
Income Fund
Class A 1.09%
Class B 1.84%
Class I 0.93%
-39-
<PAGE>
Managed Assets Conservative Fund
Class A 1.25%
Class B 2.00%
Class I 0.97%
</TABLE>
Voting Information. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Prairie's Boards
of Trustees and Directors in connection with Special Meetings of Shareholders
to be held at the offices of BISYS Fund Services, 3435 Stelzer Road, Columbus,
Ohio, on Monday, June 25, 1996 at _____ a.m./p.m. (Eastern time). Only
Shareholders of record at the close of business on April 11, 1996 will be
entitled to notice of and to vote at the Meeting. Each share or fraction
thereof is entitled to one vote or fraction thereof and all shares will vote
separately by Portfolio. Shares represented by a properly executed proxy will
be voted in accordance with the instructions thereon, or if no specification
is made, the persons named as proxies will vote in favor of each proposal set
forth in the Notice of Meeting. Proxies may be revoked at any time before they
are exercised by submitting to Prairie a written notice of revocation or a
subsequently executed proxy or by attending the Meeting and voting in person.
For additional information, including a description of the Shareholder vote
required for approval of the Reorganization Agreement and related transactions
contemplated thereby, see "Information Relating to Voting Matters."
Risk Factors. The following discussion highlights the principal risk factors
associated with an investment in the Prairie Portfolios and the Woodward Funds
and is qualified in its entirety by the more extensive discussion of risk
factors set forth below under "Comparison of Investment Policies and Risk
Factors" and related Prospectuses and Statements of Additional Information
which are incorporated herein by reference.
Because of the similarities of the investment objectives and policies
of the Prairie Portfolios and their corresponding Woodward Funds, management
believes that an investment in a Woodward Fund involves risks that are similar
to those of the corresponding Prairie Portfolio. These investment risks
include those typically associated with investing in a portfolio of high
quality, short-term money market instruments in the case of the money market
portfolios; government or investment grade bonds in the case of the taxable
and tax-exempt bond portfolios; and common stocks in the case of the stock
portfolios.
There are differences, however, between the Prairie Portfolios and the
Woodward Funds as noted above under "Summary - Overview of the Prairie
Portfolios and the Woodward Funds" and below under "Comparison of Investment
Policies and Risk Factors." These differences can result in different risks.
Although the money market portfolios offered by both Prairie and
Woodward seek to maintain a stable net asset value of $1.00 per share, there
is no assurance they will be able to do so. The
-40-
<PAGE>
per share price of the other portfolios will fluctuate with changes in value
of the investments held by each portfolio. Generally, the market value of debt
securities will vary inversely to changes in prevailing interest rates.
Certain portfolios may seek to achieve their investment objectives through
investments in securities of foreign issuers that involve risks not typically
associated with U.S. issuers; debt instruments with the lowest or below
investment grade rating which are speculative; mortgage-backed and
asset-backed securities; illiquid instruments; and certain options, futures
and foreign currency transactions. Certain portfolios may engage in securities
lending transactions. Certain of the Prairie Portfolios and Woodward Funds may
engage in the use of reverse repurchase agreements that can cause their net
asset values to rise or fall faster than they otherwise would. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a portfolio may decline below the price of the securities the
portfolio is obligated to purchase. The ability of the Woodward Tax-Exempt
Money Market Fund to invest more than 25% of its assets in municipal
obligations issued by California, Colorado, Florida, Michigan, New York and
Texas, and the non-diversified status of the Prairie Growth and Municipal Bond
Funds, present additional risks as stated in their current Prospectus. There
is no assurance that any portfolio will achieve its investment objective.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
Prairie has entered into an agreement whereby all of its investment
portfolios are to be acquired by portfolios of Woodward. While significant
provisions of the Reorganization Agreement are summarized below, this summary
is qualified in its entirety by reference to the Reorganization Agreement, a
copy of which is attached as Appendix I to this Combined Proxy
Statement/Prospectus.
Description of the Reorganization Agreement. There are fourteen
separate Prairie investment portfolios. Initially in one or more transactions,
the assets of seven of them will be acquired by seven similar investment
portfolios currently offered by Woodward. Subsequently, the remaining seven
Prairie Portfolios will be acquired by seven new Woodward Funds which have
been organized to continue the operations of these Prairie Portfolios.
The Reorganization Agreement provides, first, that substantially all of
the assets and liabilities of the Reorganizing Portfolios will be transferred
to the Existing Woodward Funds identified in the table below. Not less than
seven calendar days thereafter, substantially all of the assets and
liabilities of the Continuing Portfolios will be transferred to the New
Woodward Funds identified in the table below. The holders of each class of
shares of a Prairie Portfolio will receive the class of shares of the
corresponding Woodward Fund
-41-
<PAGE>
identified in the table. In the tables, (a) opposite the name of each Prairie
Portfolio is the name of the Woodward Fund which will issue shares to such
Prairie Portfolio, and (b) opposite the name of each class of shares of the
Prairie Portfolio is the name of the class of shares of the Woodward Fund to
be distributed to the holders of such Prairie class. The number of each class
of shares to be issued by the Woodward Funds will have an aggregate net asset
value equal to the aggregate net asset value of the corresponding class or
classes of shares of the particular Prairie Portfolio as of the regular close
of the New York Stock Exchange, currently 4:00 p.m. New York time, on the
business day immediately preceding each transaction. The three Woodward money
market portfolios (Woodward Money Market, Treasury Money Market and Tax-Exempt
Money Market Funds) may have immaterial differences in market-based net asset
values per share from their Prairie counterparts; however, it is a condition
of the Reorganization that the per-share amortized cost values of these
portfolios be identical with those of the Prairie money market portfolios.
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<PAGE>
Reorganizing Existing Woodward Funds
Portfolios and Classes and Classes
- ---------------------- -----------------------
Money Market Fund Money Market Fund*
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares
U.S. Government Money Market Fund Treasury Money Market Fund*
Class A Shares Class A Shares
Class I Shares
Municipal Money Market Fund Tax-Exempt Money Market Fund*
Class A Shares Class A Shares
Class I Shares
Growth Fund* Capital Growth Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Bond Fund Bond Fund*
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Municipal Bond Fund* Municipal Bond Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Managed Assets Fund Balanced Fund*
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Continuing Portfolios and Classes New Woodward Funds and Classes
- --------------------------------- ------------------------------
International Equity Fund* International Major Markets Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
International Bond Fund* International Bond Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Equity Income Fund* Equity Income Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
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<PAGE>
Special Opportunities Fund* Small-Cap Opportunity Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Intermediate Municipal Bond Fund* Intermediate Municipal Bond Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Intermediate Bond Fund* Income Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
Managed Assets Income Fund* Managed Assets Conservative Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class I Shares Class I Shares
- --------------------
* Denotes the surviving or continuing portfolio for the purposes of
maintaining the financial statements and performance history in the
post-reorganization portfolio.
Prairie may liquidate a limited number of holdings of certain of the
Prairie Portfolios in light of the investment policies of Woodward and the
strategies of its investment adviser. Similarly, the Woodward Capital Growth
Fund and Woodward Municipal Bond Fund may liquidate a limited number of
holdings in light of their intentions to change investment policies to
resemble those of the Prairie Growth Fund and Prairie Municipal Bond Fund,
respectively. The transaction costs that will result from such sales are
expected to be minimal.
The Reorganization Agreement provides that Prairie will declare a
dividend or dividends prior to the Reorganizing Portfolios Transaction which,
together with all previous dividends, will have the effect of distributing to
the Shareholders of each of the Reorganizing Portfolios all undistributed
ordinary income earned and net capital gains realized up to and including the
effective time of the Reorganization.
Following the transfers of assets and liabilities from the Prairie
Portfolios to the Woodward Funds, and the issuance of shares by the Woodward
Funds to the Prairie Portfolios, each of the Prairie Portfolios will
distribute the class of shares of the Woodward Funds pro rata to the holders
of classes of shares of the Prairie Portfolios as described above in
liquidation of the Prairie Portfolios. Each holder of a class of shares of a
Prairie Portfolio will receive an amount of equal value of the corresponding
class of shares of the corresponding Woodward Fund, plus the right to receive
any declared and unpaid dividends or distributions. Following the
Reorganization, the registration of Prairie as an investment company under the
1940 Act will be terminated, and Prairie will be terminated under state law.
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<PAGE>
The stock transfer books of Prairie will be permanently closed after
the Reorganization.
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement/Prospectus by the
Shareholders of Prairie; the receipt of certain legal opinions described in
the Reorganization Agreement; the receipt of certain certificates from the
parties concerning the continuing accuracy of their representations and
warranties in the Reorganization Agreement and other matters; and the parties'
performance in all material respects of their agreements and undertakings in
the Reorganization Agreement. Assuming satisfaction of the conditions in the
Reorganization Agreement, the Reorganizing Portfolios Transaction is expected
to occur on or after August 9, 1996 and the Continuing Portfolios Transaction
is expected to occur on or after August 30, 1996.
The expenses of Woodward and of Prairie incurred in connection with the
Reorganization will be borne by First Chicago NBD Corporation or its
subsidiaries; except that Woodward will bear any related registration fees
payable under the Securities Act of 1933 and state blue sky laws.
The Reorganization may be abandoned prior to its consummation by the
mutual consent of the parties to the Reorganization Agreement. The
Reorganization Agreement provides further that at any time prior to, or (to
the fullest extent permitted by law) after, the approval of the Reorganization
Agreement by Prairie Shareholders (a) the parties thereto may, by written
agreement approved by their respective Boards of Trustees or Directors, or
authorized officers and with or without the approval of their respective
Shareholders, amend any of the provisions of the Reorganization Agreement; and
(b) either party may waive any breach by the other party or the failure to
satisfy any of the conditions to its obligations with or without the approval
of such party's Shareholders.
Board Consideration. In giving its approval to the Reorganization at
meetings held on December 6, 1995, January 9, 1996 and February 20, 1996, the
Boards of Trustees and Directors of Prairie considered, primarily, the recent
merger between First Chicago Corporation, the parent company of FCIMCO, and
NBD Bancorp, Inc., the parent company of NBD. This Reorganization presents the
opportunity to combine the separate Prairie and Woodward mutual fund families
into a single, larger consolidated group, offering shareholders a full
spectrum of funds. Accordingly, FCIMCO and NBD recommended that each of the
Prairie Portfolios be reorganized as described in this Combined Proxy
Statement/Prospectus. The Boards of Trustees and Directors of Prairie
considered the recommendation of FCIMCO and NBD with respect to the proposed
consolidation of Prairie and Woodward;
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<PAGE>
the investment capabilities of the co-advisers; the compatibility of the
investment objectives and policies of the Prairie Portfolios and their
corresponding Woodward Funds; the improvement of operational efficiencies and
achievement of economies of scale through the consolidation of investment
portfolios that are substantially similar; the management and other fees paid
by the Woodward Funds; the historical and projected expense ratios of the
Woodward Funds as compared to those of the Prairie Portfolios; the comparative
investment performance of the Prairie Portfolios and their corresponding
Woodward Funds; the fact that the Reorganization would constitute a tax-free
reorganization; the fact that total operating expense ratios of each Woodward
Fund after the Reorganization were expected to be the same or lower than the
expense ratios of the corresponding Prairie Portfolio prior to the
transaction; and that the interests of Shareholders would not be diluted as a
result of the Reorganization.
After considering the foregoing factors, together with such other
information as they believed to be relevant, Prairie's Trustees and Directors
unanimously approved the Reorganization Agreement and directed that it be
submitted to Shareholders for approval.
PRAIRIE'S BOARDS OF TRUSTEES AND DIRECTORS RECOMMEND THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE REORGANIZATION AGREEMENT.
The Boards of Trustees and Directors of Prairie have not determined
what action Prairie will take in the event the Shareholders of any Prairie
Portfolio fail to approve the Reorganization Agreement or for any reason the
Reorganization is not consummated. In either such event, the Trustees and
Directors will consider other appropriate courses of action, including
continuing operations of the Prairie Portfolios in their present form.
At meetings held on November 27 and 28, 1995, January 9, 1996 and
February 20, 1996, the Woodward Board of Trustees considered the proposed
Reorganization. Based upon their evaluation of the relevant information
provided to them, and in light of their fiduciary duties under federal and
state law, the Board of Trustees unanimously determined that the proposed
Reorganization is in the best interests of Woodward and its shareholders, and
that the interests of existing shareholders of Woodward would not be diluted
as a result of the transactions.
Capitalization. Because the Reorganizing Portfolios will be combined in
the Reorganization with the Existing Woodward Funds, the total capitalization
of each of the Existing Woodward Funds after the Reorganization is expected to
be greater than the current capitalization of the corresponding Reorganizing
Portfolios. In addition, because the Continuing Prairie
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<PAGE>
Portfolios will be combined in the Reorganization with the newly organized New
Woodward Funds having only nominal assets and liabilities, information on the
capitalization of the Continuing Prairie Portfolios and New Woodward Funds is
not included. The following table sets forth as of December 31, 1995, (i) the
capitalization of each of the Reorganizing Portfolios and (ii) the pro forma
capitalization of each of the Existing Woodward Funds as adjusted to give
effect to the Reorganization. If consummated, the capitalization of each
Portfolio is likely to be different at the effective time of the Reorganizing
Portfolios Transaction as a result of daily share purchase and redemption
activity in the Portfolios.
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<PAGE>
<TABLE>
<CAPTION>
Prairie Money Woodward Money Pro Forma
Market Fund Market Fund Combined
------------- -------------- ---------
<S> <C> <C> <C>
Total Net Assets $204,059,218 $1,639,694,814 $1,843,754,032
Class A Shares $203,994,341 N/A $384,360,771
Class B Shares 64,877 N/A $64,877
Class I Shares N/A N/A $1,459,328,384
Single Class Shares N/A $1,639,694,814 N/A
Shares Outstanding 204,027,364 1,639,694,814 1,843,722,178
Class A Shares 203,962,497 N/A 384,328,927
Class B Shares 64,867 N/A 64,867
Class I Shares N/A N/A 1,459,328,384
Single Class Shares N/A 1,639,694,814 N/A
Net Asset Value Per Share
Class A Shares $1.00 N/A $1.00
Class B Shares $1.00 N/A $1.00
Class I Shares N/A N/A $1.00
Single Class Shares N/A $1.00 N/A
<CAPTION>
Prairie U.S. Woodward Woodward
Government Money Treasury Money Government Pro Forma
Market Fund Market Fund Money Market Fund Combined
---------------- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Total Net Assets $57,264,060 $927,695,502 $474,376,855 $1,459,336,417
Class A Shares $57,264,060 N/A N/A $142,846,537
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A $1,316,489,880
Single Class Shares N/A $927,695,502 $474,376,855 N/A
Shares Outstanding 57,280,045 927,695,502 474,376,855 1,459,271,602
Class A Shares 57,280,045 N/A N/A 142,862,522
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A 1,316,489,880
Single Class Shares N/A 927,695,502 474,376,855 N/A
Net Asset Value Per Share
Class A Shares $1.00 N/A N/A $1.00
Class B Shares N/A N/A N/A N/A
Class I Shares N/A N/A N/A $1.00
Single Class Shares N/A $1.00 $1.00 N/A
<CAPTION>
Prairie Municipal Woodward Tax-
Money Exempt Money Pro Forma
Market Fund Market Fund Combined
----------------- ------------- ---------
<S> <C> <C> <C>
Total Net Assets $228,511,278 $564,413,476 $792,924,754
Class A Shares $228,511,278 N/A $254,135,650
Class B Shares N/A N/A N/A
Class I Shares N/A N/A $538,789,104
Single Class Shares N/A $564,413,476 N/A
Shares Outstanding 228,564,929 564,413,476 792,978,405
Class A Shares 228,564,929 N/A 254,189,301
Class B Shares N/A N/A N/A
Class I Shares N/A N/A 538,789,104
Single Class Shares N/A 564,413,476 N/A
Net Asset Value Per Share
Class A Shares $1.00 N/A $1.00
Class B Shares N/A N/A N/A
Class I Shares N/A N/A $1.00
Single Class Shares N/A $1.00 N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Woodward
Prairie Capital Pro Forma
Growth Fund Growth Fund Combined
----------- ----------- --------
<S> <C> <C> <C>
Total Net Assets $298,541,346 $195,861,178 $494,402,524
Class A Shares $4,329,204 N/A $9,450,974
Class B Shares $268,039 N/A $268,039
Class I Shares $293,944,103 N/A $484,683,511
Single Class Shares N/A $195,861,178 N/A
Shares Outstanding 24,943,560 14,765,837 41,307,993
Class A Shares 361,669 N/A 789,550
Class B Shares 22,438 N/A 22,438
Class I Shares 24,559,453 N/A 40,496,005
Single Class Shares N/A 14,765,837 N/A
Net Asset Value Per Share
Class A Shares $11.97 N/A $11.97
Class B Shares $11.95 N/A $11.95
Class I Shares $11.97 N/A $11.97
Single Class Shares N/A $13.26 N/A
<CAPTION>
Prairie Woodward Pro Forma
Bond Fund Bond Fund Combined
--------- --------- --------
<S> <C> <C> <C>
Total Net Assets $127,308,669 $517,565,579 $644,874,248
Class A Shares $1,846,532 N/A $32,279,388
Class B Shares $61,260 N/A $61,260
Class I Shares $125,400,877 N/A $612,533,600
Single Class Shares N/A $517,565,579 N/A
Shares Outstanding 11,774,608 49,523,843 61,705,323
Class A Shares 170,875 N/A 3,088,689
Class B Shares 5,669 N/A 5,669
Class I Shares 11,598,064 N/A 58,610,965
Single Class Shares N/A 49,523,843 N/A
Net Asset Value Per Share
Class A Shares $10.81 N/A $10.45
Class B Shares $10.81 N/A $10.81
Class I Shares $10.81 N/A $10.45
Single Class Shares N/A $10.45 N/A
<CAPTION>
Prairie Woodward
Municipal Municipal Pro Forma
Bond Fund Bond Fund Combined
--------- --------- --------
<S> <C> <C> <C>
Total Net Assets $247,823,150 $76,963,564 $324,786,714
Class A Shares $7,425,897 N/A $18,616,399
Class B Shares $237,697 N/A $237,697
Class I Shares $240,159,556 N/A $305,932,618
Single Class Shares N/A $76,963,564 N/A
Shares Outstanding 19,617,499 7,205,434 26,209,625
Class A Shares 587,619 N/A 1,473,135
Class B Shares 18,797 N/A 18,797
Class I Shares 19,011,083 N/A 24,217,693
Single Class Shares N/A 7,205,434 N/A
Net Asset Value Per Share
Class A Shares $12.64 N/A $12.64
Class B Shares $12.65 N/A $12.65
Class I Share $12.63 N/A $12.63
Single Class Shares N/A $10.68 N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Prairie Woodward
Managed Balanced Pro Forma
Assets Fund Fund Combined
----------- -------- --------
<S> <C> <C> <C>
Total Net Assets $9,559,001 $93,623,801 $103,222,802
Class A Shares $8,355,636 N/A $17,234,917
Class B Shares $832,603 N/A $832,603
Class I Shares $410,762 N/A $85,155,282
Single Class Shares N/A $93,623,801 N/A
Shares Outstanding 834,991 8,328,682 9,182,165
Class A Shares 726,432 N/A 1,533,356
Class B Shares 72,716 N/A 72,716
Class I Shares 35,843 N/A 7,576,093
Single Class Shares N/A 8,328,682 N/A
Net Asset Value Per Share
Class A Shares $11.50 N/A $11.24
Class B Shares $11.45 N/A $11.45
Class I Shares $11.46 N/A $11.24
Single Class Shares N/A $11.24 N/A
</TABLE>
Federal Income Tax Consequences. Consummation of the Reorganization is subject
to the condition that Prairie and Woodward receive an opinion from Drinker
Biddle & Reath to the effect that for federal income tax purposes: (i) the
transfer of all of the assets and liabilities of each of the Reorganizing
Portfolios (except in each case for a cash reserve in an amount necessary for
the discharge of all known and reasonably anticipated liabilities of each of
the Reorganizing Portfolios) and each of the Continuing Funds to the
corresponding Woodward Fund in exchange for shares of the corresponding
Woodward Fund and liquidating distributions to Shareholders of the Prairie
Portfolios of the shares of the Woodward Fund so received, as described in the
Reorganization Agreement, will constitute reorganizations within the meaning
of Section 368(a)(1)(C), Section 368(a)(1)(D) or Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code"), and with respect to
the Reorganization, each Prairie Portfolio and Woodward Fund will be
considered "a party to a reorganization" within the meaning of Section 368(b)
of the Code; (ii) no gain or loss will be recognized by any Prairie Portfolio
as a result of such transactions; (iii) no gain or loss will be recognized by
any Woodward Fund as a result of such transactions; (iv) no gain or loss will
be recognized by the Shareholders of any Prairie Portfolio on the distribution
to them by Prairie of shares of any Class of the corresponding Woodward Fund
in exchange for their shares of any class of the Prairie Portfolio; (v) the
aggregate basis of the Woodward Fund shares received by a shareholder of a
Prairie Portfolio will be the same as the aggregate basis of the Shareholder's
Prairie Portfolio shares immediately prior to the Reorganization; (vi) the
basis of each Woodward Fund in the assets of the corresponding Prairie
Portfolio received pursuant to the Reorganization will be the same as the
basis of the assets in the hands of the Prairie Portfolio immediately before
the Reorganization; (vii) a shareholder's holding period for Woodward Fund
shares will be determined by including the period for which
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<PAGE>
the shareholder held the Prairie Portfolio shares exchanged therefor, provided
that the shareholder held such Prairie Portfolio shares as a capital asset;
and (viii) each Woodward Fund's holding period with respect to the assets
received in the Reorganization will include the period for which such assets
were held by the corresponding Prairie Portfolio.
Woodward and Prairie have not sought a tax ruling from the Internal
Revenue Service ("IRS"), but are acting in reliance upon the opinion of
counsel discussed in the previous paragraph. That opinion is not binding on
the IRS and does not preclude the IRS from adopting a contrary position.
Shareholders should consult their own advisers concerning the potential tax
consequences to them, including state and local income taxes.
COMPARISON OF INVESTMENT POLICIES AND RISK FACTORS
The investment objective and policies of each Prairie Portfolio
are, in many respects, similar to those of the corresponding Woodward Fund.
There are, however, certain differences. The following discussion summarizes
the more significant differences in the investment policies, risk factors and
limitations of the Prairie Portfolios and their corresponding Woodward Funds
and is qualified in its entirety by the Prospectuses and Statements of
Additional Information of the Prairie Portfolios and the Woodward Funds which
are incorporated herein by reference. For a discussion of certain investment
policies of the Prairie Portfolios and Woodward Funds and related risk
factors, see "Investment Policies and Risks -- General" below.
The investment objective and certain investment policies of each of
the Prairie Portfolios and Woodward Funds are fundamental. This means that
they may not be changed without a vote of the holders of a majority of a
fund's outstanding shares, as defined by the 1940 Act. Investment policies of
the Prairie Portfolios and Woodward Funds that are not fundamental may be
changed by the respective Board of Trustees or Directors.
Prairie Money Market Fund and Woodward Money Market Fund
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no assurance either will be able
to do so. Each Fund uses the amortized cost method of valuing its securities
pursuant to Rule 2a-7 under the 1940 Act, certain requirements of which are
summarized in the Funds' Prospectuses and Statements of Additional Information
which are incorporated herein by reference.
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<PAGE>
Both the Prairie Money Market Fund and Woodward Money Market Fund
may invest in a broad range of U.S. dollar-denominated, high quality,
short-term instruments, including U.S. Government obligations, commercial
paper, corporate obligations, bank obligations, repurchase agreements and
other short-term obligations including those with floating or variable rates
of interest.
The Funds may invest in U.S. dollar-denominated bank obligations of
foreign and domestic banks such as certificates of deposit, time deposits and
bankers' acceptances. The Prairie Money Market Fund has a fundamental policy
requiring it to invest, except when it has adopted a temporary defensive
position, at least 25% of its total assets in bank obligations. The Woodward
Money Market Fund is not bound by this restriction. However, all investments
in bank obligations by the Woodward Money Market Fund are limited to those of
financial institutions with more than $1 billion in total assets at the time
of purchase.
The Woodward Money Market Fund may invest in U.S.
dollar-denominated obligations issued or guaranteed by the government of
Canada, a Province of Canada, or an instrumentality or political subdivision
thereof. The Prairie Money Market Fund is not expressly permitted to invest in
these securities.
Additionally, the Woodward Money Market Fund may, subject to its
limitation on illiquid investments, make limited investments in guaranteed
investment contracts issued by highly rated U.S. insurance companies. The
Prairie Money Market Fund is not expressly permitted to invest in such
securities.
Prairie U.S. Government Money Market Fund and Woodward Treasury
Money Market Fund
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no assurance either will be able
to do so. The Funds have similar, but not identical, investment policies.
The Prairie U.S. Government Money Market Fund invests in short-term
securities issued or guaranteed as to principal or interest by the U.S.
Government, its agencies or instrumentalities, and related repurchase
agreements. The Woodward Treasury Money Market Fund invests only in U.S.
Treasury bills, notes and direct U.S. Treasury obligations having remaining
maturities of 13 months or less and related repurchase agreements.
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<PAGE>
Prairie Municipal Money Market Fund and Woodward Tax-Exempt Money
Market Fund
Each Fund is a money market fund that seeks to maintain a net asset
value of $1.00 per share, although there is no assurance it will be able to do
so. Both Funds invest at least 80% of their assets in the same types of
Municipal Securities. They may invest in securities rated in the two highest
rating categories by a Rating Agency, or, if unrated, in securities that are
determined to be of comparable quality. In addition, both are permitted to
invest in taxable obligations for temporary defensive purposes or when
suitable Municipal Securities are not available.
The Prairie Municipal Money Market Fund may invest without
limitation in Municipal Securities which constitute certain types of private
activity bonds as defined in the Code. The interest on these bonds, while
exempt from regular federal income tax, is a tax preference item for purposes
of the federal alternative minimum tax. The Woodward Tax-Exempt Money Market
Fund is currently limited to investing no more than 20% of its net assets in
these private activity bonds and taxable investments. Following its
Reorganization, the Woodward Tax-Exempt Money Market Fund, to be renamed the
Woodward Municipal Money Market Fund, is expected to conform its policy to the
policy adopted by the Prairie Municipal Money Market Fund regarding these
investments.
Prairie Growth Fund and Woodward Capital Growth Fund
It is expected that the Woodward Capital Growth Fund will change
its name to the Growth Fund and adopt investment policies that are
substantially identical to the Prairie Growth Fund in connection with its
Reorganization.
The principal difference in the investment policies of the Funds is
that the Prairie Growth Fund is classified as a non-diversified investment
company under the 1940 Act, which permits a relatively high percentage of the
Fund's assets to be invested in the obligations of a limited number of
issuers. The Woodward Capital Growth Fund is classified as a diversified
investment company under the 1940 Act and expects to continue to operate as a
diversified portfolio after the Reorganization. See "Investment Limitations"
below for a discussion of diversification.
Under normal market conditions, each Fund expects to invest at
least 65% of its total assets in equity securities. The Woodward Capital
Growth Fund currently invests primarily in equity securities of companies with
a market capitalization of at least $1 billion, while the Prairie Growth Fund
has no market capitalization requirement. Following its Reorganization, the
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<PAGE>
Woodward Capital Growth Fund will no longer be subject to a market
capitalization requirement.
Both Funds intend to invest primarily in the equity securities of
domestic issuers; however, the Prairie Growth Fund may invest in depository
receipts of foreign issuers and may invest up to 20% of its total assets in
equity securities of foreign issuers. The Woodward Capital Growth Fund is
presently permitted to invest up to 25% of its total assets in the securities
of foreign issuers, either directly or through American Depository Receipts
("ADRs"). The post-reorganization Fund will be permitted to invest up to 25%
of its total assets in the securities of foreign issuers.
Each Fund may invest a portion of its assets in fixed income
securities rated in the four highest rating categories (i.e., investment
grade) by a Rating Agency (or, if unrated, deemed comparable in quality by the
Fund's adviser). Both Funds may invest in convertible securities although
there are differences in the quality of the convertible securities each Fund
may purchase. The Prairie Growth Fund may invest up to 35% of its net assets
in convertible securities rated below investment grade, whereas the Woodward
Capital Growth Fund is currently limited to investing no more than 5% of its
net assets in convertible securities rated lower than investment grade. The
post-reorganization Fund will invest only in investment grade securities.
Both Funds may enter into futures contracts and related options and
may utilize options and other derivative instruments.
Prairie Bond Fund and Woodward Bond Fund
The primary investment related distinction between the Funds is
that the Prairie Bond Fund is classified as a non-diversified investment
company under the 1940 Act and the Woodward Bond Fund is classified as a
diversified investment company. Following its Reorganization, the Woodward
Bond Fund will continue its operations as a diversified portfolio. See
"Investment Limitations" below for a discussion of diversification.
Both Funds normally invest at least 65% of their assets in debt
obligations. The types of debt securities eligible for investment by the Funds
are substantially identical, although applicable rating requirements differ.
Debt securities acquired by the Woodward Bond Fund must be rated in the four
highest rating categories by a Rating Agency (i.e., investment grade), whereas
the Prairie Bond Fund is limited, as to 65% of its total assets, to
investments in the three highest rating categories. The remainder of the
Prairie Bond Fund's assets may be invested in securities rated below the three
highest rating categories, including securities rated below investment grade,
provided that
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<PAGE>
such securities are rated no lower than B by a Rating Agency. Unrated
securities deemed by a Fund's adviser to be comparable in quality to
securities rated in the above categories are eligible for investment by the
Fund.
The Woodward Bond Fund currently maintains an average weighted
maturity of between 6 and 12 years; the Prairie Bond Fund has no stated range
regarding its average weighted maturity.
Both Funds may invest in futures, options and other derivative
instruments.
Prairie Municipal Bond Fund and Woodward Municipal Bond Fund
It is expected that the Woodward Municipal Bond Fund will, prior to
its Reorganization, adopt investment policies substantially identical to those
of the Prairie Municipal Bond Fund. It is also expected that, subject to
shareholder approval, the Woodward Municipal Bond Fund will change its status
as a diversified investment company within the meaning of the 1940 Act to a
non-diversified one.
Under normal market conditions, each Fund invests at least 80% of
its net assets in Municipal Securities rated in the four highest rating
categories by a Rating Agency, or if unrated, deemed comparable in quality by
the Fund's adviser. The Funds may also invest in options, futures and other
derivative instruments.
Prairie Managed Assets Fund and Woodward Balanced Fund
It is expected that the Woodward Balanced Fund will, prior to the
Reorganizing Portfolios Transaction, change its name to the Woodward Managed
Assets Balanced Fund.
The equity and fixed income securities eligible for purchase by the
Funds are substantially similar. They may invest in securities of foreign
issuers in the form of ADRs and, in the case of the Prairie Managed Assets
Fund, European Depository Receipts ("EDRs"). The post-reorganization Fund will
be permitted to invest in ADRs and EDRs. Each Fund invests at least 25% of its
assets in fixed income securities which generally must be rated in one of the
four highest rating categories by a Rating Agency, or if unrated, deemed
comparable in quality by the Fund's adviser. The Prairie Managed Assets Fund
may invest 20% of its net assets in securities rated below the four highest
rating categories. Each Fund may also invest in futures, options and other
derivative instruments.
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Prairie Equity Income Fund and Woodward Equity Income Fund
The principal investment related difference between the Funds
involves the classification of the Prairie Equity Income Fund as a
non-diversified investment company under the 1940 Act and the classification
of the Woodward Equity Income Fund as a diversified investment company.
Following its Reorganization, the Woodward Equity Income Fund will continue
its operations as a diversified portfolio.
Each Fund invests at least 65% of its total assets in
income-producing equity securities of domestic issuers. The fixed income
securities acquired by the Funds generally must be rated in one of the four
highest rating categories by a Rating Agency (or, if unrated, deemed
comparable in quality by the Funds' advisers), although the Prairie Equity
Income Fund is permitted to invest up to 35% of its assets in convertible debt
securities which may be rated lower than investment grade.
The equity and fixed income securities eligible for purchase by the
Funds are substantially the same. Both Funds may invest in securities of
foreign issuers either directly or through depository receipts and may invest
in futures, options and other derivative instruments.
Prairie International Equity Fund and Woodward International
Major Markets Fund
Each Fund invests primarily in equity securities of issuers located
in the countries included in the Morgan Stanley Capital International-Europe,
Australia and Far East ("EAFE") Index. The Prairie International Equity Fund
shifts its regional holdings to emphasize or de-emphasize regions of the
international market based on the relative attractiveness of the region. The
Woodward International Major Markets Fund generally holds a majority of its
assets in the stock markets of Japan, the United Kingdom, Germany and France
and shifts its holdings among these countries to emphasize or de-emphasize
regions of the international market based on the relative attractiveness of
the regions. Both Funds invest in futures, options and other derivative
instruments.
Prairie International Bond Fund and Woodward International Bond
Fund
Both Funds normally invest at least 65% of their assets in debt
obligations of issuers located throughout the world, except the United States.
The Funds also may invest in convertible preferred stocks, hold foreign
currency and purchase debt securities or hold currencies in combination with
forward currency exchange contracts. Each Fund is required to invest at
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least 65% of its total assets in fixed income securities rated A or better by
a Rating Agency and is permitted to invest the remainder of its portfolio in
assets rated no lower than B by a Rating Agency. Each Fund may also invest in
securities which, while not rated, are determined by the adviser to be of
comparable quality to those rated securities in which the Fund may invest.
Both Funds may invest in futures, options and other derivative instruments.
Prairie Special Opportunities Fund and Woodward Small-Cap
Opportunity Fund
The Prairie Special Opportunities Fund invests primarily in equity
securities of small to medium-sized emerging growth domestic issuers
(typically with market capitalizations of $100 million to $750 million) that
the adviser believes are undervalued in the marketplace. The Woodward
Small-Cap Opportunity Fund invests in equity securities of small domestic
issuers with market capitalizations of $100 million to $1 billion. The Prairie
Special Opportunities Fund is permitted to invest in depository receipts of
foreign issuers and may invest up to 20% of its total assets in equity
securities of foreign issuers. The Woodward Small-Cap Opportunity Fund may
invest up to 25% of its total assets in the securities of foreign issuers,
either directly or through depository receipts. Both Funds may invest in
futures, options and other derivative instruments.
The Prairie Special Opportunities Fund is classified as a
non-diversified investment company under the 1940 Act. The Woodward Small-Cap
Opportunity Fund is classified as a diversified investment company. Following
the Reorganization, the Woodward Small-Cap Opportunity Fund will continue its
operations as a diversified portfolio. See "Investment Limitations" below for
a discussion of diversification.
Prairie Intermediate Municipal Bond Fund and Woodward
Intermediate Municipal Bond Fund
Both Funds normally invest at least 80% of their net assets in
Municipal Securities rated in the four highest rating categories by a Rating
Agency (or, if unrated, determined by the adviser to be comparable in quality
to instruments that are so rated) which, under normal market conditions, will
have dollar-weighted average maturities expected to range between three and
ten years. The Funds may invest in options, futures and other derivative
instruments.
Prairie Intermediate Bond Fund and Woodward Income Fund
Each Fund invests in a portfolio of U.S. dollar-denominated fixed
income securities of domestic and foreign issuers which, under normal market
conditions, will have a dollar-weighted
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average maturity expected to range between three and ten years. The types of
debt securities eligible for purchase by the Funds are substantially similar,
although applicable rating requirements of the Funds are different. Debt
securities acquired by the Woodward Income Fund must be rated in the four
highest rating categories by a Rating Agency or, if unrated, deemed by the
adviser to be comparable in quality at the time of purchase. The Prairie
Intermediate Bond Fund is required, under normal market conditions, to invest
at least 65% of its total assets in securities rated A or better by a Rating
Agency or, if unrated, deemed by the adviser to be comparable in quality at
the time of purchase. The remainder of the Prairie Intermediate Bond Fund's
assets may be invested in securities rated within the two highest rating
categories by a Rating Agency.
The major investment related difference between the Funds is that
the Prairie Intermediate Bond Fund is classified as a non-diversified
investment company under the 1940 Act whereas the Woodward Income Fund is
classified as a diversified investment company. After its Reorganization, the
Woodward Income Fund expects to continue its operations as a diversified
portfolio. See "Investment Limitations" below.
Prairie Managed Assets Income Fund and Woodward Managed Assets
Conservative Fund
Both Funds invest in a portfolio of equity securities, fixed income
securities and cash equivalent securities. The types of securities eligible
for purchase by the Funds are substantially the same. The fixed income
securities acquired by the Funds generally must be rated in one of the four
highest rating categories by a Rating Agency or, if unrated, deemed by the
adviser to be comparable in quality at the time of purchase, although the
Prairie Managed Assets Income Fund may invest up to 5% of its net assets in
convertible bonds rated below investment grade. Each Fund may invest in
securities of foreign issuers through depository receipts and may engage in
futures, options and other derivative transactions.
Investment Policies and Risks -- General
Money Market Instruments. Each Prairie Portfolio and Woodward Fund
is permitted to (i) enter into repurchase agreements and reverse repurchase
agreements; and (ii) purchase obligations of the U.S. Government, its agencies
and instrumentalities, except that the Woodward Treasury Money Market Fund is
limited to investments in direct U.S. Treasury obligations. Each Prairie
Portfolio may invest generally in bank obligations whereas each Woodward Fund
may only invest in bank obligations of financial institutions having total
assets at the time of purchase of $1 billion.
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Foreign Securities. Each Prairie Portfolio, other than the U.S.
Government Money Market, Municipal Money Market, Municipal Bond and
Intermediate Municipal Bond Funds, and the Woodward Capital Growth, Bond and
Balanced Funds may invest in the securities of foreign issuers. Following its
Reorganization, each Woodward Fund except for the Money Market, Treasury Money
Market, Municipal Money Market, Municipal Bond and Intermediate Municipal Bond
Funds will be permitted to invest in such securities.
Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of foreign issuers,
whether made directly or indirectly, involve inherent risks, such as political
or economic instability of the issuer or the country of issue, the difficulty
of predicting international trade patterns, changes in exchange rates of
foreign currencies, the possibility of adverse changes in investment or
exchange control regulations, and may be less liquid and more volatile than
securities of comparable U.S. issuers. Similarly, volume and liquidity in most
foreign securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States. In addition,
there may be less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. issuers. Investments by a Fund in foreign securities, with respect to
certain foreign countries, exposes a Fund to the possibility of expropriation
or confiscatory taxation, limitations on the removal of funds or other assets
or diplomatic developments that could affect investment within those
countries. Because of these and other factors, securities of foreign companies
acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. Some currency exchange costs may be incurred
when a Fund changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes
levied by foreign governments, which have the effect of increasing the costs
of such investments and reducing the realized gain or increasing the realized
loss on such securities at the time of sale. Income received by the Funds from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Fund will reduce its net income available for distribution to
investors.
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The Prairie Growth, Managed Assets, Managed Assets Income, Equity
Income, International Equity, International Bond and Special Opportunities
Funds and the Woodward Capital Growth and Balanced Funds are expressly
permitted to invest in securities of foreign issuers in the form of ADRs or
similar securities representing securities of foreign issuers and each of the
same Prairie Funds and the Woodward Capital Growth Fund may invest in
securities of foreign issuers in the form of EDRs or similar securities
representing securities of foreign issuers. Following its Reorganization, each
of the Woodward Capital Growth, Balanced, Equity Income, International Major
Markets, Small-Cap Opportunity and Managed Assets Conservative Funds will be
authorized to invest in ADRs and EDRs.
ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. EDRs are receipts issued by a European financial
institution evidencing ownership of the underlying foreign securities and are
generally denominated in foreign currencies. Generally, EDRs, in bearer form,
are designed for use in the European securities markets. These securities may
not be denominated in the same currency as the securities they represent.
Certain institutions issuing ADRs or EDRs may not be sponsored by the issuer.
A non-sponsored depository may not provide the same shareholder information
that a sponsored depository is required to provide under its contractual
arrangements with the issuer.
Currency and Commodity Transactions. The Prairie Managed Assets,
Managed Assets Income, Growth, Special Opportunities, International Equity and
International Bond Funds may invest in foreign currency and foreign commodity
transactions. After the Reorganization, only the Balanced, Managed Assets
Conservative, International Major Markets and International Bond Funds will be
permitted to invest in such securities.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
The foreign currency market offers less protection against defaults
in the forward trading of currencies than is available when trading currencies
on an exchange. Since a forward currency contract is not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive a Fund of
unrealized
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profits or force such Fund to cover its commitments for purchase or resale, if
any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the Commodity Futures Trading
Commission ("CFTC") and may be subject to greater risks than trading on
domestic exchanges. In addition, any profits that a Fund might realize in
trading could be eliminated by adverse changes in the exchange rate, or such
Fund could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not.
Lower Rated Securities. Each of the Prairie Bond and International
Bond Funds may invest up to 35% of its net assets in debt securities rated as
low as B by a Rating Agency. The Managed Assets Fund may invest up to 20% of
its net assets in debt securities, and each of the Equity Income, Growth and
Special Opportunities Funds may invest up to 35%, and the Managed Assets
Income Fund may invest up to 5%, of its net assets in convertible securities,
rated as low as the lowest rating assigned by a Rating Agency.
Securities rated below investment grade generally are not meant for
short-term investing and may be subject to certain risks with respect to the
issuing entity and to greater market fluctuations than certain lower yielding,
higher rated fixed income securities. In addition, such securities have either
speculative characteristics or are predominantly speculative with respect to
their capacity to pay interest and repay principal in accordance with the
terms of the obligation. Such debt obligations are commonly referred to as
"junk bonds."
Only the Woodward International Bond Fund will be permitted to
invest in lower rated securities after the Reorganization.
Supranational Bank Obligations. Each of the Prairie Funds, with the
exception of the Prairie Equity Income, Municipal Bond and Intermediate
Municipal Bond Funds, and the Woodward Balanced and Bond Funds may invest in
obligations of supranational banks which are international banking
institutions designated or supported by national governments to promote
reconstruction, development or trade between nations (e.g., the World Bank).
After the Reorganization, each of the Woodward Funds, other than the Money
Market, Treasury Money Market, Tax-Exempt Money Market, Municipal Bond and
Intermediate Municipal Bond Funds, will be permitted to invest in obligations
of supranational banks.
Derivative Instruments. Each of the Prairie Portfolios,
other than the Money Market, U.S. Government Money Market and
Municipal Money Market Funds, and Woodward Funds, other than the
Money Market, Treasury Money Market and Tax-Exempt Money Market
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Funds, may invest in certain "derivative" instruments. Derivative instruments
are instruments that derive value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include (but are not
limited to) futures contracts, options, forward currency contracts and
structured debt obligations (including collateralized mortgage obligations and
other types of asset-backed securities, "stripped" securities and various
floating rate instruments, including "inverse" floaters).
Derivative instruments present, to varying degrees, market risk
that the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative instruments are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Asset-Backed Securities. Each of the Prairie Portfolios, other than
the Money Market, U.S. Government Money Market, Municipal Money Market,
Municipal Bond and Intermediate Municipal Bond Funds, and the Woodward Bond
and Balanced Funds may invest in asset-backed and mortgage-backed securities.
After its Reorganization, each of the Woodward Bond, International Bond,
Income, Balanced and Managed Assets Conservative Funds will be permitted to
invest in such securities.
Asset backed securities arise through the grouping by governmental,
government-related and private organizations of mortgages, loans, receivables
and other assets originated by various lenders ("Asset Backed Securities").
The yield characteristics of Asset Backed Securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an Asset Backed
Security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an Asset Backed Security is purchased at a discount, faster
than expected
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prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity. Prepayments on Asset Backed Securities generally
increase with falling interest rates and decrease with rising interest rates.
Prepayment rates are also influenced by a variety of economic and social
factors. In calculating the average weighted maturity of the Funds, the
maturity of Asset Backed Securities will be based on estimates of average
life. These characteristics may result in higher level of price volatility for
these assets under certain market conditions. In addition, while the trading
market for short-term mortgages and Asset Backed Securities is ordinarily
quite liquid, in times of financial stress the trading market for these
securities sometimes becomes restricted.
Asset Backed Securities acquired by the Funds listed above consist
of both mortgage and non-mortgage backed securities. Mortgage backed
securities represent an ownership interest in a pool of mortgages, the
interest on which is in most cases issued and guaranteed by an agency or
instrumentality of the U.S. Government, although not necessarily by the U.S.
Government itself. Mortgage backed securities include collateralized mortgage
obligations ("CMOs") and mortgage pass-through certificates. CMOs provide the
holder with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage backed securities. Mortgage pass-through
certificates provide the holder with a pro rata interest in the underlying
mortgages. Mortgage backed securities issued by private issuers, whether or
not such obligations are subject to guarantees by the private issuer, may
entail greater risk than obligations directly or indirectly guaranteed by the
U.S. Government.
Non-mortgage backed securities include interests in pools of
receivables, such as motor vehicle installment purchase obligations and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. These securities are not issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
Non-mortgage backed securities involve certain risks that are not
presented by mortgage backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the
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leverage trustee for the holders of the motor vehicle receivables may not have
an effective security interest in all of the obligations backing such
receivables. Therefore, there is a possibility that recoveries on repossessed
collateral may not, in some cases, be able to support payments on these
securities.
Municipal Securities. Each Prairie Portfolio, other than the money
market and municipal funds, is expressly permitted to invest up to 25% of its
assets in Municipal Securities. Currently, the Woodward Balanced and Bond
Funds intend to invest less than 5% of their respective assets in Municipal
Securities. Following its Reorganization, each of the Woodward Balanced,
Managed Assets Conservative, Bond, International Bond and Income Funds will be
subject to a 25% limitation similar to Prairie's limitation described above.
Leveraging on an Unsecured Basis. The Prairie Funds, other than the
Intermediate Municipal Bond and Municipal Bond Funds, may utilize leveraging
in that they may borrow for investment purposes on an unsecured basis. No
Woodward Fund will engage in such leveraging after the Reorganization.
Interest Rate and Equity Index Swaps. Each Prairie Portfolio, other
than the Money Market, U.S. Government Money Market, Municipal Money Market,
Municipal Bond and Intermediate Municipal Bond Funds, may enter into interest
rate swaps and equity index swaps, as applicable, in pursuit of its investment
objective. After the Reorganization, each Woodward Fund, except for the money
market funds, will be permitted to invest in interest rate and equity index
swaps.
Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Equity index
swaps involve the exchange by a Fund with another party of cash flows based
upon the performance of an index or a portion of an index which usually
includes dividends. In each case, the exchange commitments may involve
payments to be made in the same currency or in different currencies. Swaps are
a form of derivative security.
Each of these funds usually will enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the fund receiving
or paying, as the case may be, only the net amount of the two payments. If a
fund enters into a swap, it would maintain a segregated account in the full
amount accrued on a daily basis of the fund's obligations with respect to the
swap. Each of these funds will enter into swap transactions with
counterparties only if: (i) for transactions with maturities under one year,
such counterparty has outstanding short-term paper rated in the highest rating
category by a Rating Agency, or (ii) for transactions with maturities greater
than one year, the
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counterparty has outstanding debt securities rated in the two highest rating
categories by a Rating Agency. If there is a default by the other party to
such a transaction, the fund will have contractual remedies pursuant to the
agreements related to the transaction.
The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. There is no limit on the amount of swap
transactions that may be entered into by a fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net
amount of payments that a fund is contractually obligated to make. If the
other party to a swap defaults, the relevant fund's risk of loss consists of
the net amount of payments that such Fund contractually is entitled to
receive.
Short Selling. Each of the Prairie Portfolios, other than the Money
Market, U.S. Government Money Market, Municipal Money Market, Municipal Bond
and Intermediate Municipal Bond Portfolios, may make short sales, which are
transactions in which a fund sells a security it does not own in anticipation
of a decline in the market value of that security. No post-reorganization Fund
will make short sales.
Options Transactions. Each of the Prairie Portfolios, other than
the Money Market, U.S. Government Money Market, Municipal Money Market,
Municipal Bond and Intermediate Municipal Bond Portfolios, may invest up to 5%
of its total assets in the purchase of call and put options and may write
covered call option contracts and covered put option contracts not exceeding
20% of the market value of its net assets. Each such Portfolio may also
purchase and sell call and put options on foreign currency for the purpose of
hedging against changes in future currency exchange rates, cash-settled
options on interest rate swaps and equity index swaps and call and put options
on stock indexes listed on U.S. securities exchanges or traded in the
over-the-counter market.
The Existing Woodward Capital Growth, Balanced, Bond and Municipal
Bond Funds may purchase and sell put and call options listed on a national
securities exchange and issued by the Options Clearing Corporation for hedging
purposes in an amount not exceeding 5% of a Fund's net assets. Each such Fund
may also write covered call and secured put options not exceeding 25% of the
value of its net assets. In addition, the Balanced Fund may purchase and sell
call and put options on foreign currency for the purpose of hedging against
changes in foreign currency exchange rates.
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Each post-reorganization Fund, other than the Money Market,
Treasury Money Market and Tax-Exempt Money Market Funds, may invest up to 5%
of its total assets in the purchase of call and put options and may write
covered call option contracts and covered put option contracts not exceeding
25% of the market value of its net assets. Each such Fund will also be
permitted to purchase and sell call and put options on foreign currency for
the purpose of hedging against changes in future currency exchange rates,
cash-settled options on interest rate swaps and equity index swaps and call
and put options on stock indexes listed on U.S. securities exchanges or traded
in the over-the-counter market.
Futures Contracts and Options on Futures Contracts. Each Prairie
Portfolio, other than the money market portfolios, may enter into stock index
futures contracts, interest rate futures contracts and currency futures
contracts, and options with respect to such contracts. Currently, the Woodward
Capital Growth, Balanced and Bond Funds may trade futures contracts and
related options in U.S. domestic markets. In addition, the Balanced Fund may
purchase and sell currency futures contracts and options thereon.
Each post-reorganization Fund (other than the money market funds)
may enter into futures contracts and options on future contracts. The Managed
Assets Conservative, Balanced and Capital Growth Funds may enter into stock
index futures contracts and each Fund may enter into interest rate futures
contracts and currency futures contracts, and options with respect thereto.
These transactions will be entered into as a substitute for comparable market
positions in the underlying securities or for hedging purposes. Although none
of these Funds would be a commodity pool, each would be subject to rules of
the CFTC limiting the extent to which it could engage in these transactions.
Futures and options transactions are a form of derivative security.
Each of the Prairie, Woodward and post-reorganization Funds'
commodities transactions must constitute bona fide hedging or other
permissible transactions pursuant to regulations promulgated by the CFTC. In
addition, no fund may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of the fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%. To
the extent a fund engages in the use of futures and options on futures for
other than bona fide hedging purposes, the fund may be subject to additional
risk.
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There are a number of particular risks associated with futures and
related options transactions. To the extent a fund is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities in its portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective. In futures contracts based on
indices, the risk of imperfect correlation increases as the composition of the
fund varies from the composition of the index. In an effort to compensate for
the imperfect correlation of movements in the price of the securities being
hedged and movements in the price of contracts, the fund may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
contract has been less or greater than that of the securities. Such "over
hedging" or "under hedging" may adversely affect the fund's net investment
results if market movements are not as anticipated when the hedge is
established.
Successful use of futures by a fund also is subject to the
investment adviser's ability to predict correctly movements in the direction
of securities prices, interest rates, currency exchange rates and other
economic factors. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will not necessarily,
be at increased prices which reflect the rising market. The fund may have to
sell securities at a time when it may be disadvantageous to do so.
Although a fund intends to enter into futures contracts and options
transactions only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time.
Other Investment Companies. Each of the Prairie Growth, Managed
Assets, Managed Assets Income, International Equity, International Bond and
Special Opportunities Funds are permitted to invest in closed-end investment
companies, as permitted by the 1940 Act, which principally invest in
securities in which the Portfolio invests. Each of the Existing Woodward Funds
is permitted to invest in securities issued by investment companies which
invest in high quality, short-term debt securities. After the Reorganization,
each Woodward Fund will be permitted to invest in open and closed-end
investment companies which principally invest in securities in which the Fund
invests. As a shareholder of another investment company, a Fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in
addition to the advisory and other expenses that the Fund bears directly in
connection with its own operations.
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Investment Limitations
Neither the Prairie Portfolios nor the Woodward Funds may change
their fundamental investment limitations without the affirmative vote of the
holders of a majority of the outstanding shares, as defined in the 1940 Act,
of the particular Prairie Portfolio or Woodward Fund. The investment
limitations of the Prairie Portfolios and the corresponding Woodward Funds are
similar, but not identical.
Diversification. The Prairie Money Market, U.S. Government Money
Market, Municipal Money Market, Managed Assets and Managed Assets Income Funds
are "diversified" investment portfolios. As a matter of fundamental policy,
each such diversified fund may not purchase securities of any one issuer
(other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, immediately after such purchase, more than
5% of the value of the fund's total assets would be invested in the securities
of such issuer, or more than 10% of the issuer's outstanding voting securities
would be owned by the fund, except that up to 25% of the fund's total assets
may be invested without regard to these limitations.
The remaining Prairie Portfolios and the Woodward International
Major Markets, International Bond and Intermediate Municipal Bond Funds are
classified as non-diversified investment companies under the 1940 Act and are
not subject to a fundamental limitation on diversification. Each such fund
conducts its operations so as to qualify as a regulated investment company
under the Code, which generally requires, among other things, that, with
respect to at least 50% of the total assets of a fund, no more than 5% may be
invested in securities of a single issuer (with certain exceptions), and no
more than 25% of the fund's total assets may be invested in the securities of
a single issuer (with certain exceptions) at the close of each quarter of each
fiscal year. Since a relatively high percentage of the assets of each of these
funds may be invested in the securities of a limited number of issuers, some
of which may be within the same industry or economic sector, its portfolio of
securities may be more susceptible to economic, political or regulatory
occurrences than the portfolio of a diversified investment company.
After its Reorganization, each of the Woodward Money Market,
Treasury Money Market, Tax-Exempt Money Market, Capital Growth, Bond,
Balanced, Equity Income, Small-Cap Opportunities, Income and Managed Assets
Conservative Funds will be classified as diversified investment companies.
This policy is fundamental with respect to each of these funds. The Woodward
International Major Markets, International Bond, Municipal Bond and
Intermediate Municipal Bond Funds will be classified as non-diversified
investment companies.
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Borrowings. Each Prairie Portfolio may borrow money to the extent
permitted under the 1940 Act, which currently limits borrowing to no more than
one-third of the value of a Portfolio's total assets and may engage in reverse
repurchase transactions. The Existing Woodward Funds may borrow money from
banks and enter into reverse repurchase agreements for temporary purposes, and
then in amounts not in excess of 20% of the value of the Money Market,
Treasury Money Market and Tax-Exempt Money Market Funds' respective total
assets and 10% of the value of the Capital Growth, Bond, Municipal Bond and
Balanced Funds' respective total assets. An Existing Woodward Fund will not
purchase securities while its borrowings, including reverse repurchase
agreements, exceed 5% of the total assets of the Fund. After the
Reorganization, each Woodward Fund will be permitted to borrow money directly
and engage in reverse repurchase transactions to the extent permitted under
the 1940 Act. These limitations are fundamental for each fund.
Loans. None of the Prairie Portfolios, Woodward Funds or any of the
post-reorganization Funds, may make loans, except that each may: (i) lend
portfolio securities in an amount not exceeding 1/3 of its total assets; (ii)
purchase or hold debt instruments in accordance with its investment objective;
and (iii) enter into repurchase agreements. These limitations are fundamental
for each fund.
Concentration. Each of the Prairie Portfolios and Woodward Funds
has adopted a fundamental policy on concentration. The Prairie Portfolios may
invest up to 25% of their respective total assets in the securities of issuers
in a single industry, although there is no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or, in the case of the Prairie Intermediate Municipal Bond
and Municipal Bond Funds, Municipal Securities. In addition, the Prairie Money
Market Fund invests, except when it has adopted a temporary defensive
position, at least 25% of its total assets in securities issued by banks,
including foreign banks and branches.
The Existing Woodward Funds do not purchase any securities which
would cause 25% or more of the value of a Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and repurchase agreements
secured by such instruments, and in the case of the Money Market, Treasury
Money Market and Tax-Exempt Money Market Funds, there is no limitation with
respect to domestic bank obligations, (b) wholly-owned finance companies are
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of
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the parents, (c) utilities are divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone are
each considered a separate industry, (d) with respect to the Money Market,
Treasury Money Market, Tax-Exempt Money Market, Bond and Municipal Bond Funds
only, personal credit and business credit businesses will be considered
separate industries, and (e) with respect to the Tax-Exempt Money Market and
Municipal Bond Funds only, there is no limitation with respect to or arising
out of investments in Municipal Securities (other than private activity
bonds).
Following its Reorganization, no Woodward Fund will purchase any
securities which would cause 25% or more of the value of a Fund's total assets
at the time of purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements secured
by such instruments, (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of their parents, (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry, and (d) personal credit and business credit business will be
considered separate industries.
These limitations are fundamental for each of the funds.
Real Estate. None of the Prairie Portfolios, Existing Woodward
Funds or any of the post-reorganization Funds, may purchase or sell real
estate as a matter of fundamental policy, except that each fund may purchase
securities of issuers which deal in real estate and may purchase securities
(Municipal Securities only in the case of the Prairie Intermediate Municipal
Bond and Municipal Bond Funds) which are secured by interests in real estate.
Underwriting Securities. The Prairie Portfolios and the Woodward
Funds have adopted a fundamental policy to the effect that they may not act as
an underwriter of securities within the meaning of the Securities Act of 1933
except insofar as a fund might be deemed to be an underwriter upon the
disposition of portfolio securities and except to the extent that the purchase
of obligations directly from the issuer thereof in accordance with a fund's
investment objective, policies and limitations may be deemed to be
underwriting. This policy will continue with respect to the Woodward Funds
after the Reorganization.
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Commodities. None of the Prairie Portfolios, Existing Woodward
Funds or post-reorganization Funds, may invest in commodities, except that, to
the extent appropriate to its investment objective, each may purchase and sell
options, forward contracts, futures contracts, including without limitation
those relating to indices, and options on futures contracts or indices. In
addition, these funds may purchase publicly traded securities of companies
engaging in whole or in part in such activities. This limitation is a
fundamental policy for each fund.
Illiquid Securities. With the exception of the money market
portfolios and the Woodward Bond and Municipal Bond Funds, each Prairie
Portfolio and Woodward Fund must limit their investments in illiquid
securities to 15% of net assets. The Prairie Money Market, U.S. Government
Money Market and Municipal Money Market Funds and the Woodward Money Market,
Treasury Money Market and Tax-Exempt Money Market, Bond and Municipal Bond
Funds are subject to a 10% limitation in illiquid securities. These
limitations are currently fundamental limitations for the Existing Woodward
Funds although they are expected to become non-fundamental, and thus may be
changed without shareholder approval, in connection with the Reorganization.
These policies are non-fundamental with respect to the New Woodward Funds.
Following the Reorganization, it is expected that the Woodward Bond and
Municipal Bond Funds will be subject to a 15% limitation on illiquid
investments.
Margin Transactions. As a matter of fundamental policy, no Prairie
Portfolio may purchase securities on margin, although each Portfolio may make
margin deposits in connection with various transactions such as options and
futures contracts. The three Prairie money market portfolios have adopted a
non-fundamental policy prohibiting them from selling securities short. The
Prairie Growth, Bond, Managed Assets, Equity Income, International Equity,
International Bond, Special Opportunities, Intermediate Bond and Managed
Assets Income Funds are permitted to make short sales, which are transactions
in which a fund sells a security it does not own in anticipation of a decline
in the market value of that security, and otherwise maintain a short position.
The Existing Woodward Money Market, Treasury Money Market and
Tax-Exempt Money Market Funds may not purchase securities on margin, make
short sales with securities or maintain a short position in any security. The
remaining Existing Woodward Funds may not purchase securities on margin, make
short sales of securities or maintain a short position, except that (i) this
limitation does not apply to a Fund's transactions in such instruments as
futures contracts and options, and (ii) each Fund may obtain short-term credit
as may be necessary for the clearance of purchases and sales of portfolio
securities. These limitations are currently fundamental limitations for the
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Existing Woodward Funds although they are expected to become non-fundamental,
and thus may be changed without shareholder approval, in connection with the
Reorganization. These policies are non-fundamental with respect to the New
Woodward Funds.
Options. The Prairie Portfolios are not permitted to purchase, sell
or write puts, calls or combinations thereof, except as described in their
Prospectus and Statement of Additional Information which are incorporated
herein by reference. These limitations are non-fundamental. The non-money
market Woodward Funds may not write or sell put options, call options,
straddles, spreads, or any combination thereof, except for transactions in
options on securities or indices of securities, futures contracts and options
on futures contracts and in similar investments. These limitations are
currently fundamental limitations for the Existing Woodward Funds although
they are expected to become non-fundamental in connection with the
Reorganization. These policies are non-fundamental with respect to the New
Woodward Funds.
Other Investment Companies. Neither the Prairie Portfolios nor the
Woodward Funds may acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets, or where otherwise permitted by the 1940 Act. The
foregoing limitations on investments in other investment companies are
currently fundamental as to the Existing Woodward Funds but are expected to
become non-fundamental in connection with the Reorganization. These policies
are non-fundamental with respect to the New Woodward Funds.
Miscellaneous. As a matter of non-fundamental policy, each Prairie
Portfolio may (i) purchase securities of any company having less than three
years' continuous operation (including operations of any predecessors) if such
purchase does not cause the value of such Fund's investments in all such
companies to exceed 10% of the value of its total assets; and (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings.
The Existing Woodward Funds have no corresponding limitations on
investment in companies with less than three years' continuous operation. The
post-reorganization Funds will also have no such limitation. The Existing
Woodward Funds, as a matter of fundamental policy, may not mortgage, pledge or
hypothecate their assets, except in connection with their borrowings. The
post-reorganization Funds will not be permitted to mortgage, pledge or
hypothecate their assets except to the extent permitted by the 1940 Act.
In addition, each Prairie Portfolio (other than the Intermediate
Bond Fund which has no express policy), as a matter
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of non-fundamental policy, may not invest in securities of a company for the
purpose of exercising management or control. The Existing Woodward Funds
currently are subject to the foregoing limitation as a matter of fundamental
policy. The post-reorganization Funds expect to adopt this limitation as a
matter of non-fundamental policy.
For additional investment limitations and more detailed information
on the above limitations, see "Investment Limitations" and "Additional
Investment Limitations" in the Woodward Funds' Prospectuses and Statements of
Additional Information and "Description of the Funds" and "Investment
Objectives and Management Policies" in Prairie's Prospectus and Statement of
Additional Information, which are incorporated herein by reference.
Purchase and Redemption Information, Exchange Privileges, Distribution and
Pricing. The purchase, redemption, conversion, exchange privileges and
distribution policies of the Prairie Portfolios and the Woodward Funds are
discussed above under "Summary -- Overviews of the Prairie Portfolios and
Woodward Funds" and below in Appendix III to this Combined Proxy
Statement/Prospectus.
Other Information. Prairie and Woodward are registered as open-end management
investment companies under the 1940 Act. Currently, Prairie consists of four
open-end management companies offering seventeen investment portfolios (only
three of these open-end management investment companies covering fourteen
investment portfolios are covered by this Combined Proxy Statement/Prospectus)
and Woodward currently offers seventeen investment portfolios.
Woodward, Prairie Funds and Prairie Intermediate Bond Fund are each
organized as Massachusetts business trusts and are subject to the provisions
of their respective Declarations of Trust and By-laws. Prairie Municipal Bond
Fund, Inc. is organized as a Maryland corporation and subject to the
provisions of its Articles of Incorporation and By-laws. Shares of both
Prairie and Woodward: (i) are entitled to one vote for each full share held
and a proportionate fractional vote for each fractional share held; (ii) will
vote in the aggregate and not by class except as otherwise expressly required
by law or when class voting is permitted by the respective Boards of Trustees
or Directors; and (iii) are entitled to participate equally in the dividends
and distributions that are declared with respect to a particular investment
portfolio and in the net distributable assets of such portfolio on
liquidation. Shares of the Prairie Portfolios have a par value of $.001.
Shares of the Woodward Funds have a par value of $.10. In addition, shares of
the Prairie Portfolios and Woodward Funds have no preemptive rights
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and only such conversion and exchange rights as the respective Boards of
Trustees or Directors may grant in their discretion. When issued for payment
as described in their prospectuses, Prairie Portfolio shares and Woodward Fund
shares are fully paid and non-assessable by such entities except as required
under Massachusetts law with respect to Woodward, the Prairie Funds and
Prairie Intermediate Bond Fund. Woodward is not required under Massachusetts
law to hold annual shareholder meetings and intends to do so only if required
by the 1940 Act. Shareholders have the right to remove Trustees. To the extent
required by law, Woodward will assist in shareholder communications in such
matters.
The foregoing is only a summary. Shareholders may obtain copies of
the Declarations of Trust and By-laws (as applicable) of Woodward, the Prairie
Funds and Prairie Intermediate Bond Fund, and the Articles of Incorporation
and By-laws of Prairie Municipal Bond Fund, Inc. upon written request at the
addresses shown on the cover page of this Combined Proxy Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
General Information. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Prairie's Boards
of Trustees and Directors in connection with the Meeting. It is expected that
the solicitation of proxies will be primarily by mail. Officers and service
contractors of Prairie may also solicit proxies by telephone, telegraph,
facsimile or personal interview. Any shareholder giving a proxy may revoke it
at any time before it is exercised by submitting to Prairie a written notice
of revocation or a subsequently executed proxy or by attending the Meeting and
voting in person.
Only shareholders of record at the close of business on April 11,
1996 will be entitled to vote at the Meeting. On that date there were
outstanding and entitled to be voted _________ shares of Prairie Money Market
Fund, ______ shares of Prairie U.S. Government Money Market Fund, _______
shares of Prairie Municipal Money Market Fund, ________ shares of Prairie
Growth Fund, _________ shares of Prairie International Equity Fund, __________
shares of Prairie International Bond Fund, ___________ shares of Prairie
Equity Income Fund, _________ shares of Prairie Special Opportunities Fund,
________ shares of Prairie Bond Fund, _________ shares of Prairie Intermediate
Municipal Bond Fund, __________ shares of Prairie Municipal Bond Fund,
_________ shares of Prairie Intermediate Bond Fund, _________ shares of
Prairie Managed Assets Fund and ________ shares of Prairie Managed Assets
Income Fund. Each share or fraction thereof is entitled to one vote or
fraction thereof, and all shares will vote separately by Fund.
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Prairie and Woodward have been advised by FCIMCO that the shares of
each Prairie Portfolio over which First Chicago NBD Corporation or its
affiliates have voting power will, wherever possible, be voted in accordance
with instructions received from beneficial owners or fiduciaries of such
accounts who are not related to First Chicago NBD Corporation or its
affiliates. As to employee benefit plans, First Chicago NBD Corporation may
vote such shares in accordance with the recommendation of an independent
fiduciary. Where First Chicago NBD Corporation is required to vote Prairie
shares, it will vote them in the same proportions as the shares of all other
voting shareholders of each respective Prairie Portfolio were actually voted.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting or any adjournment
thereof. For information on adjournment of the meeting, see "Quorum" below.
Shareholder and Board Approvals. The Reorganization Agreement (and the
transactions contemplated thereby) is being submitted for approval at the
Meeting by the holders of a majority of the outstanding shares of the Prairie
Money Market Fund, U.S. Government Money Market Fund, Municipal Money Market
Fund, Growth Fund, International Equity Fund, International Bond Fund, Equity
Income Fund, Special Opportunities Fund, Bond Fund, Intermediate Municipal
Bond Fund, Municipal Bond Fund, Intermediate Bond Fund, Managed Assets Fund
and Managed Assets Income Fund in accordance with the provisions of Prairie
Funds' and Prairie Intermediate Bond Fund's Declaration of Trust, Prairie
Municipal Bond Fund's Articles of Incorporation, and the requirements of the
1940 Act. The term "majority of the outstanding shares" of a Prairie Portfolio
as used herein means more than 50% of the outstanding shares of such Prairie
Portfolio.
In tallying shareholder votes, abstentions and broker non-votes
(i.e., proxies sent in by brokers and other nominees that cannot be voted on a
proposal because instructions have not been received from the beneficial
owners) will be counted for purposes of determining whether or not a quorum is
present for purposes of convening the meeting. On the Reorganization proposal
abstentions and broker non-votes will be considered to be a vote against the
Reorganization proposal.
The approval of the Reorganization by the shareholders of Woodward
is not being solicited because their approval or consent is not legally
required.
At ___________, 1996, FCIMCO and its affiliates held
[beneficially/of record] ____% of the Prairie Money Market Fund, U.S.
Government Money Market Fund, Municipal Money Market Fund, Growth Fund,
International Equity Fund, International Bond Fund,
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Equity Income Fund, Special Opportunities Fund, Bond Fund, International Bond
Fund, Intermediate Municipal Bond Fund, Municipal Bond Fund, Intermediate Bond
Fund, Managed Assets Fund and Managed Assets Income Fund.
At __________, 1996, the name, address and percentage of ownership
of the persons who owned [beneficially/of record] 5% or more of any class of
the Reorganizing Portfolios, and the percentage of the respective share
classes of the corresponding Existing Woodward Funds that would be owned by
those persons upon the consummation of the Reorganizing Portfolios Transaction
based upon their holdings on ___________, 1996, are as follows:
<TABLE>
<CAPTION>
Percentage
Percentage of Class of
of Reorganizing Existing
Percentage Portfolio's Woodward
of Class Shares Fund
Reorganizing Class of Owned on Owned on Owned on
Portfolio Name and Address Shares Owned Record Date Record Date Consummation
- ------------ ---------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
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At ____________, 1996, the name, address and percentage of
ownership of each person who owned [beneficially/of record] 5% or more of any
class of shares of the Continuing Portfolios is listed below. Prior to the
Continuing Portfolios Transaction, the New Woodward Funds will have only
nominal assets. Accordingly, the persons who own [beneficially/of record] 5%
or more of any class of shares of the Continuing Portfolios will not
materially change upon consummation of the Continuing Portfolios Transaction.
<TABLE>
<CAPTION>
Percentage Percentage
of of Class of
Continuing New
Percentage Portfolio Woodward
of Class Shares Fund
Continuing Class of Owned on Owned on Owned on
Portfolio Name and Address Shares Owned Record Date Record Date Consummation
- ---------- ---------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
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At __________, 1996, the trustees/directors and officers of
Prairie, as a group, owned less than 1% of the outstanding shares of each of
the Prairie Portfolios. At ___________, 1996, the trustees and officers of
Woodward owned less than 1% of the outstanding shares of each of the
corresponding Woodward Funds.
At __________, 1996, the name, address and percentage of ownership
of the persons who owned [beneficially/of record] 5% or more of any class of
shares of the Existing Woodward Funds, and the percentage of the respective
share classes that would be owned by those persons upon consummation of the
Reorganizing Portfolios Transaction based upon their holdings on ___________,
1996, are as follows:
<TABLE>
<CAPTION>
Percentage
of Existing
Percentage Woodward Percentage
Existing of Class Fund Shares of Class
Woodward Class of Owned on Owned on Owned on
Fund Name and Address Shares Owned Record Date Record Date Consummation
- -------- ---------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
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At _________, 1996, the name, address and share ownership of the
persons who owned [beneficially/of record] 5% or more of Woodward's investment
portfolios not involved in the Reorganization were as follows:
<TABLE>
<CAPTION>
Name and Address Fund Percentage of Ownership
- ---------------- ---- -----------------------
<S> <C> <C>
</TABLE>
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Appraisal Rights. Shareholders are not entitled to any rights of share
appraisal under Prairie's Declarations of Trust or Articles of Incorporation,
or under the laws of the Commonwealth of Massachusetts or the State of
Maryland, in connection with the Reorganization. Shareholders have, however,
the right to redeem from Prairie their Prairie Portfolio shares at net asset
value until the effective time of the Reorganization, and thereafter
shareholders may redeem from Woodward the Woodward shares acquired by them in
the Reorganization at net asset value.
Quorum. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Reorganization Agreement and the transactions contemplated thereby are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares affected by
the adjournment that are represented at the Meeting in person or by proxy. If
a quorum is present, the persons named as proxies will vote those proxies
which they are entitled to vote FOR the Reorganization Agreement, in favor of
such adjournments, and will vote those proxies required to be voted AGAINST
such proposals against any adjournment. A shareholder vote may be taken with
respect to one or more Prairie Portfolios prior to any such adjournment if
sufficient votes have been received for approval with respect to any such
Prairie Portfolio. A quorum is constituted with respect to a Prairie Portfolio
by the presence in person or by proxy of the holders of more than 30% (33 1/3%
with respect to Prairie Municipal Bond Fund, Inc.) of the outstanding shares
of the Portfolios entitled to vote at the Meeting. Prairie proxies properly
executed and marked with a negative vote or an abstention will be considered
to be present at the Meeting for the purposes of determining the existence of
a quorum for the transaction of business.
Annual Meetings. Woodward does not presently intend to hold annual meetings of
shareholders for the election of trustees and other business unless and until
such time as less than a majority of the trustees holding office have been
elected by the shareholders, at which time the trustees then in office will
call a shareholders' meeting for the election of trustees. Shareholders have
the right to call a meeting of shareholders to consider the removal of one or
more trustees or for other matters and such meetings will be called when
requested in writing by the holders of record of 10% or more of Woodward's
outstanding shares of beneficial interest. To the extent required by law,
Woodward will assist in shareholder communications on such matters.
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ADDITIONAL INFORMATION ABOUT WOODWARD
Information about the Existing Woodward Funds is included in the
Prospectuses accompanying this Combined Proxy Statement/Prospectus, which are
incorporated by reference herein. Additional information about these Funds is
included in their Statements of Additional Information dated April 15, 1996
which have been filed with the SEC. Copies of the Statements of Additional
Information may be obtained without charge by writing to Woodward c/o NBD,
P.O. Box 7058, Troy, Michigan 48007, or by calling Woodward at 1-800-688-3350.
Woodward is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, as applicable, and, in accordance with
such requirements, files proxy materials, reports and other information with
the SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
ADDITIONAL INFORMATION ABOUT PRAIRIE
Information about Prairie is incorporated herein by reference from
its Prospectus dated April 11, 1996 and Statement of Additional Information,
dated April 11, 1996, copies of which may be obtained without charge by
writing or calling Prairie at the address and telephone number shown on the
cover page of this Combined Proxy Statement/Prospectus. Reports and other
information filed by Prairie can be inspected and copied at the Public
Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
LITIGATION
Neither Prairie nor Woodward is involved in any litigation or
proceeding that is believed likely to have any material adverse effect upon
the ability of the co-advisers to provide investment advisory services or any
material adverse effect upon either the Prairie Portfolios or the Woodward
Funds.
FINANCIAL STATEMENTS
The financial highlights and financial statements for the Prairie
Portfolios for the fiscal year or period ended December 31, 1995 are contained
in Prairie's Annual Report to
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Shareholders and in Prairie's Prospectus and Statement of Additional
Information dated April 11, 1996, each of which is incorporated by reference
into this Combined Proxy Statement/Prospectus. The financial highlights and
the financial statements for the Existing Woodward Funds for the fiscal year
ended December 31, 1995 are contained in Woodward's Annual Reports to
Shareholders and in Woodward's Prospectuses and Statements of Additional
Information each dated April 15, 1996, each of which is incorporated by
reference in this Combined Proxy Statement/Prospectus.
The audited financial statements of the Prairie Portfolios for the
fiscal year or period ended December 31, 1995, contained in Prairie's Annual
Report and incorporated by reference in this Combined Proxy/Prospectus, have
been incorporated herein in reliance on the report of Ernst & Young LLP,
independent auditors, given upon the authority of such firm as experts in
accounting and auditing.
The audited financial statements of the Existing Woodward Funds for
the fiscal year ended December 31, 1995, contained in Woodward's Annual
Reports and incorporated by reference in this Combined Proxy/Prospectus, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto and are incorporated herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
OTHER BUSINESS
The Boards of Trustees and Directors of Prairie know of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is the intention that proxies which do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of
proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Prairie in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-370-9446.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN EACH ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
THE WOODWARD FUNDS, PRAIRIE FUNDS,
PRAIRIE INTERMEDIATE BOND FUND
AND PRAIRIE MUNICIPAL BOND FUND, INC.
DATED __________________, 1996
I-1
<PAGE>
TABLE OF CONTENTS
Page
----
I. Transfer of Assets of Prairie Portfolios. ........... 3
II. Liquidating Distributions and Termination of
Prairie.............................................. 9
III. Valuation Times...................................... 10
IV. Certain Representations, Warranties and
Agreements of Prairie................................ 10
V. Certain Representations, Warranties and
Agreements of Woodward............................... 17
VI. Shareholder Action on Behalf of the Acquired
Funds................................................ 22
VII. N-14 Registration Statement and Proxy
Solicitation Materials............................... 24
IX. Woodward Conditions.................................. 25
X. Prairie Conditions................................... 32
XI. Tax Documents........................................ 37
XII. Finder's Fees........................................ 37
XIII. Announcements........................................ 37
XIV. Further Assurances................................... 37
XV. Termination of Representations and Warranties........ 38
XVI. Termination of Agreement............................. 38
XVII. Amendment and Waiver................................. 39
XVIII. Governing Law........................................ 40
XIX. Successors and Assigns............................... 40
XX. Beneficiaries........................................ 40
XXI. Prairie Liability.................................... 41
XXII. Woodward Liability................................... 42
XXIII. Notices.............................................. 43
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XXIV. Expenses............................................. 45
XXV. Entire Agreement..................................... 45
XXVI. Counterparts......................................... 45
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION made as of
________________, 1996 by and among The Woodward Funds, a Massachusetts
business trust ("Woodward"), Prairie Funds and Prairie Intermediate Bond Fund,
each a Massachusetts business trust, and Prairie Municipal Bond Fund, Inc., a
Maryland corporation (Prairie Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc. are hereinafter referred to collectively as
"Prairie").
WHEREAS, the parties desire that substantially all of
the assets and liabilities of Prairie's portfolios be transferred to, and be
acquired and assumed by, certain Woodward portfolios in exchange for Class A,
Class B or Class I Shares, as applicable, of the Woodward portfolios which
shall thereafter be distributed by Prairie to the holders of Class A, Class B
or Class I Shares, as applicable, of its portfolios, all as described in this
Agreement (the "Reorganization");
WHEREAS, the parties intend that the Woodward Managed
Assets Conservative, Equity Income, Small-Cap Opportunity, International Bond,
International Major Markets, Intermediate Municipal Bond and Income Funds will
each have nominal assets and liabilities before the Reorganization and will
continue the investment operations of the Prairie Managed Assets Income,
Equity Income, Special Opportunities, International Bond,
<PAGE>
International Equity, Intermediate Municipal Bond and Intermediate Bond Funds
(the "Continuing Funds"), respectively, after the Reorganization;
WHEREAS, the Reorganization with respect to the Prairie
Managed Assets, Growth, Bond, U.S. Government Money Market, Money Market,
Municipal Money Market and Municipal Bond Funds (the "Reorganizing Funds")
shall occur on a date that is prior to the Reorganization with respect to the
Continuing Funds;
WHEREAS, the parties intend that the transfers of
assets, assumptions of liabilities, and distributions of Class A, Class B and
Class I Shares in each Prairie portfolio, as the case may be, be treated as a
tax-free reorganization under Section 368(a)(1)(C), 368(a)(1)(D) or
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, the parties intend that in connection with the
Reorganization each of the Prairie portfolios shall be terminated and Prairie
shall be terminated under state law and deregistered as described in this
Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth and subject to the terms and
conditions hereof, and intending to be legally bound hereby, Woodward and
Prairie agree as follows:
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<PAGE>
I. Transfer of Assets of Prairie Portfolios.
1.01 (a) At the Effective Time of the Reorganization (as
defined in Article VIII) with respect to each of
the Prairie portfolios (each, an "Acquired Fund"),
all property of every description, and all
interests, rights, privileges and powers of each
Acquired Fund other than cash in an amount
necessary to pay any unpaid dividends and
distributions as provided in Article IV(g) (such
assets, the "Acquired Fund Assets") shall be
transferred and conveyed by such Acquired Fund to
Woodward on behalf of one of its portfolios as set
forth in Section 1.02 (each, an "Acquiring Fund"),
and shall be accepted by Woodward on behalf of
such Acquiring Fund, and Woodward, on behalf of
such Acquiring Fund, shall assume all known
liabilities whether accrued, absolute, contingent
or otherwise, of such Acquired Fund reflected in
the calculation of such Acquired Fund's net asset
value (the "Acquired Fund Liabilities"), so that
at and after the Effective Time of the
Reorganization with respect to such Acquired Fund:
(i) all assets of such Acquired Fund shall become
and be the assets of its Acquiring Fund; and (ii)
all known liabilities of such Acquired Fund
reflected as such in the calculation of the
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<PAGE>
Acquired Fund's net asset value shall attach to
its Acquiring Fund as aforesaid and may
thenceforth be enforced against such Acquiring
Fund to the extent as if the same had been
incurred by it. Without limiting the generality
of the foregoing, the Acquired Fund Assets
shall include all property and assets of any
nature whatsoever, including, without
limitation, all cash, cash equivalents,
securities, other investments, claims and
receivables (including dividend and interest
receivables) owned by an Acquired Fund, and
(subject to Section 1.01(b)) any deferred or
prepaid expenses shown as an asset on an
Acquired Fund's books, at the Effective Time of
the Reorganization of such Acquired Fund, and
all good will, all other intangible property
and all books and records belonging to an
Acquired Fund. Recourse by any person for the
Acquired Fund Liabilities assumed by an
Acquiring Fund shall, at and after the
Effective Time of the Reorganization of such
Acquired Fund, be limited to such Acquiring
Fund.
1.02 The assets of each Acquired Fund shall be acquired by the
Acquiring Fund identified below opposite its name, and the holders of each
class of shares of such Acquired Fund shall
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<PAGE>
receive the class of shares of common stock of the Acquiring Fund identified
below opposite the name of such class:
Prairie Portfolios and Classes Woodward Portfolios and Classes
- ------------------------------ -------------------------------
Managed Assets Income Fund Managed Assets Conservative Fund
Class A Class A
Class B Class B
Class I Class I
Managed Assets Fund Balanced Fund
Class A Class A
Class B Class B
Class I Class I
Equity Income Fund Equity Income Fund
Class A Class A
Class B Class B
Class I Class I
Growth Fund Capital Growth Fund
Class A Class A
Class B Class B
Class I Class I
Special Opportunities Fund Small-Cap Opportunity Fund
Class A Class A
Class B Class B
Class I Class I
International Equity Fund International Major Markets Fund
Class A Class A
Class B Class B
Class I Class I
Bond Fund Bond Fund
Class A Class A
Class B Class B
Class I Class I
International Bond Fund International Bond Fund
Class A Class A
Class B Class B
Class I Class I
Intermediate Municipal Bond Fund Intermediate Municipal Bond Fund
Class A Class A
Class B Class B
Class I Class I
U.S. Government Money Market Fund Treasury Money Market Fund
Class A Class A
Money Market Fund Money Market Fund
Class A Class A
Class B Class B
Municipal Money Market Fund Tax-Exempt Money Market Fund
Class A Class A
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<PAGE>
Intermediate Bond Fund Income Fund
Class A Class A
Class B Class B
Class I Class I
Municipal Bond Fund Municipal Bond Fund
Class A Class A
Class B Class B
Class I Class I
In connection with the Reorganization, the Board of Trustees of Woodward has
adopted resolutions authorizing the change of names of the Tax-Exempt Money
Market Fund to the Municipal Money Market Fund, the Capital Growth Fund to the
Growth Fund and the Balanced Fund to the Managed Assets Balanced Fund, the
change of designations of the classes of each Acquiring Fund as used in
Woodward's Prospectuses (i) from Retail Shares to Class A for each Acquiring
Fund, (ii) from Institutional Shares to Class I for each Acquiring Fund, and
(iii) the establishment of Class B Shares for each Acquiring Fund other than
the Treasury Money Market and Tax-Exempt Money Market Funds. These changes
will be effective by the Effective Time of the Reorganization with respect to
each Acquiring Fund.
1.03 In exchange for the transfer of the Acquired Fund Assets and
the assumption of the Acquired Fund Liabilities, Woodward shall simultaneously
issue at the applicable Effective Time of the Reorganization to each Acquired
Fund a number of full and fractional shares to the third decimal place, of the
Acquiring Fund specified in Section 1.02 and of the class or classes
identified in Section 1.02, all determined and adjusted
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<PAGE>
as provided in this Agreement. The number of shares of each class of the
Acquiring Funds so issued will have an aggregate net asset value equal to the
value of the Acquired Fund Assets that are represented by shares of the
corresponding class of the Acquired Fund, the holders of which shall receive
shares of such class of the Acquiring Fund, as specified in Section 1.02, all
determined and adjusted as provided in this Agreement.
1.04 The net asset value of each class of shares of the Acquiring
Funds and the net asset value of each class of shares of the Acquired Funds
shall be determined as of the applicable Valuation Time with respect to each
Acquired Fund specified in Article III.
1.05 The net asset value of each class of shares of each Acquiring
Fund shall be computed in the manner set forth in such Acquiring Fund's then
current prospectus(es) under the Securities Act of 1933, as amended (the "1933
Act"). The net value of the Acquired Fund Assets to be transferred by the
Prairie portfolios shall be computed by Prairie and shall be subject to
adjustment by the amount, if any, agreed to by Woodward and Prairie. In
determining the value of the securities transferred by the Acquired Funds to
the Acquiring Funds, each security shall be priced in accordance with the
policies and procedures of Woodward described in its then current prospectuses
and statements of additional information and adopted by Woodward's Board of
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<PAGE>
Trustees, which are and shall be consistent with the policies now in effect
for Prairie. For such purposes, price quotations and the security
characteristics relating to establishing such quotations shall be determined
by Woodward, provided that such determination shall be subject to the approval
of Prairie.
The value of the Acquired Fund Assets of the Prairie Money Market,
U.S. Government Money Market and Municipal Money Market Funds (each, a
"Prairie Money Market Fund") and the value of the shares of the corresponding
Acquiring Funds for purposes of sales and redemptions shall be based on the
amortized cost valuation procedures that have been adopted by the Board of
Trustees of Prairie and Woodward, respectively. Any provision in this
Agreement to the contrary notwithstanding, if the difference between the per
share net asset values of a Prairie Money Market Fund and its corresponding
Acquiring Fund equals or exceeds $.0025 at the applicable Valuation Time, as
computed by using such market values in accordance with the policies and
procedures established by Woodward (or as otherwise mutually determined by the
Board of Trustees of Prairie and Woodward), either the Board of Trustees of
Prairie or of Woodward shall have the right to postpone the applicable
Valuation Time and the applicable Effective Time of the Reorganization with
respect to such Prairie Money Market Fund until such time as the per share
difference is less than $.0025.
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<PAGE>
II. Liquidating Distributions and Termination of Prairie.
Immediately after the Effective Time of the Reorganization
with respect to each Acquired Fund, such Acquired Fund shall distribute in
complete liquidation pro rata to the record holders of each class of its
shares at the applicable Effective Time of the Reorganization the shares of
the class of the Acquiring Fund identified in Section 1.02 to be received by
the record holders of such class of such Acquired Fund. In addition, each
shareholder of record of an Acquired Fund shall have the right to receive any
unpaid dividends or other distributions which were declared before the
applicable Effective Time of the Reorganization with respect to the shares of
an Acquired Fund that are held by the shareholder at the applicable Effective
Time of the Reorganization. In accordance with instructions it receives from
Prairie, Woodward shall record on its books the ownership of each class of
shares of each Acquiring Fund by the record holders of the class of shares of
the Acquired Fund identified in Section 1.02. All of the issued and
outstanding shares of each class of each Acquired Fund shall be redeemed and
canceled on the books of Prairie at the Effective Time of the Reorganization
of such Acquired Fund and shall thereafter represent only the right to receive
the class of shares of the Acquiring Fund identified in Section 1.02, and the
Acquired Fund's transfer books shall be closed permanently. As soon as
practicable after the Effective Time of the Reorganization with respect to the
Continuing Funds, Prairie shall make all filings
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<PAGE>
and take all other steps as shall be necessary and proper to effect its
complete dissolution, and shall file an application pursuant to Section 8(f)
of the 1940 Act for an order declaring that it has ceased to be an investment
company and any and all documents that may be necessary to terminate its
existence under state law. After the Effective Time of the Reorganization with
respect to the Continuing Funds, Prairie shall not conduct any business except
in connection with its liquidation, dissolution, and deregistration.
III. Valuation Times. Subject to Section 1.05 hereof, (a) the Valuation Time
for the Reorganization with respect to each of the Reorganizing Funds shall be
4:00 P.M., Eastern Time, on such date as may be agreed in writing by the duly
authorized officers of both parties hereto, and (b) the Valuation Time for the
Reorganization with respect to each of the Continuing Funds shall be 4:00
p.m., Eastern Time, on such date as may be agreed in writing by the duly
authorized officers of both parties hereto, which date shall be not less than
seven calendar days following the Valuation Time for the Reorganization with
respect to each of the Reorganizing Funds.
IV. Certain Representations, Warranties and Agreements of Prairie. Each
Prairie entity, on behalf of itself and each of its Acquired Funds, represents
and warrants to, and agrees with, Woodward as follows:
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<PAGE>
(a) It is, in the case of each of the Prairie Funds
and Prairie Intermediate Bond Fund, a
Massachusetts business trust duly created pursuant
to its Agreement and Declaration of Trust for the
purpose of acting as a management investment
company under the 1940 Act and is validly existing
under the laws of, and duly authorized to transact
business in, the Commonwealth of Massachusetts,
and in the case of Prairie Municipal Bond Fund,
Inc., it is a Maryland corporation duly organized
and validly existing under the laws of the State
of Maryland. Each Acquired Fund is registered
with the Securities and Exchange Commission (the
"SEC") as an open-end management investment
company under the 1940 Act and such registration
is in full force and effect.
(b) It has power to own all of its properties and
assets and, subject to the approvals of
shareholders referred to herein, to carry out and
consummate the transactions contemplated hereby,
and has all necessary federal, state and local
authorizations to carry on its business as now
being conducted and to consummate the transactions
contemplated by this Agreement.
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<PAGE>
(c) This Agreement has been duly authorized, executed
and delivered by Prairie, and represents Prairie's
valid and binding contract, enforceable in
accordance with its terms, subject as to
enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other
similar laws of general applicability relating to
or affecting creditors' rights and to general
principles of equity. The execution and delivery
of this Agreement does not and will not, and the
consummation of the transactions contemplated by
this Agreement will not, violate Prairie's
Agreement and Declaration of Trust, Charter or By-
laws, as applicable, or any agreement or
arrangement to which it is a party or by which it
is bound.
(d) Each Acquired Fund has elected to qualify and has
qualified as a "regulated investment company"
under Subtitle A, Chapter 1, Subchapter M, Part I
of the Code, as of and since its first taxable
year; has been such a regulated investment company
at all times since the end of its first taxable
year when it so qualified; and qualifies and shall
continue to qualify as a regulated investment
-12-
<PAGE>
company until the Effective Time of the
Reorganization with respect to such Acquired
Fund.
(e) All federal, state, local and foreign income,
profits, franchise, sales, withholding, customs,
transfer and other taxes, including interest,
additions to tax and penalties (collectively,
"Taxes") relating to the Acquired Fund Assets due
or properly shown to be due on any return filed by
any Acquired Fund with respect to taxable periods
ending on or prior to, and the portion of any
interim period up to, the date hereof have been
fully and timely paid or provided for; and there
are no levies, liens, or other encumbrances
relating to Taxes existing, threatened or pending
with respect to the Acquired Fund Assets.
(f) The financial statements of each Prairie portfolio
for the fiscal year or period ended December 31,
1995, examined by Ernst & Young LLP, copies of
which have been previously furnished to Woodward,
present fairly the financial position of each
Acquired Fund as of December 31, 1995 and the
results of its operations for the year or period
then ending, in conformity with generally accepted
accounting principles.
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<PAGE>
(g) Prior to the Valuation Time applicable to a
Reorganizing Fund, that Reorganizing Fund shall
have declared a dividend or dividends, with a
record date and ex-dividend date prior to such
Valuation Time, which, together with all previous
dividends, shall have the effect of distributing
to its shareholders all of its investment company
taxable income, if any, for the taxable periods or
years ended on or before December 31, 1995 and for
the period from said date to and including the
Effective Time of the Reorganization applicable to
the Reorganizing Fund (computed without regard to
any deduction for dividends paid), and all of its
net capital gain, if any, realized in taxable
periods or years ended on or before December 31,
1995 and in the period from said date to and
including the Effective Time of the Reorganization
applicable to the Reorganizing Fund.
(h) At both the Valuation Time and the Effective
Time of the Reorganization with respect to each
Acquired Fund, there shall be no known
liabilities of such Acquired Fund, whether
accrued, absolute, contingent or otherwise, not
reflected in the net asset values per share of
its outstanding classes of shares.
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<PAGE>
(i) There are no legal, administrative or other
proceedings pending or, to Prairie's knowledge
threatened, against Prairie or an Acquired Fund
which could result in liability on the part of
Prairie or an Acquired Fund.
(j) Subject to the approvals of shareholders referred
to herein, at both the Valuation Time and the
Effective Time of the Reorganization with respect
to each Acquired Fund, it shall have full right,
power and authority to sell, assign, transfer and
deliver the Acquired Fund Assets of such Acquired
Fund and, upon delivery and payment for the
Acquired Fund Assets as contemplated herein, an
Acquiring Fund shall acquire good and marketable
title thereto, free and clear of all liens and
encumbrances, and subject to no restrictions on
the ownership or transfer thereof (except as
imposed by federal or state securities laws).
(k) No consent, approval, authorization or order of
any court or governmental authority is required
for the consummation by Prairie of the
transactions contemplated by this Agreement,
except such as may be required under the 1933
Act, the Securities Exchange Act of 1934, as
amended
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<PAGE>
("1934 Act"), the 1940 Act, the rules and
regulations under those Acts, and state
securities laws.
(l) Insofar as the following relate to Prairie, the
registration statement filed by Woodward on Form
N-14 relating to the shares of the Acquiring Funds
that will be registered with the SEC pursuant to
this Agreement, which, without limitation, shall
include a proxy statement of Prairie and the
prospectuses of Woodward with respect to the
transactions contemplated by this Agreement, and
any supplement or amendment thereto or to the
documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), on
the effective date of the N-14 Registration
Statement, at the time of any shareholders'
meeting referred to herein and at each Effective
Time of the Reorganization: (i) shall comply in
all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act, the rules
and regulations thereunder, and state securities
laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
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<PAGE>
misleading; provided, however, that the
representations and warranties in this
subsection shall apply only to statements in or
omissions from the N-14 Registration Statement
made in reliance upon and in conformity with
information furnished by Prairie for use in the
N-14 Registration Statement.
(m) All of the issued and outstanding shares of each
class of each Acquired Fund have been duly and
validly issued, are fully paid and non-assessable,
and were offered for sale and sold in conformity
with all applicable federal and state securities
laws, and no shareholder of an Acquired Fund has
any preemptive right of subscription or purchase
in respect of such shares.
(n) Prairie shall not sell or otherwise dispose of
any shares of an Acquiring Fund to be received
in the transactions contemplated herein, except
in distribution to its shareholders as
contemplated herein.
V. Certain Representations, Warranties and Agreements of
Woodward. Woodward, on behalf of itself and each Acquiring Fund,
represents and warrants to, and agrees with, Prairie as follows:
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<PAGE>
(a) It is a Massachusetts business trust duly created
pursuant to its Agreement and Declaration of Trust
for the purpose of acting as a management
investment company under the 1940 Act and is
validly existing under the laws of, and duly
authorized to transact business in, the
Commonwealth of Massachusetts. Each Acquiring
Fund is registered with the SEC as an open-end
management investment company under the 1940 Act
and such registration is in full force and effect.
(b) It has power to own all of its properties and
assets and to carry out and consummate the
transactions contemplated herein, and has all
necessary federal, state and local
authorizations to carry on its business as now
being conducted and to consummate the
transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized,
executed and delivered by Woodward, and
represents Woodward's valid and binding
contract, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, arrangement,
moratorium, and other similar laws of general
applicability relating to
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<PAGE>
or affecting creditors' rights and to general
principles of equity. The execution and
delivery of this Agreement did not, and the
consummation of the transactions contemplated
by this Agreement will not, violate Woodward's
Agreement and Declaration of Trust or By-laws
or any agreement or arrangement to which it is
a party or by which it is bound.
(d) Each Acquiring Fund has elected or will elect to
qualify, and each of the Woodward Balanced,
Capital Growth, International Equity, Bond,
Treasury Money Market, Money Market, Tax-Exempt
Money Market and Municipal Bond Funds ("Woodward
Operating Funds") has qualified, as a "regulated
investment company" under Subtitle A, Chapter 1,
Subchapter M, Part I of the Code, as of and since
its first taxable year; each of the Woodward
Operating Funds has been such a regulated
investment company at all times since the end of
its first taxable year when it so qualified and
intends to continue to qualify as a regulated
investment company.
(e) The financial statements of each of the Woodward
Operating Funds for its fiscal year ended December
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<PAGE>
31, 1995, examined by Arthur Andersen LLP,
copies of which have been previously furnished
to Prairie, present fairly the financial
position of each such Acquiring Fund as of
December 31, 1995 and the results of its
operations for the year or period then ending,
in conformity with generally accepted
accounting principles.
(f) At both the Valuation Time and the Effective Time
of the Reorganization with respect to each
Acquiring Fund, there shall be no known
liabilities of such Acquiring Fund, whether
accrued, absolute, contingent or otherwise, not
reflected in the net asset values per share of its
outstanding classes to be issued pursuant to this
Agreement.
(g) There are no legal, administrative or other
proceedings pending or, to its knowledge,
threatened against Woodward or an Acquiring
Fund which could result in liability on the
part of Woodward or an Acquiring Fund.
(h) No consent, approval, authorization or order of
any court or governmental authority is required
for the consummation by Woodward of the
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<PAGE>
transactions contemplated by this Agreement,
except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts, and state
securities laws.
(i) Insofar as the following relate to Woodward, the
N-14 Registration Statement on its effective date,
at the time of any shareholders' meetings referred
to herein and at each Effective Time of the
Reorganization: (i) shall comply in all material
respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act, the rules and
regulations thereunder, and state securities laws,
and (ii) shall not contain any untrue statement of
a material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading; provided,
however, that the representations and warranties
in this subsection shall apply only to statements
in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity
with information furnished by Woodward for use in
the N-14 Registration Statement.
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<PAGE>
(j) The shares of each class of each Acquiring Fund to
be issued and delivered to an Acquired Fund for
the account of record holders of shares of an
Acquired Fund, pursuant to the terms hereof, shall
have been duly authorized as of the Effective Time
of the Reorganization applying to such Acquiring
Fund and, when so issued and delivered, shall be
registered under the 1933 Act and under applicable
state securities laws, duly and validly issued,
fully paid and non-assessable, and no shareholder
of Woodward shall have any preemptive right of
subscription or purchase in respect thereto.
VI. Shareholder Action on Behalf of the Acquired Funds.
6.01 As soon as practicable after the effective date of the
N-14 Registration Statement, but in any event prior to the Effective Time of
the Reorganization applicable to the Reorganizing Funds and as a condition to
the Reorganization, the Board of Trustees/Directors of Prairie shall call, and
Prairie shall hold, a meeting of the shareholders of the Acquired Funds for
the purpose of considering and voting upon:
(a) Approval of this Agreement and the transactions
contemplated hereby, including, without
limitation:
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<PAGE>
(i) The transfer of the Acquired Fund Assets
belonging to each Acquired Fund to an
Acquiring Fund, and the assumption by such
Acquiring Fund of the Acquired Fund
Liabilities of such Acquired Fund, in
exchange for shares of a class or classes
of shares of such Acquiring Fund, as set
forth in Section 1.02.
(ii) The liquidation of each
Acquired Fund through the
distribution to its record
holders of shares of the
class or classes of shares
of an Acquiring Fund as
described in this
Agreement.
(b) Such other matters as may be determined by the
Boards of Trustees/Directors or authorized
officers of the parties.
6.02 Approval of this Reorganization Agreement by the shareholders
of the Acquired Funds shall constitute the waiver of the application of any
fundamental policy of such Acquired Funds that might be deemed to prevent them
from taking the actions necessary to effectuate the Reorganization as
described, and such policies, if any, shall be deemed to have been amended
accordingly.
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<PAGE>
VII. N-14 Registration Statement and Proxy Solicitation Materials. Woodward
shall file the N-14 Registration Statement under the 1933 Act, and Prairie
shall file the combined prospectus/proxy statement contained therein under the
1934 Act and 1940 Act proxy rules, with the SEC as promptly as practicable.
Each of Woodward and Prairie has cooperated and shall continue to cooperate
with the other, and has furnished and shall continue to furnish the other with
the information relating to itself that is required by the 1933 Act, the 1934
Act, the 1940 Act, the rules and regulations under each of those Acts and
state securities laws, to be included in the N-14 Registration Statement.
VIII. Effective Times of the Reorganization. Delivery of the Acquired Fund
Assets of each Acquired Fund and the shares of the classes of its Acquiring
Fund to be issued pursuant to Article I and the liquidation of each Acquired
Fund pursuant to Article II shall occur at the opening of business on the next
business day following the Valuation Time applicable to such Acquired Fund, or
on such other date, and at such place and time and date, as may be determined
by the President or any Vice President of each party hereto. The respective
date and time at which such actions are taken with respect to an Acquired Fund
are referred to herein as the "Effective Time of the Reorganization." To the
extent any Acquired Fund Assets are, for any reason, not transferred at the
applicable Effective Time of the Reorganization, Prairie shall
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<PAGE>
cause such Acquired Fund Assets to be transferred in accordance with this
Agreement at the earliest practicable date thereafter.
IX. Woodward Conditions. The obligations of Woodward hereunder
with respect to each Acquiring Fund shall be subject to the
following conditions precedent:
(a) This Agreement and the transactions
contemplated by this Agreement shall have been
approved by the shareholders of such Acquired
Fund, in the manner required by law.
(b) Prairie shall have duly executed and delivered to
Woodward such bills of sale, assignments,
certificates and other instruments of transfer
("Transfer Documents") as may be necessary or
desirable to transfer all right, title and
interest of Prairie and such Acquired Fund in and
to the Acquired Fund Assets of such Acquired Fund.
The Acquired Fund Assets shall be accompanied by
all necessary state stock transfer stamps or cash
for the appropriate purchase price therefor.
(c) All representations and warranties of Prairie made
in this Agreement shall be true and correct in all
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<PAGE>
material respects as if made at and as of each
Valuation Time and each Effective Time of the
Reorganization. As of the Valuation Time and
the Effective Time of the Reorganization
applicable to each Acquired Fund, there shall
have been no material adverse change in the
financial position of such Acquired Fund since
December 31, 1995 other than those changes
incurred in the ordinary course of business as
an investment company. No action, suit or other
proceeding shall be threatened or pending
before any court or governmental agency in
which it is sought to restrain or prohibit, or
obtain damages or other relief in connection
with, this Agreement or the transactions
contemplated herein.
(d) Woodward shall have received an opinion of Stroock
& Stroock & Lavan addressed to Woodward in form
reasonably satisfactory to it and dated the
Effective Time of the Reorganization applicable to
each Acquired Fund, substantially to the effect
that: (i) Prairie Funds and Prairie Intermediate
Bond Fund are each a Massachusetts business trust
duly organized and validly existing under the laws
of the Commonwealth of Massachusetts; (ii) Prairie
Municipal Bond Fund, Inc. is a Maryland
-26-
<PAGE>
corporation duly organized and validly existing
under the laws of the State of Maryland; (iii)
the shares of such Acquired Fund outstanding at
such time are duly authorized, validly issued,
fully paid and non-assessable by such Acquired
Fund, and to such counsel's knowledge, no
shareholder of such Acquired Fund has any
option, warrant or pre-emptive right to
subscription or purchase in respect thereof;
(iv) this Agreement and the Transfer Documents
have been duly authorized, executed and
delivered by Prairie and represent legal, valid
and binding contracts, enforceable in
accordance with their terms, subject to the
effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating
to or affecting creditors' rights generally and
court decisions with respect thereto, and such
counsel shall not be required to express an
opinion with respect to the application of
equitable principles in any proceeding, whether
at law or in equity, or with respect to the
provisions of this Agreement intended to limit
liability for particular matters to an Acquired
Fund and its assets; (v) the execution and
delivery of this Agreement did not, and the
consummation of the transactions contemplated
by this Agreement will not, violate
-27-
<PAGE>
the Agreement and Declaration of Trust, Charter
or By-laws, as applicable, of Prairie or any
material agreement known to such counsel to
which Prairie is a party or by which Prairie is
bound; and (v) to such counsel's knowledge, no
consent, approval, authorization or order of
any court or governmental authority is required
for the consummation by Prairie of the
transactions contemplated by this Agreement,
except such as have been obtained under the
1933 Act, the 1934 Act, the 1940 Act, the rules
and regulations under those Acts and such as
may be required under the state securities
laws. Such opinion may rely on the opinion of
other counsel to the extent set forth in such
opinion, provided such other counsel is
reasonably acceptable to Woodward.
(e) Woodward shall have received an opinion of Drinker
Biddle & Reath, addressed to Woodward and Prairie
in form reasonably satisfactory to them and dated
the Effective Time of the Reorganization
applicable to each Acquired Fund, substantially to
the effect that for federal income tax purposes
(i) the transfers of all of the Acquired Fund
Assets hereunder, and the assumption by its
Acquiring Fund of Acquired Fund Liabilities, in
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<PAGE>
exchange for shares of each class of such
Acquiring Fund, and the distribution of said
shares to the shareholders of such Acquired
Fund, as provided in this Agreement, will each
constitute a reorganization within the meaning
of Section 368(a)(1)(C), 368(a)(1)(D) or
368(a)(1)(F) of the Code and with respect to
each reorganization, the Acquired Fund and the
Acquiring Fund will each be considered "a party
to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) in accordance
with Sections 361(a), 361(c)(1) and 357(a) of
the Code, no gain or loss will be recognized by
such Acquired Fund as a result of such
transactions; (iii) in accordance with Section
1032(a) of the Code, no gain or loss will be
recognized by an Acquiring Fund as a result of
such transactions; (iv) in accordance with
Section 354(a)(1) of the Code, no gain or loss
will be recognized by the shareholders of such
Acquired Fund on the distribution to them by
such Acquired Fund of shares of any class of an
Acquiring Fund in exchange for their shares of
the corresponding class of the Acquired Fund;
(v) in accordance with Section 358(a)(1) of the
Code, the aggregate basis of Acquiring Fund
shares received by each
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<PAGE>
shareholder of any class of an Acquired Fund
will be the same as the aggregate basis of the
shareholder's Acquired Fund shares immediately
prior to the transactions; (vi) in accordance
with Section 362(b) of the Code, the basis of
the Acquired Fund Assets to any Acquiring Fund
will be the same as the basis of such Acquired
Fund Assets in the hands of the corresponding
Acquired Fund immediately prior to the
exchange; (vii) in accordance with Section
1223(1) of the Code, a shareholder's holding
period for Acquiring Fund shares will be
determined by including the period for which
the shareholder held the shares of an Acquired
Fund exchanged therefor, provided that the
shareholder held such shares of an Acquired
Fund as a capital asset; and (viii) in
accordance with Section 1223(2) of the Code,
the holding period of an Acquiring Fund with
respect to the Acquired Fund Assets will
include the period for which such Acquired Fund
Assets were held by an Acquired Fund.
(f) The SEC shall not have issued any unfavorable
advisory report under Section 25(b) of the 1940
Act nor instituted any proceeding seeking to
enjoin consummation of the transactions
-30-
<PAGE>
contemplated by this Agreement under Section 25(c)
of the 1940 Act.
(g) The N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order
suspending such effectiveness shall have been
instituted or, to the knowledge of Woodward,
contemplated by the SEC and the parties shall have
received all permits and other authorizations
necessary under state securities laws to
consummate the transactions contemplated by this
Agreement.
(h) The President or a Vice President of Prairie
shall have certified that Prairie has performed
and complied in all material respects with each
of its agreements and covenants required by
this Agreement to be performed or complied with
by it prior to or at each Valuation Time and
each Effective Time of the Reorganization.
(i) Prairie shall have delivered or caused to be
delivered to Woodward each account, book,
record or other document of Prairie applicable
to such Acquired Fund which is required to be
maintained by Section 31(a) of the 1940 Act and
Rules 31a-1
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<PAGE>
to 31a-3 thereunder (regardless of what person
possesses the same). Prairie has instructed its
service contractors to provide Woodward upon
request with access to and copies of all
documents belonging to Prairie.
(j) With respect to the Reorganization of the
Continuing Funds, the Reorganization of all of the
Reorganizing Funds shall have been consummated.
X. Prairie Conditions. The obligations of Prairie hereunder
with respect to each Acquired Fund shall be subject to the
following conditions precedent:
(a) This Agreement and the transactions
contemplated by this Agreement shall have been
approved by the shareholders of such Acquired
Fund, in the manner required by law.
(b) All representations and warranties of Woodward
made in this Agreement shall be true and
correct in all material respects as if made at
and as of each Valuation Time and each
Effective Time of the Reorganization. As of the
Valuation Time and the Effective Time of the
Reorganization applicable to each Acquired
Fund, there shall have been no
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<PAGE>
material adverse change in the financial
condition of its Acquiring Fund since December
31, 1995 other than those changes incurred in
the ordinary course of business as an
investment company. No action, suit or other
proceeding shall be threatened or pending
before any court or governmental agency in
which it is sought to restrain or prohibit, or
obtain damages or other relief in connection
with, this Agreement or the transactions
contemplated herein.
(c) Prairie shall have received an opinion of Drinker
Biddle & Reath, addressed to Prairie in form
reasonably satisfactory to it and dated the
Effective Time of the Reorganization applicable to
each Acquired Fund, substantially to the effect
that: (i) Woodward is a Massachusetts business
trust duly organized and validly existing under
the laws of the Commonwealth of Massachusetts and
is qualified to do business and in good standing
in each state in which such qualification is
required; (ii) the shares of each class of each
Acquiring Fund to be delivered at such time to an
Acquired Fund as provided for by this Agreement
are duly authorized and upon delivery will be
validly issued, fully paid and non-assessable by
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<PAGE>
such Acquiring Fund and to such counsel's
knowledge, no shareholder of an Acquiring Fund
has any option, warrant or pre-emptive right to
subscription or purchase in respect thereof;
(iii) this Agreement has been duly authorized,
executed and delivered by Woodward and
represents a legal, valid and binding contract,
enforceable in accordance with its terms,
subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting
creditors' rights generally and court decisions
with respect thereto, and such counsel shall
not be required to express an opinion with
respect to the application of equitable
principles in any proceeding, whether at law or
in equity, or with respect to the provisions of
this Agreement intended to limit liability for
particular matters to an Acquiring Fund and its
assets; (iv) the execution and delivery of this
Agreement did not, and the consummation of the
transactions contemplated by this Agreement
will not, violate the Agreement and Declaration
of Trust or By-laws of Woodward, or any
material agreement known to such counsel to
which Woodward is a party or by which Woodward
is bound; and (v) to such counsel's knowledge
no consent, approval, authorization or
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<PAGE>
order of any court or governmental authority is
required for the consummation by Woodward of
the transactions contemplated by this
Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act,
the rules and regulations under those Acts and
such as may be required under the state
securities laws. Such opinion may rely on the
opinion of other counsel to the extent set
forth in such opinion, provided such other
counsel is reasonably acceptable to Prairie.
(d) Prairie shall have received an opinion of
Drinker Biddle & Reath, addressed to Woodward
and Prairie in the form reasonably satisfactory
to them and dated the Effective Time of the
Reorganization applicable to each Acquired
Fund, with respect to the matters specified in
Section IX(e).
(e) The N-14 Registration Statement shall have
become effective under the 1933 Act and no stop
order suspending such effectiveness shall have
been instituted, or to the knowledge of
Woodward, contemplated by the SEC and the
parties shall have received all permits and
other authorizations necessary under state
securities laws to
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<PAGE>
consummate the transactions contemplated by this
Agreement.
(f) The SEC shall not have issued any unfavorable
advisory report under Section 25(b) of the 1940
Act nor instituted any proceeding seeking to
enjoin consummation of the transactions
contemplated by this Agreement under Section
25(c) of the 1940 Act.
(g) The President or Vice President of Woodward
shall have certified that Woodward has
performed and complied in all material respects
with each of its agreements and covenants
required by this Agreement to be performed or
complied with by it prior to or at each
Valuation Time and each Effective Time of the
Reorganization.
(h) Prairie shall have received from the SEC a
written order of exemption, satisfactory in
form and substance to Prairie and Woodward,
exempting the Reorganization from Sections
17(a) and 17(d) of the 1940 Act and Rule 17d-1
thereunder.
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<PAGE>
(i) With respect to the Reorganization of the
Continuing Funds, the Reorganization of all of the
Reorganizing Funds shall have been consummated.
XI. Tax Documents. Prairie shall deliver to Woodward at each
Effective Time of the Reorganization confirmations or other
adequate evidence as to the adjusted tax basis of the Acquired
Fund Assets then delivered to an Acquiring Fund in accordance
with the terms of this Agreement.
XII. Finder's Fees. Each party represents and warrants to each
of the other parties hereto that there is no person who is
entitled to any finder's or other similar fee or commission
arising out of the transactions contemplated by this Agreement.
XIII. Announcements. Any announcements or similar publicity
with respect to this Agreement or the transactions contemplated
herein shall be at such time and in such manner as the parties
shall agree; provided, that nothing herein shall prevent any
party upon notice to the other parties from making such public
announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in
such regard.
XIV. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto shall use its best
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<PAGE>
efforts to take, or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments,
and to do, or cause to be done, all things necessary, proper or advisable
under the provisions of this Agreement and under applicable law to consummate
and make effective the transactions contemplated by this Agreement.
XV. Termination of Representations and Warranties. The representations and
warranties of the parties set forth in this Agreement shall terminate at the
Effective Time of the Reorganization of the Continuing Funds.
XVI. Termination of Agreement.
16.01 This Agreement may be terminated as to one or more investment
portfolios by a party at any time at or prior to (i) the Effective Time of the
Reorganization of the Reorganizing Funds, or (ii) with respect to the
Continuing Funds and the corresponding Acquiring Funds at any time at or prior
to the Effective Time of the Reorganization of the Continuing Funds, by the
Board of Trustees of Woodward or the Board of Trustees or Directors of
Prairie, as provided below:
(a) By Woodward if the conditions set forth in Article
IX are not satisfied as specified in said Section;
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<PAGE>
(b) By Prairie if the conditions set forth in Article
X are not satisfied as specified in said Section;
(c) By the mutual consent of the parties.
16.02 If a party terminates this Agreement as to any investment
portfolio because one or more of its conditions precedent have not been
fulfilled, or if this Agreement is terminated by mutual consent, this
Agreement will become null and void without any liability of either party or
any of their investment portfolios to the other; provided, however, that if
such termination is by Woodward pursuant to Section 16.01(a) as a result of a
breach by Prairie of any of its representations, warranties or covenants in
this Agreement, or such termination is by Prairie pursuant to Section 16.01(b)
as a result of a breach by Woodward of any of its representations, warranties
or covenants in this Agreement, nothing herein shall affect the non-breaching
party's right to damages on account of such other party's breach.
XVII. Amendment and Waiver. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of
Prairie, (a) the parties hereto may, by written agreement authorized by their
respective Boards of Directors or Trustees, as the case may be, or their
respective Presidents or any Vice Presidents, and with or without the
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<PAGE>
approval of their shareholders, amend any of the provisions of this Agreement,
and (b) either party may waive any breach by the other party or the failure to
satisfy any of the conditions to its obligations (such waiver to be in writing
and authorized by the President or Vice President of the waiving party with or
without the approval of such party's shareholders).
XVIII. Governing Law. This Agreement and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the conflicts of law
principles otherwise applicable therein.
XIX. Successors and Assigns. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
XX. Beneficiaries. Nothing contained in this Agreement shall be deemed to
create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
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<PAGE>
XXI. Prairie Liability.
21.01 The names "Prairie Funds," "Prairie Intermediate Bond Fund"
and "Trustees of Prairie" refer respectively to the trusts created and the
trustees, as trustees but not individually or personally, acting from time to
time under Declarations of Trust dated October 20, 1994 and March 12, 1992,
respectively, which are hereby referred to and copies of which are on file at
the office of the State Secretary of the Commonwealth of Massachu- setts and
at the principal office of Prairie. The obligations of Prairie entered into in
the name or on behalf thereof by any of the trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the trustees, shareholders or representatives of Prairie
personally, but bind only the trust property, and all persons dealing with any
portfolio of Prairie must look solely to the trust property belonging to such
portfolio for the enforcement of any claims against Prairie.
21.02 Both parties specifically acknowledge and agree that any
liability of Prairie under this Agreement with respect to an Acquired Fund, or
in connection with the transactions contemplated herein with respect to an
Acquired Fund, shall be discharged only out of the assets of that Acquired
Fund and that no other portfolio of Prairie shall be liable with respect
thereto.
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<PAGE>
XXII. Woodward Liability.
22.01 The names "The Woodward Funds" and "Trustees of Woodward"
refer, respectively, to the trust created and the trustees, as trustees but
not individually or personally, acting from time to time under a Declaration
of Trust dated April 21, 1987, as amended May 1, 1992, which is hereby
referred to and a copy of which is on file at the office of the State
Secretary of the Commonwealth of Massachusetts and at the principal office of
Woodward. The obligations of Woodward entered into in the name or on behalf
thereof by any of the trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
trustees, shareholders or representatives of Woodward personally, but bind
only the trust property, and all persons dealing with any portfolio of
Woodward must look solely to the trust property belonging to such portfolio
for the enforcement of any claims against Woodward.
22.02 Both parties specifically acknowledge and agree that any
liability of Woodward under this Agreement with respect to an Acquiring Fund,
or in connection with the transactions contemplated herein with respect to an
Acquiring Fund, shall be discharged only out of the assets of that Acquiring
Fund and that no other portfolio of Woodward shall be liable with respect
thereto.
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<PAGE>
XXIII. Notices. All notices required or permitted herein shall be in writing
and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to a nationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number
stated below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
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<PAGE>
If to Woodward:
The Woodward Funds
Earl I. Heenan, Jr., President
c/o NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Telecopier Number: ___________
With a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier Number: (215) 988-2757
If to Prairie:
(a) Prairie Funds
c/o Mark A. Dillon, President
Three First National Plaza
Chicago, Illinois 60670
Telecopier Number: (312) 732-3864
(b) Prairie Intermediate Bond Fund
c/o Mark A. Dillon, President
Three First National Plaza
Chicago, Illinois 60670
Telecopier Number: (312) 732-3864
(c) Prairie Municipal Bond Fund, Inc.
c/o Mark A. Dillon, President
Three First National Plaza
Chicago, Illinois 60670
Telecopier Number: (312) 732-3864
With a copy to:
Lewis G. Cole, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Telecopier Number: (212) 806-6006
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<PAGE>
XXIV. Expenses. Each party represents to the other that its expenses incurred
in connection with the Reorganization will be borne by First Chicago NBD
Corporation or one or more of its affiliates, provided, however, that Woodward
shall bear any filing fees under the 1933 Act and state securities laws in
connection with its Class A, Class B and Class I Shares to be distributed to
shareholders of the Acquired Funds.
XXV. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior
agreements, arrangements and understandings relating to matters provided for
herein.
XXVI. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers designated below
as of the date first written above.
THE WOODWARD FUNDS
ATTEST:
___________________________ By: _________________________
PRAIRIE FUNDS
ATTEST:
____________________________ By: __________________________
PRAIRIE INTERMEDIATE BOND FUND
ATTEST:
____________________________ By: __________________________
ATTEST: PRAIRIE MUNICIPAL BOND FUND, INC.
____________________________ By: __________________________
-46-
<PAGE>
APPENDIX II
EXISTING WOODWARD FUNDS MD&A
II-1
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD CAPITAL GROWTH FUND
Objective:
The Woodward Capital Growth Fund commenced operations at the close of
business on July 1, 1994. It invests in common stocks of primarily domestic
companies with prospects for superior, sustainable annual earnings growth,
ideally supported by strong, unit-driven revenue growth and margin expansion
as well as conservative financial leverage. The Fund is intended for the
investor whose principal objective is long-term capital appreciation and, at
the same time, is tolerant of variable dividend income. The portfolio is
managed with an average risk profile by investing in larger, better managed
companies having above average historical earnings growth and consistency. The
Fund is expected to outperform the broad market and the average of similarly
managed portfolios over time.
Performance Highlights:
During 1995, the net asset value of the Fund advanced from $10.44 to
$13.26. Distributions from net investment income totaled $0.08 per share and
realized gain distributions were $0.11 per share. Turnover during the year was
very low at 7%, but this is a distorted number because strong cash inflows
throughout the year allowed repositioning of individual stocks within the Fund
as necessary.
For all of 1995, the Fund returned 28.9% (excluding the sales charge).
Although this represents an acceptable absolute return in its own right, the
Fund lagged its benchmarks for the year as a whole: the S&P 500 total return,
which is not impacted by transaction or management fees, was 37.5%, the median
gross return for a broad universe of Fund managers was 33.9%, and the average
return for a universe of growth managers was 30.8%, net of fees, as reported
by Lipper Analytical Services. So while the Capital Growth Fund participated
in the third best market rally since 1948, it is noteworthy that its best
relative returns came in the first and fourth quarters when the market had
broadened, and its worst performance occurred in narrow leadership markets in
the second and third quarters. It is the intent of Fund management to run this
as a broadly diversified equity product, with the expectation to do well in
markets not defined by narrow leadership.
The year as a whole proved to be a difficult climate in which to excel
for broadly diversified, longer term oriented funds such as the Capital Growth
Fund. Notwithstanding the very near-term horizon, affected by modest but
slowing economic growth, a stabilization in growth expectations, and
increasingly difficult earnings comparisons in the operationally levered
cyclical industries, the outlook for equities is positive. Supportive forces
for the equity market include both a monetary policy with sufficient room for
easing due to the absence of visible inflationary pressures, and record levels
of free cash flow generation. Investing in high quality stocks is more
relevant now than has been the case all year, and we remain enthused about
growth investing in general and the prospects for the Woodward Capital Growth
Fund, in particular, as we focus on companies with superior, top-line driven
growth opportunities.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD CAPITAL GROWTH FUND (Continued)
Growth of $10,000 Invested in the
Woodward Capital Growth Fund and the
Standard & Poor's 500 Index
[ GRAPH ]
6/94 12/94 6/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,958 $11,618 $12,836
Fund (2) $10,000 $10,481 $12,229 $13,511
Index (3) $10,000 $10,442 $12,550 $14,362
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$12,903.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (7/1/94)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Capital Growth Fund 22.5% 18.1%(1)
(with maximum 5.0% sales charge)
Woodward Capital Growth Fund 28.9% 22.2%
(without sales charge)
S&P 500 Index* 37.5% 27.3%
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 18.5%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BOND FUND
Objective:
The Woodward Bond Fund (the "Fund") seeks to maximize total rate of
return by investing predominately in intermediate and long-term debt
securities. The Fund attempts to achieve a total return exceeding that of the
Lehman Brothers Aggregate Bond Index (the "Index") over an interest rate cycle
or five years. The Fund is managed on the basis of both the extended outlook
for interest rates and trends in rates anticipated over the next 3 to 12
months. Active management strategies include sector rotation, intra-sector
adjustments, yield curve positioning and convexity considerations.
Performance Highlights:
During the Fund's fiscal year ended December 31, 1995, interest rates
declined along the yield curve. The two-year U.S. Treasury Note declined in
yield from a 7.69% level on December 31, 1994 to 5.15% on December 31, 1995.
The thirty-year U.S. Treasury Bond dropped in yield from 7.88% to 5.95% during
the same period. This larger decline in two-year yields resulted in a
"steepening" of the yield curve. For the year, the Index returned 18.47%.
The Fund returned 23.75% (without the sales charge) in 1995. During the
year, the net asset value of the Fund rose from $9.01 to $10.45. Distributed
dividends were $.64 per share and there were no capital gains distributions.
This return placed the Fund first in its Lipper category (Intermediate U.S.
Government) for the year. This return also compares very favorably versus the
Index which is an unmanaged, broad based bond index. Although the Fund
maintains a higher quality profile than the Index with over 95% of assets
rated AA or better, in general the long-term risk characteristics are similar.
The Index, however, is not subject to the expenses of a mutual fund.
The Fund's high absolute return was the result of yield declines and
price increases in most sectors of the bond market. The exceptional
performance of the Fund versus the Index was primarily the result of
positioning and security selection within the bond market. The higher duration
of the Fund (a measure of interest rate risk) versus that of the Index during
the year was a positive. Mortgage-Backed Securities (MBS) in general
underperformed Treasuries in 1995 because of fears of faster prepayments, but
the Fund's positioning within the MBS sector was a large positive for the
year. The Fund benefited from the high yield and high price appreciation of
discount CMOs. In particular, the higher yield provided by inverse floater
CMOs and the price appreciation of discount inverse floater and principal only
CMOs contributed to the higher return for the year. Also, premium CMOs backed
by very seasoned high coupon loans prepaid relatively slowly all year, thus
enhancing return. The Fund's overweighting in 2 to 4 year Treasuries was also
a positive for the year. The Fund's positioning in longer Treasury Strips was
a small negative as they were hurt from the yield curve steepening. However,
their high convexity benefited the portfolio during the year due to the large
decline in rates.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BOND FUND (Continued)
Growth of $10,000 Invested in the
Woodward Bond Fund and the
Lehman Brothers Aggregate Bond Index
[ GRAPH ]
6/91 12/91 6/9 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,544 $10,794 $11,235 $12,186 $12,515 $11,893 $11,640 $13,356 $14,404
Fund (2) $10,000 $11,070 $11,332 $11,796 $12,794 $13,139 $12,486 $12,220 $14,021 $15,122
Index (3) $10,000 $11,099 $11,400 $11,920 $12,744 $13,083 $12,576 $12,701 $14,154 $15,048
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $14,442.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
---------------- ---- ---------
<S> <C> <C>
Woodward Bond Fund 17.86% 8.28%(2)
(with maximum 4.75% sales charge)
Woodward Bond Fund 23.75% 9.43%
(without sales charge)
Lehman Bros Aggregate 18.47% 9.33%
Bond Index(1)
<FN>
(1) Includes Treasury, agency, mortgage-backed, asset-backed and investment
grade corporate debt with maturities of one year or longer.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 8.34%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MUNICIPAL BOND FUND
Objective:
The Woodward Municipal Bond Fund (the "Fund") seeks to provide as high a
level of current income exempt from federal tax as is consistent with relative
stability of principal. The Fund is managed on the basis of both the extended
outlook for interest rates and the underlying credit characteristics and value
of each asset. Active management strategies include duration management,
sector rotation, intra-sector adjustments, yield curve positioning and
convexity considerations.
Performance Highlights:
Municipal bond investors experienced one of their best performance years
during 1995 as slower economic growth, continued subdued inflation and market
technicals helped set a positive tone throughout the year. Much of the rally
was fueled by a record level of bond maturities, calls and redemptions that
came in the face of a sharp decrease in new issue supply. New issue volume in
1995 totaled approximately $155 billion, well below the 1993 peak of $292
billion and over 5% below the $164 billion issued in 1994. The municipal yield
curve flattened by 5 basis points in the 2 to 30-year sector while the
comparable Treasury curve steepened by 61 basis points. For the year, Aaa
rated municipals underperformed Treasuries with the range of 5 to 30-year
Municipal yields as a percentage of Treasury yields ending the year at 76.3%
to 87.5%, up from 69.0% to 83.8% from the previous year-end. The "20-Bond"
Bond Buyer Index, which is comprised of high quality, tax-exempt general
obligation bonds in the 20-year area, fluctuated within a 136 basis point
range throughout the year (one percentage point equals 100 basis points).
Given the overall strong tone of the market, the "20-Bond" Index closed the
year at 5.44%, 127 basis points lower than 1994.
The Fund returned 16.54% without the sales charge for 1995. During the
year, the net asset value of the Fund rose from $9.59 to $10.68. Distributions
from net investment income were $.472 per share compared to $.493 the previous
year and there were no capital gain distributions for the year. The Fund's
total return without the sales load was below the Lehman Brothers Municipal
Bond Index (the "Index") which returned 17.45%. Although the Fund continues to
maintain a higher quality profile than the Index with over 91% of assets rated
Aa or better and no holdings rated below A, in general the risk
characteristics are similar. The Index, however, is not subject to expenses of
a mutual fund.
The Fund's 1995 return was generally attributable to an overall decrease
of interest rates along the yield curve. The primary focus of the Fund was to
maintain a high quality portfolio while providing a steady level of income.
The overall underperformance by the Fund relative to the Index was
attributable to its underweighting in the 20 to 30-year sector of the market
and its negative convexity position. The narrowing of quality spreads also
negatively affected yearly performance. Overweighting in revenue and insured
securities relative to the Index, a slightly longer duration (a measure of
interest rate risk) and its minimal average cash position were all
contributing factors to the Fund's positive performance. Despite a lethargic
year for positive municipal mutual bond fund cash flows, due to a resilient
equity market, talk of tax reform and investor resistance to lower yields, the
Fund's cash flows increased by nearly 14% as compared to the overall municipal
market increase of less than 1%.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MUNICIPAL BOND FUND (Continued)
Growth of $10,000 Invested in the
Woodward Municipal Bond Fund and the
Lehman Brothers Municipal Bond Index
[ GRAPH ]
2/1/93 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,067 $10,612 $10,135 $10,025 $10,982 $11,682
Fund (2) $10,000 $10,569 $11,172 $10,671 $10,587 $11,642 $12,264
Index (3) $10,000 $10,588 $11,099 $10,606 $10,525 $11,541 $12,363
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $11,712.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (2/1/93)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Municipal Bond Fund 10.99% 5.49%(2)
(with maximum 4.75% sales charge)
Woodward Municipal Bond Fund 16.54% 7.27%
(without sales charge)
Lehman Brothers 17.45% 7.54%
Municipal Bond Index(1)
<FN>
(1) Includes investment grade general obligation, revenue, insured and
prerefunded issues with maturities from one to thirty years. Index began
July 1993.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 5.58%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BALANCED FUND
Objective:
The Woodward Balanced Fund maintains a portfolio of equities, fixed
income and cash equivalent securities. The Fund's objective is to achieve a
long-term total return through a combination of capital appreciation and
current income. The Fund seeks to achieve its investment objective through
active management of the relative weights of stocks, bonds and cash
equivalents and by superior securities selection within each of these major
asset groups.
Performance Highlights:
During the year ended December 31, 1995, the fund's asset allocation
between stocks and bonds remained relatively constant at approximately 53
percent stocks and 38 percent bonds. Cash equivalents rose slightly from 6
percent to 9 percent as we reduced our exposure slightly to stocks and bonds.
Dividends paid in 1995 were $0.466 per share. The short and long term
capital gains distributions were .055 and .064 per share, respectively. During
the year, net asset value moved from its initial price of $9.53 to $11.24. The
Woodward Balanced Fund provided a 23.2 percent return (without sales charge)
for 1995. The Lipper Balanced Fund Index net of fee returns for 12 months
ending December 31, 1995 was 25.2 percent. Despite the fourth quarter relative
out performance, the strong equity performance throughout 1995 caused us to
lag the index for the year. The blended return of the S&P 500 and the Lehman
Aggregate Bond Index generated a one-year return of 29.7 percent. This
synthetic blend of indices has similar asset allocation characteristics but is
not subject to expenses of a mutual fund.
The stock market ended 1995 with its third best year since 1948 as
measured by the S&P 500 Index's 37.5 percent return. The year ended December
31, 1995 with our equity portfolio providing an attractive absolute annual
return from virtually any historical perspective. In addition, as the year
proceeded and the market became more broad based, our relative performance
advanced versus the market and similar funds. The dichotomy between the S&P
500 Index return and the equity portion of our return can be explained in
large part due to the continued surge in a narrow group of large
capitalization stocks. Namely, the market was dominated by finance, technology
and healthcare companies averaging over $30 billion in market capitalization.
The risk profile associated with beating the index would require a level of
concentration that would violate our discipline to remain well diversified.
The merit to our low risk approach has gained favor as the technology sector
weakened and relative performance improved in the fourth quarter.
In the fixed income markets, yields declined across the yield curve
during the second half of the year as the Federal Reserve lowered the Fed
Funds rate to 5.50 percent during the fourth quarter of 1995 and the economy
showed more signs of sluggish growth with no signs of accelerating inflation.
Our strong fixed income performance both on an absolute basis and versus the
Lehman Aggregate Bond Index was the result of a number of strategies
performing well. Our position within Mortgage Backed Securities (MBS) was a
large positive, as it has been all year. The fund benefited from declining
yields through price appreciation, particularly on discount Collateralized
Mortgage Obligations (CMOs). Also, premium CMOs backed by very seasoned high
coupon loans prepaid relatively slowly all year, thus enhancing return. The
high yield provided by Inverse Floater CMOs and the price appreciation of
discount inverse floaters and principal only CMOs made a significant
contribution to the higher return for the year. Moreover, our slightly longer
duration also helped performance. Our defensive position in longer Treasury
Strips had a slightly negative impact due to the modest steepening in the
yield curve. Our overweighting in 2-4 year Treasuries has had a positive
impact as evidenced by the modest yield curve steepening that occurred in the
fourth quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BALANCED FUND (Continued)
Growth of $10,000 Invested in the
Woodward Balanced Fund and the Lipper Balanced Universe
and a 60% S&P 500; 40% Lehman Aggregate Bond Index Blend
[ GRAPH ]
12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,226 $ 9,309 $10,531 $11,466
Fund (2) $10,000 $ 9,712 $ 9,799 $11,085 $12,069
Lipper (3) $10,000 $ 9,568 $ 9,749 $11,077 $12,184
Index Blend (3) $10,000 $ 9,643 $ 9,967 $11,624 $12,922
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$11,527.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (1/1/94)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Balanced Fund 17.0% 7.1%(1)
(with maximum 5.0% sales charge)
Woodward Balanced Fund 23.2% 9.9%
(without sales charge)
Lipper Balanced Universe 25.2% 10.4%
60% S&P 500; 40% Lehman 29.7% 13.7%
Aggregate Bond Index
<FN>
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 7.4%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
APPENDIX III
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services that are
available in connection with: 1) the New Woodward and Existing Woodward Funds
and 2) the Prairie Portfolios. References to the Woodward Funds refer to the
post-reorganization Funds.
I. NEW WOODWARD AND EXISTING WOODWARD FUNDS
AND THE
CORRESPONDING PRAIRIE PORTFOLIOS*
*(Includes Shares of the Prairie Money Market Fund, U.S. Government Money
Market Fund, Municipal Money Market Fund, Growth Fund, International Equity
Fund, Equity Income Fund, Special Opportunities Fund, Bond Fund, International
Bond Fund, Intermediate Municipal Bond Fund, Municipal Bond Fund, Intermediate
Bond Fund, Managed Assets Fund and Managed Assets Income Fund.)
A. Sales Charges and Exemptions.
Class A Shares
a. Class A Shares of the Woodward Money Market, Treasury
Money Market Fund and Tax-Exempt Money Market Funds are
sold without a sales charge. Class A Shares of the
corresponding Prairie Portfolios, the Money Market, U.S.
Government Money Market and Municipal Money Market Funds,
are currently sold without a sales charge.
b. Class A Shares of the remaining New and Existing
Woodward Funds and the corresponding Prairie Portfolios
are as follows:
III-1
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
Maximum Sales Charge
--------------------
Current Prairie Portfolios/ Current Proposed
Corresponding Woodward Fund Sales Load Sales Load
- --------------------------- ---------- ----------
<S> <C> <C>
Intermediate Bond Fund/Income Fund 3.0% 3.0%
Intermediate Municipal Bond Fund/Intermediate Municipal Bond Fund 3.0% 3.0%
Bond Fund/Bond Fund 4.5% 4.5%
Municipal Bond Fund/Municipal Bond Fund 4.5% 4.5%
International Bond Fund/International Bond Fund 4.5% 4.5%
Equity Income Fund/Equity Income Fund 4.5% 5.0%
Growth/Capital Growth Fund 4.5% 5.0%
Special Opportunities Fund/Small-Cap Opportunity Fund 4.5% 5.0%
International Equity Fund/International Major Markets Fund 4.5% 5.0%
Managed Assets Fund/Balanced Fund 4.5% 5.0%
Managed Assets Income Fund/Managed Assets Conservative Fund 4.5% 5.0%
</TABLE>
c. Class A shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 or other sales
load waiver as described below, and where such shares are
redeemed within two years after purchase, a contingent
deferred sales charge ("CDSC") will be imposed at the time
of redemption unless the investor qualifies for a waiver of
the CDSC as described below under "Class B Shares Waiver of
CDSC." The following table sets forth the rates of such
CDSC for the indicated time periods:
<TABLE>
<CAPTION>
CDSC as a % of
Amount Invested or Year Since Purchase
Redemption Proceeds Payment Was Made
- ------------------ -------------------
<S> <C>
1.00% First
0.50% Second
</TABLE>
III-2
<PAGE>
The Reorganizing Portfolios currently impose a CDSC on Class A
Shares which were purchased only as part of an investment of at
least $1,000,000. The following table sets forth the rates of such
CDSC for the Reorganizing Portfolios:
<TABLE>
<CAPTION>
Amount of CDSC as a % of
Transaction at Amount Invested or Year Since Purchase
Offering Price Redemption Proceeds Payment Was Made
- -------------- ------------------- ----------------
<S> <C> <C>
$1,000,000 to
less than $2,500,000 1.00% First or Second
$2,500,000 to
less than $5,000,000 0.50% First
$5,000,000 and above 0.25% First
</TABLE>
Class A Shares-Sales Load Waivers
a. Class A Shares of the non-money market Woodward Funds
and Prairie Portfolios may be purchased at net asset
value and without a sales load by certain purchasers.
The sales load waivers applicable to the
post-reorganization Funds is substantially similar to
the Prairie Portfolios' sales load waivers.
b. Reduced sales loads apply to any purchase of such
Prairie Funds and New and Existing Woodward Funds' Class
A Shares where the dollar amount of shares transacted or
accumulated within a shareholder's account is at least
$50,000.
c. After the Reorganization, the following types of
purchasers may purchase Class A Shares of the Woodward
Funds with no sales charge: (i) full-time employees
of NASD member firms which have entered into an
agreement with the Distributor pertaining to the sale
of Fund shares (or which otherwise have a brokerage-
related or clearing arrangement with an NASD member
firm with respect to sales of Fund shares), their
spouses and minor children; (ii) accounts opened by a
bank, trust company or thrift institution, acting as a
fiduciary or custodian, provided that they have
furnished the Distributor appropriate notification of
such status at the time of the investment and such
other information as it may request from time to time
in order to verify eligibility for this privilege;
(iii) purchases for accounts registered under the
Uniform Gifts to Minors Act or Uniform Transfers to
Minors Act which are opened through FNIS and 401(k)
and other defined contribution or qualified retirement
III-3
<PAGE>
plan accounts for which FNBC or its subsidiaries or
affiliates has served as administrator or trustee since
at least June 1, 1995 or NBD or its subsidiaries or
affiliates has served as administrator or Trustee since
January 1, 1996; (iv) directors and full-time or
part-time employees of FCN, or any of its affiliates and
subsidiaries, retired employees of FCN, or any of its
affiliates and subsidiaries, Board members of a fund
advised by the Investment Advisers, including members of
the Funds' Board of Trustees, or the spouses, children,
grandchildren, siblings, parents, grandparents and
in-laws of any of the foregoing individuals; (v)
purchases through certain broker-dealers, registered
investment advisers and other financial institutions
which have entered into an agreement with the
Distributor, which includes a requirement that such
shares be sold for the benefit of clients participating
in a "wrap account" or a similar program under which
such clients pay a fee to such broker-dealer, registered
investment adviser or other financial institution; and
(vi) employees participating in qualified plans or other
programs where (i) the employers or affiliated employers
maintaining such plans or programs have a minimum of 200
employees eligible for participation in such plans or
programs or (ii) such plan's or program's assets exceed
one million dollars.
d. Class A shares also may be purchased at net asset
value, without a sales charge, with the proceeds from
the redemption of shares of an investment company sold
with a sales charge or commission or annuity contract
or guaranteed investment contract subject to a
surrender charge. This also includes shares of an
investment company that were or would be subject to a
contingent deferred sales charge upon redemption. The
purchase must be made within 60 days of the
redemption, and the Transfer Agent must be notified in
writing by the investor at the time the purchase is
made.
e. Class A and Class B Shares of the non-money market
Woodward Funds and Prairie Portfolios also offer
rights of accumulation and letter of intent programs
that can reduce the sales charge payable on share
purchases.
III-4
<PAGE>
Class B Shares
a. Class B Shares will be offered for each New Woodward Fund
and Existing Woodward Fund, other than the Treasury Money
Market and Tax-Exempt Money Market Funds which will not
offer Class B Shares.
b. Class B Shares of each New Woodward Fund and Existing Woodward Fund
will not be offered until the time of the Reorganizing Portfolios
Transaction and Continuing Portfolios Transaction, as applicable.
The following table sets forth the rates of the CDSC for the New
and Existing Woodward Funds and the corresponding Prairie
Portfolios:
<TABLE>
<CAPTION>
Class B Shares
Maximum CDSC
--------------
Current Prairie Portfolios/ Current Proposed
Corresponding Woodward Fund Sales Load Sales Load
- --------------------------- ---------- ----------
<S> <C> <C>
Money Market Fund/Money Market Fund 5.0% 5.0%
Intermediate Bond Fund/Income Fund 3.0% 3.0%
Intermediate Municipal Bond Fund/Intermediate Municipal Bond Fund 3.0% 3.0%
Bond Fund/Bond Fund 5.0% 5.0%
Municipal Bond Fund/Municipal Bond Fund 5.0% 5.0%
International Bond Fund/International Bond Fund 5.0% 5.0%
Equity Income Fund/Equity Income Fund 5.0% 5.0%
Growth/Capital Growth Fund 5.0% 5.0%
Special Opportunities Fund/Small-Cap Opportunity Fund 5.0% 5.0%
International Equity Fund/International Major Markets Fund 5.0% 5.0%
Managed Assets Fund/Balanced Fund 5.0% 5.0%
Managed Assets Income Fund/Managed Assets Conservative Fund 5.0% 5.0%
</TABLE>
Class B Shares-Waiver of CDSC
a. In connection with redemptions of Class B Shares (and Class A Shares
subject to a CDSC), the Prairie Portfolios and the New and Existing
Woodward Funds will waive the CDSC in connection with (a) redemptions
made within one year after the death of the shareholder,
(b) redemptions by shareholders after age 70-1/2 for purposes of the
minimum required distribution from an IRA, Keogh plan or custodial
account pursuant to Section 403(b) of the Code, (c) distributions from
a qualified plan upon retirement or termination of employment,
(d) redemption of shares acquired through a contribution in excess of
permitted amounts, (e) in-service withdrawals from tax qualified plans
by participants and (f) redemptions initiated by a Fund of accounts
with net assets of less than $1,000 ($500 in the case of the Prairie
Municipal Bond Fund).
III-5
<PAGE>
B. Purchase Policies
The following table summarizes the Woodward and Prairie Funds'
existing purchase policies:
<TABLE>
<CAPTION>
Woodward Funds Prairie Funds
-------------- -------------
<S> <C> <C>
Minimum Initial $1,000 ($500 for the money $1,000 ($250 for IRAs).
Investment market funds) ($250 for
IRA's) for initial purchases of
Class A Shares. NBD and its
affiliated and correspondent
banks (the "Banks") may impose
different minimum investment
requirements on Class I Shares.
Minimum Subsequent $100. $100.
Investment
Automatic Class A Shares may be Shares may be purchased
Investment Plan purchased on a monthly basis on a monthly basis
through automatic deductions through automatic
from a shareholder's deductions from a
checking or savings account; shareholder's checking or
$25 minimum per transaction. savings account. No
minimum.
Purchase Methods Shares are sold by First of Shares are sold by
Michigan Corporation ("FoM") Concord Financial Group,
and Essex National Inc. ("Concord") directly
Securities ("Essex") and through
directly and through broker/dealers having a
broker/dealers having a dealer agreement with
dealer agreement with FoM or Concord or through
Essex, or through procedures procedures established by
established by FoM or Essex Concord in connection
in connection w/the with the requirements of
requirements of accounts at accounts at First
NBD Bank; by mail; by Chicago; by mail; by
telephone. telephone.
Payment Methods By check or wire. By check or wire.
</TABLE>
III-6
<PAGE>
The following table summarizes the post reorganization Funds'
purchase policies:
Minimum Initial $1,000 ($250 for IRAs) for all non-
Investment money market funds. $2,500 ($250 for
IRAs) for all money market
funds.
Minimum Subsequent $100.
Investment
Automatic Investment Shares may be purchased on a monthly
Plan basis from a shareholder's checking or
savings account. $100 minimum per
transaction.
Purchase Methods Shares are offered to the general
public and may be purchased through a
number of institutions, including FCN,
the Investment Advisers, ANB and their
affiliates, other Service Agents, and
directly through the Distributor; by
mail; by telephone.
Payment Methods By check or wire.
The Existing Woodward Funds, New Woodward Funds and Prairie Funds
each reserve the right to reject any purchase order.
C. Redemption Policies
The following table summarizes the Woodward and Prairie Funds'
existing redemption policies:
III-7
<PAGE>
<TABLE>
<CAPTION>
Woodward Funds Prairie Funds
-------------- -------------
<S> <C> <C>
Redemption Methods Redemption requests Redemption requests
placed with or through placed with FCIMCO,
the investor's financial FNBC, ANB or a Service
institution or the Agent or by written
Transfer Agent; by mail; request to the
by telephone. Transfer Agent; by
mail; by telephone.
Payment Methods By check or wire. By check or wire.
Check Writing Privilege Available for Class A Available for Class A
Shares of the money Shares of the money
market funds only. market funds only
($500 minimum).
Automatic Cash Available for N/A
Withdrawal Plan shareholders who own
Class A Shares having
a minimum value of
$15,000 ($5,000 for
the money market
funds).
Reinstatement Privilege Available for Available for
shareholders who purchase shareholders who
shares within 120 days of purchase shares within
redemption. 30 days of redemption.
</TABLE>
The following table summarizes the Post Reorganization Funds' redemption
policies:
Redemption Methods Redemption requests placed with the
Transfer Agent or, if the investor is a
participant in a fiduciary account or
retirement plan (as described in the
prospectus), by following instructions
pertaining to such account or plan; by
mail; by telephone.
Payment Methods By check or wire.
Check Writing Privilege
Available for the money
market funds only ($500
minimum).
Automatic Cash
Withdrawal Plan Available for
shareholders who own
shares of a Fund having a
minimum value of $15,000
($5,000 for the money
market funds).
III-8
<PAGE>
Reinstatement Privilege Available for
shareholders who purchase
shares within 120 days of
redemption.
Each Prairie Portfolio reserves the right to redeem an
investor's account at the Fund's option upon not less than 45 days'
written notice if the account's net asset value is $1000 or less
($500 or less in the case of the Municipal Bond Fund). Each
Woodward Fund reserves the right to redeem an investor's account at
the Trust's option upon not less than 60 days' written notice if
the account's net asset value is $1,000 or less ($400 or less in
the case of the money market funds). The post reorganization Funds
will reserve the right to redeem an investor's account at the
Trust's option upon not less than 30 days' within notice if the
account's net asset value is $1,000 or less ($400 or less in the
case of the money market funds). Under certain circumstances the
New and Existing Woodward Funds may make payment for redemptions in
securities or other property.
A Prairie shareholder who, at the effective time of the
Reorganization, meets the Prairie, but not the Woodward, minimum
investment requirement, will not be required to redeem the Woodward
shares received in connection with the Reorganization, unless the
balance in the shareholder's account drops below the Prairie
minimum as a result of redemptions, or unless redemption appears
appropriate in light of Woodward's responsibilities under the 1940
Act.
D. Share Exchanges
<TABLE>
<CAPTION>
Prairie -
Class A Shares,
Woodward - Class B Shares and
Class A Shares Class I Shares
-------------- ------------------
<S> <C> <C>
By Mail Yes. Yes.
By Telephone Yes. Yes.
Minimum Must equal minimum No minimum.
investment required of the
portfolio being acquired.
</TABLE>
Class I Shares of Woodward do not have an exchange
privilege. With respect to the Woodward Class A Shares and the
Prairie Class A, Class B and Class I Shares, a shareholder may
exchange shares of a load portfolio for shares of a no load
portfolio or another load portfolio at net asset value. Any
exchange of shares of a no load portfolio for shares of a load
portfolio will be subject to the payment of the applicable sales
load. Exchanges of Prairie Class B Shares will be subject to the
higher applicable CDSC of the two Funds. Woodward and Prairie both
reserve the right to modify or terminate exchange privileges
III-9
<PAGE>
with 60 days' notice and to reject any exchange request in whole or
in part. Exchanges are only available in states where exchanges can
lawfully be made from one Portfolio to another, and must satisfy
the requirements relating to the minimum initial investment in a
Fund.
The New and Existing Woodward Funds will permit investors
to purchase, in exchange for shares of a Fund which have been owned
for at least 30 days, shares of the same Class of the other Funds
of the Trust. Exchanges may be made to the extent the shares being
received in the exchange are offered for sale in the shareholder's
state of residence. Shares of the same Class of Funds purchased by
exchange will be purchased on the basis of relative net
asset value per share as follows: (i) shares of Funds
purchased with or without a sales load may be exchanged
without a sales load for shares of other Funds sold without a sales
load; (ii) shares of Funds purchased without a sales load may be
exchanged for shares of other Funds sold with a sales load, and the
applicable sales load will be deducted; (iii) shares of Funds
purchased with a sales load, shares of Funds acquired by a previous
exchange from shares purchased with a sales load and additional
shares acquired through reinvestment of dividends or distributions
of any such Funds (collectively referred to herein as "Purchased
Shares") may be exchanged for shares of other Funds sold with a
sales load (referred to herein as "Offered Shares"), provided that,
if the sales load applicable to the Offered Shares exceeds the
maximum sales load that could have been imposed in connection with
the Purchased Shares (at the time the Purchased Shares were
acquired), without giving effect to any reduced loads, the
difference will be deducted; (iv) shares of Funds subject to a CDSC
that are exchanged for shares of another Fund will be subject to
the higher applicable CDSC of the two Funds, and for purposes of
calculating CDSC rates and conversion periods, if any, will be
deemed to have been held since the date the shares being exchanged
were initially purchased; and (v) a qualified or non-qualified
employee benefit plan with assets of at least $1 million or 200
eligible lives may be exchanged from Class B shares to Class A
shares on or after January 1 of the year following the year of the
plan's eligibility, provided that the sponsor of the plan has so
notified the Service Agent of its eligibility and in turn, the
Service Agent has notified the Trust of such eligibility.
No fees currently will be charged shareholders directly
in connection with exchanges although the Funds reserve the
right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules
promulgated by the Securities and Exchange Commission. The
III-10
<PAGE>
Funds will reserve the right to reject any exchange request in
whole or in part.
E. Responsibility for Telephone Instructions
Woodward, Prairie, their administrators and their
distributors are not liable for any loss, liability, cost or
expense for acting upon telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone
instructions are genuine, procedures are used that are considered
reasonable, which may include recording telephone instructions and
requesting information as to account registration (such as the name
in which an account is registered, the account number, recent
transactions in the account and the account holder's Social
Security number, address and/or bank).
F. Conversions
Prairie Class B Shares automatically convert to Class A
Shares in the eighth year (seventh year in the case of the
Intermediate Bond and Intermediate Municipal Bond Funds) after the
date of purchase. Prairie Class I shares held by investors who
after purchasing Class I shares for their qualified trust, custody
and/or agency account clients of the FCN or its affiliates withdraw
from such accounts will convert to Class A shares automatically
upon such withdrawal, based on the relative net asset values for
shares of each such Class, and will be subject to the annual
service fee charged to Class A shares.
After the reorganization, Woodward Class B Shares will
automatically convert to Class A Shares in the eighth year (seventh
year in the case of the Income and Intermediate Municipal Bond
Funds) after the date of purchase. Woodward Class I shares held by
investors who after purchasing Class I shares for their qualified
trust, custody and/or agency account clients of the FCN or its
affiliates withdraw from such accounts will convert to Class A
shares automatically upon such withdrawal, based on the relative
net asset values for shares of each such Class, and will be subject
to the annual service fee charged to Class A shares.
III-11
<PAGE>
II. DIVIDENDS AND DISTRIBUTIONS
Each Existing Woodward Fund and Prairie Portfolio distributes its
net capital gains to Shareholders at least annually. The following table shows
the policies concerning the declaration and payment of dividends from net
investment income.
<TABLE>
<CAPTION>
===========================================================================================================================
Current Current Current
Prairie Dividend Woodward Dividend Post-Reorganization Dividend
Portfolio Declared/Paid* Fund+ Declared/Paid*+ Fund Declared/Paid*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Fund D/M Money Market Fund D/M Money Market Fund D/M
U.S. Government D/M Treasury Money D/M Treasury Money D/M
Money Market Fund Market Fund Market Fund
Municipal Money D/M Tax-Exempt Money D/M Municipal Money D/M
Market Fund Market Fund Market Fund
Bond Fund D/M Bond Fund M/M Bond Fund M/M
Municipal Bond Fund D/M Municipal Bond M/M Municipal Bond M/M
Fund Fund
International Bond D/M N/A N/A Income Fund M/M
Fund
Intermediate Bond D/M N/A N/A Intermediate Bond M/M
Fund Fund
Intermediate Municipal D/M N/A N/A Intermediate M/M
Bond Fund Municipal Bond
Fund
Managed Assets M/M N/A N/A Managed Assets M/M
Income Conservative Fund
Equity Income Fund M/M N/A N/A Equity Income Fund M/M
Managed Assets Fund Q/Q Balanced Fund Q/Q Managed Assets Q/Q
Balanced Fund
International Equity Q/Q N/A N/A International Major Q/Q
Fund Markets Fund
Special Opportunities Q/Q N/A N/A Small-Cap Q/Q
Fund Opportunity Fund
Growth Fund Q/Q Capital Growth Fund Q/Q Growth Fund Q/Q
<FN>
==============================================================================
* D/M = Daily/Monthly
M/M = Monthly/Monthly
Q/Q = Quarterly/Quarterly
+ N/A = These are the Woodward shell portfolios
</TABLE>
III-12
<PAGE>
PART B
PRAIRIE FUNDS
PRAIRIE INTERMEDIATE BOND FUND
PRAIRIE MUNICIPAL BOND FUND, INC.
Three First National Plaza
Chicago, Illinois 60670
THE WOODWARD FUNDS
900 Tower Drive
P. O. Box 7058
Troy, Michigan 48007
STATEMENT OF ADDITIONAL INFORMATION
(1996 Special Meetings of Shareholders of
Prairie Funds, Prairie Intermediate Bond Fund,
Prairie Municipal Bond Fund, Inc.)
This Statement of Additional Information is not a prospectus but
should be read in conjunction with the Combined Proxy Statement/Prospectus
dated May __, 1996 for the Special Meetings of Shareholders of Prairie Funds,
Prairie Intermediate Bond Fund, Prairie Municipal Bond Fund, Inc.
(collectively "Prairie") to be held on June 25, 1996. Copies of the Combined
Proxy Statement/Prospectus may be obtained at no charge by calling Prairie at
1-800-370-9446.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Further information about the Class A, Class B and Class I Shares
of the Existing Woodward Funds is contained in and incorporated by reference
to Woodward's Statements of Additional Information dated April 15, 1996,
copies of which are included herewith. The audited financial statements and
related independent accountant's report for the Existing Woodward Funds
contained in the Annual Report dated December 31, 1995, are hereby
incorporated herein by reference. No other parts of the Annual Reports are
incorporated by reference herein.
Further information about the Class A, Class B and Class I Shares
of the Prairie Portfolios is contained in and incorporated by reference to
Prairie's Statement of Additional Information dated April 11, 1996, a copy of
which is included herewith. The audited financial statements and related
independent accountant's report for Prairie contained in the Annual Report
dated December 31, 1995 are incorporated herein by reference. No other parts
of the Annual Report are incorporated by reference herein.
<PAGE>
The date of this Statement of Additional Information is May __,
1996.
B-2
<PAGE>
TABLE OF CONTENTS
Page
----
General Information................................. B-3
Pro Forma Financial Statements...................... PFS-1
B-3
<PAGE>
GENERAL INFORMATION
The Shareholders of Prairie are being asked to approve or
disapprove an Agreement and Plan of Reorganization (the "Reorganization
Agreement") dated as of May __, 1996 between Prairie and Woodward, and the
transactions contemplated thereby. The Reorganization Agreement contemplates
the transfer of substantially all of the assets and liabilities of Prairie
Money Market Fund, U.S. Government Money Market Fund, Municipal Money Market
Fund, Growth Fund, International Equity Fund, International Bond Fund, Equity
Income Fund, Special Opportunities Fund, Bond Fund, Intermediate Municipal
Bond Fund, Municipal Bond Fund, Intermediate Bond Fund, Managed Assets Fund
and Managed Assets Income Fund to corresponding Woodward Funds in exchange for
full and fractional shares representing interests in such corresponding
Woodward Funds. The shares issued by Woodward will have an aggregate net asset
value equal to the aggregate net asset value of the shares of the respective
Prairie Portfolios that are outstanding immediately before the effective time
of the reorganization.
Following the exchange, the Prairie Portfolios will make a
liquidating distribution of corresponding Woodward Funds shares to their
shareholders. Each shareholder owning shares of a particular Prairie Portfolio
at the effective time of the Reorganization will receive shares of the
corresponding Woodward Fund of equal value, plus the right to receive any
unpaid dividends and distributions that were declared before the effective
time of the Reorganization on Prairie Portfolio shares. Upon completion of the
Reorganization, Prairie will be terminated under state law and deregistered
under the Investment Company Act of 1940.
The Special Meeting of Shareholders of Prairie to consider the
Reorganization Agreement and the related transactions will be held at _____
a.m./p.m. Eastern time on June 25, 1996 at the offices of BISYS Fund Services,
Inc., 3435 Stelzer Road, Columbus, Ohio. For further information about the
transaction, see the Combined Proxy Statement/Prospectus.
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing,
controlling, or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and prohibit banks
generally from issuing, underwriting, selling, or distributing securities such
as shares of the Woodward Funds, but do not prohibit such a bank holding
company or its affiliates or banks generally from acting as investment
adviser, transfer agent, administrator or custodian to such an investment
company or from purchasing shares of such a
B-4
<PAGE>
company as agent for and upon the order of customers. FCIMCO, NBD and
financial intermediaries which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with their services
to the Woodward Funds, Woodward might be required to alter materially or
discontinue its arrangement with such companies and change its method of
operation. It is anticipated, however, that any resulting change in Woodward's
method of operation would not affect a Woodward Fund's net asset value per
share or result in financial loss to any shareholder.
B-5
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
These pro forma financial statements are presented in accordance with the
rules prescribed by the Securities and Exchange Commission (SEC) to reflect
for the benefit of the shareholders of the Woodward and Prairie Funds the
effect of the merger of these Funds had the merger taken place effective for
the periods presented in the accompanying pro forma statements.
In accordance with SEC rules, Woodward and Prairie must present pro forma
balance sheets as of December 31, 1995, and pro forma statements of income for
the year (or period) ended December 31, 1995. The amounts presented for the
Woodward and Prairie Funds reflect the amounts shown on both Woodward's and
Prairie's financial reports filed with the SEC for the periods reflected.
The pro forma adjustments are explained in more detail in the notes to the pro
forma statements. Under SEC regulations, pro forma adjustments may only be
reflected for the effects which are directly related to the merger, expected
to have a continuing impact, and are factually supportable. As such, pro forma
adjustments have been reflected only for those expense items of the funds
which are subject to contractual terms. Increased interest income or other
expense efficiencies resulting from the merger have not been reflected as such
adjustments are not permitted under the current SEC regulations. The pro forma
statements may not be indicative of the results that would have occurred if
the merger had taken place during the periods presented, nor may they be
reflective of the results that may be obtained in the future.
The reorganized Treasury Money Market Fund includes the Woodward Treasury
Money Market Fund, Woodward Government Fund and Prairie U.S. Government
Money Market Fund. The related pro forma financial statements only reflect
the scenario whereby all three portfolios will reorganize (combine) since this
proposed reorganization is structured such that all three portfolios must
combine or none are to reorganize.
In accordance with Item 14.a.(2) of Form N-14, pro forma financial statements
were not prepared for the proposed combination of the Woodward Balanced Fund
and the Prairie Managed Assets Fund since the net asset value of the Prairie
Managed Assets Fund (non-surviving fund) did not exceed ten percent of the net
asset value of the Woodward Balanced Fund (surviving fund) on April 8, 1996.
PFS-1
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Money Market Fund
Pro Forma Combining Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Money Market Money Market Combined
Fund Fund Adjustments (Note 1)
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At Amortized Cost $1,624,604,821 $205,176,423 $ -- $1,829,781,244
============== ============ =============== ==============
At Value $1,624,604,821 $205,176,423 $ -- $1,829,781,244
Cash 109 -- (109)(d) --
Receivable for investment securities sold -- 1,938 -- 1,938
Receivable from adviser -- -- 61,354 (c) 61,354
Interest receivable 16,341,428 496,734 -- 16,838,162
Deferred organization expenses -- 61,354 (61,354)(c) --
Prepaids and other assets 298,771 110,035 -- 408,806
-------------- ------------ --------------- --------------
TOTAL ASSETS 1,641,245,129 205,846,484 (109) 1,847,091,504
-------------- ------------ --------------- --------------
LIABILITIES:
Accrued investment advisory fee 743,967 41,802 -- 785,769
Accrued distribution fees 16,841 -- -- 16,841
Accrued custodial fees 2,795 4,441 -- 7,236
Administration fees payable -- 31,447 -- 31,447
Bank overdrafts -- 1,334,167 (109) (d) 1,334,058
Dividends payable 738,061 58,489 -- 796,550
Other accrued expenses and payables 48,651 316,920 -- 365,571
-------------- ------------ --------------- --------------
TOTAL LIABILITIES 1,550,315 1,787,266 (109) 3,337,472
-------------- ------------ --------------- --------------
NET ASSETS $1,639,694,814 $204,059,218 $ -- $1,843,754,032
============== ============ =============== ==============
Net assets consist of:
Capital shares, at par $ 163,969,481 $ 204,027 $ 20,198,710 (a) $ 184,372,218
Additional paid-in capital 1,475,725,333 203,823,336 (20,198,710)(a) 1,659,349,959
Accumulated undistributed net realized gains -- 31,855 31,855
-------------- ------------ --------------- --------------
TOTAL NET ASSETS $1,639,694,814 $204,059,218 $ -- $1,843,754,032
============== ============ =============== ==============
Class A shares:
Net assets $ -- $203,994,341 $ 180,366,430 (b) $ 384,360,771
Shares outstanding -- 203,962,497 180,366,430 (b) 384,328,927
Net asset value per class A share $ -- $ 1.00 $ 1.00 $ 1.00
Class B shares:
Net assets $ -- $ 64,877 $ -- $ 64,877
Shares outstanding -- 64,867 -- 64,867
Net asset value per class A share $ -- $ 1.00 $ -- $ 1.00
Class I shares:
Net assets $ -- $ -- $ 1,459,328,384 (b) $1,459,328,384
Shares outstanding -- -- 1,459,328,384 (b) 1,459,328,384
Net asset value per class I share $ -- $ -- $ 1.00 $ 1.00
Single class shares:
Net assets $1,639,694,814 $ -- $(1,639,694,814)(b) $ --
Shares outstanding 1,639,694,814 -- (1,639,694,814)(b) --
Net asset value per single class share $ 1.00 $ -- $ 1.00 $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Money Market shares in
exchange for shares of the Prairie Money Market Fund in connection
with the proposed reorganization.
(b) Adjustment reclassifies Woodward Money Market shares to reflect the
multi-class environment of the proposed reorganized entity.
(c) Remaining unamortized organizational costs of the Prairie Money Market
Fund will be assumed by the investment advisor prior to merger date.
(d) Adjustment to net cash of the Woodward Money Market Fund with overdrafts
of the Prairie Money Market Fund.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-2
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Money Market Fund
Pro Forma Combining Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Money Market Money Market Combined
Fund Fund Adjustments (Note 1)
------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $98,415,963 $8,980,167 $ -- $107,396,130
----------- ---------- ----------- -----------
TOTAL INVESTMENT INCOME 98,415,963 8,980,167 -- 107,396,130
----------- ---------- ----------- -----------
EXPENSES:
Advisory fees 7,225,557 631,448 $(2,679,789)(a) 5,177,216
Administration fees -- 220,431 2,687,572 (a) 2,908,003
Distribution Fees 152,873 -- (152,873)(b) --
Shareholder servicing fees 450,637 380,585 (173)(a) 831,049
12b-1 fees -- 154 -- 154
Custodian fees and expenses 60,686 58,917 -- 119,603
Professional fees 48,970 57,347 (31,317)(c) 75,000
Amortization of organization expenses -- 7,228 (7,228)(d) --
Transfer agent fees and expenses 81,059 185,048 -- 266,107
Marketing expenses 102,871 -- (102,871)(b) --
Registration, filing fees and other expenses 317,151 89,834 -- 406,985
----------- ---------- ----------- -----------
TOTAL EXPENSES 8,439,804 1,630,992 (286,679) 9,784,117
Expense reimbursements -- (431,210) 431,210 (e) --
----------- ---------- ----------- -----------
NET EXPENSES 8,439,804 1,199,782 144,531 9,784,117
----------- ---------- ----------- -----------
NET OPERATING INCOME (LOSS) 89,976,159 7,780,385 (144,531) 97,612,013
----------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments -- 179,219 -- 179,219
----------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS -- 179,219 -- 179,219
----------- ---------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $89,976,159 $7,959,604 $ (144,531) $97,791,232
=========== ========== =========== ===========
<FN>
(a) Adjustment to reflect the proposed contractual fee structure of Woodward
Money Market Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Woodward Money Market Fund after
reorganization.
(c) Reduction reflects expected savings when the two funds become one.
(d) Remaining unamortized organizational costs of the Prairie Money Market
Fund will be assumed by the investment advisor prior to merger date.
(e) Adjustment to reduce reimbursements from the advisor to reflect the
new fee structure of the Woodward Money Market Fund after reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Prairie/Woodward Funds
Pro Forma Combining
Money Market Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
[Unaudited]
- ------------------------------------------------------------------------------
Pro Forma
Combined
Woodward Prairie Principal
Principal Principal Amount
Amount Amount (Note 1) Description
-------- --------- ---------- -----------
<S> <C> <C> <C>
BANKERS ACCEPTANCES- 0.5%
-- 5,000,000 5,000,000 Bank of Tokyo
-- 5,000,000 5,000,000 Dai-Ichi Kangyo
Total Bankers Acceptances
CORPORATE NOTES- 15.3%
15,000,000 -- 15,000,000 American Express Centurion Bank
28,850,000 -- 28,850,000 Associates Corp. of North America Debenture
7,378,000 -- 7,378,000 Associates Corp. of North America Euro Dollar Debenture
20,000,000 -- 20,000,000 Boatmens National Bank of St. Louis
13,000,000 -- 13,000,000 Comerica Bank
27,500,000 -- 27,500,000 First Bank, N.A.
5,000,000 -- 5,000,000 First Union National Bank N. C.
Ford Motor Credit Co. Medium Term Notes:
12,000,000 -- 12,000,000 Note
5,000,000 -- 5,000,000 Note
5,000,000 -- 5,000,000 Note
30,000,000 -- 30,000,000 Huntington National Bank
29,980,000 -- 29,980,000 J.P. Morgan
20,000,000 -- 20,000,000 PNC Bank
10,000,000 -- 10,000,000 Seattle First National Bank
2,425,000 -- 2,425,000 Smithkline Beecham Corp.
23,500,000 -- 23,500,000 Society National Bank Cleveland Ohio Medium Term Note
25,000,000 -- 25,000,000 Trust Company Bank
Total Corporate Notes
CERTIFICATES OF DEPOSIT- 18.1%
U.S. Branches of Foreign Banks
-- 7,000,000 7,000,000 ABN Ambro
-- 5,000,000 5,000,000 Bank of Montreal
-- 7,000,000 7,000,000 Banque Nationale de Paris
10,000,000 -- 10,000,000 Bayerische Landesbank Girozentrale
29,980,000 -- 29,980,000 Bayerische Vereinsbank AG
24,980,000 -- 24,980,000 Canadian Imperial Bank of Commerce
-- 7,000,000 7,000,000 Canadian Imperial Bank of Commerce
-- 5,000,000 5,000,000 Commerz Bank AG
15,000,000 -- 15,000,000 Dresdner Bank AG
-- 7,000,000 7,000,000 Fuji Bank, Ltd
14,975,000 -- 14,975,000 Harris Trust & Savings Bank
-- 5,000,000 5,000,000 Industrial Bank of Japan
-- 7,000,000 7,000,000 Mitsubishi Bank, Ltd
-- 5,000,000 5,000,000 National Westminster Bank
15,000,000 -- 15,000,000 National Westminster Bank PLC
20,000,000 -- 20,000,000 PNC Bank Corp.
-- 5,000,000 5,000,000 Rabobank
Royal Bank of Canada:
2,980,000 -- 2,980,000 Note
8,000,000 -- 8,000,000 Note
-- 7,000,000 7,000,000 Sanwa Bank, Ltd.
Societe Generale:
20,000,000 -- 20,000,000 Note
5,000,000 -- 5,000,000 Note
-- 7,000,000 7,000,000 Societe Generale
-- 7,000,000 7,000,000 Sumitomo Bank
Toronto-Dominion Bank Euro:
24,980,000 -- 24,980,000 Note
30,000,000 -- 30,000,000 Note
10,000,000 -- 10,000,000 Wachovia Bank of Georgia, NA
20,000,000 -- 20,000,000 Wachovia Bank of North Carolina
Total Certificates of Deposit
PFS-4
<PAGE>
TIME DEPOSITS- 1.3%
23,000,000 -- 23,000,000 Mitsubishi Bank London
COMMERCIAL PAPER- 44.3%
-- 7,000,000 7,000,000 AT&T
-- 7,500,000 7,500,000 Barclays Funding
-- 7,500,000 7,500,000 Ciesco L.P.
-- 7,000,000 7,000,000 Corporate Asset Funding Co., Inc.
-- 6,000,000 6,000,000 Exxon Imperial
-- 7,500,000 7,500,000 Ford Motor Credit
-- 7,000,000 7,000,000 Goldman Sachs
-- 7,000,000 7,000,000 Morgan Stanley & Co.
-- 7,000,000 7,000,000 Nestle Capital
-- 7,000,000 7,000,000 Philip Morris
-- 7,000,000 7,000,000 Bayerische Vereinsbank
-- 5,000,000 5,000,000 Dresdner Finance
-- 7,000,000 7,000,000 Deutsche Bank
29,980,000 -- 29,980,000 Abbey National North America
8,000,000 -- 8,000,000 Accor
15,000,000 -- 15,000,000 AESOP Funding Corp.
Allomon Funding Corp.:
10,000,000 -- 10,000,000 Note
10,135,000 -- 10,135,000 Note
8,000,000 -- 8,000,000 Alpine Securitization Corp.
20,000,000 -- 20,000,000 American Express Credit Corp.
7,500,000 -- 7,500,000 Avnet Inc.,
10,000,000 -- 10,000,000 B.A.T. Capital Corp.
17,000,000 -- 17,000,000 Barton Capital Corp.
10,815,000 -- 10,815,000 Bass Finance (C.I.) Ltd.
19,980,000 -- 19,980,000 BCI Funding Corp.
19,980,000 -- 19,980,000 BEAL Cayman Ltd
20,000,000 -- 20,000,000 Clipper Receivables Corp.
17,000,000 -- 17,000,000 Corporate Receivables Corp.
15,000,000 -- 15,000,000 Echlin, Inc.
6,060,000 -- 6,060,000 Eksportfinans A/S
5,000,000 -- 5,000,000 Electronic Data Systems Corp.
10,970,000 -- 10,970,000 Engelhard Corp.
English China Clays PLC:
10,000,000 -- 10,000,000 Note
10,000,000 -- 10,000,000 Note
10,254,000 -- 10,254,000 Note
Enterprise Funding Corp.:
6,451,000 -- 6,451,000 Note
13,072,000 -- 13,072,000 Note
9,000,000 -- 9,000,000 Note
Explorer Pipeline Co.:
7,775,000 -- 7,775,000 Note
10,500,000 -- 10,500,000 Note
10,000,000 -- 10,000,000 Note
8,000,000 -- 8,000,000 Franklin Resources, Inc.
Greenwich Funding Corp.:
10,000,000 -- 10,000,000 Note
10,000,000 -- 10,000,000 Note
10,000,000 -- 10,000,000 Halifax Building Society
10,000,000 -- 10,000,000 Hercules, Inc.
12,730,000 -- 12,730,000 International Lease Finance Corp.
International Securitization Corp.:
17,000,000 -- 17,000,000 Note
9,530,000 -- 9,530,000 Note
Kingdom of Sweden:
15,000,000 -- 15,000,000 Note
6,980,000 -- 6,980,000 Note
10,000,000 -- 10,000,000 Note
20,000,000 -- 20,000,000 New Center Asset Trust
10,000,000 -- 10,000,000 Pacific Dunlop Holdings, Inc.
5,000,000 -- 5,000,000 Pacific Dunlop Ltd
Pooled Accounts Receivable Capital Corp.:
11,000,000 -- 11,000,000 Note
10,160,000 -- 10,160,000 Note
Preferred Receivables Funding Corp.:
15,975,000 -- 15,975,000 Note
8,050,000 -- 8,050,000 Note
Premium Funding, Inc.:
10,113,000 -- 10,113,000 Note
11,162,000 -- 11,162,000 Note
13,000,000 -- 13,000,000 Ranger Funding Corp.
10,970,000 -- 10,970,000 San Paolo US Financial Co.
12,980,000 -- 12,980,000 Sheffield Receivable Corp.
St. Michael Finance Ltd.:
9,272,000 -- 9,272,000 Note
5,694,000 -- 5,694,000 Note
PFS-5
<PAGE>
10,000,000 -- 10,000,000 Note
Sunbelt-Dix, Inc.:
4,000,000 -- 4,000,000 Note
11,980,000 -- 11,980,000 Note
12,000,000 -- 12,000,000 Note
5,250,000 -- 5,250,000 Note
17,000,000 -- 17,000,000 TI Group, Inc.
5,000,000 -- 5,000,000 US Borax & Chemical Corp.
Windmill Funding Corp.:
10,000,000 -- 10,000,000 Note
15,000,000 -- 15,000,000 Note
15,480,000 -- 15,480,000 WMX Technologies, Inc.
Total Commercial Paper
U.S. GOVERNMENT AGENCY OBLIGATIONS- 4.0%
Small Business Administration,
-- 6,000 6,000 Pool #500870
13,950,000 -- 13,950,000 Federal Farm Credit Bank
Federal Home Loan Bank:
12,000,000 -- 12,000,000 Note
5,000,000 -- 5,000,000 Note
2,000,000 -- 2,000,000 Federal National Mortgage Assn. Deb.
Federal National Mortgage Assn. Medium Term Note:
4,000,000 -- 4,000,000 Note
9,000,000 -- 9,000,000 Note
27,500,000 -- 27,500,000 Student Loan Marketing Assn.
Total U.S. Government Agency Obligations
TEMPORARY CASH INVESTMENTS- 3.6%
5,000,000 -- 5,000,000 Allstate Life Insurance Co. Master Note
15,000,000 -- 15,000,000 American General Finance, Inc. Master Note
5,000,000 -- 5,000,000 Commonwealth Life Insurance Co. Master Note
5,000,000 -- 5,000,000 Peoples Security Life Insurance Co. Master Note
10,000,000 -- 10,000,000 Sun Life Insurance Co. of America Master Note
25,000,000 -- 25,000,000 Transamerica Finance Group, Inc. Master Note
Total Temporary Cash Investments
REPURCHASE AGREEMENTS- 12.9%
-- 15,000,000 15,000,000 Daiwa Securities
Dated 12/29/95, with a maturity value of
$15,009,116
-- 10,100,000 10,100,000 National Westminster Bank
Dated 12/29/95, with a maturity value of
$10,106,431
NationsBank Capital Markets, Inc., Revolving Repurchase
Agreement (secured by various U.S. Treasury
Obligations with maturities ranging from
2/15/96 through 11/15/05
at various interest rates ranging
from 0.00% to 12.375%, all held
56,503,093 -- 56,503,093 at Chemical Bank)
Nomura Securities International, Inc., Revolving
Repurchase Agreement
(secured by varioius U.S. Treasury
obligations with maturities
ranging from 1/18/96 through 9/10/02
at various interest rates
77,000,000 -- 77,000,000 ranging from 0.00% to 8.26%, all held
at the Bank of New York)
Salomon Brothers, Revolving Repurchase Agreement
(secured by various U.S. Treasury Strips
with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes,
73,407,000 -- 73,407,000 5.50%, 11/15/98, all held at Chemical Bank)
Yamaichi Revolving Repurchase Agreement,
(secured by various U.S. Treasury
obligations with maturities
ranging from 12/31/95 through
8/15/05 at various interest rates
4,000,000 -- 4,000,000 ranging from 0.00% to 11.625%, all
held at Chemical Bank)
Total Repurchase Agreements
- ------------- ----------- -------------
1,628,686,093 205,606,000 1,834,292,093 TOTAL INVESTMENTS
============= =========== =============
PFS-6
<PAGE>
<CAPTION>
Pro Forma
Combined
Woodward Prairie Amortized
Maturity Amortized Amortized Cost
Description Rate Date Cost Cost (Note 1)
----------- ---- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANKERS ACCEPTANCES- 0.5%
Bank of Tokyo 5.81% 1/8/96 -- 4,994,351 4,994,351
Dai-Ichi Kangyo 5.81% 2/15/96 -- 4,963,688 4,963,688
------------- ----------- -------------
Total Bankers Acceptances -- 9,958,039 9,958,039
------------- ----------- -------------
CORPORATE NOTES- 15.3%
American Express Centurion Bank 5.82% 1/17/96 15,000,652 -- 15,000,652
Associates Corp. of North America Debenture 7.50% 10/15/96 29,222,978 -- 29,222,978
Associates Corp. of North America
Euro Dollar Debenture 10.50% 3/12/96 7,424,686 -- 7,424,686
Boatmens National Bank of St. Louis 6.00% 6/12/96 20,000,000 -- 20,000,000
Comerica Bank 5.70% 9/3/96 12,991,077 -- 12,991,077
First Bank, N.A. 5.96% 3/4/96 27,499,558 -- 27,499,558
First Union National Bank N. C. 5.76% 2/2/96 5,000,000 -- 5,000,000
Ford Motor Credit Co. Medium Term Notes:
Note 6.25% 5/10/96 12,013,087 -- 12,013,087
Note 14.00% 7/5/96 5,198,163 -- 5,198,163
Note 9.10% 7/18/96 5,083,739 -- 5,083,739
Huntington National Bank 5.67% 8/29/96 29,988,082 -- 29,988,082
J.P. Morgan 5.75% 8/7/96 29,986,992 -- 29,986,992
PNC Bank 5.65% 9/18/96 19,996,215 -- 19,996,215
Seattle First National Bank 5.51% 6/14/96 10,000,000 -- 10,000,000
Smithkline Beecham Corp. 5.25% 1/16/96 2,423,784 -- 2,423,784
Society National Bank Cleveland Ohio
Medium Term Note 6.88% 10/15/96 23,683,821 -- 23,683,821
Trust Company Bank 6.50% 3/21/96 24,994,577 -- 24,994,577
------------- ----------- -------------
Total Corporate Notes 280,507,411 -- 280,507,411
------------- ----------- -------------
CERTIFICATES OF DEPOSIT- 18.1%
U.S. Branches of Foreign Banks
ABN Ambro 5.78% 2/1/96 -- 7,000,494 7,000,494
Bank of Montreal 5.78% 1/17/96 -- 5,000,060 5,000,060
Banque Nationale de Paris 5.75% 2/5/96 -- 7,000,251 7,000,251
Bayerische Landesbank Girozentrale 6.00% 9/12/96 10,000,000 -- 10,000,000
Bayerische Vereinsbank AG 5.95% 7/22/96 29,980,000 -- 29,980,000
Canadian Imperial Bank of Commerce 5.95% 10/23/96 24,980,000 -- 24,980,000
Canadian Imperial Bank of Commerce 5.60% 3/12/96 -- 7,000,000 7,000,000
Commerz Bank AG 5.77% 1/17/96 -- 5,000,044 5,000,044
Dresdner Bank AG 7.00% 2/5/96 15,000,000 -- 15,000,000
Fuji Bank, Ltd 6.09% 1/18/96 -- 7,000,099 7,000,099
Harris Trust & Savings Bank 5.72% 2/29/96 14,975,000 -- 14,975,000
Industrial Bank of Japan 5.82% 1/17/96 -- 4,999,747 4,999,747
Mitsubishi Bank, Ltd 5.86% 3/6/96 -- 7,000,849 7,000,849
National Westminster Bank 5.78% 1/16/96 -- 5,000,054 5,000,054
National Westminster Bank PLC 5.83% 1/12/96 15,000,045 -- 15,000,045
PNC Bank Corp. 5.74% 9/30/96 19,985,384 -- 19,985,384
Rabobank 5.75% 1/22/96 -- 5,000,029 5,000,029
Royal Bank of Canada:
Note 6.60% 4/3/96 2,980,399 -- 2,980,399
Note 6.55% 4/9/96 8,000,000 -- 8,000,000
Sanwa Bank, Ltd. 6.03% 1/17/96 -- 6,999,953 6,999,953
Societe Generale:
Note 7.05% 2/14/96 20,000,000 -- 20,000,000
Note 6.80% 3/1/96 5,000,000 -- 5,000,000
Societe Generale 5.77% 2/2/96 -- 7,000,392 7,000,392
Sumitomo Bank 6.06% 1/18/96 -- 7,000,066 7,000,066
Toronto-Dominion Bank Euro:
Note 6.80% 3/11/96 24,987,939 -- 24,987,939
Note 5.84% 11/7/96 30,000,000 -- 30,000,000
Wachovia Bank of Georgia, NA 5.85% 1/10/96 10,000,000 -- 10,000,000
Wachovia Bank of North Carolina 7.13% 1/26/96 19,997,687 -- 19,997,687
------------- ----------- -------------
Total Certificates of Deposit 250,886,454 81,002,038 331,888,492
------------- ----------- -------------
TIME DEPOSITS- 1.3%
Mitsubishi Bank London 12.00% 1/2/96 23,000,000 -- 23,000,000
------------- ----------- -------------
PFS-7
<PAGE>
COMMERCIAL PAPER- 44.3%
AT&T 5.54% 3/19/96 -- 6,915,977 6,915,977
Barclays Funding 5.67% 1/19/96 -- 7,478,737 7,478,737
Ciesco L.P. 5.70% 1/19/96 -- 7,478,625 7,478,625
Corporate Asset Funding Co., Inc. 5.65% 2/9/96 -- 6,957,154 6,957,154
Exxon Imperial 5.62% 1/16/96 -- 5,985,950 5,985,950
Ford Motor Credit 5.63% 2/13/96 -- 7,449,565 7,449,564
Goldman Sachs 5.55% 4/2/96 -- 6,900,717 6,900,717
Morgan Stanley & Co. 6.00% 1/3/96 -- 6,997,667 6,997,667
Nestle Capital 5.73% 1/12/96 -- 6,987,744 6,987,744
Philip Morris 5.72% 1/19/96 -- 6,979,980 6,979,980
Bayerische Vereinsbank 5.73% 1/18/96 -- 6,992,201 6,992,201
Dresdner Finance 5.69% 1/3/96 -- 4,998,419 4,998,420
Deutsche Bank 5.74% 1/12/96 -- 6,987,723 6,987,723
Abbey National North America 5.64% 3/6/96 29,677,951 -- 29,677,951
Accor 5.74% 2/15/96 7,943,000 -- 7,943,000
AESOP Funding Corp. 5.82% 1/22/96 14,949,250 -- 14,949,250
Allomon Funding Corp.:
Note 5.78% 1/12/96 9,982,369 -- 9,982,369
Note 5.77% 1/25/96 10,096,149 -- 10,096,149
Alpine Securitization Corp. 5.76% 2/13/96 7,945,342 -- 7,945,342
American Express Credit Corp. 5.69% 2/27/96 19,821,400 -- 19,821,400
Avnet Inc., 5.72% 2/16/96 7,445,567 -- 7,445,567
B.A.T. Capital Corp. 5.77% 1/23/96 9,964,861 -- 9,964,861
Barton Capital Corp. 5.80% 1/26/96 16,931,764 -- 16,931,764
Bass Finance (C.I.) Ltd. 5.71% 2/14/96 10,740,052 -- 10,740,052
BCI Funding Corp. 5.74% 2/9/96 19,856,623 -- 19,856,623
BEAL Cayman Ltd. 5.73% 2/23/96 19,812,923 -- 19,812,923
Clipper Receivables Corp. 5.76% 1/17/96 19,948,889 -- 19,948,889
Corporate Receivables Corp. 5.81% 1/5/96 16,989,026 -- 16,989,026
Echlin, Inc. 5.76% 1/18/96 14,959,342 -- 14,959,342
Eksportfinans A/S 5.54% 1/8/96 6,053,484 -- 6,053,484
Electronic Data Systems Corp. 5.56% 3/21/96 4,939,000 -- 4,939,000
Engelhard Corp. 5.75% 1/19/96 10,938,571 -- 10,938,571
English China Clays PLC:
Note 5.78% 1/22/96 9,966,400 -- 9,966,400
Note 5.73% 2/20/96 9,921,111 -- 9,921,111
Note 5.70% 3/1/96 10,157,442 -- 10,157,442
Enterprise Funding Corp.:
Note 5.76% 1/12/96 6,439,666 -- 6,439,666
Note 5.76% 1/16/96 13,040,652 -- 13,040,652
Note 5.76% 2/9/96 8,944,230 -- 8,944,230
Explorer Pipeline Co.:
Note 5.76% 1/24/96 7,746,487 -- 7,746,487
Note 5.78% 1/30/96 10,451,365 -- 10,451,365
Note 5.72% 2/16/96 9,927,422 -- 9,927,422
Franklin Resources, Inc. 5.73% 2/20/96 7,936,889 -- 7,936,889
Greenwich Funding Corp.:
Note 5.76% 1/8/96 9,988,819 -- 9,988,819
Note 5.78% 1/11/96 9,983,972 -- 9,983,972
Halifax Building Society 5.77% 1/3/96 9,996,794 -- 9,996,794
Hercules, Inc. 5.60% 6/21/96 9,739,611 -- 9,739,611
International Lease Finance Corp. 5.76% 1/9/96 12,713,734 -- 12,713,734
International Securitization Corp.:
Note 5.78% 2/2/96 16,913,111 -- 16,913,111
Note 5.52% 6/10/96 9,300,277 -- 9,300,277
Kingdom of Sweden:
Note 5.71% 2/16/96 14,891,325 -- 14,891,325
Note 5.72% 3/1/96 6,914,039 -- 6,914,039
Note 5.73% 3/12/96 9,888,175 -- 9,888,175
New Center Asset Trust 5.78% 1/31/96 19,904,167 -- 19,904,167
Pacific Dunlop Holdings, Inc. 5.75% 2/21/96 9,919,250 -- 9,919,250
Pacific Dunlop Ltd 5.67% 1/23/96 4,982,736 -- 4,982,736
Pooled Accounts Receivable Capital Corp.:
Note 5.83% 1/9/96 10,985,773 -- 10,985,773
Note 6.02% 1/25/96 10,119,360 -- 10,119,360
Preferred Receivables Funding Corp.:
Note 5.73% 2/2/96 15,894,060 -- 15,894,060
Note 5.75% 2/21/96 7,984,996 -- 7,984,996
Premium Funding, Inc.:
Note 5.78% 2/7/96 10,053,235 -- 10,053,235
Note 5.79% 2/14/96 11,083,556 -- 11,083,556
Ranger Funding Corp. 5.75% 1/12/96 12,977,199 -- 12,977,199
San Paolo US Financial Co. 5.68% 3/15/96 10,843,498 -- 10,843,498
Sheffield Receivable Corp. 5.73% 2/1/96 12,916,290 -- 12,916,290
St. Michael Finance Ltd.:
Note 5.75% 2/20/96 9,198,597 -- 9,198,597
Note 5.64% 3/5/96 5,637,516 -- 5,637,516
Note 5.64% 3/8/96 9,896,150 -- 9,896,150
PFS-8
<PAGE>
Sunbelt-Dix, Inc.:
Note 5.76% 1/30/96 3,981,537 -- 3,981,537
Note 5.79% 2/13/96 11,897,721 -- 11,897,721
Note 5.71% 3/5/96 11,879,467 -- 11,879,467
Note 5.67% 3/25/96 5,181,400 -- 5,181,400
TI Group, Inc. 5.70% 3/4/96 16,832,210 -- 16,832,210
US Borax & Chemical Corp. 5.73% 2/1/96 4,975,458 -- 4,975,458
Windmill Funding Corp.:
Note 6.02% 1/16/96 9,975,000 -- 9,975,000
Note 5.82% 1/24/96 14,944,417 -- 14,944,417
WMX Technologies, Inc. 5.50% 9/9/96 14,905,692 -- 14,905,692
------------- ----------- -------------
Total Commercial Paper 720,826,369 89,110,459 809,936,828
------------- ----------- -------------
U.S. GOVERNMENT AGENCY OBLIGATIONS- 4.0%
Small Business Administration,
Pool #500870 7.63% 4/25/96 -- 5,887 5,887
Federal Farm Credit Bank 5.60% 7/1/96 13,930,941 -- 13,930,941
Federal Home Loan Bank:
Note 5.63% 6/26/96 11,992,746 -- 11,992,746
Note 5.98% 8/14/96 5,000,000 -- 5,000,000
Federal National Mortgage Assn. Deb. 8.75% 6/10/96 2,025,084 -- 2,025,084
Federal National Mortgage Assn.
Medium Term Note:
Note 5.97% 5/16/96 4,002,877 -- 4,002,877
Note 5.71% 6/10/96 8,994,375 -- 8,994,375
Student Loan Marketing Assn. 6.14% 6/30/96 27,528,471 -- 27,528,471
------------- ----------- -------------
Total U.S. Government Agency Obligations 73,474,494 5,887 73,480,381
------------- ----------- -------------
TEMPORARY CASH INVESTMENTS- 3.6%
Allstate Life Insurance Co. Master Note 5.93% 1/2/96 5,000,000 -- 5,000,000
American General Finance, Inc. Master Note 5.85% 1/2/96 15,000,000 -- 15,000,000
Commonwealth Life Insurance Co. Master Note 6.03% 1/2/96 5,000,000 -- 5,000,000
Peoples Security Life Insurance Co. Master Note 6.03% 1/2/96 5,000,000 -- 5,000,000
Sun Life Insurance Co. of America Master Note 6.13% 1/2/96 10,000,000 -- 10,000,000
Transamerica Finance Group, Inc. Master Note 5.85% 1/2/96 25,000,000 -- 25,000,000
------------- ----------- -------------
Total Temporary Cash Investments 65,000,000 -- 65,000,000
------------- ----------- -------------
REPURCHASE AGREEMENTS- 12.9%
Daiwa Securities 5.50% 1/2/96 -- 15,000,000 15,000,000
Dated 12/29/95, with a maturity value of
$15,009,116
National Westminster Bank 5.65% 1/2/96 -- 10,100,000 10,100,000
Dated 12/29/95, with a maturity value of
$10,106,431
NationsBank Capital Markets, Inc.
Revolving Repurchase Agreement
(secured by various U.S. Treasury 6.00% 1/2/96
Obligations with maturities ranging
from 2/15/96 through 11/15/05
at various interest rates ranging
from 0.00% to 12.375%, all held
at Chemical Bank) 56,503,093 -- 56,503,093
Nomura Securities International, Inc.,
Revolving Repurchase Agreement 6.00% 1/2/96
(secured by varioius U.S. Treasury
obligations with maturities
ranging from 1/18/96 through
9/10/02 at various interest rates
ranging from 0.00% to 8.26%, all
held at the Bank of New York) 77,000,000 -- 77,000,000
Salomon Brothers, Revolving Repurchase Agreement 5.93% 1/2/96
(secured by various U.S. Treasury
Strips with maturities ranging
from 2/15/96 through 11/15/05
and U.S. Treasury Notes,
5.50%, 11/15/98, all held
at Chemical Bank) 73,407,000 -- 73,407,000
PFS-9
<PAGE>
Yamaichi Revolving Repurchase Agreement, 6.00% 1/2/96
(secured by various U.S. Treasury
obligations with maturities
ranging from 12/31/95 through
8/15/05 at various interest rates
ranging from 0.00% to 11.625%,
all held at Chemical Bank) 4,000,000 -- 4,000,000
------------- ----------- -------------
Total Repurchase Agreements 210,910,093 25,100,000 236,010,093
------------- ----------- -------------
TOTAL INVESTMENTS 1,624,604,821 205,176,423 1,829,781,244
============= =========== =============
</TABLE>
PFS-10
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Treasury Money Market Fund
Pro Forma Combining Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Treasury Woodward U.S. Government Combined
Money Market Government Money Market Adjustments (Note 1)
------------ ------------ ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At Amortized Cost $921,643,450 $469,643,055 $57,441,060 $ -- $ 1,448,727,565
============ ============ =========== ================ ================
At Value $921,643,450 $469,643,055 $57,441,060 $ -- $ 1,448,727,565
Cash 104 320 -- (424)(c) --
Receivable from adviser -- -- -- 57,957 (d) 57,957
Interest receivable 6,544,562 5,112,013 3,973 -- 11,660,548
Deferred organization expenses 6,063 -- 57,957 (57,957)(d) 6,063
Prepaids and other assets 295,486 41,286 60,156 -- 396,928
------------ ----------- ----------- ---------------- ----------------
TOTAL ASSETS 928,489,665 474,796,674 57,563,146 (424) 1,460,849,061
------------ ----------- ----------- ---------------- ----------------
LIABILITIES:
Accrued investment advisory fee 340,328 195,644 13,690 -- 549,662
Accrued distribution fees 5,377 3,417 -- -- 8,794
Accrued custodial fees 869 685 -- -- 1,554
Administration fees payable -- -- 19,610 -- 19,610
Bank overdraft -- -- 111,239 (424)(c) 110,815
Dividends payable 413,557 210,856 20,092 -- 644,505
Other accrued expenses and payables 34,032 9,217 134,455 -- 177,704
----------- ------------ ----------- ----------------- ----------------
TOTAL LIABILITIES 794,163 419,819 299,086 (424) 1,512,644
------------ ------------ ----------- ----------------- ----------------
NET ASSETS $927,695,502 $474,376,855 $57,264,060 $ -- $1,459,336,417
============ ============ =========== ================= ================
Net assets consist of:
Capital shares, at par $ 92,769,550 $ 47,437,686 $ 57,280 $ 5,670,724 (a) $ 145,935,240
Additional paid-in capital 834,925,952 426,939,169 57,222,765 (5,670,724)(a) 1,313,417,162
Accumulated undistributed
net realized (losses) -- -- (15,985) -- (15,985)
----------- ------------ ----------- ----------------- ----------------
TOTAL NET ASSETS $927,695,502 $474,376,855 $57,264,060 $ -- $ 1,459,336,417
============ ============ =========== ================ ================
Class A shares:
Net assets $ -- $ -- $57,264,060 $ 85,582,477 (b) $ 142,846,537
Shares outstanding -- -- 57,280,045 85,582,477 (b) 142,862,522
Net asset value per class A share $ -- $ -- $ 1.00 $ 1.00 $ 1.00
Class I shares:
Net assets $ -- $ -- $ -- $ 1,316,489,880 (b) $ 1,316,489,880
Shares outstanding -- -- -- 1,316,489,880 (b) 1,316,489,880
Net asset value per class I share $ -- $ -- $ -- $ 1.00 $ 1.00
Single class shares:
Net assets $927,695,502 $474,376,855 $ -- $ (1,402,072,357)(b) $ --
Shares outstanding 927,695,502 474,376,855 -- (1,402,072,357)(b) --
Net asset value per single class share $ 1.00 $ 1.00 $ -- $ 1.00 $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Treasury Money Market
shares in exchange for shares of the Woodward Government and Prairie
U.S. Government Money Market Funds in connection with the proposed
reorganization.
(b) Adjustment reclassifies Woodward Government and Woodward Treasury
Money Market shares to reflect the multi-class environment of the
proposed reorganized entity.
(c) Adjustment to net cash of the Woodward Treasury Money Market Fund and
Woodward Government Fund with overdrafts of the Prairie U.S. Government
Money Market Fund.
(d) Remaining unamortized organizational costs of the Prairie U.S. Government
Money Market Fund will be assumed by the investment advisor prior to
merger date.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-11
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Treasury Money Market Fund
Pro Forma Combining Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Treasury Woodward U.S. Government Combined
Money Market Government Money Market Adjustments (Note 1)
------------ ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $42,755,302 $26,262,034 $ 3,925,073 $ -- $72,942,409
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME 42,755,302 26,262,034 3,925,073 -- 72,942,409
----------- ----------- ----------- ----------- -----------
EXPENSES:
Advisory fees 3,248,535 1,987,590 297,377 $(1,838,383) (a) 3,695,119
Distribution fees 53,755 34,919 -- (88,674) (b) --
Administration fees -- -- 94,631 1,752,929 (a) 1,847,560
Shareholder servicing fees 298,599 60,644 170,762 (196,642) (a) 333,363
Custodian fees and expenses 12,919 8,370 47,037 -- 68,326
Professional fees 48,970 48,970 22,236 (45,176) (c) 75,000
Amortization of organization expenses 8,021 -- 8,303 (8,303) (d) 8,021
Transfer agent fees and expenses 11,445 24,255 37,804 73,504
Marketing expenses 41,925 36,670 -- (78,595) (b) --
Registration, filing fees and other expenses 117,097 58,072 53,977 229,146
----------- ----------- ----------- ---------- -----------
TOTAL EXPENSES 3,841,266 2,259,490 732,127 (502,844) 6,330,039
Expense reimbursements -- -- (198,986) 198,986 (e) --
----------- ----------- ----------- ---------- -----------
NET EXPENSES 3,841,266 2,259,490 533,141 (303,858) 6,330,039
----------- ----------- ----------- ---------- -----------
NET OPERATING INCOME 38,914,036 24,002,544 3,391,932 (303,858) 66,612,370
----------- ----------- ----------- ---------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments -- -- 32,485 -- 32,485
Net change in unrealized appreciation on
investments -- -- -- -- --
----------- ----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS -- -- 32,485 -- 32,485
----------- ----------- ----------- ---------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $38,914,036 $24,002,544 $ 3,424,417 $ 303,858 $66,644,855
=========== =========== =========== ========== ===========
<FN>
(a) Adjustment to reflect the proposed contractual fee structure of Woodward
Treasury Money Market Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Woodward Treasury Money Market Fund after
reorganization.
(c) Reduction reflects expected savings when the three funds become one.
(d) Remaining unamortized organizational costs of the Prairie U.S. Government
Money Market Fund will be assumed by the investment advisor prior to
merger date.
(e) Adjustment to reduce reimbursements from the advisor to reflect the
new fee structure of the Woodward Treasury Money Market Fund after
reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PRAIRIE/WOODWARD FUNDS
Pro Forma Combining
Treasury Money Market Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
[Unaudited]
- ------------------------------------------------------------------------------
Pro Forma
Woodward Woodward Prairie Combined
Treasury MM Gov't US Gov't MM Face Amount
Face Amount Face Amount Face Amount (Note 1) Description
- ----------- ----------- ------------ ----------- -----------
<C> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT OBLIGATIONS- 32.1%
U.S. Treasury Bills
-- -- 10,000,000 10,000,000 U.S. Treasury Bill
-- -- 5,000,000 5,000,000 U.S. Treasury Bill
-- -- 10,000,000 10,000,000 U.S. Treasury Bill
-- -- 7,500,000 7,500,000 U.S. Treasury Bill
-- -- 7,500,000 7,500,000 U.S. Treasury Bill
3,000,000 -- -- 3,000,000 U.S. Treasury Bill
-- -- 7,500,000 7,500,000 U.S. Treasury Bill
U.S. Treasury Notes
8,000,000 -- -- 8,000,000 U.S.Treasury Note
5,000,000 -- -- 5,000,000 U.S.Treasury Note
14,000,000 5,000,000 -- 19,000,000 U.S.Treasury Note
10,000,000 -- -- 10,000,000 U.S.Treasury Note
20,000,000 -- -- 20,000,000 U.S.Treasury Note
10,000,000 -- -- 10,000,000 U.S.Treasury Note
7,000,000 -- -- 7,000,000 U.S.Treasury Note
-- 15,000,000 -- 15,000,000 U.S.Treasury Note
6,000,000 -- -- 6,000,000 U.S.Treasury Note
15,000,000 -- -- 15,000,000 U.S.Treasury Note
35,000,000 -- -- 35,000,000 U.S.Treasury Note
2,000,000 -- -- 2,000,000 U.S.Treasury Note
4,000,000 -- -- 4,000,000 U.S.Treasury Note
15,000,000 -- -- 15,000,000 U.S.Treasury Note
5,000,000 -- -- 5,000,000 Principal Strip from US Treasury Bond
Agency Obligations
-- 10,000,000 -- 10,000,000 Federal Farm Credit Bank
-- 10,000,000 -- 10,000,000 Federal Farm Credit Bank
-- 4,000,000 -- 4,000,000 Federal Farm Credit Bank
-- 25,000,000 -- 25,000,000 Federal Farm Credit Bank
-- 10,000,000 -- 10,000,000 Federal Farm Credit Bank
-- 10,000,000 -- 10,000,000 Federal Home Loan Bank
-- 19,000,000 -- 19,000,000 Federal Home Loan Bank
-- 24,000,000 -- 24,000,000 Federal Home Loan Bank
-- 2,500,000 -- 2,500,000 Federal Home Loan Bank
-- 5,000,000 -- 5,000,000 Federal Home Loan Bank
-- 2,000,000 -- 2,000,000 Federal Home Loan Bank
-- 5,000,000 -- 5,000,000 Federal Home Loan Bank
-- 6,000,000 -- 6,000,000 Federal Home Loan Bank
-- 15,000,000 -- 15,000,000 Federal Home Loan Mortgage Corp.
-- 8,400,000 -- 8,400,000 Federal National Mortgage Association
-- 5,000,000 -- 5,000,000 FNMA Medium Term Note
-- 18,000,000 -- 18,000,000 FNMA Medium Term Note
-- 25,000,000 -- 25,000,000 FNMA Medium Term Note -- A/R
-- 11,700,000 -- 11,700,000 Studen Loan Mortgage Association -- A/R
-- 10,000,000 -- 10,000,000 Studen Loan Mortgage Association -- A/R
-- 12,500,000 -- 12,500,000 Studen Loan Mortgage Association -- A/R
- ----------- ----------- ---------- -----------
159,000,000 258,100,000 47,500,000 464,600,000 TOTAL U.S. GOVERNMENT AND GOVERNMENT OBLIGATIONS
=========== =========== ========== ===========
PFS-13
<PAGE>
TEMPORARY CASH INVESTMENTS-- 67.9%
Revolving Repurchase Agreements
-- -- 10,200,000 10,200,000 NATIONAL WESTMINSTER
Dated 12/29/95, with a maturity value of $10,206.403
AUBREY LANGSTON, Revolving Repurchase Agreement,
(secured by various U.S. Treasury obligations with maturities
ranging from 8/31/97 through 11/15/05 at various interest
rates ranging from 4.75% to 13.75%, all held at Chemical
43,000,000 -- -- 43,000,000 Bank)
BEAR STEARNS & Co., INC., Revolving Repurchase Agreement,
(secured by various U.S. Treasury obligations with maturities
ranging from 5/15/96 through 8/15/23 at various interest
rates ranging from 0.00% to 8.875% all held at the Custodial
215,000,000 -- -- 215,000,000 Trust Co.)
DAIWA SECURITIES AMERICA, INC., Revolving Repurchase Agreement,
(secured by various U.S. Treasury obligations with maturities
ranging from 4/30/96 through 11/15/01 at various interest rates
ranging from 0.00% to 15.75%, all held at
43,000,000 -- -- 43,000,000 Bank of New York)
FIRST BOSTON , INC., Revolving Repurchase Agreement,
(secured by various U.S. Treasury Notes with maturities ranging
from 11/15/96 through 2/15/03 at various interest rates ranging
36,000,000 -- -- 36,000,000 from 4.375% to 6.25%, all held at Chemical Bank)
LEHMAN BROTHERS, INC., Revolving Repurchase Agreement,
(secured by U.S. Treasury Note, 5.875%, 7/31/97, held at Chemical
43,000,000 -- -- 43,000,000 Bank)
MORGAN STANLEY & CO. INC., Revolving Repurchase Agreement,
(secured by U.S. Treasury Note, 6.125%, 5/31/97, held at the Bank
43,000,000 -- -- 43,000,000 of New York)
NATIONSBANK CAPITAL MARKETS, INC., Revolving Repurchase Agreement,
(secured by various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various interest rates
ranging from 0.00% to 12.375%, all held at
216,533,000 73,569,000 -- 290,102,000 Chemical Bank)
NIKKO SECURITIES CO. INTERNATIONAL, INC., Revolving Repurchase
Agreement, (secured by various U.S. Treasury obligations with
maturities ranging from 7/31/96 through 8/15/00 at various
interest rates ranging from 0.00% to 8.75%, all
40,000,000 -- -- 40,000,000 held at the Bank of New York)
NOMURA SECURITIES INTERNATIONAL, INC., Revolving Repurchase
Agreement, (secured by various U.S. Treasury obligations with
maturities ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
-- 23,000,000 -- 23,000,000 held at the Bank of New York)
NOMURA SECURITIES INTERNATIONAL, INC., Revolving Repurchase
Agreement, (secured by various U.S. Treasury obligations with
maturities ranging from 8/31/97 through 5/15/01 at various
interest rates ranging from 0.00% to 6.00%, all
40,000,000 -- -- 40,000,000 held at the Bank of New York)
SANWA BGK SECURITIES CO., L.P., Revolving Repurchase Agreement,
(secured by U.S. Treasury Note, 5.50%, 11/15/98, held at the Bank
43,000,000 -- -- 43,000,000 of New York)
YAMAICHI, Revolving Repurchase Agreement,(secured by various
U.S. Treasury obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging from 0.00% to
-- 115,000,000 -- 115,000,000 11.625%, all held at Chemical Bank)
- ----------- ----------- ---------- -------------
762,533,000 211,569,000 10,200,000 984,302,000 TOTAL TEMPORARY CASH INVESTMENTS
=========== =========== ========== =============
921,533,000 469,669,000 57,700,000 1,448,902,000 TOTAL INVESTMENTS
=========== =========== ========== =============
PFS-14
<PAGE>
<CAPTION>
Pro Forma
Woodward Woodward Combined
Treasury MM Gov't MM Prairie Amortized
Maturity Amortized Amortized Amortized Cost
Description Rate Date Cost Cost Cost (Note 1)
----------- ---- -------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT
OBLIGATIONS-- 32.1%
U.S. Treasury Bills
U.S. Treasury Bill 5.350% * 1/11/96 -- -- 9,985,194 9,985,194
U.S. Treasury Bill 5.320% * 1/18/96 -- -- 4,987,451 4,987,451
U.S. Treasury Bill 5.340% * 1/25/96 -- -- 9,964,400 9,964,400
U.S. Treasury Bill 5.320% * 2/15/96 -- -- 7,450,125 7,450,125
U.S. Treasury Bill 5.300% * 3/7/96 -- -- 7,427,194 7,427,194
U.S. Treasury Bill 6.260% 3/7/96 2,965,955 -- -- 2,965,955
U.S. Treasury Bill 4.820% * 3/14/96 -- -- 7,426,696 7,426,696
U.S. Treasury Notes
U.S.Treasury Note 4.000% 1/31/96 7,988,924 -- -- 7,988,924
U.S.Treasury Note 4.375% 11/15/96 4,943,974 -- -- 4,943,974
U.S.Treasury Note 4.375% 8/15/96 13,873,585 4,957,174 -- 18,830,759
U.S.Treasury Note 4.625% 2/15/96 9,976,935 -- -- 9,976,935
U.S.Treasury Note 5.500% 4/30/96 19,970,088 -- -- 19,970,088
U.S.Treasury Note 5.875% 5/31/96 10,001,983 -- -- 10,001,983
U.S.Treasury Note 6.125% 7/31/96 7,013,918 -- -- 7,013,918
U.S.Treasury Note 7.000% 9/30/96 -- 15,150,150 -- 15,150,150
U.S.Treasury Note 7.250% 11/15/96 6,086,851 -- -- 6,086,851
U.S.Treasury Note 7.500% 2/29/96 15,016,012 -- -- 15,016,012
U.S.Treasury Note 7.875% 2/15/96 35,049,857 -- -- 35,049,857
U.S.Treasury Note 7.875% 7/15/96 2,021,778 -- -- 2,021,778
U.S.Treasury Note 7.875% 7/31/96 4,046,593 -- -- 4,046,593
U.S.Treasury Note 8.000% 10/15/96 15,256,312 -- -- 15,256,312
Principal Strip from
US Treasury Bond 0.000% 5/15/96 4,897,685 -- -- 4,897,685
Agency Obligations
Federal Farm Credit Bank 5.600% 11/1/96 -- 10,002,747 -- 10,002,747
Federal Farm Credit Bank 6.390% 4/17/96 -- 10,022,719 -- 10,022,719
Federal Farm Credit Bank 6.610% 4/12/96 -- 4,006,934 -- 4,006,934
Federal Farm Credit Bank 5.780% 2/9/96 -- 24,998,664 -- 24,998,664
Federal Farm Credit Bank 5.590% 6/7/96 -- 9,998,338 -- 9,998,338
Federal Home Loan Bank 5.770% 11/20/96 -- 9,998,229 -- 9,998,230
Federal Home Loan Bank 5.980% 8/14/96 -- 19,000,000 -- 19,000,000
Federal Home Loan Bank 6.850% 2/28/96 -- 24,012,415 -- 24,012,415
Federal Home Loan Bank 6.300% 3/1/96 -- 2,474,042 -- 2,474,042
Federal Home Loan Bank 5.900% 7/25/96 -- 5,000,000 -- 5,000,000
Federal Home Loan Bank 6.000% 8/16/96 -- 2,000,411 -- 2,000,411
Federal Home Loan Bank 4.840% 8/26/96 -- 4,976,737 -- 4,976,737
Federal Home Loan Bank 5.050% 6/7/96 -- 5,983,328 -- 5,983,328
Federal Home Loan
Mortgage Corp. 6.790% 2/20/96 -- 14,999,678 -- 14,999,678
Federal National Mortgage
Association 5.580% 2/21/96 -- 8,334,074 -- 8,334,074
FNMA Medium Term Note 5.710% 6/10/96 -- 4,998,939 -- 4,998,939
FNMA Medium Term Note 5.500% 6/12/96 -- 17,969,843 -- 17,969,843
FNMA Medium Term
Note -- A/R 5.500% 1/26/96 -- 24,998,973 -- 24,998,973
Studen Loan Mortgage
Association -- A/R 6.060% 7/1/96 -- 11,700,000 -- 11,700,000
Studen Loan Mortgage
Association -- A/R 6.050% 10/4/96 -- 10,000,000 -- 10,000,000
Studen Loan Mortgage
Association -- A/R 6.130% 6/30/96 -- 12,490,660 -- 12,490,661
TOTAL U.S. GOVERNMENT AND ----------- ----------- ---------- -----------
GOVERNMENT OBLIGATIONS 159,110,450 258,074,055 47,241,060 464,425,565
=========== =========== ========== ===========
PFS-15
<PAGE>
TEMPORARY CASH INVESTMENTS-- 67.9%
Revolving Repurchase Agreements
NATIONAL WESTMINSTER 5.650% 1/2/96 -- -- 10,200,000 10,200,000
Dated 12/29/95, with a maturity
value of $10,206.403
AUBREY LANGSTON, Revolving
Repurchase Agreement, (secured
by various U.S. Treasury
obligations with maturities
ranging from 8/31/97 through
11/15/05 at various interest
rates ranging from 4.75% to
13.75%, all held at Chemical
Bank) 5.920% 1/2/96 43,000,000 -- -- 43,000,000
BEAR STEARNS & Co., INC.,
Revolving Repurchase Agreement,
(secured by various U.S. Treasury
obligations with maturities
ranging from 5/15/96 through
8/15/23 at various interest
rates ranging from 0.00% to
8.875% all held at the Custodial
Trust Co.) 5.820% 1/2/96 215,000,000 -- -- 215,000,000
DAIWA SECURITIES AMERICA, INC.,
Revolving Repurchase Agreement,
(secured by various U.S. Treasury
obligations with maturities
ranging from 4/30/96 through
11/15/01 at various interest
rates ranging from 0.00% to
15.75%, all held at
Bank of New York) 5.900% 1/2/96 43,000,000 -- -- 43,000,000
FIRST BOSTON , INC., Revolving
Repurchase Agreement, (secured
by various U.S. Treasury Notes
with maturities ranging from
11/15/96 through 2/15/03 at
various interest rates ranging
from 4.375% to 6.25%, all held
at Chemical Bank) 5.850% 1/2/96 36,000,000 -- -- 36,000,000
LEHMAN BROTHERS, INC.,
Revolving Repurchase Agreement,
(secured by U.S. Treasury Note,
5.875%, 7/31/97, held at
Chemical Bank) 5.920% 1/2/96 43,000,000 -- -- 43,000,000
MORGAN STANLEY & CO. INC.,
Revolving Repurchase Agreement,
(secured by U.S. Treasury Note,
6.125%, 5/31/97, held at the Bank
of New York) 5.870% 1/2/96 43,000,000 -- -- 43,000,000
NATIONSBANK CAPITAL MARKETS,
INC., Revolving Repurchase
Agreement, (secured by various
U.S. Treasury obligations with
maturities ranging from 2/15/96
through 11/15/05 at various
interest rates ranging from
0.00% to 12.375%, all held at
Chemical Bank) 6.000% 1/2/96 216,533,000 73,569,000 -- 290,102,000
NIKKO SECURITIES CO.
INTERNATIONAL, INC.,
Revolving Repurchase Agreement,
(secured by various U.S.
Treasury obligations with
maturities ranging from
7/31/96 through 8/15/00 at
various interest rates
ranging from 0.00% to 8.75%, all
held at the Bank of New York) 5.900% 1/2/96 40,000,000 -- -- 40,000,000
NOMURA SECURITIES INTERNATIONAL,
INC., Revolving Repurchase
Agreement, (secured by various
U.S. Treasury obligations with
maturities ranging from 1/18/96
through 9/10/02 at various
interest rates ranging from
0.00% to 8.26%, all
held at the Bank of New York) 6.000% 1/2/96 -- 23,000,000 -- 23,000,000
PFS-16
<PAGE>
NOMURA SECURITIES INTERNATIONAL,
INC., Revolving Repurchase
Agreement, (secured by various
U.S. Treasury obligations with
maturities ranging from 8/31/97
through 5/15/01 at various
interest rates ranging from
0.00% to 6.00%, all
held at the Bank of New York) 5.960% 1/2/96 40,000,000 -- -- 40,000,000
SANWA BGK SECURITIES CO., L.P.,
Revolving Repurchase Agreement,
(secured by U.S. Treasury Note,
5.50%, 11/15/98, held at the
Bank of New York) 5.900% 1/2/96 43,000,000 -- -- 43,000,000
YAMAICHI, Revolving Repurchase
Agreement,(secured by various
U.S. Treasury obligations with
maturities ranging from 12/31/95
through 8/15/05 at various
interest rates ranging from
0.00% to 11.625%, all held
at Chemical Bank) 6.000% 1/2/96 -- 115,000,000 -- 115,000,000
----------- ----------- ---------- -------------
TOTAL TEMPORARY CASH INVESTMENTS -- 762,533,000 211,569,000 10,200,000 984,302,000
=========== =========== ========== =============
TOTAL INVESTMENTS -- 921,643,450 469,643,055 57,441,060 1,448,727,565
=========== =========== ========== =============
<FN>
* Yield at purchase.
A/R Adjustable Rate
</TABLE>
PFS-17
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Municipal Money Market Fund
Pro Forma Combining Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Tax-Exempt Municipal Money Combined
Money Market Fund Market Fund Adjustments (Note 1)
----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities:
At Amortized Cost $564,592,007 $227,760,412 $ -- $792,352,419
============ ============ ============= ============
At Value $564,592,007 $227,760,412 $ -- $792,352,419
Cash 52,509 234,790 287,299
Receivable from Adviser -- -- 83,300 (c) 83,300
Interest receivable 5,203,797 1,016,229 -- 6,220,026
Deferred organization expenses -- 83,300 (83,300) (c) --
Prepaids and other assets 13,394 122,258 -- 135,652
------------ ------------ ------------- ------------
TOTAL ASSETS 569,861,707 229,216,989 -- 799,078,696
------------ ------------ ------------- ------------
LIABILITIES:
Payable for securities purchased 5,000,000 -- -- 5,000,000
Accrued investment advisory fee 225,584 30,811 -- 256,395
Accrued distribution fees 3,880 -- -- 3,880
Accrued custodial fees 3,312 3,577 -- 6,889
Administration fees payable -- 45,718 -- 45,718
Shareholder servicing fees payable -- 283,674 -- 283,674
Dividends payable 190,363 304,350 -- 494,713
Other accrued expenses and payables 25,092 37,581 -- 62,673
------------ ------------ -------------- ------------
TOTAL LIABILITIES 5,448,231 705,711 -- 6,153,942
------------ ------------ -------------- ------------
NET ASSETS $564,413,476 $228,511,278 $ -- $792,924,754
============ ============ ============== ============
Net assets consist of:
Capital shares, at par $ 56,441,348 $ 228,565 $ 22,627,928 (a) $ 79,297,841
Additional paid-in capital 507,972,128 228,322,787 (22,627,928) (a) 713,666,988
Accumulated undistributed net realized gains
(losses) -- (40,074) -- (40,074)
------------ ------------ -------------- ------------
--
TOTAL NET ASSETS $564,413,476 $228,511,278 $ -- $792,924,754
============ ============ ============== ============
Class A shares:
Net assets $ -- $228,511,278 $ 25,642,372 (b) $254,135,650
Shares outstanding -- 228,564,929 25,624,372 (b) 254,189,301
Net asset value per class A share $ -- $ 1.00 $ 1.00 $ 1.00
Class I shares:
Net assets $ -- $ -- $ 538,789,104 (b) $538,789,104
Shares outstanding -- -- 538,789,104 (b) 538,789,104
Net asset value per class I share $ -- $ -- $ 1.00 $ 1.00
Single class shares:
Net assets $564,413,476 $ -- $ (564,413,476)(b) $ --
Shares outstanding 564,413,476 -- (564,413,476)(b) --
Net asset value per single class share $ 1.00 $ -- $ 1.00 $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Tax-Exempt Money Market
Fund shares in exchange for shares of the Prairie Municipal Money Market
Fund in connection with the proposed reorganization.
(b) Adjustment reclassifies Woodward Tax-Exempt Money Market Fund shares to
reflect the multi-class environment of the proposed reorganized entity.
(c) Remaining unamortized organizational costs of the Prairie Municipal
Money Market Fund will be assumed by the investment advisor prior to
merger date.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-18
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Municipal Money Market Fund
Pro Forma Combining Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Tax-Exempt Municipal Money Combined
Money Market Fund Market Fund Adjustments (Note 1)
----------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $21,196,396 $7,967,822 $ -- $29,164,218
----------- ---------- ------------ -----------
TOTAL INVESTMENT INCOME 21,196,396 7,967,822 -- 29,164,218
----------- ---------- ------------ -----------
EXPENSES:
Advisory fees 2,458,246 860,103 (1,069,719) (a) 2,248,630
Administration fees -- 292,778 831,537 (a) 1,124,315
Shareholder servicing fees 86,193 508,602 (24,197) (a) 570,598
Distribution fees 44,226 -- (44,226) (b) --
Custodian fees and expenses 41,886 67,687 -- 109,573
Professional fees 48,970 54,617 (28,587) (c) 75,000
Amortization of organization expenses -- 9,259 (9,259) (d) --
Marketing fees 42,552 -- (42,552) (b) --
Registration,filing fees and other expenses 173,183 134,897 -- 308,080
----------- ---------- ------------ -----------
TOTAL EXPENSES 2,895,256 1,927,943 (387,003) 4,436,196
Expense reimbursements -- (489,926) 11,257 (e) (478,669)
----------- ---------- ------------ -----------
NET EXPENSES 2,895,256 1,438,017 (375,746) 3,957,527
----------- ---------- ------------ -----------
NET OPERATING INCOME 18,301,140 6,529,805 375,746 25,206,691
----------- ---------- ------------ -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments -- (44) -- (44)
----------- ---------- ------------ -----------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS -- (44) -- (44)
----------- ---------- ------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $18,301,140 $6,529,761 $ 375,746 $25,206,647
=========== ========= ============ ===========
<FN>
(a) Adjustment to reflect the proposed contractual fee structure of Woodward
Municipal Money Market Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Woodward Municipal Money Market Fund after
reorganization.
(c) Reduction reflects expected savings when the two funds become one.
(d) Remaining unamortized organizational costs of the Prairie Municipal
Money Market Fund will be assumed by the investment advisor prior to
merger date.
(e) Adjustment to reduce reimbursements from the advisor to reflect the
new fee structure of the Woodward Municipal Money Market Fund after
reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-19
<PAGE>
- ------------------------------------------------------------------------------
Prairie/Woodward Funds
Pro Forma Combining
Municipal Money Market Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31,1995
[Unaudited]
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Combined
Woodward Prairie Principal
Principal Principal Amount
Amount Amount (Note 1) Description
- -------------- --------- ---------- ------------
<S> <C> <C> <C>
Alaska-6.6%
City of Valdez, Marine Terminal
Revenue, CP, Refunding, ARCO
-- 3,500,000 3,500,000 Transportation Project, Series A
City of Valdez, Marine Terminal
Revenue, CP, Refunding, ARCO
-- 4,000,000 4,000,000 Transportation Project, Series A, 1994 A
11,100,000 -- 11,100,000 Anchorage Electric Utilities (MBIA Insured)
Valdez Marine Terminal-Arco Transportation:
8,000,000 -- 8,000,000 Commercial Paper
3,900,000 -- 3,900,000 Commercial Paper
1,700,000 -- 1,700,000 Commercial Paper
8,000,000 -- 8,000,000 VRDB,
Valdez Marine Terminal-Exxon Pipeline Co.
12,000,000 -- 12,000,000 VRDB,
Alabama-1.5%
-- 6,000,000 6,000,000 Phenix City Alabama (A.M.T.) (LC ABN AMRO)
Alabama HFA Mulit-Family CP:
3,200,000 -- 3,200,000 Commercial Paper
2,700,000 -- 2,700,000 Commercial Paper
Arizona -0.7%
3,600,000 -- 3,600,000 Chandler IDR VRDB-Parsons Municipal Services,
Maricopa Co. School District GO Unlimited Tax
2,000,000 -- 2,000,000 Series A
California-1.2%
Southeast Resource Recovery
Facility, Authority of California
Lease Revision, VRDN, Series A, (LC
-- 9,500,000 9,500,000 Industrial Bank of Japan Ltd)
Colorado-3.3
-- 5,000,000 5,000,000 Burke County Denver (LC Credit Swisse)
Colorado Student Obligation Bond
Authority, VRDN, Student Loan
Revenue, Series 1990A, (A.M.T.)
(LC Student Loan Marketing
-- 5,000,000 5,000,000 Association)
3,000,000 -- 3,000,000 Adams Co. IDR VRDB-City View Park,
2,000,000 -- 2,000,000 Englewood HFA Multi-Family VRDN - Mark Project,
Lakewood Multi-Family Housing (FGIC Insured)
8,250,000 -- 8,250,000 VRDB-St. Moritz & Diamond Head,
3,000,000 -- 3,000,000 Moffat Co. PCR VRDB,
Delaware-1.0%
7,600,000 -- 7,600,000 Delaware EDC VRDB-Hospital Billing Series B,
Florida-3.5%
-- 7,500,000 7,500,000 Florida Municipal Power (LC First Union)
-- 5,600,000 5,600,000 West Orange Hosp (LC Rabobank)
-- 6,000,000 6,000,000 West Orange Hospital (LC Rabobank)
3,270,000 -- 3,270,000 Florida GO Unlimited Tax
Florida HFA Multi-Family (MBIA Insured)
5,595,000 -- 5,595,000 VRDB-Lake Northdale
PFS-20
<PAGE>
Georgia-2.8%
-- 5,000,000 5,000,000 Georgia Municipal Gas (LC Wachovia Bank)
Thomaston - Upson County,
Industrial Development
Authority, Yamaha Music
Manufactoring, (A.M.T.) (LC Bank of
-- 2,300,000 2,300,000 Tokyo Ltd.)
1,200,000 -- 1,200,000 College Park IDR-VRDB-Marriott Corp.,
Cobb Co. Housing Multi-Family VRDB-Pittco
5,900,000 -- 5,900,000 Frey Associates Project,
Fulton Co. Development IDR VRDN-Palisades
2,235,000 -- 2,235,000 West Ltd.,
Georgia Municipal Gas Authority-Southern
5,100,000 -- 5,100,000 Portfolio I Project,
Hawaii-1.7%
Hawaii Dept. of Budget & Finance Mortgage:
4,000,000 -- 4,000,000 VRDN-Kuakini Medical Center
2,100,000 -- 2,100,000 VRDB-Wilcox Memorial Hospital
Hawaii State Housing Finance & Development
7,500,000 -- 7,500,000 Corp. VRDB-Rental Housing Systems
Iowa-0.8%
Iowa School Corps., Warrant
Certificates, Iowa School Cash
Anticipation Program, Series A
-- 6,000,000 6,000,000 (CGIC Insured)
Illinois-6.8%
Southwestern Illinois Development
Authority, Enviromental Impact
Revenue, Shell Oil Co. Wood
-- 6,175,000 6,175,000 River Project, (A.M.T.)
6,100,000 -- 6,100,000 Chicago GO Tender Notes
Chicago O'Hare International Airport-American
Airlines VRDB
15,000,000 -- 15,000,000 Series C
15,000,000 -- 15,000,000 Series D
1,000,000 -- 1,000,000 Illinois GO
6,950,000 -- 6,950,000 Illinois State Sales Tax
300,000 -- 300,000 Illinois State Toll Highway Authority, VRDB
Northwest Suburban Municipal Joint Account
3,440,000 -- 3,440,000 (MBIA Insured)-Water Agency Supply System
Indiana-2.9%
Seymour Economic Development
Authority Revenue, Kobelco
Metal Powder Project, (A.M.T.)
(LC Industrials Bank of Japan,
-- 3,700,000 3,700,000 Limited)
Jasper Co. PCR CP-Northern Indiana Public
2,000,000 -- 2,000,000 Services
Mt. Vernon PCR CP-General Electric Project,
6,900,000 -- 6,900,000 Commercial Paper
2,790,000 -- 2,790,000 Commercial Paper
Rockport Pollution Control (AMBAC Insured)
5,500,000 -- 5,500,000 VRDB-AEP Generating Co.
2,000,000 -- 2,000,000 VRDB-Indiana Michigan Power Co.
Kansas-0.8%
6,700,000 -- 6,700,000 Olathe GO Unlimited Tax,
Kentucky-1.8%
Bowling Green, Industrial Building
Revenue, VRDN, Bando
Manufacturing America Project,
(A.M.T.)(LC Industrial Bank of
-- 2,655,000 2,655,000 Japan, New York, Expires 12/15/95)
Bowling Green, Industrial Building
Revenue, VRDN, Twin Faste
Inc. Project (A.M.T.)(LC Industrial
-- 2,400,000 2,400,000 Bank of Japan)
Henderson County, Solid Waste
Disposal Revenue, VRDN,
Hudson Foods Inc. Project
(A.M.T.)(LC Rabobank
-- 2,000,000 2,000,000 Netherland)
PFS-21
<PAGE>
Kentucky Higher Education Student
Loan Corp., Insured Student
Loan, Series E, (A.M.T.) (LC Sumitomo
-- 4,000,000 4,000,000 Bank, Chicago)
Mason Co. PCR E. Kentucky Power VRDB-CFC
3,000,000 -- 3,000,000 Power National Rural Utilities B-1
Louisiana-1.5%
New Orleans Exhibition Hall
Authority, Series B, (A.M.T.) (LC Sanwa
-- 5,000,000 5,000,000 Bank Ltd.)
-- 7,000,000 7,000,000 State of Louisiana (LC Credit Locale)
Maryland-0.8%
6,000,000 -- 6,000,000 Baltimore PCR VRDB- SCM Plants
Michigan-9.2%
Clinton Township EDC (MBIA Insured) VRDB
300,000 -- 300,000 Sisters of Charity St. Joseph,
Dearborn EDC VRDB-Oakbrook Common:
2,300,000 -- 2,300,000 Variable Rate Demand Bond
200,000 -- 200,000 Variable Rate Demand Bond
Delta Co. EDC-Mead Escanaba Paper:
4,200,000 -- 4,200,000 Series D
4,300,000 -- 4,300,000 Series F
Farmington Hills EDR VRDB-Brookfield Building
2,000,000 -- 2,000,000 Associates
3,600,000 -- 3,600,000 Grand Rapids EDC VRDB-Amway
Ingham Co. EDC VRDB-Martin Luther
5,870,000 -- 5,870,000 Memorial Home, Inc.
2,600,000 -- 2,600,000 Kent Hospital VRDB-Butterworth Hospital
Meridian Limited Obligation EDC VRDN-
500,000 -- 500,000 Service Merchandise Co.
5,000,000 -- 5,000,000 Michigan State Building Authority
Michigan State Hospital VRDB-Hospital
Equipment Loan Program:
1,600,000 -- 1,600,000 Variable Rate Demand Bond
8,900,000 -- 8,900,000 Variable Rate Demand Bond
Michigan State Hospital VRDB-Mt. Clemens
4,600,000 -- 4,600,000 Hospital
Michigan State HDA VRDB:
400,000 -- 400,000 Laurel VY,
2,800,000 -- 2,800,000 Shoal Creek,
Michigan State Job Development Authority
5,800,000 -- 5,800,000 VRDB-Gordon Food Service,
4,500,000 -- 4,500,000 PCR VRDB-Mazda Motor Corp.,
Michigan State Strategic Fund VRDB-
400,000 -- 400,000 Allen Group, Inc.
University of Michigan Hospital VRDB:
1,200,000 -- 1,200,000 Variable Rate Demand Bond
11,610,000 -- 11,610,000 Variable Rate Demand Bond
Minnesota-1.1%
5,000,000 -- 5,000,000 Hennepin Co. GO,
100,000 -- 100,000 Rochester GO Various Sales Tax,
St. Paul Housing & Redevelopment Authority
3,900,000 -- 3,900,000 VRDB,
Mississippi-1.0%
8,200,000 -- 8,200,000 Perry Co. PCR VRDB-Leaf River Forest,
Missouri-2.0%
Missouri Higher Education Loan
Authority, VRDN, Series A, (A.M.T.)
(LC National Westminster
-- 3,000,000 3,000,000 Place)
-- 4,800,000 4,800,000 Burlington G& E VRDN
2,400,000 -- 2,400,000 Independence Water Utility Improvements CP
Missouri State Environmental Improvement
Energy Research PCR-Union Electric Co.
1,000,000 -- 1,000,000 Series A
4,750,000 -- 4,750,000 Series B
PFS-22
<PAGE>
New Hampshire-1.5%
New Hampshire Business Finance
Authority, Pollution Control
Revenue Refunding, Public
Service Co. of New Hampshire
Project, VRDN, Series 1992D,
-- 10,000,000 10,000,000 (A.M.T.)(LC Bank Barclays Bank PLC)
New Hampshire IDR VRDB-Oerlikon-Burlhe
1,800,000 -- 1,800,000 USA,
Nevada-3.3%
Clark County Industrial
Development Revenue,
Nevada Power Co. Project,
Series A, (A.M.T.)(LC Bank Barcia,
-- 8,000,000 8,000,000 Place)
Clark Co. Airport Improvement (MBIA
8,600,000 -- 8,600,000 Insured) VRDB,
Clark Co. PCR VRDB-Nevada Power Co.
6,300,000 -- 6,300,000 Variable Rate Demand Bond
3,000,000 3,000,000 Washoe County Nevada (LC Union Bank
of Switzerland)
New Jersey-0.2%
1,220,000 -- 1,220,000 Rutgers State University
New York-4.7%
New York City General Obligation,
-- 4,200,000 4,200,000 Series F-6 (LC Noeinchukin)
New York City GO (MBIA Insured) VRDB
11,000,000 -- 11,000,000 Variable Rate Demand Bond
New York City Housing Development
Corp. Mortgage Revenue,
Multifamily 400 West 59th-A-2,
(A.M.T.)(LC Bayerische
-- 9,000,000 9,000,000 Hypotheken)
New York State Energy Research
& Development Authority,
Pollution Control Revenue,
New York Electric & Gas - D
(LC Union Bank of
-- 6,000,000 6,000,000 Switzerland)
New York State Energy Research
& Development Authority,
Pollution Control Revenue,
Niagara Power Corp. Project - B,
(A.M.T.)(LC Morgan Guaranty,
-- 2,000,000 2,000,000 New York)
St. Lawrence County Industrial
Development Agency,
Environmental Impact Revenue
Reynolds Metals Co. Project,
(A.M.T.)(LC Royal Bank of
-- 4,900,000 4,900,000 Canada)
North Carolina-1.9%
North Carolina Eastern Municipal Power
15,000,000 -- 15,000,000 Agency-Power System
Ohio-1.7%
1,400,000 -- 1,400,000 Columbus Electric System VRDB
3,150,000 -- 3,150,000 Cincinnati/Hamilton Co. EDR
Franklin Co. IDR VRDB-Capital South
700,000 -- 700,000 Community Redevelopment,
Ohio Environmental Improvements CP, U.S.
8,300,000 -- 8,300,000 Steel Corp.
Oregon-2.35
State of Oregon General Obligation,
VRDN, Veterans, Welfare Bond,
Series 1973F, (LC Mitsubishi
-- 4,000,000 4,000,000 Bank Ltd.)
Medford Hospital VRDB-Rogue Valley Manor,
4,000,000 -- 4,000,000 Variable Rate Demand Bond
5,700,000 -- 5,700,000 Port Morrow VRDB-General Elecitric
3,875,000 -- 3,875,000 Tualatin Hills Parks & Recreation TRAN
PFS-23
<PAGE>
Pennsylvania-5.4%
-- 3,700,000 3,700,000 Allegheny County Pennsylvania (LC Norinchukin)
-- 7,000,000 7,000,000 Carbon County Pennsylvania (A.M.T.) (LC Nat West)
Allegheny Co. Industrial Development VRDB-
United Jewish Federation:
10,000,000 -- 10,000,000 Series B
1,100,000 -- 1,100,000 Series C
Delaware Co. IDR (FGIC Insured) CP-
2,400,000 -- 2,400,000 Philadelphia Electric
Montgomery Co. Higher Education Health
5,000,000 -- 5,000,000 Authority VRDB-Philadelphia Presbytery
6,800,000 -- 6,800,000 Schuylkill Co. IDR VRDB-Westwood Energy
3,800,000 3,800,000 Montgomery County (LC Deutsche Bank)
3,000,000 -- 3,000,000 Upper Allegheny Joint Sanitary Authority
Rhode Island-0.4%
Providence Off Street Public
Parking Facility Revenue, VRDN,
Wash Street Garage Corp.
Project, (A.M.T.) (LC Morgan Guaranty
-- 3,000,000 3,000,000 Trust)
South Carolina-2.4%
South Carolina Jobs, Economic
Development Authority, VRDN,
Hospital Facilities Revenue,
Baptist Healthcare System
-- 7,000,000 7,000,000 (LC Credit Local de France)
Richland Co. School District TAN GO Unlimited
8,300,000 -- 8,300,000 Tax.
3,500,000 -- 3,500,000 South Carolina GO State Capital Improvement,
South Dakota-0.3%
2,715,000 -- 2,715,000 South Dakota HDA,
Tennessee-2.3%
Memphis Shelby County (A.M.T.)
-- 6,405,000 6,405,000 (LC Canadian Imperial Bank of Commerce)
Knox Co. Board IDR VRDB-Service
800,000 -- 800,000 Merchandise Co., Inc.,
Metropolitan Government Nashville &
6,000,000 -- 6,000,000 Davidson Co.,
Metropolitan Government Nashville &
5,100,000 -- 5,100,000 Davidson Co., VRDB-Nashville Apartments
Texas-10.0%
Brazos Higher Education
Authority, Student Loan
Revenue, VRDN, Series B-1,
(A.M.T.)(LC Student Loan
-- 6,000,000 6,000,000 Marketing Assoc.)
Brazos River Texas (A.M.T.) (LC Canadian
-- 3,000,000 3,000,000 Imperial Bank of Commerce)
Gulf Coast Industrial Development
Authority, Texas Solid Waste
Disposal Revenue, Citgo
Petroleum Corp. Project, (A.M.T.)
-- 2,700,000 2,700,000 (LC NationsBank of Texas)
Milam County Industrial Development
Corp., Pollution Control Revenue
Refunding, Aluminum Co. of America
-- 5,000,000 5,000,000 Project (LC Credit Suisse)
Panhandle Plains Higher Education
Authority Revenue, VRDN,
Student Loan Revenue, Series A,
(A.M.T.)(LC Student Loan
-- 6,000,000 6,000,000 Marketing Association)
5,400,000 -- 5,400,000 Austin Utilities System CP
3,000,000 -- 3,000,000 Houston Water & Sewer System (MBIA Insured)
5,600,000 -- 5,600,000 North Central HCFA VRDB-YMCA Dallas
Texas State Higher Education Authority (FGIC
Insured) VRDB-Educational Equipment &
2,510,000 -- 2,510,000 Improvements,
PFS-24
<PAGE>
3,000,000 -- 3,000,000 Texas State Public Finance Authority:
5,000,000 -- 5,000,000 CP
12,750,000 -- 12,750,000 Texas TRAN
5,000,000 -- 5,000,000 Texas Transportation CP,
Texas Hospital Equipment Finance Council
8,045,000 -- 8,045,000 (MBIA Insured) VRDN
Texas Small Business IDR VRDB-Texas Public
2,300,000 -- 2,300,000 Facilities Capital Access
Tyler Health Facilities Development Corp. CP-
3,700,000 -- 3,700,000 East Texas Medical Center Regional Health
Utah-2.8%
-- 5,500,000 5,500,000 Emery County (LC Credit Suisse)
4,700,000 -- 4,700,000 Intermountain Power Agency,
Salt Lake Co. PCR VRDB-Pacific Corp.
12,100,000 -- 12,100,000 Variable Rate Demand Bond
Vermont-1.3%
5,975,000 -- 5,975,000 Vermont Educational Health Agency,
Vermont Student Assistance Corp. VRDN,
4,600,000 -- 4,600,000 Variable Rate Demand Note
Virginia-0.3%
2,700,000 -- 2,700,000 Loudoun Co. IDR VRDB
Washington-1.3%
Port Townsend IDR VRDB-Townsend Paper
5,100,000 -- 5,100,000 Corp.
5,500,000 -- 5,500,000 Seattle Municipal Light & Power Co.,
West Virginia-1.1%
-- 6,000,000 6,000,000 West Virginia Public Energy (A.M.T.) (LC Swiss Bank)
2,700,000 -- 2,700,000 Raleigh Co. Health Care System VRDB
Wisconsin-4.1%
Milwaukee School Order Notes
15,000,000 -- 15,000,000 Series B
14,000,000 -- 14,000,000 Waukesha School District TRAN
Wisconsin State Transportation Transit
3,000,000 -- 3,000,000 Improvements,
Wyoming-1.7%
Sweetwater City, Wyoming (A.M.T.)
-- 5,400,000 5,400,000 (LC West Deutsche Landesbank)
8,000,000 -- 8,000,000 Lincoln Co. PCR VRDB-Pacificorp Project
----------- ----------- -----------
563,100,000 227,735,000 790,835,000
=========== =========== ===========
PFS-25
<PAGE>
<CAPTION>
Pro Forma
Combined
Woodward Prairie Amortized
Maturity Amortized Amortized Cost
Description Rating Rate Date Cost Cost (Note 1)
----------- ------ ---- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alaska-6.6%
City of Valdez, Marine Terminal
Revenue, CP, Refunding, ARCO
Transportation Project, Series A VMIG1/A-1 3.50% 2/5/96 -- 3,500,000 3,500,000
City of Valdez, Marine Terminal
Revenue, CP, Refunding, ARCO
Transportation Project,
Series A, 1994 A VMIG1/A-1 3.55% 1/5/96 -- 4,000,000 4,000,000
Anchorage Electric Utilities
(MBIA Insured) Aaa 7.63% 12/1/15 11,423,545 -- 11,423,545
Valdez Marine Terminal-Arco
Transportation:
Commercial Paper VMIG 1 3.50% 5/1/31 8,000,000 -- 8,000,000
Commercial Paper VMIG 1 3.55% 5/1/31 3,900,000 -- 3,900,000
Commercial Paper VMIG 1 3.75% 5/1/31 1,700,000 -- 1,700,000
VRDB, VMIG 1 3.50% 5/1/31 8,000,000 -- 8,000,000
Valdez Marine Terminal-Exxon
Pipeline Co. VRDB, P 1 5.95% 10/1/25 12,000,000 -- 12,000,000
----------- ----------- -----------
45,023,545 7,500,000 52,523,545
Alabama-1.5%
Phenix City Alabama
(A.M.T.)(LC ABN AMRO) P-1/NR 3.55% 2/7/96 -- 6,000,000 6,000,000
Alabama HFA Mulit-Family CP:
Commercial Paper VMIG 1 3.50% 12/1/13 3,200,000 -- 3,200,000
Commercial Paper VMIG 1 3.60% 12/1/13 2,700,000 -- 2,700,000
----------- ----------- -----------
5,900,000 6,000,000 11,900,000
Arizona -0.7%
Chandler IDR VRDB-Parsons
Municipal Services, A 1+ 4.25% 12/15/09 3,600,000 -- 3,600,000
Maricopa Co. School District
GO Unlimited Tax
Series A Aa 3.75% 7/1/96 2,000,952 -- 2,000,952
----------- ----------- -----------
5,600,952 -- 5,600,952
California-1.2%
Southeast Resource Recovery
Facility, Authority of California
Lease Revision, VRDN, Series A, (LC
Industrial Bank of Japan Ltd) VMIG1/A-1 5.15%*** 12/1/18 -- 9,500,000 9,500,000
----------- ----------- -----------
Colorado-3.3%
Burke County Denver
(LC Credit Swisse) VMIG1/A-1+ 3.40% 3/7/96 5,000,000 5,000,000
Colorado Student Obligation Bond
Authority, VRDN, Student Loan
Revenue, Series 1990A, (A.M.T.)
(LC Student Loan Marketing
Association) VMIG1/NR 5.20%*** 9/1/24 -- 5,000,000 5,000,000
Adams Co. IDR VRDB-City View Park, A 1+ 5.20% 12/1/15 3,000,000 -- 3,000,000
Englewood HFA Multi-Family
VRDN - Mark Project, A 1+ 5.25% 12/15/97 2,000,000 -- 2,000,000
Lakewood Multi-Family
Housing (FGIC Insured)
VRDB-St. Moritz & Diamond Head, VMIG 1 4.00% 10/1/07 8,250,000 -- 8,250,000
Moffat Co. PCR VRDB, VMIG 1 4.65% 7/1/10 3,000,000 -- 3,000,000
----------- ----------- -----------
16,250,000 10,000,000 26,250,000
Delaware-1.0%
Delaware EDC VRDB-Hospital
Billing Series B VMIG 1 5.25% 12/1/15 7,600,000 -- 7,600,000
----------- ----------- -----------
PFS-26
<PAGE>
Florida-3.5%
Florida Municipal Power (LC First Union) P-1/A-1 3.50% 2/8/96 -- 7,500,000 7,500,000
West Orange Hosp (LC Rabobank) VMIG1/NR 3.75% 1/3/96 -- 5,600,000 5,600,000
West Orange Hospital (LC Rabobank) VMIG1/NR 3.80% 1/11/96 -- 6,000,000 6,000,000
Florida GO Unlimited Tax Aaa 7.20% 7/1/08 3,355,215 -- 3,355,215
Florida HFA Multi-Family
(MBIA Insured)
VRDB-Lake Northdale Aaa 3.75% 6/1/07 5,595,000 -- 5,595,000
----------- ----------- -----------
8,950,215 19,100,000 28,050,215
Georgia-2.8%
Georgia Municipal Gas (LC Wachovia Bank) A1+/NR 3.80% 2/5/96 -- 5,000,000 5,000,000
Thomaston - Upson County,
Industrial Development
Authority, Yamaha Music
Manufactoring, (A.M.T.) (LC Bank of
Tokyo Ltd.) NR/A-1 5.80%*** 8/1/18 -- 2,300,000 2,300,000
College Park IDR-VRDB-Marriott Corp., Aa 3 6.10% 8/1/15 1,200,000 -- 1,200,000
Cobb Co. Housing Multi-Family VRDB-Pittco
Frey Associates Project, VMIG 1 5.20% 6/1/23 5,900,000 -- 5,900,000
Fulton Co. Development IDR VRDN-Palisades
West Ltd., Aaa 5.15% 9/1/96 2,235,000 -- 2,235,000
Georgia Municipal Gas Authority-Southern
Portfolio I Project, VMIG 1 3.75% 4/1/96 5,100,000 -- 5,100,000
----------- ----------- -----------
14,435,000 7,300,000 21,735,000
Hawaii-1.7%
Hawaii Dept. of Budget & Finance Mortgage:
VRDN-Kuakini Medical Center VMIG 1 3.75% 7/1/04 4,000,000 -- 4,000,000
VRDB-Wilcox Memorial Hospital VMIG 1 5.95% 7/1/18 2,100,000 -- 2,100,000
Hawaii State Housing Finance & Development
Corp. VRDB-Rental Housing Systems VMIG 1 5.15% 7/1/24 7,500,000 -- 7,500,000
----------- ----------- -----------
13,600,000 -- 13,600,000
Iowa-0.8%
Iowa School Corps., Warrant
Certificates, Iowa School Cash
Anticipation Program, Series A
(CGIC Insured) VMIG1/SP-1+ 4.75% 6/28/96 -- 6,025,412 6,025,412
----------- ----------- -----------
Illinois-6.8%
Southwestern Illinois Development
Authority, Enviromental Impact
Revenue, Shell Oil Co. Wood
River Project, (A.M.T.) VMIG1/AAA 6.15% 10/1/25 -- 6,175,000 6,175,000
Chicago GO Tender Notes VMIG 1 3.75% 10/31/96 6,100,000 -- 6,100,000
Chicago O'Hare International
Airport-American
Airlines VRDB
Series C P 1 6.10% 12/1/17 15,000,000 -- 15,000,000
Series D P 1 6.10% 12/1/17 15,000,000 -- 15,000,000
Illinois GO AA- 7.13% 4/1/06 1,022,317 -- 1,022,317
Illinois State Sales Tax Aaa 7.63% 6/15/15 7,132,216 -- 7,132,216
Illinois State Toll
Highway Authority, VRDB VMIG 1 5.05% 1/1/10 300,000 -- 300,000
Northwest Suburban Municipal Joint Account
(MBIA Insured)-Water Agency Supply System Aaa 7.20% 5/1/03 3,490,557 -- 3,490,557
----------- ----------- -----------
48,045,090 6,175,000 54,220,090
Indiana-2.9%
Seymour Economic Development
Authority Revenue, Kobelco
Metal Powder Project, (A.M.T.)
(LC Industrials Bank of Japan,
Limited) NR/A-1 5.80% 12/1/97 -- 3,700,000 3,700,000
Jasper Co. PCR CP-Northern
Indiana Public
Services VMIG 1 3.70% 11/1/16 2,000,000 -- 2,000,000
Mt. Vernon PCR CP-General
Electric Project,
Commercial Paper P 1 3.50% 12/1/04 6,900,000 -- 6,900,000
Commercial Paper P 1 3.70% 12/1/04 2,790,000 -- 2,790,000
PFS-27
<PAGE>
Rockport Pollution Control
(AMBAC Insured)
VRDB-AEP Generating Co. Aaa 5.95% 7/1/25 5,500,000 -- 5,500,000
VRDB-Indiana Michigan Power Co. Aaa 5.00% 6/1/25 2,000,000 -- 2,000,000
----------- ----------- -----------
19,190,000 3,700,000 22,890,000
Kansas-0.8%
Olathe GO Unlimited Tax, MIG 1 4.50% 5/1/96 6,700,000 -- 6,700,000
----------- ----------- -----------
Kentucky-1.8%
Bowling Green, Industrial Building
Revenue, VRDN, Bando
Manufacturing America Project,
(A.M.T.)(LC Industrial Bank of
Japan, New York, Expires 12/15/95) NR/A-1 5.80%*** 12/1/07 -- 2,655,000 2,655,000
Bowling Green, Industrial Building
Revenue, VRDN, Twin Faste
Inc. Project, (A.M.T.)(LC Industrial
Bank of Japan) NR/A-1 5.80%*** 3/1/08 -- 2,400,000 2,400,000
Henderson County, Solid Waste
Disposal Revenue, VRDN,
Hudson Foods Inc. Project
(A.M.T.)(LC Rabobank
Netherland) VMIG1/NR 5.10% 3/1/15 -- 2,000,000 2,000,000
Kentucky Higher Education Student
Loan Corp., Insured Student
Loan, Series E, (A.M.T.)(LC Sumitomo
Bank, Chicago) VMIG1/A-1 5.60% 12/1/11 -- 4,000,000 4,000,000
Mason Co. PCR E. Kentucky Power VRDB-CFC
Power National Rural Utilities B-1 P 1 4.65% 10/15/14 3,000,000 -- 3,000,000
----------- ----------- -----------
3,000,000 11,055,000 14,055,000
Louisiana-1.5%
New Orleans Exhibition Hall
Authority, Series B, (A.M.T.)
(LC Sanwa Bank Ltd.) VMIG1/A-1 5.50% 7/1/18 -- 5,000,000 5,000,000
State of Louisiana (LC Credit Locale) VMIG1/A-1+ 3.80% 1/3/96 -- 7,000,000 7,000,000
----------- ----------- -----------
-- 12,000,000 12,000,000
Maryland-0.8%
Baltimore PCR VRDB- SCM Plants A 1+ 5.10% 2/1/00 6,000,000 -- 6,000,000
----------- ----------- -----------
6,000,000 -- 6,000,000
Michigan-9.2%
Clinton Township EDC (MBIA Insured) VRDB
Sisters of Charity St. Joseph, VMIG 1 5.00% 5/1/13 300,000 -- 300,000
Dearborn EDC VRDB-Oakbrook Common:
Variable Rate Demand Bond A 1 5.10% 3/1/23 2,300,000 -- 2,300,000
Variable Rate Demand Bond A 1 5.10% 3/1/25 200,000 -- 200,000
Delta Co. EDC-Mead Escanaba Paper:
Series D P 1 6.00% 12/1/23 4,200,000 -- 4,200,000
Series F P 1 6.10% 12/1/13 4,300,000 -- 4,300,000
Farmington Hills EDR
VRDB-Brookfield Building
Associates A 1 5.20% 11/1/10 2,000,000 -- 2,000,000
Grand Rapids EDC VRDB-Amway A 1 5.10% 12/1/06 3,600,000 -- 3,600,000
Ingham Co. EDC VRDB-Martin Luther
Memorial Home, Inc. A 1+ 5.20% 4/1/22 5,870,000 -- 5,870,000
Kent Hospital VRDB-Butterworth Hospital VMIG 1 5.40% 1/15/20 2,600,000 -- 2,600,000
Meridian Limited Obligation EDC VRDN-
Service Merchandise Co. A 1+ 4.00% 12/15/99 500,000 -- 500,000
Michigan State Building Authority AA- 3.75% 10/1/96 5,005,297 -- 5,005,297
Michigan State Hospital VRDB-Hospital
Equipment Loan Program:
Variable Rate Demand Bond VMIG 1 5.20% 12/1/23 1,600,000 -- 1,600,000
Variable Rate Demand Bond VMIG 1 5.20% 12/1/23 8,900,000 -- 8,900,000
Michigan State Hospital VRDB-Mt. Clemens
Hospital VMIG 1 5.00% 8/15/15 4,600,000 -- 4,600,000
Michigan State HDA VRDB:
Laurel VY, VMIG 1 5.10% 12/1/07 400,000 -- 400,000
Shoal Creek, VMIG 1 5.10% 10/1/07 2,800,000 -- 2,800,000
Michigan State Job Development Authority
VRDB-Gordon Food Service, Aaa 5.00% 8/1/15 5,800,000 -- 5,800,000
PCR VRDB-Mazda Motor Corp., VMIG 1 5.25% 10/1/08 4,500,000 -- 4,500,000
Michigan State Strategic Fund VRDB-
Allen Group, Inc. VMIG 1 5.00% 11/1/25 400,000 -- 400,000
PFS-28
<PAGE>
University of Michigan Hospital VRDB:
Variable Rate Demand Bond VMIG 1 5.90% 12/1/19 1,200,000 -- 1,200,000
Variable Rate Demand Bond VMIG 1 5.90% 12/1/27 11,610,000 -- 11,610,000
----------- ----------- -----------
72,685,297 -- 72,685,297
Minnesota-1.1%
Hennepin Co. GO, VMIG 1 5.15% 12/1/06 5,000,000 -- 5,000,000
Rochester GO Various Sales Tax, 5.00% 11/1/99 100,000 -- 100,000
St. Paul Housing & Redevelopment Authority
VRDB, A 1+ 3.80% 12/1/12 3,900,000 -- 3,900,000
----------- ----------- -----------
9,000,000 -- 9,000,000
Mississippi-1.0%
Perry Co. PCR VRDB-Leaf River Forest, P 1 5.30% 10/1/12 8,200,000 -- 8,200,000
----------- ----------- -----------
Missouri-2.0%
Missouri Higher Education Loan
Authority, VRDN, Series A, (A.M.T.)
(LC National Westminster
Place) VMIG1/NR 5.25%*** 6/1/17 -- 3,000,000 3,000,000
Burlington G& E VRDN P-1/A-1+ 3.65% 3/11/96 -- 4,800,000 4,800,000
Independence Water Utility Improvements CP VMIG 1 3.40% 11/1/16 2,400,000 -- 2,400,000
Missouri State Environmental Improvement
Energy Research PCR-Union Electric Co.
Series A P 1 4.00% 6/1/14 1,000,000 -- 1,000,000
Series B P 1 4.00% 6/1/14 4,750,217 -- 4,750,217
----------- ----------- -----------
8,150,217 7,800,000 15,950,217
New Hampshire-1.5%
New Hampshire Business Finance
Authority, Pollution Control
Revenue Refunding, Public
Service Co. of New Hampshire
Project, VRDN, Series 1992D,
(A.M.T.)(LC Barclays Bank PLC) VMIG1/A-1+ 5.15%*** 5/1/21 -- 10,000,000 10,000,000
New Hampshire IDR VRDB-Oerlikon-Burlhe
USA, A 1+ 3.75% 7/1/13 1,800,000 -- 1,800,000
----------- ----------- -----------
1,800,000 10,000,000 11,800,000
Nevada-3.3%
Clark County Industrial
Development Revenue,
Nevada Power Co. Project,
Series A, (A.M.T.)(LC Bank Barcia,
Place) NR/A-1+ 5.35% 10/1/30 -- 8,000,000 8,000,000
Clark Co. Airport Improvement (MBIA
Insured) VRDB, VMIG 1 5.15% 7/1/12 8,600,000 -- 8,600,000
Clark Co. PCR VRDB-Nevada Power Co.
Variable Rate Demand Bond A 1+ 5.00% 10/1/23 6,300,000 -- 6,300,000
Washoe County Nevada (LC Union Bank
of Switzerland) P-1/A-1+ 4.00% 1/22/96 -- 3,000,000 3,000,000
----------- ----------- -----------
14,900,000 11,000,000 25,900,000
New Jersey-0.2%
Rutgers State University AA 4.25% 5/1/96 1,221,741 -- 1,221,741
----------- ----------- -----------
New York-4.7%
New York City General Obligation,
Series F-6 (LC Noeinchukin) VMIG1/A-1+ 5.50% 2/15/18 -- 4,200,000 4,200,000
New York City GO (MBIA Insured) VRDB
Variable Rate Demand Bond VMIG 1 5.90% 8/15/22 11,000,000 -- 11,000,000
New York City Housing Development
Corp. Mortgage Revenue,
Multifamily 400 West 59th-A-2,
(A.M.T.)(LC Bayerische
Hypotheken) NR/A-1 5.00% 9/1/30 -- 9,000,000 9,000,000
New York State Energy Research
& Development Authority,
Pollution Control Revenue,
New York Electric & Gas - D
(LC Union Bank of
Switzerland) VMIG1/A-1 5.30% 10/1/29 -- 6,000,000 6,000,000
PFS-29
<PAGE>
New York State Energy Research
& Development Authority,
Pollution Control Revenue,
Niagara Power Corp. Project - B,
(A.M.T.)(LC Morgan Guaranty,
New York) NR/A-1+ 5.60% 7/1/27 -- 2,000,000 2,000,000
St. Lawrence County Industrial
Development Agency,
Environmental Impact Revenue
Reynolds Metals Co. Project,
(A.M.T.)(LC Royal Bank of
Canada) VMIG1/A-1+ 5.00% 5/1/25 -- 4,900,000 4,900,000
----------- ----------- -----------
11,000,000 26,100,000 37,100,000
North Carolina-1.9%
North Carolina Eastern Municipal Power
Agency-Power System Aaa 7.75% 1/1/15 15,000,000 -- 15,000,000
----------- ----------- -----------
Ohio-1.7%
Columbus Electric System VRDB A 1 3.90% 9/1/09 1,400,000 -- 1,400,000
Cincinnati/Hamilton Co. EDR **N/R 3.90% 8/1/15 3,150,000 -- 3,150,000
Franklin Co. IDR VRDB-Capital South
Community Redevelopment, **N/R 4.10% 12/1/05 700,000 -- 700,000
Ohio Environmental Improvements CP, U.S.
Steel Corp. P 1 5.50% 5/1/11 8,300,000 -- 8,300,000
----------- ----------- -----------
13,550,000 -- 13,550,000
Oregon-2.35%
State of Oregon General Obligation,
VRDN, Veterans, Welfare Bond,
Series 1973F, (LC Mitsubishi
Bank Ltd.) VMIG1/A-1 5.15%*** 12/1/17 -- 4,000,000 4,000,000
Medford Hospital VRDB-Rogue Valley Manor,
Variable Rate Demand Bond VMIG 1 5.20% 12/1/15 4,000,000 -- 4,000,000
Port Morrow VRDB-General Elecitric P 1 6.00% 10/1/13 5,700,000 -- 5,700,000
Tualatin Hills Parks & Recreation TRAN SP 1+ 4.25% 6/28/96 3,882,320 -- 3,882,320
----------- ----------- -----------
13,582,320 4,000,000 17,582,320
Pennsylvania-5.4%
Allegheny County Pennsylvania
(LC Norinchukin) P-1/A-1+ 3.70% 2/2/96 -- 3,700,000 3,700,000
Carbon County Pennsylvania
(A.M.T.) (LC NatWest) P-1/A-1+ 3.45% 3/6/96 -- 7,000,000 7,000,000
Allegheny Co. Industrial Development VRDB-
United Jewish Federation:
Series B VMIG 1 5.25% 10/1/25 10,000,000 -- 10,000,000
Series C VMIG 1 5.25% 10/1/15 1,100,000 -- 1,100,000
Delaware Co. IDR (FGIC Insured) CP-
Philadelphia Electric VMIG 1 3.40% 12/1/12 2,400,000 -- 2,400,000
Montgomer Co. Higher Education Health
Authority VRDB-Philadelphia Presbytery VMIG 1 5.25% 7/1/25 5,000,000 -- 5,000,000
Schuylkill Co. IDR VRDB-Westwood Energy P 1 6.25% 11/1/09 6,800,000 -- 6,800,000
Montgomery County (LC Deutsche Bank) 3.80% 2/7/96 3,800,000 3,800,000
Upper Allegheny Joint Sanitary Authority MIG 1 4.50% 9/1/26 3,001,004 -- 3,001,004
----------- ----------- -----------
28,301,004 14,500,000 42,801,004
Rhode Island-0.4%
Providence Off Street Public
Parking Facility Revenue, VRDN,
Wash Street Garage Corp.
Project, (A.M.T.) (LC Morgan Guaranty
Trust) NR/A-1+ 5.10%*** 12/1/22 -- 3,000,000 3,000,000
----------- ----------- -----------
South Carolina-2.4%
South Carolina Jobs, Economic
Development Authority, VRDN,
Hospital Facilities Revenue,
Baptist Healthcare System
(LC Credit Local de France VMIG1/A-1+ 5.05%*** 8/1/17 -- 7,000,000 7,000,000
Richland Co. School District
TAN GO Unlimited Tax MIG 1 4.00% 4/15/96 8,305,660 -- 8,305,660
PFS-30
<PAGE>
South Carolina GO State Capital Improvement, Aaa 7.30% 2/1/96 3,509,443 -- 3,509,443
----------- ----------- -----------
11,815,103 7,000,000 18,815,103
South Dakota-0.3%
South Dakota HDA, Aa 1 3.90% 5/1/96 2,715,000 -- 2,715,000
----------- ----------- -----------
Tennessee-2.3%
Memphis Shelby County
(A.M.T.) (LC Canadian Imperial
Bank of Commerce) P-1/A-1+ 3.70% 2/22/96 -- 6,405,000 6,405,000
Knox Co. Board IDR VRDB-Service
Merchandise Co., Inc., A 1+ 4.00% 12/15/08 800,000 -- 800,000
Metropolitan Government Nashville &
Davidson Co., AA 6.50% 6/15/06 6,142,843 -- 6,142,843
Metropolitan Government Nashville &
Davidson Co., VRDB-Nashville Apartments Aa 3 5.15% 9/1/15 5,100,000 -- 5,100,000
----------- ----------- -----------
12,042,843 6,405,000 18,447,843
Texas-10.0%
Brazos Higher Education
Authority, Student Loan
Revenue, VRDN, Series B-1,
(A.M.T.)(LC Student Loan
Marketing Assoc.) VMIG1/NR 5.20%*** 6/1/23 -- 6,000,000 6,000,000
Brazos River Texas (A.M.T.)
(LC Canadian Imperial Bank
of Commerce) VMIG1/A-1+ 3.95% 1/18/96 -- 3,000,000 3,000,000
Gulf Coast Industrial Development
Authority, Texas Solid Waste
Disposal Revenue, Citgo
Petroleum Corp. Project, (A.M.T.)
(LC NationsBank of Texas) VMIG1/NR 6.15% 5/1/25 -- 2,700,000 2,700,000
Milam County Industrial Development
Corp., Pollution Control Revenue
Refunding, Aluminum Co. of America
Project (LC Credit Suisse) VMIG1/NR 4.60% 3/1/01 -- 5,000,000 5,000,000
Panhandle Plains Higher Education
Authority Revenue, VRDN,
Student Loan Revenue, Series A,
(A.M.T.)(LC Student Loan
Marketing Association) VMIG1/NR 5.20%*** 6/1/21 -- 6,000,000 6,000,000
Austin Utilities System CP P 1 3.65% 4/9/96 5,400,000 -- 5,400,000
Houston Water & Sewer System (MBIA Insured) Aaa 7.13% 12/1/16 3,150,445 -- 3,150,445
North Central HCFA VRDB-YMCA Dallas VMIG 1 5.65% 6/1/21 5,600,000 -- 5,600,000
Texas State Higher Education
Authority (FGIC
Insured) VRDB-Educational
Equipment &
Improvements, VMIG 1 5.15% 12/1/25 2,510,000 -- 2,510,000
Texas State Public Finance Authority: Aa 6.40% 10/1/96 3,061,190 -- 3,061,190
CP P 1 3.75% 8/20/96 5,000,000 -- 5,000,000
Texas TRAN MIG 1 4.75% 8/30/96 12,812,314 -- 12,812,314
Texas Transportation CP P 1 3.65% 8/20/96 5,000,000 -- 5,000,000
Texas Hospital Equipment Finance Council
(MBIA Insured) VRDN VMIG 1 5.45% 4/7/05 8,045,000 -- 8,045,000
Texas Small Business IDR VRDB-Texas Public
Facilities Capital Access VMIG 1 5.20% 7/1/26 2,300,000 -- 2,300,000
Tyler Health Facilities
Development Corp. CP-
East Texas Medical Center
Regional Health VMIG 1 3.65% 11/1/25 3,700,000 -- 3,700,000
----------- ----------- -----------
56,578,949 22,700,000 79,278,949
Utah-2.8%
Emery County (LC Credit Suisse) P-1/A-1+ 3.90% 1/10/96 -- 5,500,000 5,500,000
Intermountain Power Agency, Aaa 7.75% 7/1/17 4,889,980 -- 4,889,980
Salt Lake Co. PCR VRDB-Pacific Corp.
Variable Rate Demand Bond P 1 5.95% 2/1/08 12,100,000 -- 12,100,000
----------- ----------- -----------
16,989,980 5,500,000 22,489,980
PFS-31
<PAGE>
Vermont-1.3%
Vermont Educational Health Agency, A 1+ 3.80% 11/1/27 5,975,000 -- 5,975,000
Vermont Student Assistance Corp. VRDN,
Variable Rate Demand Note P 1 3.75% 1/1/04 4,600,000 -- 4,600,000
----------- ----------- -----------
10,575,000 -- 10,575,000
Virginia-0.3%
Loudoun Co. IDR VRDB A 1 6.45% 11/1/24 2,700,000 -- 2,700,000
----------- ----------- -----------
Washington-1.3%
Port Townsend IDR VRDB-Townsend Paper
Corp. VMIG 1 5.15% 3/1/09 5,100,000 -- 5,100,000
Seattle Municipal Light & Power Co., VMIG 1 3.50% 11/1/15 5,500,000 -- 5,500,000
----------- ----------- -----------
10,600,000 -- 10,600,000
West Virginia-1.1%
West Virginia Public Energy (A.M.T.)
(LC Swiss Bank) P-1/A-1+ 3.70% 2/22/96 -- 6,000,000 6,000,000
Raleigh Co. Health Care System VRDB VMIG 1 5.25% 9/1/06 2,700,000 -- 2,700,000
----------- ----------- -----------
2,700,000 6,000,000 8,700,000
Wisconsin-4.1%
Milwaukee School Order Notes
Series B MIG 1 4.50% 8/22/96 15,046,050 -- 15,046,050
Waukesha School District TRAN SP 1 4.25% 8/23/96 14,020,236 -- 14,020,236
Wisconsin State Transportation Transit
Improvements, AAA 7.90% 7/1/02 3,123,465 -- 3,123,465
----------- ----------- -----------
32,189,751 -- 32,189,751
Wyoming-1.7%
Sweetwater City, Wyoming
(A.M.T.)(LC West Deutsche LandesBank) VMIG1/A-1+ 3.70% 2/1/96 -- 5,400,000 5,400,000
Lincoln Co. PCR VRDB-Pacificorp Project VMIG 1 3.40% 1/1/16 8,000,000 -- 8,000,000
----------- ----------- -----------
8,000,000 5,400,000 13,400,000
----------- ----------- -----------
564,592,007 227,760,412 792,352,419
=========== =========== ===========
</TABLE>
PFS-32
<PAGE>
PRAIRIE/WOODWARD FUNDS
MUNICIPAL MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
December 31, 1995
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corporation
A.M.T. -- Subject to Alternative Minimum Tax
CGIC -- Capital Guaranty Insurance Corporation
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HFC -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Individual Development & Export Authority
IDR -- Industrial Development Revenue
LC -- Letter of Credit
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poors'.
** N/R investment is not rated, yet deemed by the Investment
Advisor as an acceptable credit and having characteristics
equivalent to obligations rated AA or MIG by Moody's,
AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted
periodically based on appropriate indexes. The interest rates
shown are the rates in effect at December 31, 1995.
PFS-33
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Growth Fund
Pro Forma Combining Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Capital Growth Growth Combined
Fund Fund Adjustments (Note 1)
-------------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At Cost $164,013,755 $250,136,384 $ -- $414,150,139
============ ============ ============== ============
At Value $196,462,000 $295,869,250 $ -- $492,331,250
Receivable for shares purchased 22,908 -- -- 22,908
Receivable from Advisor -- -- 28,388 (c) 28,388
Receivable for investment securities sold -- 5,224,933 -- 5,224,933
Income Receivable 179,422 639,875 -- 819,297
Receivable for Fund shares sold -- 103,710 -- 103,710
Deferred organization expenses 28,388 59,746 (28,388) (c) 59,746
Prepaids and other assets 43,804 7,172 -- 50,976
------------ ------------ -------------- ------------
TOTAL ASSETS 196,736,522 301,904,686 -- 498,641,208
------------ ------------ --------------- ------------
LIABILITIES:
Payable for securities purchased 459,114 1,593,065 -- 2,052,179
Payable for shares redeemed 218,571 -- -- 218,571
Accrued investment advisory fee 123,751 139,215 -- 262,966
Accrued distribution fees 825 -- -- 825
Accrued custodial fees 2,805 -- -- 2,805
Administration fees payable -- 42,597 -- 42,597
Bank Overdraft -- 262,146 -- 262,146
Dividends payable 56,269 844,773 -- 901,042
Payable For Fund Shares Redeemed -- 326,751 -- 326,751
Other accrued expenses and payables 14,009 154,793 -- 168,802
------------ ------------ -------------- ------------
TOTAL LIABILITIES 875,344 3,363,340 -- 4,238,684
------------ ------------ -------------- ------------
NET ASSETS $195,861,178 $298,541,346 $ -- $494,402,524
============ ============ ============== ============
Net assets consist of:
Capital shares, at par $ 1,476,584 $ 24,944 $ 2,629,271 (a) $ 4,130,799
Additional paid-in capital 161,372,369 247,530,554 (2,629,271) (a) 406,273,652
Accumulated undistributed net investment income 11,301 3,678 -- 14,979
Accumulated undistributed net realized gains 552,679 5,249,304 -- 5,801,983
Net unrealized appreciation on investments 32,448,245 45,732,866 -- 78,181,111
------------ ------------ ------------- ------------
TOTAL NET ASSETS $195,861,178 $298,541,346 $ -- $494,402,524
============ ============ ============= ============
Class A shares:
Net assets $ -- $ 4,329,204 $ 5,121,770 (b) $ 9,450,974
Shares outstanding -- 361,669 427,881 (a,b) 789,550
Net asset value per class A share $ -- $ 11.97 $ -- $ 11.97
Maximum offering price per class A share $ -- $ 12.53 $ -- $ 12.53
Class B shares:
Net assets $ -- $ 268,039 $ -- $ 268,039
Shares outstanding -- 22,438 -- 22,438
Net asset value per class B share $ -- $ 11.95 $ -- $ 11.95
Class I shares:
Net assets $ -- $293,944,103 $ 190,739,408 (b) $484,683,511
Shares outstanding -- 24,559,453 15,936,552 (a,b) 40,496,005
Net asset value per class I share $ -- $ 11.97 $ -- $ 11.97
Single class shares:
Net assets $195,861,178 $ -- $(195,861,178) (b) $ --
Shares outstanding 14,765,837 -- (14,765,837) (b) --
Net asset value per single class share $ 13.26 $ -- $ -- $ --
Maximum offering price per single class share $ 13.96 $ -- $ -- $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Capital Growth Fund
shares (at the Prairie Growth Fund's net asset value per share since
this portfolio is the accounting survivor) in connection with the
proposed reorganization.
(b) Adjustment reclassifies Woodward Capital Growth Fund shares to
reflect the multi-class environment of the proposed
reorganized entity.
(c) Remaining unamortized organizational costs of the Woodward Capital
Growth Fund will be assumed by the investment advisor prior to
merger date.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-34
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Growth Fund
Pro Forma Combining Statement of Operations
For The Year Ended December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Capital Growth Growth Combined
Fund Fund (1) Adjustments (Note 1)
--------------- --------- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 436,419 $ 4,772,025 $ -- $ 5,208,444
Dividend 1,676,890 1,172,933 -- 2,849,823
---------- ------------ --------- ------------
TOTAL INVESTMENT INCOME 2,113,309 5,944,958 -- 8,058,267
---------- ------------ --------- ------------
EXPENSES:
Advisory fees 1,064,273 1,714,125 (347,391) (a) 2,431,007
Administration fees -- 395,568 212,184 (a) 607,752
Custodian fees and expenses 30,473 74,792 -- 105,265
12b-1 fees -- 670 -- 670
Distribution Fees 9,455 -- (9,455) (b) --
Shareholder servicing fee 494 4,884 8,689 (a) 14,067
Professional fees 56,031 57,332 (38,363) (c) 75,000
Amortization of organization expenses 8,111 17,201 (8,111) (d) 17,201
Transfer agent fees and expenses 12,933 16,912 -- 29,845
Marketing expenses 32,082 -- (32,082) (b) --
Registration, filing and other expense 51,123 151,143 -- 202,266
----------- ----------- --------- ------------
TOTAL EXPENSES 1,264,975 2,432,627 (214,529) 3,483,073
Expense reimbursements (58,424) (314,740) 373,164 (e) --
----------- ----------- --------- ------------
NET EXPENSES 1,206,551 2,117,887 158,635 3,483,073
----------- ----------- --------- ------------
NET OPERATING INCOME (LOSS) 906,758 3,827,071 (158,635) 4,575,194
----------- ----------- --------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments 2,343,100 26,140,162 -- 28,483,262
Net change in unrealized appreciation on
investments 30,092,839 45,732,866 -- 75,825,705
----------- ----------- --------- ------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS 32,435,939 71,873,028 -- 104,308,967
----------- ----------- --------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $33,342,697 $75,700,099 $(158,635) $108,884,161
=========== =========== ========= ============
- --------------
<FN>
(1) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(a) Adjustment to reflect the proposed contractual fee structure of Prairie
Growth Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Prairie Growth Fund after
reorganization.
(c) Reduction reflects expected savings when the two funds become one.
(d) Remaining unamortized organizational costs of the Woodward Capital Growth
Fund will be assumed by the investment advisor prior to
merger date.
(e) Adjustment to reduce reimbursements from the advisor to reflect the
new fee structure of the Prairie Growth Fund after reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Prairie/Woodward Funds
Pro Forma Combining
Growth Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
[Unaudited]
- ------------------------------------------------------------------------------
Pro Forma
Pro Forma Combined
Combined Woodward Prairie Market
Woodward Prairie Shares Market Market Value
Shares Shares (Note 1) Description Value Value (Note 1)
-------- ------ ---------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS- 96.8%
Advertising and Marketing Services- 1.6%
110,000 -- 110,000 Donnelley (R.R.) & Sons Co. ............ 4,331,250 -- 4,331,250
-- 55,000 55,000 Interpublic Group of Cos., Inc. ........ -- 2,385,625 2,385,625
-- 40,000 40,000 Omnicon Group .......................... -- 1,490,000 1,490,000
- ----------- ----------- ----------- ----------- ----------- -----------
110,000 95,000 205,000 4,331,250 3,875,625 8,206,875
- ----------- ----------- ----------- ----------- ----------- -----------
Automotive Parts & Equipment- 0.6%
-- 80,000 80,000 Echlin, Inc. ........................... -- 2,920,000 2,920,000
- ----------- ----------- ----------- ----------- ----------- -----------
Beverages, Food, and Tobacco- 9.6%
-- 55,000 55,000 Coca Cola Co. .......................... -- 4,083,750 4,083,750
-- 110,000 110,000 ConAgra, Inc. .......................... -- 4,537,500 4,537,500
-- 140,000 140,000 General Mills, Inc. .................... -- 8,085,000 8,085,000
-- 60,000 60,000 Hershey Foods Corp. .................... -- 3,900,000 3,900,000
-- 90,000 90,000 Hudson Foods, Inc. Class A ............. -- 1,552,500 1,552,500
-- 130,000 130,000 PepsiCo, Inc. ......................... -- 7,263,750 7,263,750
-- 140,000 140,000 Philip Morris Cos., Inc. ............... -- 12,670,000 12,670,000
-- 170,000 170,000 Sara Lee Corp. ......................... -- 5,418,750 5,418,750
-- 8,000 8,000 Schweitzer-Mauduit Intl. ............... -- 185,000 185,000
- ----------- ----------- ----------- ----------- ----------- -----------
-- 903,000 903,000 -- 47,696,250 47,696,250
- ----------- ----------- ----------- ----------- ----------- -----------
Business Services- 2.5%
58,000 -- 58,000 Automatic Data Processing, Inc. ........ 4,306,500 -- 4,306,500
105,000 -- 105,000 Interpublic Group of Companies, Inc. ... 4,554,375 -- 4,554,375
115,000 -- 115,000 WMX Technologies, Inc. ................. 3,435,625 -- 3,435,625
- ----------- ----------- ----------- ----------- ----------- -----------
278,000 -- 278,000 12,296,500 -- 12,296,500
- ----------- ----------- ----------- ----------- ----------- -----------
Chemicals- 5.0%
-- 85,000 85,000 Eastman Chemical Co. .................. -- 5,323,125 5,323,125
58,000 -- 58,000 Great Lakes Chemical Corp. ............. 4,176,000 -- 4,176,000
-- 150,000 150,000 Morton Int'l ........................... -- 5,381,250 5,381,250
-- 145,000 145,000 Praxair, Inc. ......................... -- 4,875,625 4,875,625
57,000 -- 57,000 Sigma-Aldrich Corp. .................... 2,821,500 -- 2,821,500
-- 90,000 90,000 Wellman, Inc. ......................... -- 2,047,500 2,047,500
- ----------- ----------- ----------- ----------- ----------- -----------
115,000 470,000 585,000 6,997,500 17,627,500 24,625,000
- ----------- ----------- ----------- ----------- ----------- -----------
Computer Software and Peripherals- 5.1%
-- 80,000 80,000 Automatic Data Processing, Inc. ....... -- 5,940,000 5,940,000
-- 40,000 40,000 Compaq Computer Corp. .................. -- 1,920,000 1,920,000
-- 100,000 100,000 Computer Associates Int., Inc. ......... -- 5,687,500 5,687,500
-- 70,000 70,000 Intel Corp. ........................... -- 3,972,500 3,972,500
90,400 -- 90,400 Autodesk, Inc. ......................... 3,096,200 -- 3,096,200
55,000 -- 55,000 Microsoft Corp.*........................ 4,826,250 -- 4,826,250
- ----------- ----------- ----------- ----------- ----------- -----------
145,400 290,000 435,400 7,922,450 17,520,000 25,442,450
- ----------- ----------- ----------- ----------- ----------- -----------
Construction- 1.9%
73,000 -- 73,000 Fluor Corp. ............................ 4,818,000 -- 4,818,000
100,000 -- 100,000 York International Corp. ............... 4,700,000 -- 4,700,000
- ----------- ----------- ----------- ----------- ----------- -----------
173,000 -- 173,000 9,518,000 -- 9,518,000
- ----------- ----------- ----------- ----------- ----------- -----------
PFS-36
<PAGE>
Consumer Goods and Services- 7.4%
-- 70,000 70,000 American Home Products Corp. .......... -- 6,790,000 6,790,000
-- 75,000 75,000 Clorox Co. ............................. -- 5,371,875 5,371,875
-- 100,000 100,000 Hillenbrand Industries, Inc. .......... -- 3,387,500 3,387,500
-- 80,000 80,000 Kimberly-Clark Corp. ................. -- 6,620,000 6,620,000
140,000 -- 140,000 Newell Co. ............................. 3,622,500 -- 3,622,500
80,000 -- 80,000 Rubbermaid, Inc. ....................... 2,040,000 -- 2,040,000
-- 115,000 115,000 Service Corp. Int. ..................... -- 5,060,000 5,060,000
-- 105,000 105,000 Stewart Enterprises, Inc. ............. -- 3,885,000 3,885,000
- ----------- ----------- ----------- ----------- ----------- -----------
220,000 545,000 765,000 5,662,500 31,114,375 36,776,875
- ----------- ----------- ----------- ----------- ----------- -----------
Consumer Non-Durables- 2.7%
-- 55,000 55,000 Alberto-Culver Co., Class A ............ -- 1,677,500 1,677,500
250,000 -- 250,000 Cracker Barrel Old Country Store, Inc. . 4,312,500 -- 4,312,500
73,650 -- 73,650 CUC International, Inc.*................ 2,513,306 -- 2,513,306
115,000 -- 115,000 Service Corp. International ............ 5,060,000 -- 5,060,000
- ----------- ----------- ----------- ----------- ----------- -----------
438,650 55,000 493,650 11,885,806 1,677,500 13,563,306
- ----------- ----------- ----------- ----------- ----------- -----------
Containers- 0.8%
100,000 -- 100,000 Crown Cork & Seal Co., Inc. ............ 4,175,000 -- 4,175,000
- ----------- ----------- ----------- ----------- ----------- -----------
Electronics- 5.7%
-- 120,000 120,000 AMP, Inc. ............................. -- 4,605,000 4,605,000
-- 80,000 80,000 Emerson Electric ....................... -- 6,540,000 6,540,000
-- 180,000 180,000 General Electric Co. .................. -- 12,960,000 12,960,000
-- 75,000 75,000 Motorola, Inc. ........................ -- 4,275,000 4,275,000
- ----------- ----------- ----------- ----------- ----------- -----------
-- 455,000 455,000 -- 28,380,000 28,380,000
- ----------- ----------- ----------- ----------- ----------- -----------
Entertainment and Leisure- 3.5%
180,000 -- 180,000 Carnival Corp., Class A ............... 4,387,500 -- 4,387,500
131,000 -- 131,000 Gaylord Entertainment Co., Class A ..... 3,635,250 -- 3,635,250
-- 120,000 120,000 Time Warner, Inc. ..................... -- 4,545,000 4,545,000
80,000 -- 80,000 Walt Disney Co. ........................ 4,720,000 -- 4,720,000
- ----------- ----------- ----------- ----------- ----------- -----------
391,000 120,000 511,000 12,742,750 4,545,000 17,287,750
- ----------- ----------- ----------- ----------- ----------- -----------
Electronics- 2.5%
95,000 -- 95,000 General Motors Corp., Class E .......... 4,940,000 -- 4,940,000
37,000 -- 37,000 Hewlett-Packard Co. .................... 3,098,750 -- 3,098,750
75,000 -- 75,000 Intel Corp. ............................ 4,256,250 -- 4,256,250
- ----------- ----------- ----------- ----------- ----------- -----------
207,000 -- 207,000 12,295,000 -- 12,295,000
- ----------- ----------- ----------- ----------- ----------- -----------
Energy Raw Materials- 1.7%
52,000 -- 52,000 Schlumberger Ltd. ...................... 3,601,000 -- 3,601,000
90,000 -- 90,000 Western Atlas, Inc.* ................... 4,545,000 -- 4,545,000
- ----------- ----------- ----------- ----------- ----------- -----------
142,000 -- 142,000 8,146,000 -- 8,146,000
- ----------- ----------- ----------- ----------- ----------- -----------
Finance- 2.4%
-- 100,000 100,000 State Street Bank ...................... -- 4,500,000 4,500,000
80,000 -- 80,000 Banc One Corp. ......................... 3,020,000 -- 3,020,000
127,000 -- 127,000 Norwest Corp. .......................... 4,191,000 -- 4,191,000
- ----------- ----------- ----------- ----------- ----------- -----------
207,000 100,000 307,000 7,211,000 4,500,000 11,711,000
- ----------- ----------- ----------- ----------- ----------- -----------
Food and Agriculture- 1.5%
57,000 -- 57,000 CPC International, Inc. ............... 3,911,625 -- 3,911,625
113,000 -- 113,000 Sysco Corp. ............................ 3,672,500 -- 3,672,500
- ----------- ----------- ----------- ----------- ----------- -----------
170,000 -- 170,000 7,584,125 -- 7,584,125
- ----------- ----------- ----------- ----------- ----------- -----------
Health Industries- 2.3%
-- 145,000 145,000 Horizon HealthCare Corp. ............... 3,661,250 3,661,250
95,000 95,000 Proctor & Gamble Co..................... 7,885,000 7,885,000
- ----------- ----------- ----------- ----------- ----------- -----------
240,000 240,000 11,546,250 11,546,250
- ----------- ----------- ----------- ----------- ----------- -----------
PFS-37
<PAGE>
Insurance- 5.2%
100,000 -- 100,000 AFLAC, Inc. ............................ 4,337,500 -- 4,337,500
56,000 75,000 131,000 American International Group, Inc. .... 5,180,000 6,937,500 12,117,500
-- 65,000 65,000 Chubb Corp. ............................ -- 6,288,750 6,288,750
-- 20,000 20,000 General RE Corp. ....................... -- 3,100,000 3,100,000
- ----------- ----------- ----------- ----------- ----------- -----------
156,000 160,000 316,000 9,517,500 16,326,250 25,843,750
- ----------- ----------- ----------- ----------- ----------- -----------
Manufacturing- 0.6%
-- 100,000 100,000 Corning, Inc. .......................... -- 3,200,000 3,200,000
- ----------- ----------- ----------- ----------- ----------- -----------
Medical Care & Products- 0.5%
-- 80,000 80,000 Sofamor Danek Group .................... -- 2,270,000 2,270,000
- ----------- ----------- ----------- ----------- ----------- -----------
Miscellaneous & Conglomerates- 1.0%
90,000 -- 90,000 Duracell International, Inc. ........... 4,657,500 -- 4,657,500
- ----------- ----------- ----------- ----------- ----------- -----------
Oil & Gas- 2.0%
-- 70,000 70,000 British Petroleum Co. ADR............... -- 7,148,750 7,148,750
-- 100,000 100,000 Unocal Corp. ........................... -- 2,912,500 2,912,500
- ----------- ----------- ----------- ----------- ----------- -----------
-- 170,000 170,000 -- 10,061,250 10,061,250
- ----------- ----------- ----------- ----------- ----------- -----------
Pharmaceuticals- 12.4%
-- 90,000 90,000 Elan Corp. PLC ADR ..................... -- 4,376,250 4,376,250
-- 50,000 50,000 Forest Labs, Inc. ...................... -- 2,262,500 2,262,500
-- 100,000 100,000 Ivax Corp. ............................ -- 2,850,000 2,850,000
70,000 95,000 165,000 Johnson & Johnson ...................... 5,993,750 8,134,375 14,128,125
67,000 -- 67,000 Medtronic, Inc. ........................ 3,743,625 -- 3,743,625
-- 105,000 105,000 Mylan Labs ............................. -- 2,467,500 2,467,500
225,000 -- 225,000 Pall Corp. ............................. 6,046,875 -- 6,046,875
-- 160,000 160,000 Pfizer, Inc. ........................... -- 10,080,000 10,080,000
-- 75,000 75,000 Pharmacia & Upjohn ..................... -- 2,906,250 2,906,250
-- 50,000 50,000 Smithkline - Beecham ADR ............... -- 2,775,000 2,775,000
83,000 -- 83,000 Stryker Corp. .......................... 4,357,500 -- 4,357,500
76,000 -- 76,000 United Healthcare Corp. ................ 4,978,000 -- 4,978,000
- ----------- ----------- ----------- ----------- ----------- -----------
521,000 725,000 1,246,000 25,119,750 35,851,875 60,971,625
- ----------- ----------- ----------- ----------- ----------- -----------
Pollution Control- 2.5%
-- 185,000 185,000 Browning-Ferris ........................ -- 5,457,500 5,457,500
-- 230,000 230,000 WMX Technologies, Inc. ................. -- 6,871,250 6,871,250
- ----------- ----------- ----------- ----------- ----------- -----------
-- 415,000 415,000 -- 12,328,750 12,328,750
- ----------- ----------- ----------- ----------- ----------- -----------
Producer Goods- 1.4%
76,000 -- 76,000 Illinois Tool Works, Inc. .............. 4,484,000 -- 4,484,000
100,000 -- 100,000 Stewart & Stevenson Services, Inc. ..... 2,525,000 -- 2,525,000
- ----------- ----------- ----------- ----------- ----------- -----------
176,000 -- 176,000 7,009,000 -- 7,009,000
- ----------- ----------- ----------- ----------- ----------- -----------
Retail Stores-6.1%
132,000 -- 132,000 Albertsons, Inc. ....................... 4,339,500 -- 4,339,500
-- 110,000 110,000 Eckerd Corp. ........................... -- 4,908,750 4,908,750
135,000 -- 135,000 Home Depot, Inc. ....................... 6,463,125 -- 6,463,125
-- 110,000 110,000 May Department Stores Co. ............. -- 4,647,500 4,647,500
130,000 -- 130,000 Toys R Us*.............................. 2,827,500 -- 2,827,500
132,000 100,000 232,000 Walgreen Co. ........................... 3,943,500 2,987,500 6,931,000
- ----------- ----------- ----------- ----------- ----------- -----------
529,000 320,000 849,000 17,573,625 12,543,750 30,117,375
- ----------- ----------- ----------- ----------- ----------- -----------
Telecommunications- 5.8%
170,000 -- 170,000 AirTouch Communications, Inc.*.......... 4,802,500 -- 4,802,500
-- 140,000 140,000 AT&T Corp. ............................. -- 9,065,000 9,065,000
-- 50,000 50,000 Century Telephone Enterprises, Inc. ... -- 1,587,500 1,587,500
-- 40,000 40,000 DSC Communications Corp. .............. -- 1,475,000 1,475,000
175,000 275,000 450,000 MCI Communications Corp. ............... 4,571,875 7,184,375 11,756,250
- ----------- ----------- ----------- ----------- ----------- -----------
345,000 505,000 850,000 9,374,375 19,311,875 28,686,250
- ----------- ----------- ----------- ----------- ----------- -----------
PFS-38
<PAGE>
Tobacco- 0.7%
110,000 -- 110,000 UST, Inc. .............................. 3,671,250 -- 3,671,250
- ----------- ----------- ----------- ----------- ----------- -----------
Utilities- 1.2%
-- 80,000 80,000 AES Corp. .............................. -- 1,910,000 1,910,000
100,000 -- 100,000 Enron Corp. ............................ 3,812,500 -- 3,812,500
- ----------- ----------- ----------- ----------- ----------- -----------
100,000 80,000 180,000 3,812,500 1,910,000 5,722,500
- ----------- ----------- ----------- ----------- ----------- -----------
Total Common Stocks
4,724,050 5,668,000 10,392,050 191,503,381 285,206,250 476,709,631
=========== =========== =========== =========== =========== ===========
SHORT-TERM INVESTMENT- 3.2%
Time Deposit 5.81%
-- 10,663,000 10,663,000 Berlin/Frankfort Bank (cost $10,663,000) -- 10,663,000 10,663,000
Temporary Cash Investment
Salomon Brothers, Revolving Repurchase
Agreement, 5.93%, 1/2/96, (secured by
various U.S. Treasury Strips with
maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury
Notes, 5.500%, 11/15/98,
4,958,619 -- 4,958,619 all held at Chemical Bank) ............. 4,958,619 -- 4,958,619
- ----------- ----------- ----------- ----------- ----------- -----------
4,958,619 10,663,000 15,621,619 4,958,619 10,663,000 15,621,619
- ----------- ----------- ----------- ----------- ----------- -----------
9,682,669 298,541,346 308,224,015 TOTAL INVESTMENTS 196,462,000 295,869,250 492,331,250
=========== =========== =========== =========== =========== ===========
<FN>
* -- Non-income producing security
</TABLE>
PFS-39
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Bond Fund
Pro Forma Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Pro Forma
Woodward Prairie Combined
Bond Fund Bond Fund Adjustments (Note 1)
--------- --------- ----------- -------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At Cost $481,852,916 $120,011,126 $ -- $601,864,042
============ ============ ============= ============
At Value $512,978,615 $126,282,920 $ -- $639,261,535
Receivable for investment securities sold 225,826 -- 225,826
Receivable from advisor -- -- 57,260 (c) 57,260
Receivable for Fund shares sold -- 58,546 -- 58,546
Interest receivable 5,748,712 1,667,756 -- 7,416,468
Deferred organization expenses 6,439 57,260 (57,260)(c) 6,439
Prepaids and other assets 4,113 5,854 -- 9,967
------------ ------------ ------------- ------------
TOTAL ASSETS 518,963,705 128,072,336 -- 647,036,041
------------ ------------ ------------- ------------
LIABILITIES:
Payable for securities purchased 456,491 -- -- 456,491
Accrued investment advisory fee 283,332 46,708 -- 330,040
Accrued distribution fees 5,095 -- -- 5,095
Accrued custodial fees 7,282 1,873 -- 9,155
Administration fees payable -- 17,390 -- 17,390
12b-1 fees payable -- 94 -- 94
Bank overdraft -- 175 -- 175
Dividends payable 582,184 631,870 -- 1,214,054
Payable for fund shares redeemed -- 2,797 -- 2,797
Other accrued expenses and payables 63,742 62,760 -- 126,502
------------ ----------- ------------- ------------
TOTAL LIABILITIES 1,398,126 763,667 $ -- 2,161,793
------------ ----------- ------------- ------------
NET ASSETS $517,565,579 $127,308,669 $ -- $644,874,248
============ ============ ============= ============
Net assets consist of:
Capital shares, at par $ 4,952,384 $ 11,774 $ 1,206,374 (a) $ 6,170,532
Additional paid-in capital 509,179,119 118,554,093 (1,206,374)(a) 626,526,838
Accumulated undistributed net investment income 233,362 -- -- 233,362
Accumulated undistributed net realized gains (27,924,985) 2,471,008 -- (25,453,977)
Net unrealized appreciation on investments 31,125,699 6,271,794 -- 37,397,493
------------ ------------- ------------- ------------
TOTAL NET ASSETS $517,565,579 $127,308,669 $ -- $644,874,248
============ ============ ============= ============
Class A shares:
Net assets $ -- $ 1,846,532 $ 30,432,856 (b) $ 32,279,388
Shares outstanding -- 170,875 2,917,814 (a,b) 3,088,689
Net asset value per class A share $ -- $ 10.81 $ -- $ 10.45
Maximum offering price per Class A share $ -- $ 11.32 $ -- $ 10.94
Class B shares:
Net assets $ -- $ 61,260 $ -- $ 61,260
Shares outstanding -- 5,669 -- 5,669
Net asset value per class B share $ -- $ 10.81 $ -- $ 10.81
Class I shares:
Net assets $ -- $125,400,877 $ 487,132,723 (b) $612,533,600
Shares outstanding -- 11,598,064 47,012,901 (a,b) 58,610,965
Net asset value per class I share $ -- $ 10.81 $ -- $ 10.45
Single class shares:
Net assets $517,565,579 $ -- $(517,565,579)(b) $ --
Shares outstanding 49,523,843 -- (49,523,843)(b) --
Net asset value per single class share $ 10.45 $ -- $ -- $ --
Maximum offering price single class share $ 10.97 $ -- $ -- $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Bond Fund
shares in exchange for shares of the Prairie Bond
Fund in connection with the proposed reorganization.
(b) Adjustment reclassifies Woodward Bond Fund shares to
reflect the multi-class environment of the proposed
reorganized entity.
(c) Remaining unamortized organizational costs of the Prairie
Bond Fund will be assumed by the investment advisor prior to
merger date.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-40
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Bond Fund
Pro Forma Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
Pro Forma
Woodward Prairie Combined
Bond Fund Bond Fund (1) Adjustments (Note 1)
--------- ------------- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 34,039,591 $ 7,432,982 $ -- $ 41,472,573
------------ ----------- ----------- ------------
TOTAL INVESTMENT INCOME 34,039,591 7,432,982 -- 41,472,573
------------ ----------- ----------- ------------
EXPENSES:
Advisory fees 3,121,267 571,379 (1,366,959) (a) 2,325,687
Administration fees -- 155,831 716,302 (a) 872,133
Distribution fees 51,487 -- (51,487) (b) --
Shareholder servicing fees 2,360 2,161 67,814 (a) 72,335
12b-1 fees -- 116 -- 116
Custodian fees and expenses 80,898 55,999 -- 136,897
Professional fees 69,263 29,720 (23,983) (c) 75,000
Amortization of organization expenses 15,455 16,042 (16,042) (d) 15,455
Transfer agent fees and expenses 38,611 15,614 -- 54,225
Marketing expenses 43,247 -- (43,247) (b) --
Security pricing services 13,033 -- -- 13,033
Registration, filing and other expenses 116,084 61,712 -- 177,796
------------ ----------- ---------- ------------
TOTAL EXPENSES 3,551,705 908,574 (717,602) 3,742,677
Expense reimbursements -- (178,732) (44,040) (e) (222,772)
------------ ----------- ---------- ------------
NET EXPENSES 3,551,705 729,842 (761,642) 3,519,905
------------ ----------- ---------- ------------
NET OPERATING INCOME 30,487,886 6,703,140 761,642 37,952,668
------------ ----------- ---------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments (1,566,826) 6,908,795 -- 5,341,969
Net change in unrealized appreciation on
investments 72,514,668 6,271,794 -- 78,786,462
------------ ----------- ---------- ------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS 70,947,842 13,180,589 -- 84,128,431
------------ ----------- ---------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $101,435,728 $19,883,729 $ 761,642 $122,081,099
============ =========== ========== ============
- ----------------
<FN>
(1) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(a) Adjustment to reflect the proposed contractual fee structure of Woodward
Bond Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Woodward Bond Fund after reorganization.
(c) Reduction reflects expected savings when the two funds become one.
(d) Remaining unamortized organizational costs of the Prairie Bond
Fund will be assumed by the investment advisor prior to
merger date.
(e) Adjustment to increase reimbursements from the advisor to reflect the
new fee structure of the Woodward Bond Fund after reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-41
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Pro Forma Combining
Bond Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31,1995
[Unaudited]
- ------------------------------------------------------------------------------
Pro Forma
Principal
Woodward Prairie Amount
Principal Principal Combined
Amount Amuont (Note 1) Description
- ----------------- -------------- ---------------- -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS- 19.9%
Asset-Backed Securities- 1.5%
Advanta Mortgage Loan Trust, Series
-- 1,625,000 1,625,000 1994-3, Class A2
First U.S.A. Credit Card Master Trust,
-- 833,000 833,000 Series 1992-1, Class A
Green Tree Financial Corporation,
Manufactured Housing Senior
Subordinate Passthrough, Series
-- 3,000,000 3,000,000 1995-4, Class A6
Security Pacific Acceptance Corp.
Manufactured Housing Contract Senior
-- 2,000,000 2,000,000 Subordinate, Series 1995-1, Class A3
Standard Credit Card Master Trust I,
Participation Certificates, Series 1994-2,
-- 1,800,000 1,800,000 Class A
- ----------------- -------------- ----------------
-- 9,258,000 9,258,000
- ----------------- -------------- ----------------
Banking- 3.2%
ABN-ARMO Bank N.V., Chicago
-- 2,000,000 2,000,000 Subordinate Note
-- 2,000,000 2,000,000 Chase Manhattan Corp., Subordinate Note
Chemical Master Credit Card Trust, I,
-- 1,000,000 1,000,000 Series 1995-3, Asset-Backed CTF, Class A
Chevy Chase Auto Receivables Trust,
-- 2,000,000 2,000,000 Series 1995-2 Class A
-- 2,000,000 2,000,000 First Union Corp., Subordinate Note
Interamerican Development Bank,
-- 1,800,000 1,800,000 Debentures
Interamerican Development Bank,
-- 2,200,000 2,200,000 Debentures
International Bank for Reconstruction and
-- 1,500,000 1,500,000 Development Debentures
-- 1,500,000 1,500,000 Midland Bank PLC, Subordinate Note
-- 2,500,000 2,500,000 Solomon, Inc., Senior Notes
- ----------------- -------------- ----------------
-- 18,500,000 18,500,000
- ----------------- -------------- ----------------
Beverage, Food and Tobacco- 0.3%
Grand Metro Investment Corp.,
-- 800,000 800,000 Guaranteed Note
995,000 -- 995,000 Dominos Pizza Funding Corp., Series A
- ----------------- -------------- ----------------
995,000 800,000 1,795,000
- ----------------- -------------- ----------------
Cable TV Systems- 0.6%
-- 3,500,000 3,500,000 Cablevision Industries Corp., Senior Debentures
- ----------------- -------------- ----------------
Chemicals- 0.3%
-- 1,500,000 1,500,000 Monsanto Co., Debenture
- ----------------- -------------- ----------------
Entertainment- 0.4%
-- 2,500,000 2,500,000 News America Holdings, Senior Note
- ----------------- -------------- ----------------
PFS-42
<PAGE>
Finance- 6.5%
-- 800,000 800,000 American Express Co., Debentures
-- 1,600,000 1,600,000 Sears Credit Master Trust II, Series 1995-3, Class A
1,400,000 -- 1,400,000 American Express Co.
2,350,000 -- 2,350,000 Associates Corp. of North America
3,085,000 -- 3,085,000 Associates Corp. of North America
Collaterized Mortgage Securities Corp. CMO:
3,070,227 -- 3,070,227 Trust 10-Z
889,933 -- 889,933 Trust 12-D
491,993 -- 491,993 Trust 16-Q
1,692,081 -- 1,692,081 Chase Manhattan Grantor Trust, Series 95-B
2,040,088 -- 2,040,088 Ford Credit Grantor Trust, Series 94-A
2,150,000 -- 2,150,000 Ford Motor Credit Co.
2,500,000 -- 2,500,000 General Motors Acceptance Corp. Medium Term Note
Government National Mortgage Assn. Backed Trust I
354,912 -- 354,912 CMO, Class A, Zero Coupon
Kidder Peabody Mortgage Assets Trust CMO,
1,125,000 -- 1,125,000 Series 24 Class E
4,000,000 -- 4,000,000 Merrill Lynch Trust Series 43 Class E CMO
Morgan Stanley Mortgage Trust CMO:
5,248 -- 5,248 Series 35-2, HB, IF
5,996 -- 5,996 Series 37-2, HB, IF
999,131 -- 999,131 Series 39-3, PO
PaineWebber CMO Trust:
1,030,480 -- 1,030,480 Series H-4
2,479,357 -- 2,479,357 Series P-4
Rural Housing Trust 1987-1 Sr. Mortgage Pass
1,199,436 -- 1,199,436 Thru Ctf., Class 3-B
Shearson Lehman, Inc. CMO, Mortgage Backed
322,556 -- 322,556 Sequential Pay Bond, Series U, Sequence U-1
Standard Credit Card Master Trust Asset Backed Ctf.,
2,000,000 -- 2,000,000 Series 1995-5, Class A, Adjustable Rate
Toyota Auto Receivables Grantor Trust, Series 95-A
1,314,302 -- 1,314,302 Class A
World Omni Automobile LSE SEC Trust, Series 95-5
1,500,000 -- 1,500,000 Class A
- ----------------- -------------- ----------------
36,005,740 2,400,000 38,405,740
- ----------------- -------------- ----------------
Forest and Paper Products- 0.1%
-- 800,000 800,000 Weyerhaeuser Co., Debentures
- ----------------- -------------- ----------------
Foreign- 2.6%
1,572,000 -- 1,572,000 African Development Bank Note
2,000,000 -- 2,000,000 Kingdom of Belgium Put Euro Dollar
2,250,000 -- 2,250,000 Metropolis of Tokyo
800,000 -- 800,000 National Australia Bank Ltd
1,415,000 -- 1,415,000 Province of Ontario
4,300,000 -- 4,300,000 Province of Ontario Eurobond
2,515,000 -- 2,515,000 Province of Quebec
- ----------------- -------------- ----------------
14,852,000 -- 14,852,000
- ----------------- -------------- ----------------
Health Care & Hospital Management- 0.8%
-- 2,000,000 2,000,000 Coastal Corp.
-- 2,500,000 2,500,000 Columbia/HCA Healthcare Corp.
- ----------------- -------------- ----------------
-- 4,500,000 4,500,000
- ----------------- -------------- ----------------
Hotels and Gaming- 0.3%
Marriott International, Inc., Senior Note,
-- 2,000,000 2,000,000 Series B
- ----------------- -------------- ----------------
Industrial- 0.8%
2,695,000 -- 2,695,000 General Motors Corp.
1,730,000 -- 1,730,000 Boeing Co.
- ----------------- -------------- ----------------
4,425,000 -- 4,425,000
- ----------------- -------------- ----------------
Retail Stores- 1.2%
-- 1,500,000 1,500,000 Dayton Hudson Credit Card Master Trust Series 95-1, Class A
-- 1,800,000 1,800,000 Dayton Hudson Corp., Debenture
-- 4,000,000 4,000,000 Federated Department Stores, Senior Notes
- ----------------- -------------- ----------------
-- 7,300,000 7,300,000
- ----------------- -------------- ----------------
PFS-43<PAGE>
Telecommunications- 0.9%
-- 3,500,000 3,500,000 TCI Communications, Inc.
-- 2,000,000 2,000,000 ITT Corp
- ----------------- -------------- ----------------
-- 5,500,000 5,500,000
- ----------------- -------------- ----------------
Utilities- 0.4%
-- 1,000,000 1,000,000 West Texas Utilities First Mortgage, Series U
1,355,000 -- 1,355,000 Nippon Telegraph & Telephone Corp.
- ----------------- -------------- ----------------
1,355,000 1,000,000 2,355,000
- ----------------- -------------- ----------------
TOTAL CORPORATE OBLIGATIONS
U.S. GOVERNMENT OBLIGATIONS- 37.6%
U.S. Treasury Bonds- 9.1%
3,720,000 -- 3,720,000 Strip from U.S. Treasury Bond Principal
3,950,000 -- 3,950,000 Strip from U.S. Treasury Bond Principal
- ----------------- -------------- ----------------
7,670,000 -- 7,670,000
- ----------------- -------------- ----------------
1,800,000 -- 1,800,000 Strip from U.S. Treasury Securities
1,500,000 -- 1,500,000 Strip from U.S. Treasury Securities
1,700,000 -- 1,700,000 Strip from U.S. Treasury Securities
3,355,000 -- 3,355,000 Strip from U.S. Treasury Securities
7,450,000 -- 7,450,000 Strip from U.S. Treasury Securities
4,525,000 -- 4,525,000 Strip from U.S. Treasury Securities
9,338,000 -- 9,338,000 Strip from U.S. Treasury Securities
4,555,000 -- 4,555,000 Strip from U.S. Treasury Securities
10,594,000 -- 10,594,000 Strip from U.S. Treasury Securities
8,950,000 -- 8,950,000 Strip from U.S. Treasury Securities
61,840,000 -- 61,840,000 Strip from U.S. Treasury Securities
55,640,000 -- 55,640,000 Strip from U.S. Treasury Securities
- ----------------- -------------- ----------------
171,247,000 -- 115,607,000
- ----------------- -------------- ----------------
U.S. Treasury Bonds- 5.6%
9,000,000 -- 9,000,000 U.S. Treasury Bond
8,830,000 -- 8,830,000 U.S. Treasury Bond
-- 1,000,000 1,000,000 U.S. Treasury Bond
-- 3,500,000 3,500,000 U.S. Treasury Bond
-- 1,760,000 1,760,000 U.S. Treasury Bond
-- 1,000,000 1,000,000 U.S. Treasury Bond
- ----------------- -------------- ----------------
17,830,000 7,260,000 25,090,000
- ----------------- -------------- ----------------
U.S. Treasury Notes- 22.9%
-- 3,850,000 3,850,000 U.S. Treasury Note
-- 3,500,000 3,500,000 U.S. Treasury Note
12,592,000 700,000 13,292,000 U.S. Treasury Note
-- 6,450,000 6,450,000 U.S. Treasury Note
-- 1,500,000 1,500,000 U.S. Treasury Note
-- 6,200,000 6,200,000 U.S. Treasury Note
-- 2,000,000 2,000,000 U.S. Treasury Note
-- 6,000,000 6,000,000 U.S. Treasury Note
-- 8,500,000 8,500,000 U.S. Treasury Note
5,001,000 -- 5,001,000 U.S. Treasury Note
1,000,000 -- 1,000,000 U.S. Treasury Note
4,400,000 -- 4,400,000 U.S. Treasury Note
3,890,000 -- 3,890,000 U.S. Treasury Note
2,100,000 -- 2,100,000 U.S. Treasury Note
3,505,000 -- 3,505,000 U.S. Treasury Note
3,130,000 -- 3,130,000 U.S. Treasury Note
1,000,000 -- 1,000,000 U.S. Treasury Note
18,900,000 -- 18,900,000 U.S. Treasury Note
6,150,000 -- 6,150,000 U.S. Treasury Note
8,780,000 -- 8,780,000 U.S. Treasury Note
3,000,000 -- 3,000,000 U.S. Treasury Note
16,125,000 -- 16,125,000 U.S. Treasury Note
4,000,000 -- 4,000,000 U.S. Treasury Note
7,410,000 -- 7,410,000 U.S. Treasury Note
- ----------------- -------------- ----------------
100,983,000 38,700,000 139,683,000
- ----------------- -------------- ----------------
PFS-44
<PAGE>
TOTAL U.S. GOVERNMENT OBLIGATIONS
U.S. Agency Government Obligations- 36.4%
Government National Mortgage Association
-- 77,000 77,000 Pool #201299
- ----------------- -------------- ----------------
Agency Obligations
Federal Home Loan Mortgage Corp. Participation Ctfs.:
1,938,783 -- 1,938,783 #170269
314,427 -- 314,427 #200070
95,532 -- 95,532 #274081
171,732 -- 171,732 #289711
887,323 -- 887,323 #555238
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
1,255,907 -- 1,255,907 Series 10 Class D
1,500,000 -- 1,500,000 Series 11 Class D
1,104,876 -- 1,104,876 Series 22 Class C
823,046 -- 823,046 Series 23 Class E
1,150,000 -- 1,150,000 Series 23 Class F
24,545,249 -- 24,545,249 Series 29 Class SD, GNMA
1,000,494 -- 1,000,494 Series 32 Class B
596,952 -- 596,952 Series 38 Class C
141,037 -- 141,037 Series 41 Class I, HB,
500,000 -- 500,000 Series 47 Class F
802,603 -- 802,603 Series 51 Class D
2,220,582 -- 2,220,582 Series 56 Class E
1,000,000 -- 1,000,000 Series 82 Class D
2,181,715 -- 2,181,715 Series 99 Class Z
3,500,000 -- 3,500,000 Series 129 Class E
1,177,894 -- 1,177,894 Series 134 Class B, IO
21,745 -- 21,745 Series 204 Class E, HB, IF
696,411 -- 696,411 Series 1022 Class G
5,071 -- 5,071 Series 1045 Class G, HB
1,429,602 -- 1,429,602 Series 1051 Class D
2,000,000 -- 2,000,000 Series 1065 Class J
35,279 -- 35,279 Series 1072 Class A, HB
1,332,679 -- 1,332,679 Series 1079 Class S, IF
2,000,000 -- 2,000,000 Series 1084 Class F, IF
1,400,000 -- 1,400,000 Series 1084 Class S, IF
91,366 -- 91,366 Series 1089 Class C, IF
15,632 -- 15,632 Series 1098 Class M, HB
2,000,000 -- 2,000,000 Series 1144 Class KB
21,071 -- 21,071 Series 1172 Class L, HB
93,403 -- 93,403 Series 1196 Class B, HB, IF
2,400,000 -- 2,400,000 Series 1295 Class JB
1,699,404 -- 1,699,404 Series 1297 Class H
9,000 -- 9,000 Series 1298 Class L, HB
5,014,742 -- 5,014,742 Series 1329 Class S, IO, IF
2,500,000 -- 2,500,000 Series 1360 Class PK
600,000 -- 600,000 Series 1370 Class F
1,500,000 -- 1,500,000 Series 1378 Class H
2,280,849 -- 2,280,849 Series 1378 Class JZ
2,250,000 -- 2,250,000 Series 1418 Class B
6,500,000 -- 6,500,000 Series 1456 Class G
29,155,288 -- 29,155,288 Series 1465 Class SA, IO, IF
3,150,000 -- 3,150,000 Series 1483 Class E
2,087,129 -- 2,087,129 Series 1489 Class L
1,632,714 -- 1,632,714 Series 1506 Class F, AR
583,112 -- 583,112 Series 1506 Class S, IF
27,449,198 -- 27,449,198 Series 1506 Class SD, IO, IF
8,872,418 -- 8,872,418 Series 1508 Class KB, IO, IF
1,127,152 -- 1,127,152 Series 1531 Class K
927,383 -- 927,383 Series 1554 Class KA, PO
1,270,128 -- 1,270,128 Series 1583 Class NS, IF
2,271,596 -- 2,271,596 Series 1585 Class NB, IF
1,478,062 -- 1,478,062 Series 1586 Class A
14,871,975 -- 14,871,975 Series 1595 Class S, IO, IF
701,374 -- 701,374 Series 1604 Class SE, IF
2,550,000 -- 2,550,000 Series 1628 Class S, IF
1,102,202 -- 1,102,202 Series 1640 Class A
1,494,755 -- 1,494,755 Series 1655 Class F, AR
344,875 -- 344,875 Series 1655 Class SA, IF
1,115,049 -- 1,115,049 Series 1681 Class K
1,535,892 -- 1,535,892 Series 1686 Class SH, IF
1,725,000 -- 1,725,000 Series 1689 Class SD, IF
1,418,419 -- 1,418,419 Series 1694 Class SE, IF
5,227,604 -- 5,227,604 Series 1706 Class LA
3,532,192 -- 3,532,192 Series 1757-A, Class A
1,000,000 -- 1,000,000 Series 1796-A, Class S, IF
2,250,000 -- 2,250,000 Series 1798-B, Class C
PFS-45
<PAGE>
Federal Housing Administration Merrill Lynch Project
1,368,496 -- 1,368,496 Pool 170 Pass Thru Ctfs.
Federal National Mortgage Assn. Mortgage Backed
Securities, Stripped Trust:
1,348,966 -- 1,348,966 23, Class 2, IO
180,863 -- 180,863 50, Class 2, IO
Federal National Mortgage Assn. Pass Thru Securities:
350,441 -- 350,441 Pool #44699
2,047,461 -- 2,047,461 Pool #50966
603,874 -- 603,874 Pool #70226, AR
2,562,238 -- 2,562,238 Pool #116612, AR
2,391,211 -- 2,391,211 Pool #160330
2,182,598 -- 2,182,598 Pool #303306
Federal National Mortgage Assn. Pass Thru Securities
Guaranteed Remic Trust:
841,800 -- 841,800 1988 Class 7-Z
736,900 -- 736,900 1988 Class 17-B
827,434 -- 827,434 1989 Class 27-D
1,000,000 -- 1,000,000 1989 Class 34-E
2,250,000 -- 2,250,000 1989 Class 69-G
2,000,000 -- 2,000,000 1989 Class 70-G
1,299,464 -- 1,299,464 1989 Class 73-C, PO
1,250,000 -- 1,250,000 1989 Class 78-H
3,200,000 -- 3,200,000 1990 Class 1-D
750,000 -- 750,000 1990 Class 60-K
900,000 -- 900,000 1990 Class 63-H
1,500,000 -- 1,500,000 1990 Class 93-G
36,402 -- 36,402 1990 Class 94-H, HB
20,445 -- 20,445 1990 Class 95-J, HB
4,000,000 -- 4,000,000 1990 Class 102-J
1,135,711 -- 1,135,711 1990 Class 106-H
1,210,648 -- 1,210,648 1990 Class 134-SC, IF
23,237 -- 23,237 1990 Class 140-K, HB
11,237 -- 11,237 1991 Class 4-N, HB
8,010 -- 8,010 1991 Class 7-K, HB
10,292 -- 10,292 1991 Class 33-J, HB
3,554 -- 3,554 1991 Class 55-G, HB
2,134,822 -- 2,134,822 1991 Class 144-PZ
35,593 -- 35,593 1992 Class 13-S, HB, IF
1,633,455 -- 1,633,455 1992-G Class 15-Z
7,749 -- 7,749 1992-G Class 27-SQ, HB, IF
1,644,947 -- 1,644,947 1992-G Class 42-Z
1,300,000 -- 1,300,000 1992-G Class 59-C
1,028,251 -- 1,028,251 1992-G Class 61-Z
1,000,000 -- 1,000,000 1992 Class 135-LC
2,297,663 -- 2,297,663 1992 Class 137-BA
13,023,680 -- 13,023,680 1992 Class 199-S, IO, IF
4,300,000 -- 4,300,000 1992 Class 204-B
16,001,583 -- 16,001,583 1993 Class 8-SB, IO, IF
7,558,799 -- 7,558,799 1993 Class 12-S, IO, IF
59,767 -- 59,767 1993 Class 12-SB, HB, IF
2,000,000 -- 2,000,000 1993 Class 13-G
792,410 -- 792,410 1993 Class 15-K
3,265,000 -- 3,265,000 1993 Class 19-G
2,208,259 -- 2,208,259 1993-G Class 19-K
1,343,715 -- 1,343,715 1993-G Class 27-SE, IF
1,888,847 -- 1,888,847 1993 Class 32-K
33,215,974 -- 33,215,974 1993 Class 38-S, IO, IF
11,772,196 -- 11,772,196 1993 Class 44-S, IF
2,065,801 -- 2,065,801 1993 Class 58-J
1,299,186 -- 1,299,186 1993 Class 94-K
8,861,933 -- 8,861,933 1993 Class 113-S, IO, IF
3,450,311 -- 3,450,311 1993 Class 139-SG, IF
1,000,000 -- 1,000,000 1993 Class 152-D, PO
4,166,134 -- 4,166,134 1993 Class 155-LA
10,689,381 -- 10,689,381 1993 Class 155-SB, IO, IF
1,250,000 -- 1,250,000 1993 Class 156-SD, IF
1,776,420 -- 1,776,420 1993 Class 167-S, IF
1,719,713 -- 1,719,713 1993 Class 190-SE, IF
3,435,541 -- 3,435,541 1993 Class 207-SC, IF
3,632,376 -- 3,632,376 1993 Class 209-KB
838,760 -- 838,760 1993 Class 214-L
2,087,684 -- 2,087,684 1993 Class 220-SD, IF
2,901,860 -- 2,901,860 1993 Class 223-SB, IF
5,732,752 -- 5,732,752 1993 Class 223-FB, IF
1,600,000 -- 1,600,000 1993 Class X-225CVO, IF
2,249,815 -- 2,249,815 1994 Class 8-G, PO
2,359,038 -- 2,359,038 1994-G Class 13-ZB
2,519,478 -- 2,519,478 1994 Class 19-C
2,278,569 -- 2,278,569 1994 Class 26-G, PO
1,953,476 -- 1,953,476 1994 Class 30-LA
PFS-46
<PAGE>
7,651,123 -- 7,651,123 1994 Class 36-SG, IO, IF
2,061,342 -- 2,061,342 1994 Class 36-SE, IF
1,133,152 -- 1,133,152 1994 Class 39-F, AR
435,828 -- 435,828 1994 Class 39-S, IF
2,500,000 -- 2,500,000 1994 Class 53-CA, PO
1,766,334 -- 1,766,334 1994 Class 59-PK
41,672,922 -- 41,672,922 1994 Class 82-SA, IO, IF
3,457,934 -- 3,457,934 1995 Class 13-B
1,000,000 -- 1,000,000 1995 Class XG1C C
Government National Mortgage Assn. Pass Thru Securities
Guaranteed Remic Trust:
7,700,000 -- 7,700,000 1994 Class 4-SA, IO, IF
Government National Mortgage Assn. Pass Thru Pool:
453,589 -- 453,589 #023594
445,009 -- 445,009 #190923
3,428,413 -- 3,428,413 #297628
2,076,338 -- 2,076,338 #313110
852,574 -- 852,574 #345288
2,000,000 -- 2,000,000 International Bank For Reconstruction & Development
- ----------------- -------------- ----------------
492,744,701 -- 492,744,701
- ----------------- -------------- ----------------
SHORT-TERM INVESTMENTS- 6.1%
Repurchase Agreement
Repurchase agreement with National
-- 11,167,000 11,167,000 Westminster Bank dated 12/29/95, with a maturity
value of $11,174,010.
Salomon Brothers, Revolving Repurchase Agreement,
(secured by various U.S. Treasury Strips with
maturities ranging from 2/15/96 through 11/15/05
and U.S. Treasury Notes, 5.500%, 11/15/98,
16,559,026 -- 16,559,026 all held at Chemical Bank)
Nikko Securities, Revolving Repurchase Agreement,
(secured by various U.S. Treasury Bills with
maturities ranging from 9/19/96 through 10/17/96,
and U.S. Treasury Notes with maturities ranging
from 5/31/96 through 8/15/00, all held at the Bank
11,500,000 -- 11,500,000 of New York)
- ----------------- -------------- ----------------
28,059,026 11,167,000 39,226,026
================= ============== ================
<CAPTION>
Pro Forma
Combined
Maturity Woodward Prairie Market Value
Description Rate Date Market Value Market Value (Note 1)
----------- ---- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS- 19.9%
Asset-Backed Securities- 1.5%
Advanta Mortgage Loan Trust, Series
1994-3, Class A2 7.600% 7/25/10 -- 1,679,030 1,679,030
First U.S.A. Credit Card Master Trust,
Series 1992-1, Class A 5.200% 6/15/98 -- 832,116 832,116
Green Tree Financial Corporation,
Manufactured Housing Senior
Subordinate Passthrough, Series
1995-4, Class A6 7.300% 7/15/25 -- 3,169,227 3,169,227
Security Pacific Acceptance Corp.
Manufactured Housing Contract Senior
Subordinate, Series 1995-1, Class A3 7.250% 4/10/20 -- 2,119,118 2,119,118
Standard Credit Card Master Trust I,
Participation Certificates, Series 1994-2,
Class A 7.250% 4/7/06 -- 1,945,636 1,945,636
--------- ---------- ----------
-- 9,745,127 9,745,127
--------- ---------- ----------
PFS-47
<PAGE>
Banking- 3.2%
ABN-ARMO Bank N.V., Chicago
Subordinate Note 7.250% 5/31/05 -- 2,141,566 2,141,566
Chase Manhattan Corp., Subordinate Note 9.750% 11/1/01 -- 2,359,862 2,359,862
Chemical Master Credit Card Trust, I,
Series 1995-3, Asset-Backed CTF, Class A 6.230% 4/15/05 -- 1,022,699 1,022,699
Chevy Chase Auto Receivables Trust, Series
1995-2 Class A 5.800% 6/15/02 -- 2,010,458 2,010,458
First Union Corp., Subordinate Note 6.880% 9/15/05 -- 2,086,634 2,086,634
Interamerican Development Bank,
Debentures 8.500% 3/15/11 -- 2,152,114 2,152,114
Interamerican Development Bank,
Debentures 7.000% 6/15/25 -- 2,347,633 2,347,633
International Bank for Reconstruction and
Development Debentures 9.640% 4/30/99 -- 1,685,392 1,685,392
Midland Bank PLC, Subordinate Note 8.630% 12/15/04 -- 1,727,549 1,727,549
Solomon, Inc., Senior Notes 6.700% 12/1/98 -- 2,516,825 2,516,825
--------- ---------- ----------
-- 20,050,732 20,050,732
--------- ---------- ----------
Beverage, Food and Tobacco- 0.3%
Grand Metro Investment Corp.,
Guaranteed Note 7.130% 9/15/04 -- 854,929 854,929
Dominos Pizza Funding Corp., Series A A/R 4/1/96 1,005,235 -- 1,005,235
--------- ---------- ----------
1,005,235 854,929 1,860,164
--------- ---------- ----------
Cable TV Systems- 0.6%
Cablevision Industries Corp., Senior Debentures 9.250% 4/1/08 -- 3,797,500 3,797,500
--------- ---------- ----------
Chemicals- 0.3%
Monsanto Co., Debenture 8.200% 4/15/25 -- 1,725,809 1,725,809
--------- ---------- ----------
Entertainment- 0.4%
News America Holdings, Senior Note 8.500% 2/15/05 -- 2,821,893 2,821,893
--------- ---------- ----------
Finance- 6.5%
American Express Co., Debentures 8.630% 5/15/22 -- 911,707 911,707
Sears Credit Master Trust II, Series 1995-3,
Class A 7.000% 10/15/04 -- 1,679,742 1,679,742
American Express Co. 11.625% 12/12/00 1,562,750 -- 1,562,750
Associates Corp. of North America 9.125% 4/1/00 2,652,372 -- 2,652,372
Associates Corp. of North America 8.150% 8/1/09 3,516,838 -- 3,516,838
Collaterized Mortgage Securities Corp. CMO:
Trust 10-Z 8.950% 12/1/16 3,121,344 -- 3,121,344
Trust 12-D 9.500% 2/1/17 953,517 -- 953,517
Trust 16-Q 14.750% 3/20/18 521,513 -- 521,513
Chase Manhattan Grantor Trust, Series 95-B 5.900% 11/15/01 1,702,943 -- 1,702,943
Ford Credit Grantor Trust, Series 94-A 6.350% 5/15/99 2,061,344 -- 2,061,344
Ford Motor Credit Co. 9.625% 2/27/96 2,161,761 -- 2,161,761
General Motors Acceptance Corp. Medium Term Note 7.550% 1/14/97 2,550,125 -- 2,550,125
Government National Mortgage Assn. Backed Trust I
CMO, Class A, Zero Coupon 5/20/17 278,101 -- 278,101
Kidder Peabody Mortgage Assets Trust CMO,
Series 24 Class E 8.940% 4/1/19 1,162,405 -- 1,162,405
Merrill Lynch Trust Series 43 Class E CMO 6.500% 8/27/15 3,979,956 -- 3,979,956
Morgan Stanley Mortgage Trust CMO:
Series 35-2, HB, IF 4/20/21 760,996 -- 760,996
Series 37-2, HB, IF 7/20/21 779,480 -- 779,480
Series 39-3, PO 12/20/21 815,851 -- 815,851
PaineWebber CMO Trust:
Series H-4 8.750% 4/1/18 1,080,241 -- 1,080,241
Series P-4 8.500% 8/1/19 2,620,405 -- 2,620,405
Rural Housing Trust 1987-1 Sr. Mortgage Pass
Thru Ctf., Class 3-B 7.330% 4/1/26 1,225,594 -- 1,225,594
Shearson Lehman, Inc. CMO, Mortgage Backed
Sequential Pay Bond, Series U, Sequence U-1 8.750% 8/27/17 325,249 -- 325,249
Standard Credit Card Master Trust
Asset Backed Ctf., Series 1995-5,
Class A, Adjustable Rate A/R 5/8/00 2,000,620 -- 2,000,620
Toyota Auto Receivables Grantor Trust, Series 95-A
Class A 5.850% 3/15/01 1,320,767 -- 1,320,767
World Omni Automobile LSE SEC Trust, Series 95-5
Class A 6.050% 11/25/01 1,513,619 -- 1,513,619
--------- ---------- ----------
38,667,791 2,591,449 41,259,240
---------- ---------- ----------
PFS-48
<PAGE>
Forest and Paper Products- 0.1%
Weyerhaeuser Co., Debentures 8.380% 2/15/07 -- 943,652 943,652
---------- ---------- ----------
Foreign- 2.6%
African Development Bank Note 9.300% 7/1/00 1,784,786 -- 1,784,786
Kingdom of Belgium Put Euro Dollar 9.200% 6/28/10 2,542,500 -- 2,542,500
Metropolis of Tokyo 8.700% 10/5/99 2,483,620 -- 2,483,620
National Australia Bank Ltd 9.700% 10/15/98 879,136 -- 879,136
Province of Ontario 15.750% 3/15/12 1,653,031 -- 1,653,031
Province of Ontario Eurobond 7.000% 1/27/99 4,461,250 -- 4,461,250
Province of Quebec 9.125% 8/22/01 2,849,809 -- 2,849,809
---------- ---------- ----------
16,654,132 -- 16,654,132
---------- ---------- ----------
Health Care & Hospital Management- 0.8%
Coastal Corp. 7.750% 10/15/35 -- 2,136,354 2,136,354
Columbia/HCA Healthcare Corp. 7.580% 9/15/25 -- 2,723,243 2,723,243
---------- ---------- ----------
-- 4,859,597 4,859,597
---------- ---------- ----------
Hotels and Gaming- 0.3%
Marriott International, Inc., Senior Note,
Series B 7.880% 4/15/05 -- 2,175,162 2,175,162
---------- ---------- ----------
Industrial- 0.8%
General Motors Corp. 8.800% 3/1/21 3,321,668 -- 3,321,668
Boeing Co. 7.950% 8/15/24 2,036,573 -- 2,036,573
---------- ---------- ----------
5,358,241 -- 5,358,241
---------- ---------- ----------
Retail Stores- 1.2%
Dayton Hudson Credit Card Master Trust
Series 95-1, Class A 6.100% 2/25/02 -- 1,525,948 1,525,948
Dayton Hudson Corp., Debenture 7.880% 6/15/23 -- 1,867,500 1,867,500
Federated Department Stores, Senior Notes 8.130% 10/15/02 -- 4,040,000 4,040,000
---------- ---------- ----------
-- 7,433,448 7,433,448
---------- ---------- ----------
Telecommunications- 0.9%
TCI Communications, Inc. 8.750% 8/1/15 -- 3,862,891 3,862,891
ITT Corp 7.750% 11/15/25 -- 2,052,980 2,052,980
---------- ---------- ----------
-- 5,915,871 5,915,871
---------- ---------- ----------
Utilities- 0.4%
West Texas Utilities First Mortgage, Series U 6.380% 10/1/05 -- 1,017,028 1,017,028
Nippon Telegraph & Telephone Corp. 9.500% 7/27/98 1,479,850 -- 1,479,850
---------- ---------- ----------
1,479,850 1,017,028 2,496,878
---------- ---------- ----------
TOTAL CORPORATE OBLIGATIONS 63,165,249 63,932,197 127,097,446
========== ========== ===========
U.S. GOVERNMENT OBLIGATIONS- 37.6%
U.S. Treasury Bonds- 9.1%
Strip from U.S. Treasury Bond Principal 5/15/18 932,976 -- 932,976
Strip from U.S. Treasury Bond Principal 5/15/05 2,324,614 -- 2,324,614
---------- ---------- ----------
3,257,590 -- 3,257,590
---------- ---------- ----------
PFS-49
<PAGE>
Strip from U.S. Treasury Securities 5/15/98 1,592,856 -- 1,592,856
Strip from U.S. Treasury Securities 8/15/98 1,309,425 -- 1,309,425
Strip from U.S. Treasury Securities 11/15/98 1,464,992 -- 1,464,992
Strip from U.S. Treasury Securities 2/15/99 2,851,146 -- 2,851,146
Strip from U.S. Treasury Securities 2/15/99 6,332,128 -- 6,332,128
Strip from U.S. Treasury Securities 2/15/11 1,832,172 -- 1,832,172
Strip from U.S. Treasury Securities 5/15/11 3,716,898 -- 3,716,898
Strip from U.S. Treasury Securities 2/15/12 1,721,061 -- 1,721,061
Strip from U.S. Treasury Securities 5/15/13 3,684,064 -- 3,684,064
Strip from U.S. Treasury Securities 2/15/14 2,962,897 -- 2,962,897
Strip from U.S. Treasury Securities 11/15/18 15,020,318 -- 15,020,318
Strip from U.S. Treasury Securities 8/15/20 12,111,715 -- 12,111,715
---------- ---------- ----------
54,599,672 -- 54,599,672
---------- ---------- ----------
U.S. Treasury Bonds- 5.6%
U.S. Treasury Bond 12.750% 11/15/10 13,708,080 -- 13,708,080
U.S. Treasury Bond 10.375% 11/15/12 12,207,475 -- 12,207,475
U.S. Treasury Bond 10.750% 5/15/03 -- 1,314,686 1,314,686
U.S. Treasury Bond 11.130% 8/15/03 -- 4,702,026 4,702,026
U.S. Treasury Bond 12.000% 8/15/13 -- 2,717,000 2,717,000
U.S. Treasury Bond 9.875% 11/15/15 -- 1,448,125 1,448,125
---------- ---------- ----------
25,915,555 10,181,837 36,097,392
---------- ---------- ----------
U.S. Treasury Notes- 22.9%
U.S. Treasury Note 5.880% 5/31/96 -- 3,860,822 3,860,822
U.S. Treasury Note 4.750% 2/15/97 -- 3,483,588 3,483,588
U.S. Treasury Note 7.880% 1/15/98 13,231,422 735,875 13,967,297
U.S. Treasury Note 5.000% 1/31/99 -- 6,403,631 6,403,631
U.S. Treasury Note 7.750% 11/30/99 -- 1,625,625 1,625,625
U.S. Treasury Note 6.750% 4/30/00 -- 6,527,428 6,527,428
U.S. Treasury Note 7.750% 2/15/01 -- 2,210,000 2,210,000
U.S. Treasury Note 7.500% 11/15/01 -- 6,615,000 6,615,000
U.S. Treasury Note 7.250% 5/15/04 -- 9,458,894 9,458,894
U.S. Treasury Note 7.375% 5/15/96 5,039,308 -- 5,039,308
U.S. Treasury Note 6.125% 7/31/96 1,004,840 -- 1,004,840
U.S. Treasury Note 8.000% 10/15/96 4,490,728 -- 4,490,728
U.S. Treasury Note 7.250% 11/15/96 3,954,418 -- 3,954,418
U.S. Treasury Note 6.750% 2/28/97 2,135,763 -- 2,135,763
U.S. Treasury Note 8.500% 4/15/97 3,645,761 -- 3,645,761
U.S. Treasury Note 8.500% 5/15/97 3,263,995 -- 3,263,995
U.S. Treasury Note 6.750% 5/31/97 1,020,620 -- 1,020,620
U.S. Treasury Note 8.625% 8/15/97 19,892,250 -- 19,892,250
U.S. Treasury Note 8.750% 10/15/97 6,518,016 -- 6,518,016
U.S. Treasury Note 8.875% 11/15/97 9,345,169 -- 9,345,169
U.S. Treasury Note 8.125% 2/15/98 3,172,500 -- 3,172,500
U.S. Treasury Note 7.875% 4/15/98 17,027,032 -- 17,027,032
U.S. Treasury Note 5.375% 5/31/98 4,013,120 -- 4,013,120
U.S. Treasury Note 6.875% 7/31/99 7,780,500 -- 7,780,500
---------- ---------- ----------
105,535,442 40,920,863 146,456,305
----------- ---------- -----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 189,308,259 51,102,700 240,410,959
=========== ========== ===========
U.S. Agency Government Obligations-36.4%
Government National Mortgage Association
Pool #201299 8.500% 2/15/17 -- 81,023 81,023
----------- ---------- -----------
Agency Obligations
Federal Home Loan Mortgage Corp.
Participation Ctfs.:
#170269 12.000% 8/1/15 2,173,246 -- 2,173,246
#200070 7.500% 4/1/02 321,520 -- 321,520
#274081 7.500% 7/1/16 97,744 -- 97,744
#289711 7.500% 4/1/17 175,599 -- 175,599
#555238 12.000% 7/1/19 994,945 -- 994,945
PFS-50
<PAGE>
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D 10.000% 7/15/18 1,288,962 -- 1,288,962
Series 11 Class D 9.500% 7/15/19 1,669,289 -- 1,669,289
Series 22 Class C 9.500% 4/15/20 1,251,748 -- 1,251,748
Series 23 Class E 9.400% 8/15/19 849,687 -- 849,687
Series 23 Class F 9.600% 4/15/20 1,283,652 -- 1,283,652
Series 29 Class SD, GNMA 4/25/24 613,631 -- 613,631
Series 32 Class B 9.500% 8/15/19 1,020,613 -- 1,020,613
Series 38 Class C 9.500% 1/15/19 612,735 -- 612,735
Series 41 Class I, HB, 84.000% 5/15/20 331,436 -- 331,436
Series 47 Class F 10.000% 6/15/20 559,415 -- 559,415
Series 51 Class D 10.000% 5/15/19 807,105 -- 807,105
Series 56 Class E 9.600% 5/15/20 2,215,606 -- 2,215,606
Series 82 Class D 8.900% 10/15/20 1,018,119 -- 1,018,119
Series 99 Class Z 9.500% 1/15/21 2,347,545 -- 2,347,545
Series 129 Class E 8.850% 6/15/09 3,565,136 -- 3,565,136
Series 134 Class B, IO 9.000% 8/15/22 265,026 -- 265,026
Series 204 Class E, HB, IF 5/15/23 478,384 -- 478,384
Series 1022 Class G 8.000% 2/15/19 699,815 -- 699,815
Series 1045 Class G, HB 1066.2085% 2/15/21 135,144 -- 135,144
Series 1051 Class D 7.000% 11/15/19 1,447,085 -- 1,447,085
Series 1065 Class J 9.000% 4/15/21 2,175,618 -- 2,175,618
Series 1072 Class A, HB 1008.500% 5/15/06 697,117 -- 697,117
Series 1079 Class S, IF 5/15/21 1,501,756 -- 1,501,756
Series 1084 Class F, IF 5/15/21 2,039,918 -- 2,039,918
Series 1084 Class S, IF 5/15/21 1,820,000 -- 1,820,000
Series 1089 Class C, IF 6/15/21 1,000,233 -- 1,000,233
Series 1098 Class M, HB 10.080% 6/15/06 326,711 -- 326,711
Series 1144 Class KB 8.500% 9/15/21 2,117,078 -- 2,117,078
Series 1172 Class L, HB 1167.776% 11/15/21 611,045 -- 611,045
Series 1196 Class B, HB, IF 1/15/22 934,965 -- 934,965
Series 1295 Class JB 4.500% 3/15/07 2,173,605 -- 2,173,605
Series 1297 Class H 7.500% 1/15/20 1,741,021 -- 1,741,021
Series 1298 Class L, HB 981.867% 6/15/07 328,500 -- 328,500
Series 1329 Class S, IO, IF 8/15/99 269,542 -- 269,542
Series 1360 Class PK 10.000% 12/15/20 2,869,872 -- 2,869,872
Series 1370 Class F 6.750% 3/15/19 606,329 -- 606,329
Series 1378 Class H 10.000% 1/15/21 1,728,119 -- 1,728,119
Series 1378 Class JZ 7.500% 11/15/21 2,318,934 -- 2,318,934
Series 1418 Class B 6.500% 11/15/19 2,253,062 -- 2,253,062
Series 1456 Class G 6.500% 12/15/18 6,506,818 -- 6,506,818
Series 1465 Class SA, IO, IF 2/15/08 1,439,397 -- 1,439,397
Series 1483 Class E 6.500% 2/15/20 3,148,138 -- 3,148,138
Series 1489 Class L 5.500% 4/15/08 2,036,306 -- 2,036,306
Series 1506 Class F, AR 5/15/08 1,640,877 -- 1,640,877
Series 1506 Class S, IF 5/15/08 530,632 -- 530,632
Series 1506 Class SD, IO, IF 5/15/08 1,269,525 -- 1,269,525
Series 1508 Class KB, IO, IF 5/15/23 571,118 -- 571,118
Series 1531 Class K 6.000% 4/15/08 1,093,314 -- 1,093,314
Series 1554 Class KA, PO 8/15/08 736,685 -- 736,685
Series 1583 Class NS, IF 9/15/23 939,895 -- 939,895
Series 1585 Class NB, IF 9/15/23 1,839,993 -- 1,839,993
Series 1586 Class A 6.000% 9/15/08 1,422,175 -- 1,422,175
Series 1595 Class S, IO, IF 10/15/11 604,100 -- 604,100
Series 1604 Class SE, IF 11/15/08 561,099 -- 561,099
Series 1628 Class S, IF 12/15/23 1,606,500 -- 1,606,500
Series 1640 Class A 5.500% 10/15/07 1,073,455 -- 1,073,455
Series 1655 Class F, AR 12/15/08 1,483,544 -- 1,483,544
Series 1655 Class SA, IF 12/15/08 257,146 -- 257,146
Series 1681 Class K 7.000% 8/15/23 1,090,606 -- 1,090,606
Series 1686 Class SH, IF 2/15/24 1,132,720 -- 1,132,720
Series 1689 Class SD, IF 3/15/24 1,535,250 -- 1,535,250
Series 1694 Class SE, IF 5/15/23 1,290,761 -- 1,290,761
Series 1706 Class LA 7.000% 3/15/24 5,121,740 -- 5,121,740
Series 1757-A, Class A 9.500% 5/15/23 3,757,369 -- 3,757,369
Series 1796-A, Class S, IF 2/15/09 755,000 -- 755,000
Series 1798-B, Class C 6.500% 3/15/08 2,200,073 -- 2,200,073
Federal Housing Administration
Merrill Lynch Project Pool 170
Pass Thru Ctfs. 7.430% 8/1/20 1,413,821 -- 1,413,821
Federal National Mortgage Assn. Mortgage Backed
Securities, Stripped Trust:
23, Class 2, IO 10.000% 9/1/17 346,521 -- 346,521
50, Class 2, IO 10.500% 3/25/19 46,912 -- 46,912
PFS-51
<PAGE>
Federal National Mortgage Assn.
Pass Thru Securities:
Pool #44699 7.000% 4/1/17 355,329 -- 355,329
Pool #50966 7.000% 1/1/24 2,068,364 -- 2,068,364
Pool #70226, AR 1/1/19 604,629 -- 604,629
Pool #116612, AR 3/1/19 2,651,219 -- 2,651,219
Pool #160330 6.345% 3/1/99 2,433,057 -- 2,433,057
Pool #303306 12.500% 1/1/16 2,515,988 -- 2,515,988
Federal National Mortgage Assn.
Pass Thru Securities
Guaranteed Remic Trust:
1988 Class 7-Z 9.250% 4/25/18 897,829 -- 897,829
1988 Class 17-B 9.400% 10/25/17 760,273 -- 760,273
1989 Class 27-D 10.000% 1/25/16 852,744 -- 852,744
1989 Class 34-E 9.850% 8/25/14 1,066,785 -- 1,066,785
1989 Class 69-G 7.600% 10/25/19 2,321,397 -- 2,321,397
1989 Class 70-G 8.000% 10/25/19 2,122,378 -- 2,122,378
1989 Class 73-C, PO 10/25/19 1,015,206 -- 1,015,206
1989 Class 78-H 9.400% 11/25/19 1,393,024 -- 1,393,024
1990 Class 1-D 8.800% 1/25/20 3,400,189 -- 3,400,189
1990 Class 60-K 5.500% 6/25/20 713,669 -- 713,669
1990 Class 63-H 9.500% 6/25/20 1,003,301 -- 1,003,301
1990 Class 93-G 5.500% 8/25/20 1,427,669 -- 1,427,669
1990 Class 94-H, HB 505.000% 8/25/20 527,832 -- 527,832
1990 Class 95-J, HB 1118.040% 8/25/20 654,236 -- 654,236
1990 Class 102-J 6.500% 8/25/20 3,990,276 -- 3,990,276
1990 Class 106-H 8.500% 1/25/19 1,137,731 -- 1,137,731
1990 Class 134-SC, IF 11/25/20 1,325,659 -- 1,325,659
1990 Class 140-K, HB 652.145% 12/25/20 426,391 -- 426,391
1991 Class 4-N, HB 758.750% 1/25/06 162,935 -- 162,935
1991 Class 7-K, HB 908.500% 2/25/21 172,206 -- 172,206
1991 Class 33-J, HB 1008.250% 4/25/06 206,673 -- 206,673
1991 Class 55-G, HB 1148.550% 2/25/05 14,215 -- 14,215
1991 Class 144-PZ 8.500% 6/25/21 2,258,319 -- 2,258,319
1992 Class 13-S, HB, IF 1/25/99 263,385 -- 263,385
1992-G Class 15-Z 7.000% 1/25/22 1,588,745 -- 1,588,745
1992-G Class 27-SQ, HB, IF 5/25/22 1,118,615 -- 1,118,615
1992-G Class 42-Z 7.000% 7/25/22 1,620,098 -- 1,620,098
1992-G Class 59-C 6.000% 12/25/21 1,261,831 -- 1,261,831
1992-G Class 61-Z 7.000% 10/25/22 946,207 -- 946,207
1992 Class 135-LC 7.500% 9/25/07 1,035,809 -- 1,035,809
1992 Class 137-BA 3.500% 1/25/17 2,212,970 -- 2,212,970
1992 Class 199-S, IO, IF 11/25/99 577,861 -- 577,861
1992 Class 204-B 6.000% 10/25/20 4,160,418 -- 4,160,418
1993 Class 8-SB, IO, IF 8/25/06 729,992 -- 729,992
1993 Class 12-S, IO, IF 2/25/23 481,873 -- 481,873
1993 Class 12-SB, HB, IF 2/25/23 552,847 -- 552,847
1993 Class 13-G 6.000% 6/25/20 1,962,738 -- 1,962,738
1993 Class 15-K 7.000% 2/25/08 788,415 -- 788,415
1993 Class 19-G 5.000% 5/25/19 3,096,457 -- 3,096,457
1993-G Class 19-K 6.500% 6/25/19 2,169,833 -- 2,169,833
1993-G Class 27-SE, IF 8/25/23 863,337 -- 863,337
1993 Class 32-K 6.000% 3/25/23 1,816,240 -- 1,816,240
1993 Class 38-S, IO, IF 11/25/22 913,439 -- 913,439
1993 Class 44-S, IF 4/25/23 518,683 -- 518,683
1993 Class 58-J 5.500% 4/25/23 1,930,512 -- 1,930,512
1993 Class 94-K 6.750% 5/25/23 1,271,473 -- 1,271,473
1993 Class 113-S, IO, IF 7/25/23 509,561 -- 509,561
1993 Class 139-SG, IF 8/25/23 2,675,060 -- 2,675,060
1993 Class 152-D, PO 8/25/23 785,000 -- 785,000
1993 Class 155-LA 6.500% 5/25/23 4,109,970 -- 4,109,970
1993 Class 155-SB, IO, IF 9/25/23 581,182 -- 581,182
1993 Class 156-SD, IF 10/25/19 900,000 -- 900,000
1993 Class 167-S, IF 9/25/23 1,314,551 -- 1,314,551
1993 Class 190-SE, IF 10/25/08 1,336,526 -- 1,336,526
1993 Class 207-SC, IF 11/25/23 2,507,945 -- 2,507,945
1993 Class 209-KB 5.659% 8/25/08 3,466,773 -- 3,466,773
1993 Class 214-L 6.000% 12/25/08 829,005 -- 829,005
1993 Class 220-SD, IF 11/25/13 1,622,506 -- 1,622,506
1993 Class 223-SB, IF 12/25/23 2,321,488 -- 2,321,488
1993 Class 223-FB, IF 12/25/23 5,646,761 -- 5,646,761
1993 Class X-225CVO, IF 12/25/22 1,456,000 -- 1,456,000
1994 Class 8-G, PO 11/25/23 1,631,116 -- 1,631,116
1994-G Class 13-ZB 7.000% 11/17/24 2,258,067 -- 2,258,067
1994 Class 19-C 5.000% 1/25/24 2,329,230 -- 2,329,230
1994 Class 26-G, PO 2/25/24 1,458,284 -- 1,458,284
1994 Class 30-LA 6.500% 2/25/09 1,929,623 -- 1,929,623
PFS-52
<PAGE>
1994 Class 36-SG, IO, IF 8/25/23 399,236 -- 399,236
1994 Class 36-SE, IF 11/25/23 1,649,073 -- 1,649,073
1994 Class 39-F, AR 3/25/24 1,125,356 -- 1,125,356
1994 Class 39-S, IF 3/25/24 387,067 -- 387,067
1994 Class 53-CA, PO 11/25/23 1,731,250 -- 1,731,250
1994 Class 59-PK 6.000% 3/25/24 1,717,140 -- 1,717,140
1994 Class 82-SA, IO, IF 5/25/23 1,119,751 -- 1,119,751
1995 Class 13-B 6.500% 3/25/09 3,381,203 -- 3,381,203
1995 Class XG1C C 8.800% 1/25/25 1,096,116 -- 1,096,116
Government National Mortgage Assn.
Pass Thru Securities
Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF 10/16/22 490,875 -- 490,875
Government National Mortgage Assn.
Pass Thru Pool:
#023594 8.500% 7/15/08 479,352 -- 479,352
#190923 9.000% 12/15/16 474,753 -- 474,753
#297628 8.000% 9/15/22 3,581,557 -- 3,581,557
#313110 7.500% 11/15/22 2,140,142 -- 2,140,142
#345288 7.500% 3/15/23 878,329 -- 878,329
International Bank For Reconstruction
& Development 2/15/15 576,830 -- 576,830
----------- ----------- ------------
232,446,081 -- 232,446,081
----------- ----------- ------------
SHORT-TERM INVESTMENTS- 6.1%
Repurchase Agreement
Repurchase agreement with National
Westminster Bank Dated 12/29/95, with a
maturity value of $11,174,010 5.650% 1/2/96 -- 11,167,000 11,167,000
Salomon Brothers, Revolving Repurchase Agreement,
(secured by various U.S. Treasury Strips with
maturities ranging from 2/15/96 through 11/15/05
and U.S. Treasury Notes, 5.500%, 11/15/98,
all held at Chemical Bank) 5.930% 1/2/96 16,559,026 -- 16,559,026
Nikko Securities, Revolving Repurchase Agreement,
(secured by various U.S. Treasury Bills with
maturities ranging from 9/19/96 through 10/17/96,
and U.S. Treasury Notes with maturities ranging
from 5/31/96 through 8/15/00, all held at the Bank
of New York) 5.900% 1/2/96 11,500,000 -- 11,500,000
----------- ----------- ------------
28,059,026 11,167,000 39,226,026
=========== =========== ============
TOTAL INVESTMENTS 512,978,615 126,282,920 639,261,535
=========== =========== ============
</TABLE>
PFS-53
<PAGE>
PRAIRIE/WOODWARD FUNDS
Pro Forma Combining
BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
December 31, 1995
Notes to Portfolio of Investments
(a) The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will
not be fully recouped. These securities are subject to accelerated
principal paydowns as a result of prepayments or refinancing of the
underlying pool of mortgage instruments. As a result, interest
income may be reduced considerably.
High Coupon Bonds (HB)(a.k.a. "IOettes:) represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest
rate results from taking interest payments from other classes in the
REMIC Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal
portion only on an underlying pool of mortgage loans. The market value of
these securities is extremely volatile in response to changes in market
interest rates. As prepayments on the underlying mortgages of these
securities increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate
market value of $1,496,849 in the Woodward Bond Fund. The book cost of
certain IO and HB securities includes a write down in the amount of
$6,056,100 taken during 1993 to properly state the net realizable value
of the securities in the Woodward Bond Fund. The write down results in a
lower cost of investments than the tax cost.
PFS-54
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Municipal Bond Fund
Pro Forma Combining Statement of Assets and Liabilites
December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Municipal Municipal Combined
Bond Fund Bond Fund Adjustments (Note 1)
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At Cost $75,750,865 $231,324,230 $ -- $307,075,095
=========== ============ ============ ============
At Value $78,252,712 $244,998,503 $ -- $323,251,215
Receivable for Fund shares sold -- 39,250 39,250
Receivable from adviser -- 108,845 6,315 (c) 115,160
Interest receivable 1,277,409 4,307,370 5,584,779
Deferred organization expenses 6,315 4,453 (6,315)(c) 4,453
Prepaids and other assets 36,597 21,770 58,367
----------- ------------ ------------ ------------
TOTAL ASSETS 79,573,033 249,480,191 -- 329,053,224
----------- ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased 2,372,029 -- -- 2,372,029
Accrued investment advisory fee 41,971 51,660 -- 93,631
Accrued distribution fees 1,295 -- -- 1,295
Accrued custodial fees 1,459 14,882 -- 16,341
Administration fees payable -- 31,720 -- 31,720
Bank Overdrafts -- 198,527 -- 198,527
Dividends payable 190,088 991,881 -- 1,181,969
Payable for Fund shares redeemed -- 306,469 -- 306,469
Other accrued expenses and payables 2,627 61,902 -- 64,529
----------- ------------- ------------ ------------
TOTAL LIABILITIES 2,609,469 1,657,041 -- 4,266,510
----------- ------------- ------------ ------------
NET ASSETS $76,963,564 $247,823,150 $ -- $324,786,714
=========== ============ ============ ============
Net assets consist of:
Capital shares, at par $ 720,543 $ 19,618 $ 1,830,802 (a) $ 2,570,963
Additional paid-in capital 74,166,371 233,921,388 (1,830,802)(a) 306,256,958
Accumulated undistributed net investment income 5,107 -- -- 5,107
Accumulated undistributed net realized gains (430,304) 207,871 -- (222,433)
Net unrealized appreciation on investments 2,501,847 13,674,273 -- 16,176,120
----------- ----------- ------------ ------------
TOTAL NET ASSETS $76,963,564 $247,823,150 $ -- $324,786,714
=========== =========== ============ ============
Class A shares:
Net assets $ -- $ 7,425,897 $ 11,190,502 (b) $ 18,616,399
Shares outstanding -- 587,619 885,516 (a,b) 1,473,135
Net asset value per class A share $ -- $ 12.64 $ -- $ 12.64
Maximum offering price per Class A share $ -- $ 13.24 $ -- $ 13.24
Class B shares:
Net assets $ -- $ 237,697 $ -- $ 237,697
Shares outstanding -- 18,797 -- 18,797
Net asset value per class B share $ -- $ 12.65 $ -- $ 12.65
Class I shares:
Net assets $ -- $240,159,556 $ 65,773,062 (b) $305,932,618
Shares outstanding -- 19,011,083 5,206,610 (a,b) 24,217,693
Net asset value per class I share $ -- $ 12.63 $ -- $ 12.63
Single class shares:
Net assets $76,963,564 $ -- $(76,963,564)(b) $ --
Shares outstanding 7,205,434 -- (7,205,434)(b) --
Net asset value per single class share $ 10.68 $ -- $ -- $ --
Maximum offering price per single class share $ 11.21 $ -- $ -- $ --
<FN>
(a) Adjustment to reflect the issuance of Woodward Municipal Bond Fund
shares (at the Prairie Municipal Bond Fund's net asset value per share
since this portfolio is the accounting survivor) in connection with the
proposed reorganization.
(b) Adjustment reclassifies Woodward Municipal Bond Fund shares to
reflect the multi-class environment of the proposed
reorganized entity.
(c) Remaining unamortized organizational costs of the Woodward Municipal
Bond Fund will be assumed by the investment advisor prior to
merger date.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-55
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Municipal Bond Fund
Pro Forma Combining Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
Woodward Prairie Pro Forma
Municipal Municipal Combined
Fund Bond Fund Adjustments (Note 1)
--------- ------------- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 3,692,331 $12,004,208 $ -- $15,696,539
----------- ----------- --------- -----------
TOTAL INVESTMENT INCOME 3,692,331 12,004,208 -- 15,696,539
----------- ----------- --------- -----------
EXPENSES:
Advisory fees 444,288 872,577 $(11,904) (a) 1,304,961
Administration fees -- 326,505 162,144 (a) 488,649
Shareholder servicing fees 2,156 17,850 22,679 (a) 42,685
12b-1 fees -- 600 -- 600
Distribution fees 13,331 -- (13,331) (b) --
Custodian fees and expenses 17,836 49,974 -- 67,810
Registration fees 4,740 99,377 -- 104,117
Professional fees 54,065 65,867 (44,932) (c) 75,000
Amortization of organization expenses 3,031 148 (3,031) (d) 148
Transfer agent fees and expenses 11,521 26,324 -- 37,845
Marketing expenses 34,056 -- (34,056) (b) --
Registration, filing and other expenses 45,096 46,516 -- 91,612
----------- ----------- --------- -----------
TOTAL EXPENSES 630,120 1,505,738 77,569 2,213,427
Expense reimbursements (88,071) (311,807) 399,878 (e) --
----------- ----------- --------- -----------
NET EXPENSES 542,049 1,193,931 477,447 2,213,427
----------- ----------- --------- -----------
NET OPERATING INCOME (LOSS) 3,150,282 10,810,277 (477,447) 13,483,112
----------- ----------- --------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gains (losses) on investments (132,105) 5,061,415 -- 4,929,310
Net change in unrealized appreciation on
investments 7,347,301 13,796,670 -- 21,143,971
----------- ----------- --------- -----------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS 7,215,196 $18,858,085 -- 26,073,281
----------- ----------- --------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $10,365,478 $29,668,362 $(477,447) $39,556,393
=========== =========== ========= ===========
<FN>
- ----------------
(a) Adjustment to reflect the proposed contractual fee structure of Prairie
Municipal Bond Fund after the reorganization.
(b) Adjustment eliminates expense as these costs will be included in the
administration expense of the Prairie Municipal Bond Fund after
reorganization.
(c) Reduction reflects expected savings when the two funds become one.
(d) Remaining unamortized organizational costs of the Woodward Municipal Bond
Fund will be assumed by the investment advisor prior to
merger date.
(e) Adjustment to reduce reimbursements from the advisor to reflect the
new fee structure of the Prairie Municipal Bond Fund after reorganization.
See Notes to Pro Forma Financial Statements.
</TABLE>
PFS-56
<PAGE>
<TABLE>
<CAPTION>
Prairie/Woodward Funds
Pro Forma Combining
Municipal Bond Fund
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31,1995
[Unaudited]
- ------------------------------------------------------------------------------
Pro Forma
Combined
Woodward Prairie Principal
Principal Principal Amount
Amount Amount (Note 1) Description
--------- ---------- --------- -------------
<S> <C> <C> <C>
MUNICIPAL BONDS
Alaska-1.1%
Alaska Student Loan Corp., Student Loan Revenue State Assisted,
-- 800,000 800,000 Series A (AMBAC Insured), (A.M.T.)
2,500,000 -- 2,500,000 Fairbanks North Star Borough Series S (MBIA Insured)
Arizona-1.3%
Maricopa County School District No. 028, Kyrene Elementary,
-- 2,500,000 2,500,000 Series B (FGIC Insured)
1,000,000 -- 1,000,000 Phoenix General Obligation Refunding, Series A
Salt River Project Agricultural Improvement Power District Revenue
625,000 -- 625,000 Electric System, Series D
California- 12.5%
Central Valley Financing Authority, Califogeneration Project Revenue,
-- 5,600,000 5,600,000 Carson Ice Generation Project
Cupertino Certificates of Participation, Open Space Acquisition
Project, Collateralized by U.S. Government Securities
-- 2,675,000 2,675,000 (Pre-refunded at 102 on 4/1/01)
Fresno Health Facilities Revenue, Holy Cross Health System Corp.
-- 1,850,000 1,850,000 (MBIA Insured)
1,000,000 -- 1,000,000 Los Angeles Waste Water System Revenue Series D (MBIA Insured)
Los Angeles Waste Water System Revenue Series D (MBIA Insured)
Collateralized by U.S. Government Securities (Pre-refunded at
-- 10,000,000 10,000,000 102 on 12/1/00)(MBIA Insured)
Northern California Power Agency, Public Power Revenue Refunding,
-- 3,500,000 3,500,000 Geothermal Project No.3, Series A
Northern California Power Agency, Public Power Revenue Refunding,
-- 4,800,000 4,800,000 Geothermal Project No.3, Series A
Northern California Power Agency, Public Power Revenue Refunding,
-- 4,000,000 4,000,000 Geothermal Project No.3, Series A
-- 1,500,000 1,500,000 Sacramento Cogeneration Authority Rev., Procter & Gamble Project
-- 2,500,000 2,500,000 Sacramento Cogeneration Authority Rev., Procter & Gamble Project
Colorado-9.3%
Denver City and County Airport Revenue,
-- 2,500,000 2,500,000 Series A (A.M.T.)
Denver City and County Airport Revenue,
-- 2,295,000 2,295,000 Series A (A.M.T.)
Denver City and County Airport Revenue,
-- 3,000,000 3,000,000 Series B (A.M.T.)
Denver City and County Airport Revenue,
-- 2,000,000 2,000,000 Series C (A.M.T.)
Denver City and County Airport Revenue,
-- 9,355,000 9,355,000 Series C (A.M.T.)
Denver City and County Airport Revenue,
-- 6,925,000 6,925,000 Series D (A.M.T.)
Denver Metropolitan Major League Baseball Stadium
District Revenue Refunding, Sales Tax, Baseball
-- 1,600,000 1,600,000 Stadium Project (FGIC Insured)
Florida-4.1%
Broward County Educational Facilities Authority Revenue,
-- 1,440,000 1,440,000 Nova Southeastern University Projects (Connie Lee Insured)
Florida State Board Of Education Capital Outlay Public Education,
1,650,000 -- 1,650,000 Series C
Florida State Board, Education Capacity Outlay, General Obligation,
-- 5,800,000 5,800,000 Series D
1,400,000 -- 1,400,000 Florida State Pollution Control, Series Y
850,000 -- 850,000 Gainesville Utilities System Revenue, Series B
Orlando Florida Utilities Commission Water and Electric Revenue,
-- 2,000,000 2,000,000 Series D
PFS-57
<PAGE>
Georgia-10.0%
-- 5,000,000 5,000,000 Fulton County School District General Obligation
-- 8,500,000 8,500,000 Georgia State General Obligation
-- 10,000,000 10,000,000 Georgia State General Obligation
Georgia State General Obligation,
-- 3,060,000 3,060,000 Series F
Georgia State Housing And Finance Authority Revenue,
650,000 -- 650,000 Series B
Illinois-11.8%
Chicago Airport Revenue Refunding, 2nd Lien, O'Hare Int'l Airport,
-- 2,490,000 2,490,000 Series C (MBIA Insured)
1,000,000 -- 1,000,000 Chicago Metropolitan Water Capital Improvement
1,000,000 -- 1,000,000 Chicago School Finance Authority (FGIC Insured), Series A
Cook County Community College, District No. 508 Lease,
-- 5,000,000 5,000,000 Series C (MBIA Insured)
Cook County General Obligation,
-- 2,535,000 2,535,000 Series B
1,750,000 -- 1,750,000 DuPage Co. Forest Preservation District
1,000,000 -- 1,000,000 Evanston General Obligation Unlimited Tax
250,000 -- 250,000 Illinois Dedicated Tax Revenue (AMBAC Insured) Civic Center
Illinois Health Facilities Authority Revenue Northwestern Memorial
1,000,000 -- 1,000,000 Hospital, Series A
Illinois Health Facilities Authority Revenue Refunding, Bro Menn Healthcare
-- 1,000,000 1,000,000 (SPA -- Bankers Trust Co.), (FGIC Insured)
Illinois Health Facilities Authority Revenue Refunding & Improvement
-- 2,600,000 2,600,000 Swedish Covenant, Series A
Illinois Health Facilities Authority Revenue Refunding & Improvement
-- 2,375,000 2,375,000 Swedish Covenant, Series A
2,000,000 -- 2,000,000 Illinois Housing Development, Series A
Illinois State Sales Tax Revenue Refunding,
-- 5,000,000 5,000,000 Series Q
Illinois State Toll Highway Authority Revenue,
2,666,000 -- 2,666,000 Series A
-- 3,600,000 3,600,000 Winnebago & Boone Counties School District No. 205 (CGIC Insured)
Indiana-5.0%
400,000 -- 400,000 Ball State University Revenue (FGIC Insured) Student Fee, Series G
1,100,000 -- 1,100,000 Fort Wayne Sewer Works Improvement Revenue Indiana (FGIC Insured)
Indiana State Office Bldg. Commission, Correctional Facilities Revenue,
-- 5,000,000 5,000,000 Series A
1,000,000 -- 1,000,000 Indiana State Vocational Technology Revenue, Series D
Indiana Transmission Financing Authority Highway Revenue
-- 1,200,000 1,200,000 Series A
1,500,000 -- 1,500,000 Indiana Transportation Finance Authority, Series A
-- 1,935,000 1,935,000 Indiana University Revenue, Series K
1,000,000 -- 1,000,000 North Adams Community Schools Participation Ctfs.
1,200,000 -- 1,200,000 Perry Township Multi School Corporation Revenue
St. Joseph Co. Hospital Authority Facilities Revenue (MBIA Insured),
1,000,000 -- 1,000,000 Memorial Hospital South Bend Project
Kentucky-0.4%
Kentucky State Turnpike Authority Economic Development Revenue
1,175,000 -- 1,175,000 (AMBAC Insured) Refunding
Maryland- 0.3%
Maryland State Community Development Administration Dept.
1,000,000 -- 1,000,000 Housing & Community Development, First Series
Massachusetts- 10.4%
500,000 -- 500,000 Massachusetts General Obligation Series A
Massachusetts Municipal Electric Co., Power Supply Systems Revenue
-- 4,535,000 4,535,000 Series B
Massachusetts State Finance Agency,
2,265,000 -- 2,265,000 Series F
Massachusetts State Refunding,
-- 12,000,000 12,000,000 Series A
Massachusetts State Refunding,
-- 2,300,000 2,300,000 Series B
Massachusetts State Refunding,
-- 1,730,000 1,730,000 Series B
New England Educational Loan Marketing Corp., Mass. Student Loan
-- 8,000,000 8,000,000 Revenue Refunding, Series G
PFS-58
<PAGE>
Michigan- 2.1%
250,000 -- 250,000 Grand Rapids Water Supply System Revenue (FGIC Insured)
600,000 -- 600,000 Michigan State Building Authority Revenue, Series I
Michigan State Housing Development Authority Revenue,
1,450,000 -- 1,450,000 Series C
500,000 -- 500,000 Michigan State Trunk Line Revenue Series, B-2
Rochester Community School District School Building & Site
250,000 -- 250,000 Unlimited Tax
Royal Oak Hospital Finance Authority Revenue, W. Beaumont Hospital:
250,000 -- 250,000 Series C
850,000 -- 850,000 Series G
250,000 -- 250,000 Saranac Community School District
2,000,000 -- 2,000,000 Wyandotte Electric Revenue
Missouri-1.9%
Kansas City School District Building Revenue Elementary School
1,905,000 -- 1,905,000 Project, Series D
-- 3,710,000 3,710,000 Sikeston Electric Revenue Refunding (MBIA Insured)
Nevada-1.8%
Clark County Industrial Development Revenue
Refunding, Nevada Power Co. Project, Series C
-- 4,115,000 4,115,000 (AMBAC Insured)
1,100,000 -- 1,100,000 Nevada General Obligation, Series B; Prison Board Limited Tax
New Jersey- 0.2%
Gloucester Co. Improvement Authority Gtd. Revenue, Solid Waste
400,000 -- 400,000 Landfill Project Series AA
250,000 -- 250,000 Monmouth Co. General Obligation Utility Unlimited Tax
New York-1.2%
New York City General Obligation,
-- 2,000,000 2,000,000 Sub Series A-9
New York State Thruway Authority Highway Revenue,
1,500,000 -- 1,500,000 Series B
Tri-Borough Bridge & Tunnel Authority Revenue General Purpose,
250,000 -- 250,000 Series X
North Carolina-1.3%
1,000,000 -- 1,000,000 Charlotte North Carolina General Obligation, Series A
2,000,000 -- 2,000,000 Mecklenberg County General Obligation Unlimited Tax
1,000,000 -- 1,000,000 North Carolina Municipal Power Agency Catawba Electric Revenue
Ohio- 3.2%
-- 688,000 688,000 Columbus School District, 144A
Franklin Co. Hospital Revenue, Children's Hospital,
950,000 -- 950,000 Series A
Ohio State Building Authority Revenue, State Facilities Adult
250,000 -- 250,000 Correctional Building Fund, Series A
-- 1,600,000 1,600,000 Ohio State Highway, Series T
Ohio State Public Facilities Commission, Higher Education Capital
-- 2,890,000 2,890,000 Facilities, Series II A (AMBAC Insured)
1,000,000 -- 1,000,000 Ohio State Water Development Authority Revenue (MBIA Insured)
Ohio General Obligation State of Public & Sewer Imports
1,000,000 -- 1,000,000 Unlimited Tax
Ohio Housing Financial Agency Mortgage Revenue Residential
1,670,000 -- 1,670,000 GNMA Series, A-1
Oklahoma- 1.2%
Oklahoma State Industrial Authority Revenue Refunding, Health Facilities
-- 3,600,000 3,600,000 Sisters of Mercy, Series A
Pennsylvania- 0.4%
Philadelphia Gas Works Revenue
-- 1,220,000 1,220,000 Fifteenth Series (FSA Insured)
Rhode Island- 1.6%
RI Depositors Economic Protection Corp.,
-- 4,640,000 4,640,000 Series A (MBIA & FSA Insured)
South Dakota-0.7%
South Dakota Housing Development Authority Revenue,
1,000,000 -- 1,000,000 Series C
1,200,000 -- 1,200,000 South Dakota State Building Authority Lease Revenue (AMBAC Insured)
PFS-59
<PAGE>
Tennessee- 4.1%
Knox County Health, Educational & Housing Facilities Board,
Hospital Facilities Revenue Refunding, Fort Sanders Alliance
-- 8,900,000 8,900,000 (MBIA Insured)
Knox County Health, Educational & Housing Facilities Board,
Hospital Facilities Revenue Refunding, Fort Sanders Alliance
-- 1,360,000 1,360,000 (MBIA Insured)
1,000,000 -- 1,000,000 Metropolitan Government Nashville/Davis County Revenue
Texas- 6.1%
250,000 -- 250,000 Austin Utilities System Revenue (AMBAC Insured)
500,000 -- 500,000 El Paso General Obligation Unlimited Tax
250,000 -- 250,000 Harris Co. Flood Control District Refunding General Obligation
400,000 -- 400,000 Houston General Obligation Series C
500,000 -- 500,000 Round Rock General Obligation (AMBAC Insured) Unlimited Tax
250,000 -- 250,000 San Antonio Water Revenue (MBIA Insured)
Tarrant Co. Water Control & Improvement District #1 Revenue,
400,000 -- 400,000 Series A
1,305,000 -- 1,305,000 Texas General Obligation
1,000,000 -- 1,000,000 Texas General Obligation Refunding Series A Unlimited Tax
Texas City Industrial Development Corp.,
-- 4,650,000 4,650,000 Marine Terminal Revenue Refunding, Arco Pipe Line Co. Project
-- 4,000,000 4,000,000 Texas State College Student Loan (A.M.T.)
Texas State Public Finance Authority,
-- 3,930,000 3,930,000 Series A
Virginia- 2.2%
1,500,000 -- 1,500,000 Norfolk Virginia General Obligation
1,500,000 -- 1,500,000 Virginia State Housing Development Authority Revenue
Virginia State Housing Development Commonwealth,
1,000,000 -- 1,000,000 Series H
500,000 -- 500,000 Virginia State Public School Authority Revenue, Series A
2,500,000 -- 2,500,000 Virginia State Transportation Board Contract Revenue #58 Corridor
Washington- 2.9%
-- 2,150,000 2,150,000 Chelan County Public Utilities District No. 001, Series E
1,300,000 -- 1,300,000 Kent General Obligation (AMBAC Insured) Unlimited Tax
550,000 -- 550,000 King Co. General Obligation, Series A
500,000 -- 500,000 Seattle General Obligation
Washington State Public Power Supply System Nuclear
-- 4,000,000 4,000,000 Project No.2 Revenue, Series C
Wisconsin- 2.6%
Wisconsin Housing And Economic Development Authority Revenue
1,500,000 -- 1,500,000 Series A
Wisconsin Public Power System Revenue (AMBAC Insured), Power
Supply System:
400,000 -- 400,000 Series A
700,000 -- 700,000 Series A
Wisconsin State General Obligation,
-- 4,160,000 4,160,000 Series B
Wisconsin State Health & Educational Facilities Authority
Revenue, Lutheran Hospital Benevolent Development Fund,
450,000 -- 450,000 Series A
1,000,000 -- 1,000,000 Wisconsin State Transportation Revenue, Series B
Wyoming- 0.3%
Wyoming Community Development Authority, Single Family
-- 800,000 800,000 Series D, (FHA/VA Mortgage Insured)
Temporary Cash Investments- 0.0%
48,195 -- 48,195 Woodward Tax Exempt Money Market Fund
- ----------- ----------- -----------
74,659,195 222,913,000 297,572,195 TOTAL INVESTMENTS
=========== =========== ===========
PFS-60
<PAGE>
<CAPTION>
Pro Forma
Combined
Woodward Prairie Market
Maturity Market Market Value
Description Rate Date Value Value (Note 1)
----------- ---- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS
Alaska-1.1%
Alaska Student Loan Corp., Student
Loan Revenue State Assisted,
Series A (AMBAC Insured), (A.M.T.) 6.125% 7/1/05 -- 832,792 832,792
Fairbanks North Star Borough (MBIA Insured) 5.45% 3/1/06 2,602,825 -- 2,602,825
---------- ----------- -----------
2,602,825 832,792 3,435,617
---------- ----------- -----------
Arizona-1.3%
Maricopa County School District No. 028,
Kyrene Elementary,
Series B (FGIC Insured) 6.00% 7/1/14 -- 2,631,675 2,631,675
Phoenix General Obligation Refunding, Series A 5.00% 7/1/03 1,036,700 -- 1,036,700
Salt River Project Agricultural Improvement
Power District Revenue
Electric System, Series D 6.00% 1/1/08 680,319 -- 680,319
---------- ----------- -----------
1,717,019 2,631,675 4,348,694
---------- ----------- -----------
California- 12.5%
Central Valley Financing Authority,
Califogeneration Project Revenue,
Carson Ice Generation Project 6.00% 7/1/09 -- 5,699,344 5,699,344
Cupertino Certificates of Participation,
Open Space Acquisition
Project, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on 4/1/01) 7.125% 4/1/16 -- 3,064,186 3,064,186
Fresno Health Facilities Revenue, Holy
Cross Health System Corp.
(MBIA Insured) 5.25% 12/1/05 -- 1,922,446 1,922,446
Los Angeles Waste Water System
Revenue Series D (MBIA Insured) 6.25% 12/1/15 1,052,030 -- 1,052,030
Los Angeles Waste Water System
Revenue Series D (MBIA Insured)
Collateralized by U.S. Government
Securities; Pre-refunded at
102 on 12/1/00 6.70% 12/1/00 -- 11,316,500 11,316,500
Northern California Power Agency, Public
Power Revenue Refunding,
Geothermal Project No.3, Series A 5.60% 7/1/06 -- 3,728,620 3,728,620
Northern California Power Agency, Public
Power Revenue Refunding,
Geothermal Project No.3, Series A 5.65% 7/1/07 -- 5,115,936 5,115,936
Northern California Power Agency, Public
Power Revenue Refunding,
Geothermal Project No.3, Series A 5.80% 7/1/09 -- 4,309,440 4,309,440
Sacramento Cogeneration Authority Rev.,
Procter & Gamble Project 7.00% 7/1/05 -- 1,666,005 1,666,005
Sacramento Cogeneration Authority Rev.,
Procter & Gamble Project 6.20% 7/1/06 -- 2,567,950 2,567,950
---------- ----------- -----------
1,052,030 39,390,427 40,442,457
---------- ----------- -----------
Colorado-9.3%
Denver City and County Airport Revenue,
Series A (A.M.T.) 8.50% 11/15/23 -- 2,865,025 2,865,025
Denver City and County Airport Revenue,
Series A (A.M.T.) 8.00% 11/15/25 -- 2,576,229 2,576,229
Denver City and County Airport Revenue,
Series B (A.M.T.) 7.25% 11/15/05 -- 3,292,680 3,292,680
Denver City and County Airport Revenue,
Series C (A.M.T.) 6.50% 11/15/06 -- 2,100,160 2,100,160
Denver City and County Airport Revenue,
Series C (A.M.T.) 6.125% 11/15/25 -- 9,373,242 9,373,242
Denver City and County Airport Revenue,
Series D (A.M.T.) 7.75% 11/15/13 -- 8,332,160 8,332,160
PFS-61
<PAGE>
Denver Metropolitan Major League
Baseball Stadium
District Revenue Refunding,
Sales Tax, Baseball
Stadium Project (FGIC Insured) 4.50% 10/1/04 -- 1,593,600 1,593,600
---------- ----------- -----------
-- 30,133,096 30,133,096
---------- ----------- -----------
Florida-4.1%
Broward County Educational Facilities
Authority Revenue,
Nova Southeastern University
Projects (Connie Lee Insured) 5.70% 4/1/05 -- 1,523,678 1,523,678
Florida State Board Of Education
Capital Outlay Public Education,
Series C 5.10% 6/1/09 1,656,765 -- 1,656,765
Florida State Board, Education Capital
Outlay, General Obligation,
Series D 5.125% 6/1/18 -- 5,663,758 5,663,758
Florida State Pollution Control, Series Y 6.40% 7/1/08 1,527,624 -- 1,527,624
Gainesville Utilities System Revenue, Series B 5.50% 10/1/13 860,804 -- 860,804
Orlando Florida Utilities Commission
Water and Electric Revenue,
Series D 5.00% 10/1/23 -- 1,908,940 1,908,940
---------- ----------- -----------
4,045,193 9,096,376 13,141,569
---------- ----------- -----------
Georgia-10.0%
Fulton County School District
General Obligation 6.375% 5/1/10 -- 5,716,650 5,716,650
Georgia State General Obligation 7.10% 9/1/09 -- 10,358,185 10,358,185
Georgia State General Obligation 6.75% 9/1/11 -- 11,956,500 11,956,500
Georgia State General Obligation,
Series F 6.50% 12/1/05 -- 3,530,750 3,530,750
Georgia State Housing And Finance
Authority Revenue,
Series B 6.10% 12/1/12 669,922 -- 669,922
---------- ----------- -----------
669,922 31,562,085 32,232,007
---------- ----------- -----------
Illinois-11.8%
Chicago Airport Revenue Refunding,
2nd Lien, O'Hare Int'l Airport,
Series C (MBIA Insured) 5.75% 1/1/09 -- 2,665,769 2,665,769
Chicago Metropolitan Water Capital
Improvement 5.50% 12/1/12 1,046,100 -- 1,046,100
Chicago School Finance Authority
(FGIC), Series A 5.20% 6/1/06 1,020,120 -- 1,020,120
Cook County Community College,
District No. 508 Lease,
Series C (MBIA Insured) 7.70% 12/1/04 -- 6,090,800 6,090,800
Cook County General Obligation,
Series B 5.50% 11/15/22 -- 2,511,982 2,511,982
DuPage Co. Forest Preservation District 6.00% 11/1/03 1,910,790 -- 1,910,790
Evanston General Obligation Unlimited Tax 6.10% 12/1/09 1,082,480 -- 1,082,480
Illinois Dedicated Tax Revenue
(AMBAC Insured) Civic Center 6.25% 12/15/11 280,255 -- 280,255
Illinois Health Facilities Authority
Revenue Northwestern Memorial
Hospital, Series A 5.60% 8/15/06 1,056,800 -- 1,056,800
Illinois Health Facilities Authority
Revenue Refunding, Bro Menn Healthcare
(SPA -- Bankers Trust Co.),
(FGIC Insured) 6.00% 8/15/05 -- 1,087,560 1,087,560
Illinois Health Facilities Authority
Revenue Refunding & Improvement
Swedish Covenant, Series A 6.10% 8/1/08 -- 2,686,528 2,686,528
Illinois Health Facilities Authority
Revenue Refunding & Improvement
Swedish Covenant, Series A 6.30% 8/1/13 -- 2,446,298 2,446,298
Illinois Housing Development, Series A 5.95% 7/1/21 2,013,240 -- 2,013,240
Illinois State Sales Tax Revenue Refunding,
Series Q 5.75% 6/15/06 -- 5,376,300 5,376,300
Illinois State Toll Highway Authority Revenue,
Series A Variable 1/1/10 2,666,000 -- 2,666,000
Winnebago & Boone Counties School
District No. 205 (CGIC Insured) 7.35% 2/1/04 -- 4,280,976 4,280,976
---------- ----------- -----------
11,075,785 27,146,213 38,221,998
---------- ----------- -----------
PFS-61<PAGE>
Indiana-5.0%
Ball State University Revenue (FGIC
Insured) Student Fee, Series G 6.125% 7/1/09 427,724 -- 427,724
Fort Wayne Sewer Works Improvement R
Revenue (FGIC Insured) 5.75% 8/1/10 1,131,482 -- 1,131,482
Indiana State Office Bldg. Commission,
Correctional Facilities Revenue,
Series A 5.50% 7/1/20 -- 5,002,100 5,002,100
Indiana State Vocational Technology
Revenue, Series D 5.90% 7/1/06 1,077,090 -- 1,077,090
Indiana Transmission Financing
Authority Highway Revenue
Series A 6.80% 12/1/16 -- 1,411,512 1,411,512
Indiana Transportation Finance
Authority, Series A 6.25% 11/1/16 1,551,255 -- 1,551,255
Indiana University Revenue, Series K 6.50% 8/1/05 -- 2,197,289 2,197,289
North Adams Community Schools
Participation Ctfs. 5.75% 7/15/12 1,031,960 -- 1,031,960
Perry Township Multi School
Corporation Revenue 5.20% 1/15/11 1,176,672 -- 1,176,672
St. Joseph Co. Hospital Authority
Facilities Revenue (MBIA Insured),
Memorial Hospital South Bend Project 6.25% 8/15/12 1,064,990 -- 1,064,990
---------- ----------- -----------
7,461,173 8,610,901 16,072,074
---------- ----------- -----------
Kentucky-0.4%
Kentucky State Turnpike Authority
Economic Development Revenue
(AMBAC Insured) Refunding 5.50% 7/1/06 1,250,223 -- 1,250,223
---------- ----------- -----------
Maryland- 0.3%
Maryland State Community Development
Administration Dept.
Housing & Community Development,
First Series 5.80% 4/1/07 1,026,520 -- 1,026,520
---------- ----------- -----------
Massachusetts- 10.4%
Massachusetts General Obligation Series A 5.25% 2/1/08 503,930 -- 503,930
Massachusetts Municipal Electric Co.,
Power Supply Systems Revenue
Series B 6.625% 7/1/03 -- 5,060,516 5,060,516
Massachusetts State Finance Agency,
Series F 6.00% 1/1/15 2,377,781 -- 2,377,781
Massachusetts State Refunding,
Series A 6.25% 7/1/02 -- 13,197,840 13,197,840
Massachusetts State Refunding,
Series B 5.30% 11/1/05 -- 2,395,611 2,395,611
Massachusetts State Refunding,
Series B 5.40% 11/1/06 -- 1,813,075 1,813,075
New England Educational Loan Marketing
Corp., Mass. Student Loan
Revenue Refunding, Series G 5.20% 8/1/02 -- 8,160,480 8,160,480
---------- ----------- -----------
2,881,711 30,627,522 33,509,233
---------- ----------- -----------
Michigan- 2.1%
Grand Rapids Water Supply
System Revenue (FGIC Insured) 6.30% 1/1/04 272,323 -- 272,323
Michigan State Building Authority
Revenue, Series I 6.40% 10/1/04 659,724 -- 659,724
Michigan State Housing Development
Authority Revenue,
Series C 6.375% 12/1/11 1,514,293 -- 1,514,293
Michigan State Trunk Line Revenue
Series, B-2 5.75% 10/1/12 510,315 -- 510,315
Rochester Community School District
School Building & Site
Unlimited Tax 6.50% 5/1/06 278,455 -- 278,455
Royal Oak Hospital Finance
Authority Revenue,
W. Beaumont Hospital:
Series C 7.20% 1/1/05 276,582 -- 276,582
Series G 5.60% 11/15/11 860,225 -- 860,225
Saranac Community School District 6.00% 5/1/13 263,870 -- 263,870
PFS-62
<PAGE>
Wyandotte Electric Revenue 6.25% 10/1/17 2,140,200 -- 2,140,200
---------- ----------- -----------
6,775,987 -- 6,775,987
---------- ----------- -----------
Missouri-1.9%
Kansas City School District Building
Revenue Elementary School
Project, Series D 5.10% 2/1/07 1,937,995 -- 1,937,995
Sikeston Electric Revenue Refunding
(MBIA Insured) 6.00% 6/1/05 -- 4,069,165 4,069,165
---------- ----------- -----------
1,937,995 4,069,165 6,007,160
---------- ----------- -----------
Nevada-1.8%
Clark County Industrial
Development Revenue
Refunding, Nevada Power Co.
Project, Series C
(AMBAC Insured) 7.20% 10/1/22 -- 4,711,387 4,711,387
Nevada General Obligation, Series B;
Prison Board Limited Tax 6.30% 4/1/05 1,201,310 -- 1,201,310
---------- ----------- -----------
1,201,310 4,711,387 5,912,697
---------- ----------- -----------
New Jersey- 0.2%
Gloucester Co. Improvement Authority
Gtd. Revenue, Solid Waste
Landfill Project Series AA 6.20% 9/1/07 428,084 -- 428,084
Monmouth Co. General Obligation
Utility Unlimited Tax 7.00% 8/1/08 282,723 -- 282,723
---------- ----------- -----------
710,807 -- 710,807
---------- ----------- -----------
New York-1.2%
New York City General Obligation,
Sub Series A-9 5.10% 8/1/18 -- 2,000,000 2,000,000
New York State Thruway Authority
Highway Revenue,
Series B 5.125% 4/1/15 1,482,705 -- 1,482,705
Tri-Borough Bridge & Tunnel Authority
Revenue General Purpose,
Series X 6.625% 1/1/12 290,767 -- 290,767
---------- ----------- -----------
1,773,472 2,000,000 3,773,472
---------- ----------- -----------
North Carolina-1.3%
Charlotte North Carolina General
Obligation, Series A 5.50% 7/1/07 1,057,440 -- 1,057,440
Mecklenberg County General Obligation -
Unilimited Tax 5.50% 4/1/12 2,096,180 -- 2,096,180
North Carolina Municipal Power Agency
Catawba Electric Revenue 6.00% 1/1/05 1,049,610 -- 1,049,610
---------- ----------- -----------
4,203,230 -- 4,203,230
---------- ----------- -----------
Ohio- 3.2%
Columbus School District, 144A 9.39% 5/1/97 -- 702,076 702,076
Franklin Co. Hospital Revenue,
Children's Hospital,
Series A 6.50% 5/1/07 1,035,329 -- 1,035,329
Ohio State Building Authority Revenue,
State Facilities Adult
Correctional Building Fund, Series A
6.125% 10/1/09 269,080 -- 269,080
Ohio State Highway, Series T 4.80% 5/15/02 -- 1,644,592 1,644,592
Ohio State Public Facilities Commission,
Higher Education Capital
Facilities, Series II A
(AMBAC Insured) 4.30% 12/1/08 -- 2,676,920 2,676,920
Ohio State Water Development Authority
Revenue (MBIA Insured) 5.75% 12/1/05 1,072,750 -- 1,072,750
Ohio General Obligation State
of Public & Sewer
Imports Unlimited Tax 6.00% 8/1/07 1,103,350 -- 1,103,350
PFS-63
<PAGE>
Ohio Housing Financial Agency
Mortgage Revenue
Residential GNMA Series, A-1 6.20% 9/1/14 1,732,542 -- 1,732,542
---------- ----------- -----------
5,213,051 5,023,588 10,236,639
---------- ----------- -----------
Oklahoma- 1.2%
Oklahoma State Industrial Authority Revenue
Refunding, Health Facilities
Sisters of Mercy, Series A 5.20% 6/1/05 -- 3,719,016 3,719,016
---------- ----------- -----------
Pennsylvania- 0.4%
Philadelphia Gas Works Revenue
Fifteenth Series (FSA Insured) 5.125% 8/1/05 -- 1,248,255 1,248,255
---------- ----------- -----------
Rhode Island- 1.6%
RI Depositors Economic Protection
Corp., Series A (MBIA & FSA Insured), 6.30% 8/1/05 -- 5,182,880 5,182,880
---------- ----------- -----------
South Dakota-0.7%
South Dakota Housing Development
Authority Revenue,
Series C 6.25% 5/1/15 1,024,390 -- 1,024,390
South Dakota State Building Authority Lease
Revenue (AMBAC Insured) 6.625% 9/1/12 1,390,464 -- 1,390,464
---------- ----------- -----------
2,414,854 -- 2,414,854
---------- ----------- -----------
Tennessee- 4.1%
Knox County Health, Educational &
Housing Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured) 7.25% 1/1/08 -- 10,731,709 10,731,709
Knox County Health, Educational & Housing
Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured) 7.25% 1/1/09 -- 1,649,299 1,649,299
Metropolitan Government Nashville/Davis
County Revenue 7.00% 1/1/14 1,022,250 -- 1,022,250
---------- ----------- -----------
1,022,250 12,381,008 13,403,258
---------- ----------- -----------
Texas- 6.1%
Austin Utilities System
Revenue (AMBAC Insured) 6.50% 5/15/11 273,917 -- 273,917
El Paso General Obligation Unlimited Tax 5.00% 8/15/09 498,505 -- 498,505
Harris Co. Flood Control District
Refunding General Obligation 6.25% 10/1/05 269,060 -- 269,060
Houston General Obligation Series C 6.00% 3/1/05 427,328 -- 427,328
Round Rock General Obligation (AMBAC
Insured) Unlimited Tax 5.30% 8/15/05 515,450 -- 515,450
San Antonio Water Revenue (MBIA Insured) 6.50% 5/15/10 275,483 -- 275,483
Tarrant Co. Water Control & Improvement
District #1 Revenue,
Series A 6.10% 3/1/05 423,912 -- 423,912
Texas General Obligation 7.70% 8/1/06 1,444,257 -- 1,444,257
Texas General Obligation
Refunding Series A
Unlimited Tax 6.00% 10/1/05 1,102,350 -- 1,102,350
Texas City Industrial Development Corp.,
Marine Terminal Revenue Refunding, Arco
Pipe Line Co. Project 7.75% 10/1/20 -- 5,791,436 5,791,436
Texas State College Student Loan (A.M.T.) 6.50% 8/1/07 -- 4,362,360 4,362,360
Texas State Public Finance Authority,
Series A 8.00% 10/1/99 -- 4,458,821 4,458,821
---------- ----------- -----------
5,230,262 14,612,617 19,842,879
---------- ----------- -----------
PFS-64
<PAGE>
Virginia- 2.2%
Norfolk Virginia General Obligation 7.00% 10/1/07 1,643,494 -- 1,643,494
Virginia State Housing Development
Authority Revenue 5.60% 11/1/10 1,496,880 -- 1,496,880
Virginia State Housing Development
Commonwealth,
Series H 6.20% 1/1/08 1,035,660 -- 1,035,660
Virginia State Public School
Authority Revenue, Series A 6.25% 1/1/11 524,575 -- 524,575
Virginia State Transportation Board Contract
Revenue #58 Corridor 6.00% 5/15/19 2,567,650 -- 2,567,650
---------- ----------- -----------
7,268,259 -- 7,268,259
---------- ----------- -----------
Washington- 2.9%
Chelan County Public Utilities
District No. 001, Series E 5.70% 7/1/08 -- 2,199,257 2,199,257
Kent General Obligation (AMBAC
Insured) Unlimited Tax 5.40% 12/1/06 1,360,021 -- 1,360,021
King Co. General Obligation, Series A 7.00% 12/1/07 617,034 -- 617,034
Seattle General Obligation 4.90% 12/1/05 506,420 -- 506,420
Washington State Public Power
Supply System Nuclear
Project No.2 Revenue, Series C 7.625% 7/1/10 -- 4,673,720 4,673,720
---------- ----------- -----------
2,483,475 6,872,977 9,356,452
---------- ----------- -----------
Wisconsin- 2.6%
Wisconsin Housing And Economic
Development Authority Revenue
Series A 6.15% 9/1/17 1,525,305 -- 1,525,305
Wisconsin Public Power System Revenue
(AMBAC Insured), Power
Supply System:
Series A 5.20% 7/1/06 410,560 410,560
Series A 5.30% 7/1/08 710,969 710,969
Wisconsin State General Obligation,
Series B 5.50% 5/1/09 -- 4,290,083 4,290,083
Wisconsin State Health & Educational
Facilities Authority
Revenue, Lutheran Hospital
Benevolent Development Fund,
Series A 5.60% 2/15/09 462,920 -- 462,920
Wisconsin State Transportation
Revenue, Series B 5.75% 7/1/12 1,077,410 -- 1,077,410
---------- ----------- -----------
4,187,164 4,290,083 8,477,247
---------- ----------- -----------
Wyoming- 0.3%
Wyoming Community Development
Authority, Single Family
Series D, (FHA/VA Mortgage Insured) 7.60% 6/1/17 -- 856,440 856,440
---------- ----------- -----------
Temporary Cash Investments- 0.0%
Woodward Tax Exempt Money Market Fund 48,195 -- 48,195
---------- ----------- -----------
TOTAL INVESTMENTS 78,252,712 244,998,503 323,251,215
========== =========== ===========
</TABLE>
PFS-65
<PAGE>
PRAIRIE/WOODWARD FUNDS
Notes to Pro Forma Financial Statements
(Unaudited)
(1) Basis of Combination-
The unaudited Pro Forma Combining Schedule of Investments, Pro Forma
Combining Statements of Assets and Liabilities and Pro Forma Combining
Statements of Operations reflect the accounts of the Woodward Money
Market Fund and Prairie Money Market Fund; Woodward Treasury Money
Market Fund, Woodward Government Fund, and Prairie U.S. Government
Money Market Fund; Woodward Tax-Exempt Money Market Fund and Prairie
Municipal Money Market Fund; Woodward Bond Fund and Prairie Bond Fund;
Woodward Municipal Bond Fund and Prairie Municipal Bond Fund; and
Woodward Capital Growth Fund and Prairie Growth Fund, at and for the
year (or period) ended December 31, 1995. These statements have been
derived from the funds' books and records utilized in calculating
daily net asset value at December 31, 1995.
The pro forma statements give effect to the proposed transfer of the
assets and stated liabilities of the non-surviving fund, in exchange
for shares of the surviving entity as stated below:
- ------------------------------------------------------------------------------
Non-Surviving Fund: Surviving Fund:
- ------------------------------------------------------------------------------
Prairie Money Market Fund Woodward Money Market Fund
Prairie U.S. Government Money Market Woodward Treasury
Fund and Woodward Government Fund Money Market Fund
Prairie Municipal Money Market Woodward Tax-Exempt
Market Fund Money Market Fund
Prairie Bond Fund Woodward Bond Fund
Woodward Municipal Bond Fund Prairie Municipal Bond Fund
Woodward Capital Growth Fund Prairie Growth Fund
- ------------------------------------------------------------------------------
In accordance with generally accepted accounting principles, the
historical cost of investment securities will be carried forward to
the surviving fund and the results of operations for pre-combination
periods for the surviving fund will not be restated. The pro forma
statements do not reflect the expenses of either fund in carrying out
its obligation under the Agreement and Plan of Reorganization. Under
the terms of the Plan of Reorganization, the combination of the funds
will be taxed as a tax free business combination and accordingly will
be accounted for by a method of accounting for tax free mergers of
investment companies (sometimes referred to as the pooling without
restatement method).
The Pro Forma Combining Schedule of Investments, Statement of Assets
and Liabilities and Statement of Operations should be read in
conjunction with the historical financial statements of the funds
included or incorporated by reference in the Statement of Additional
Information.
(2) Portfolio Valuation-
Portfolio securities of the Prairie and Woodward Long-Term Funds are
stated at market value which is determined by a pricing service based
upon quoted market prices or dealer quotes. Securities for which
market prices or dealer quotes are not readily available are valued by
the investment advisor in accordance with procedures approved by the
Board of Trustees. The Prairie and Woodward Money Market Funds are
stated at amortized cost which approximates market.
(3) Capital Shares-
The pro forma net asset value per share assumes the issuance of shares
of the surviving funds which would have been issued at December 31,
1995, in connection with the proposed reorganization. The number of
shares assumed to be issued is equal to the net asset value of shares
of the non-surviving fund, as of December 31, 1995, divided by the net
asset value per share of the shares of the surviving fund as of
December 31, 1995. The pro forma total number of shares outstanding
for each combined fund consists of the following at December 31, 1995:
PFS-66
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
COMBINED TOTAL SHARES SHARES OF ADDITIONAL SHARES ASSUMED
FUND OUTSTANDING SURVIVING FUND ISSUED IN THE REORGANIZATION:
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 1,843,722,178 1,639,694,814 204,027,364
Treasury Money
Market 1,459,352,402 927,695,502 531,656,900
Municipal Money
Market 792,978,405 564,413,476 228,564,929
Growth 41,307,993 24,943,560 16,364,433
Bond 61,705,323 49,523,843 12,181,480
Municipal Bond 25,709,625 19,617,499 6,092,126
</TABLE>
(4) Investments-
At December 31, 1995, the Woodward Bond Fund, Woodward Municipal Bond
Fund, Prairie U.S. Government Money Market Fund, and Prairie Municipal
Money Market Fund had net capital loss carryforwards of approximately
$20,997,598, $429,976, $16,000 and $40,000 available to offset future
capital gains, respectively. To the extent that these carryforward
losses are used to offset capital gains, it is probable that any gains
so offset will not be distributed.
PFS-67
<PAGE>
PART C
C-1
<PAGE>
FORM N-14
PART C. OTHER INFORMATION
Item 15. Indemnification
Indemnification of Registrant's principal underwriter
against certain losses is provided for in Section 11 of the Distribution
Agreement incorporated herein by reference as Exhibit (7)(b). Indemnification
of Registrant's Custodian is provided for in Article XII of the Amended and
Restated Custodian Agreement incorporated herein by reference as Exhibit
(9)(a). Indemnification of Registrant's Transfer Agent and Dividend Disbursing
Agent is provided for in Article III of the Amended and Restated Transfer
Agency and Dividend Disbursing Agreement incorporated herein by reference as
Exhibit (13)(b). Registrant has obtained from a major insurance carrier a
trustees' and officers' liability policy covering certain types of errors and
omissions. In addition, Section 5.4 of the Registrant's Amended and Restated
Declaration of Trust incorporated herein by reference as Exhibit (1)(b),
provides as follows:
5.4 Mandatory Indemnification.
(a) Subject only to the provisions hereof,
every person who is or has been a Trustee, officer, employee or
agent of the Trust and every person who serves at the Trust's
request as director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
shall be indemnified by the Trust to the fullest extent permitted
by law against all liabilities and against all expenses reasonably
incurred or paid by him in connection with any debt, claim, action,
demand, suit, proceeding, judgment, decree, liability or obligation
of any kind in which he becomes involved as a party or otherwise or
is threatened by virtue of his being or having been a Trustee,
officer, employee or agent of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the
request of the Trust and against amounts paid or incurred by him in
the compromise or settlement thereof.
(b) The words "claim", "action", "suit", or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative, legislative,
investigative or other, including appeals), actual or threatened,
and the words "liabilities" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
C-2
<PAGE>
(c) No indemnification shall be provided here-
under to a Trustee or officer:
(i) against any liability to the
Trust or the Shareholders by reason of willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in
the conduct of his office ("disabling
conduct");
(ii) with respect to any matter as
to which he shall, by the court or other body
by or before which the proceeding was brought
or engaged, have been finally adjudicated to be
liable by reason of disabling conduct;
(iii) in the absence of a final
adjudication on the merits that such Trustee or
officer did not engage in disabling conduct,
unless a reasonable determination, based upon a
review of the facts that the person to be
indemnified is not liable by reason of such
conduct, is made:
(A) by vote of a
majority of a quorum of the Trustees
who are neither Interested Persons
nor parties to the proceedings; or
(B) by independent
legal counsel, in a written opinion.
(d) The rights of indemnification herein
provided may be insured against by policies maintained by the
Trust, shall be severable, shall not affect any other rights to
which any Trustee, officer, employee or agent may now or hereafter
be entitled, shall continue as to a person who has ceased to be
such Trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person; provided, however, that no person may satisfy any right of
indemnity or reimbursement granted herein except out of the
property of the Trust, and no other person shall be personally
liable to provide indemnity or reimbursement hereunder (except an
insurer or surety or person otherwise bound by contract).
(e) Expenses in connection with the preparation
and presentation of a defense to any claim, action, suit or
proceeding of the character described in paragraph (a) of this
Section 5.4 may be paid by the Trust prior to final disposition
thereof upon receipt of a written undertaking by or on behalf of
the Trustee, officer, employee or agent to reimburse the Trust if
it is ultimately determined under this Section 5.4 that he is not
entitled to indemnification. Such undertaking shall be secured by a
surety bond or other
C-3
<PAGE>
suitable insurance or such security as the Trustees shall require
unless a majority of a quorum of the Trustees who are neither
Interested Persons nor parties to the proceeding, or independent
legal counsel in a written opinion, shall have determined, based on
readily available facts, that there is reason to believe that the
indemnitee ultimately will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising
under the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Section 5.1 of the Registrant's Declaration of Trust,
incorporated herein by reference as Exhibit (1), also provided
indemnification of shareholders of the Registrant. Section 5.1
states as follows:
5.1 Limitation of Personal Liability and Indemnification
of Shareholders. The Trustees, officers, employees or agents of the
Trust shall have no power to bind any Shareholder personally or to
call upon any Shareholder for the payment of any sum of money or
assessment whatsoever, other than such as the Shareholder may at
any time agree to pay by way of subscription to any Shares or
otherwise.
No Shareholder or former Shareholder of the Trust
shall be liable solely by reason of his being or having been a
Shareholder for any debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any kind, against, or
with respect to, the Trust arising out of any action taken or
omitted for or on behalf of the Trust, and the Trust shall be
solely liable therefor and resort shall be had solely to the Trust
Property for the payment or performance thereof.
C-4
<PAGE>
Each Shareholder or former Shareholder of the Trust
(or their heirs, executors, administrators or other legal
representatives or, in case of a corporate entity, its corporate or
general successor) shall be entitled to indemnity and reimbursement
out of the Trust Property to the full extent of such liability and
the costs of any litigation or other proceedings in which such
liability shall have been determined, including, without
limitation, the fees and disbursements of counsel if, contrary to
the provisions hereof, such Shareholder or former Shareholder of
the Trust shall be held to personal liability.
Item 16. Exhibits
(1) (a) Amended and Restated Declaration of Trust
dated as of May 1, 1992 is incorporated herein
by reference to exhibit (1)(b) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed with
the Commission on September 8, 1992.
(2) Bylaws of Registrant is incorporated herein by
reference to exhibit (2) of Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on July 24, 1987.
(3) None.
(4) Agreement and Plan of Reorganization filed
herewith as Appendix I to the Combined Proxy
Statement/Prospectus.
(5) (a) None.
(6) (a) Form of Co-Advisory Agreement between
Registrant, NBD Bank and First Chicago
Investment Management Company is incorporated
herein by reference to exhibit 5(a) of
Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A filed with
the Commission on April 5, 1996.
(b) Advisory Agreement between Registrant and NBD
dated November 28, 1995 is incorporated herein by
reference to exhibit 5(b) of Post-Effective
Amendment No. 28 to Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 5, 1996.
(c) Form of Sub-Advisory Agreement among NBD, FCIMCO
and ANB Investment Management and Trust Company
C-5
<PAGE>
("ANB-IMC") is incorporated herein by reference
to exhibit 5(c) of Post-Effective Amendment No.
30 to Registrant's Registration Statement on
Form N-1A filed with the Commission on April
15, 1996.
(7) (a) Form of Distribution Agreement among Registrant
and BISYS Fund Services Limited Partnership, d/b/a
BISYS Fund Services ("BISYS") is incorporated
herein by reference to exhibit 6(a) of Post-
Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 5, 1996.
(b) Distribution Agreement dated March 15, 1994
among Registrant, FoM and Essex relating to
Series A, B, C, M, N, O, P, Q, R, S, T, U and V
is incorporated herein by reference to exhibit
(6)(a) of Post- Effective Amendment No. 25 to
the Registrant's Registration Statement on Form
N-1A filed with the Commission on July 28,
1995.
(8) Deferred Compensation Plan is incorporated herein
by reference to exhibit 7 of Post-Effective
Amendment No. 30 to Registrant's Registration
Statement on Form N-1A filed with the commission
on April 15, 1996.
(9) (a) Amended and Restated Custodian Agreement dated
May 16, 1989 between Registrant and National Bank
of Detroit for Series A, B, C, D, E, F, G, H, I,
J, K and L of the Registrant is incorporated
herein by reference to exhibit (8)(b) of Post-
Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 30, 1990.
(b) Addendum No. 1 dated January 23, 1991 to the
Amended and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Michigan Tax-Exempt Money Market Fund (Series M)
is incorporated herein by reference to exhibit
(8)(c) of Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on February 28, 1991.
(c) Addendum No. 2 dated April 28, 1992 to the Amended
and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward Equity
Index Fund (Series N) is incorporated herein by
reference to exhibit (8)(d) of Post-Effective
Amendment No. 10 to the Registrant's Registration
C-6
<PAGE>
Statement on Form N-1A filed with the
Commission on September 8, 1992.
(d) Addendum No. 3 dated January 1, 1993 to the
Amended and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Treasury Money Market Fund (Series O) is
incorporated herein by reference to exhibit (8)(e)
of Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 29, 1993.
(e) Addendum No. 4 dated February 1, 1993 to the
Amended and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Municipal Bond Fund (Series P) and the Woodward
Michigan Municipal Bond Fund (Series Q) is
incorporated herein by reference to exhibit (8)(f)
of Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 29, 1993.
(f) Addendum No. 5 dated January 1, 1994 to the
Amended and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Balanced Fund (Series R) is incorporated herein by
reference to exhibit (8)(g) of Post-Effective
Amendment No. 22 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on July 29, 1994.
(g) Addendum No. 6 dated July 1, 1994 to the Amended
and Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Capital Growth and Short Bond Funds (Series S and
U) is incorporated herein by reference to exhibit
(8)(h) of Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on January 27, 1995.
(h) Addendum No. 7 to the Amended and Restated
Custodian Agreement between Registrant and NBD
relating to the Woodward International Equity Fund
(Series T) is incorporated herein by reference to
exhibit (8)(i) of Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on July 28, 1995.
(i) Form of Addendum No. 8 to the Amended and Restated
Custodian Agreement between Registrant and NBD
relating to the Woodward Cash Management Fund,
Treasury Prime Cash Management Fund and U.S.
C-7
<PAGE>
Government Securities Cash Management Fund is
incorporated herein by reference to exhibit
8(i) of Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form
N-1A filed with the Commission on April 5,
1996.
(j) Form of Addendum No. 9 to the Amended and Restated
Custodian Agreement between Registrant and NBD
relating to the Woodward U.S. Government Income
Fund (Series V) is incorporated herein by
reference to exhibit (8)(k) of Post-Effective
Amendment No. 17 to Registrant's Registration
Statement on Form N-1A filed with the Commission
on November 31, 1993.
(k) Global Custody Agreement dated November 21,
1994 between Barclays Bank, PLC and NBD
relating to Series A, B, C, M, N, O, P, Q, R,
S, T, U and V is incorporated herein by
reference to exhibit (8)(k) of Post-Effective
Amendment No. 25 to Registrant's Registration
Statement on Form N-1A filed with the
Commission on July 28, 1995.
(10) (a) Revised Service and Distribution Plan relating to
Registrant's distribution expenses pursuant to
Rule 12b-1, effective April 20, 1994, is
incorporated herein by reference to exhibit
(15)(l) of Post-Effective Amendment No. 22 of the
Registrant's Registration Statement on Form N-1A
filed with the Commission on July 29, 1994.
(b) Distribution Plan for Class B Shares is
incorporated herein by reference to exhibit
(15)(b) of Post-Effective Amendment No. 30 of
the Registrant's Registration Statement on Form
N-1A filed with the Commission on April 15,
1996.
(11) Opinion of Drinker Biddle & Reath that shares are
validly issued, fully paid and non-assessable.<F1>1
(12) Opinion of Drinker Biddle & Reath as to tax
matters and consequences (including consent of
such firm).
(13) (a) Form of Co-Administration Agreement among the
Registrant, NBD, FCIMCO and BISYS.
- --------
<F1>1 Filed pursuant to Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
C-8
<PAGE>
(b) Form of Transfer Agency Agreement between The
Woodward Funds and First Data Investor Services
Group, Inc.
(c) Amended and Restated Transfer Agency and Dividend
Disbursement Agreement dated May 16, 1989 between
Registrant and National Bank of Detroit for Series
A, B, C, D, E, F, G, H, I, J, K and L of the
Registrant is incorporated herein by reference to
exhibit (9)(b) of Post-Effective Amendment No. 3
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on April 30, 1990.
(d) Addendum No. 1 dated January 23, 1991 to the
Amended and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Michigan Tax-Exempt Money
Market Fund (Series M) is incorporated herein by
reference to exhibit (9)(c) of Post-Effective
Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on February 28, 1991.
(e) Addendum No. 2 dated April 28, 1992 to the Amended
and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Equity Index Fund (Series
N) is incorporated herein by reference to exhibit
(9)(d) of Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on September 8, 1992.
(f) Addendum No. 3 dated January 1, 1993 to the
Amended and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Treasury Money Market
Fund (Series O) is incorporated herein by
reference to exhibit (9)(e) of Post-Effective
Amendment No. 14 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 29, 1993.
(g) Addendum No. 4 dated February 1, 1993 to the
Amended and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Municipal Bond Fund
(Series P) and the Woodward Michigan Municipal
Bond Fund (Series Q) is incorporated herein by
reference to exhibit (9)(f) of Post-Effective
Amendment No. 14 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 29, 1993.
C-9
<PAGE>
(h) Addendum No. 5 dated January 1, 1994 to the
Amended and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Balanced Fund (Series R)
is incorporated herein by reference to exhibit
(9)(g) of Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on July 29, 1994.
(i) Addendum No. 6 dated July 1, 1994 to the Amended
and Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and NBD
relating to the Woodward Capital Growth,
International Equity and Short Bond Funds (Series
S, T and U) is incorporated herein by reference to
exhibit (9)(h) of Post-Effective Amendment No. 23
to the Registrant's Registration Statement on Form
N-1A filed with the Commission on January 27,
1995.
(j) Form of Addendum No. 7 to the Amended and Restated
Transfer Agency and Dividend Disbursement
Agreement between Registrant and NBD relating to
the Woodward Cash Management, U.S. Government
Securities Cash Management and Treasury Prime Cash
Management Funds incorporated by reference to
exhibit 9(i) of Post-Effective Amendment No. 28 to
the Registration Statement on Form N-1A filed with
the Commission on April 5, 1996.
(k) Form of Addendum No. 8 to the Amended and Restated
Transfer Agency and Dividend Disbursement
Agreement between Registrant and NBD relating to
the Woodward Managed Assets Conservative Fund,
Managed Assets Growth Fund, Equity Income Fund,
Small-Cap Opportunity Fund, Major Markets Fund,
Income Fund, International Bond Fund and
Intermediate Municipal Bond Fund is incorporated
herein by reference to exhibit (9)(j) of Post-
Effective Amendment No. 29 of the Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 10, 1996.
(l) Form of Broker-Dealer Agreement between FoM and
Broker-Dealers is incorporated herein by
reference to exhibit (9)(c) of Post-Effective
Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A filed with
the Commission on March 2, 1989.
(m) Bank Agreement between FoM and BHC Securities,
Inc. dated June 15, 1992 is incorporated herein by
C-10
<PAGE>
reference to exhibit (9)(h) of Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on September 8, 1992.
(n) Bank Agreement between FoM and NBD Securities,
Inc. dated June 8, 1992 is incorporated herein by
reference to exhibit (9)(i) of Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on September 8, 1992.
(o) Revised Shareholder Services Plan including
form of Service Agreement adopted by the Board
of Trustees on November 16, 1993 is
incorporated herein by reference to exhibit
(9)(t) of Post-Effective Amendment No. 22 to
the Registrant's Registration Statement on Form
N-1A filed with the Commission on July 29,
1994.
(p) Form of Distribution and Services Plan, including
Form of Servicing Agreement is incorporated herein
by reference to exhibit 9(n) of Post-Effective
Amendment No. 28 to the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 5, 1996.
(q) Shareholder Services Plan including form of
Service Agreement with respect to Class A
Shares is incorporated herein by reference to
exhibit (9)(p) of Post-Effective Amendment No.
30 of the Registrant's Registration Statement
on Form N-1A filed with the Commission on April
15, 1996.
(r) Shareholder Administrative Services Plan including
form of Service Agreement is incorporated herein
by reference to exhibit (9)(q) of Post-Effective
Amendment No. 30 of the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 15, 1996.
(14) (a) Consent of Ernst & Young LLP.
(b) Consent of Arthur Andersen LLP.
(c) Consent of Drinker Biddle & Reath.
(15) Not Applicable.
(16) Not Applicable.
(17) (a) Rule 18f-3 Plan is incorporated herein by
reference to exhibit (18)(a) of Post-Effective
Amendment No. 30 of the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 15, 1996.
C-11
<PAGE>
(b) Amended Rule 18f-3 Plan is incorporated herein by
reference to exhibit (18)(b) of Post-Effective
Amendment No. 30 of the Registrant's Registration
Statement on Form N-1A filed with the Commission
on April 15, 1996.
(c) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 of the Registrant.
(d) Forms of Proxy.
(e) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Money Market,
Government, Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt Money
Market Funds.
(f) Prospectus dated April 15, 1996 for Class I
Shares of The Woodward Money Market,
Government, Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt Money
Market Funds.
(g) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Growth/Value,
Opportunity, Intrinsic Value, Capital Growth,
Balanced and International Equity Funds.
(h) Prospectus dated April 15, 1996 for Class I
Shares of The Woodward Growth/Value,
Opportunity, Intrinsic Value, Capital Growth,
Balanced, Equity Index and International Equity
Funds.
(i) Prospectus dated April 15, 1996 for Class A Shares
of The Woodward Intermediate Bond, Bond and Short
Bond Funds.
(j) Prospectus dated April 15, 1996 for Class A Shares
of The Woodward Municipal Bond and Michigan
Municipal Bond Funds.
(k) Prospectus dated April 15, 1996 for Class I Shares
of The Woodward Intermediate Bond, Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond
Funds.
(l) Statement of Additional Information dated April
15, 1996 for Class A and Class I Shares of The
Woodward Money Market, Government, Treasury
Money Market, Tax-Exempt Money Market and
Michigan Tax- Exempt Money Market Funds.
(m) Statement of Additional Information dated April
15, 1996 for Class A and Class I Shares of The
Woodward Growth/Value, Opportunity, Intrinsic
Value, Capital Growth, Balanced, Equity Index
and International Equity Funds.
C-12
<PAGE>
(n) Statement of Additional Information dated April
15, 1996 for Class A and Class I Shares of The
Woodward Intermediate Bond, Bond and Short Bond
Funds.
(o) Statement of Additional Information dated April
15, 1996 for Class A and Class I Shares of The
Woodward Municipal Bond and Michigan Municipal
Bond Funds.
(p) Prospectus dated April 11, 1996 for The Prairie
Managed Assets Income Fund, Managed Assets Fund,
Equity Income Fund, Growth Fund, Special
Opportunities Fund, International Equity Fund,
Intermediate Bond Fund, Bond Fund, International
Bond Fund, Intermediate Municipal Bond Fund,
Municipal Bond Fund, U.S. Government Money Market
Fund, Money Market Fund and Municipal Money Market
Fund.
(q) Statement of Additional Information dated April
11, 1996 for Class A, Class B and Class I Shares
of The Prairie Managed Assets Income Fund, Managed
Assets Fund, Equity Income Fund, Growth Fund,
Special Opportunities Fund, International Equity
Fund, Intermediate Bond Fund, Bond Fund,
International Bond Fund, Intermediate Municipal
Bond Fund, Municipal Bond Fund, U.S. Government
Money Market Fund, Money Market Fund and Municipal
Money Market Fund.
(r) Annual Report to Shareholders for The Woodward
Money Market, Government, Treasury Money
Market, Tax-Exempt Money Market and Michigan
Tax-Exempt Money Market Funds dated December
31, 1995.
(s) Annual Report to Shareholders for The Woodward
Growth/Value, Opportunity, Intrinsic Value,
Capital Growth and Balanced Funds dated December
31, 1995.
(t) Annual Report to Shareholders for The Woodward
International Equity Fund dated December 31, 1995.
(u) Annual Report to Shareholders for The Woodward
Intermediate Bond, Bond, Short Bond, Municipal
Bond and Michigan Municipal Bond Funds dated
December 31, 1995.
C-13
<PAGE>
(v) Annual Report to Shareholders for The Prairie
Managed Assets Income Fund, Managed Assets Fund,
Equity Income Fund, Growth Fund, Special
Opportunities Fund, International Equity Fund,
Intermediate Bond Fund, Bond Fund, International
Bond Fund, Intermediate Municipal Bond Fund,
Municipal Bond Fund, U.S. Government Money Market
Fund, Money Market Fund and Municipal Money Market
Fund dated December 31, 1995.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed
as a part of an amendment to the registration statement
and will not be used until the amendment is effective,
and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities
offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide
offering of them.
C-14
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the
City of Detroit, State of Michigan, on the 29th day of April, 1996.
THE WOODWARD FUNDS
Registrant
/s/ Earl I. Heenan, Jr.
-----------------------------------
Earl I. Heenan, Jr.
Chairman of the Board and President
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Earl I. Heenan, Jr.
- -------------------------
Earl I. Heenan, Jr. Trustee April 29, 1996
/s/ Eugene C. Yehle
- -------------------------
Eugene C. Yehle Trustee April 29, 1996
/s/ Will M. Caldwell
- -------------------------
Will M. Caldwell Trustee April 29, 1996
/s/ Julius L. Pallone
- -------------------------
Julius L. Pallone Trustee April 29, 1996
/s/ Nicholas J. De Grazia
- -------------------------
Nicholas J. De Grazia Trustee April 29, 1996
/s/ Donald G. Sutherland
- -------------------------
Donald G. Sutherland Trustee April 29, 1996
/s/ Donald L. Tuttle
- -------------------------
Donald L. Tuttle Trustee April 29, 1996
/s/ John P. Gould
- -------------------------
John P. Gould Trustee April 29, 1996
/s/ Marilyn McCoy
- -------------------------
Marilyn McCoy Trustee April 29, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(12) Opinion of Drinker Biddle & Reath as to tax
matters and consequences (including consent
of such firm).
(13) (a) Form of Co-Administration Agreement among the
Registrant, NBD, FCIMCO and BISYS.
(13) (b) Form of Transfer Agency Agreement between
The Woodward Funds and First Data Investor
Services Group, Inc.
(14) (a) Consent of Ernst & Young LLP.
(14) (b) Consent of Arthur Andersen LLP.
(14) (c) Consent of Drinker Biddle & Reath.
(17) (c) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 of
the Registrant.
(17) (d) Forms of Proxy.
(17) (e) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Money Market,
Government, Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt Money
Market Funds.
(17) (f) Prospectus dated April 15, 1996 for Class I
Shares of The Woodward Money Market,
Government, Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt Money
Market Funds.
(17) (g) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Growth/Value,
Opportunity, Intrinsic Value, Capital Growth,
Balanced and International Equity Funds.
<PAGE>
(17) (h) Prospectus dated April 15, 1996 for Class I
Shares of The Woodward Growth/Value,
Opportunity, Intrinsic Value, Capital Growth,
Balanced, Equity Index and International
Equity Funds.
(17) (i) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Intermediate Bond,
Bond and Short Bond Funds.
(17) (j) Prospectus dated April 15, 1996 for Class A
Shares of The Woodward Municipal Bond and
Michigan Municipal Bond Funds.
(17) (k) Prospectus dated April 15, 1996 for Class I
Shares of The Woodward Intermediate Bond,
Bond, Short Bond, Municipal Bond and Michigan
Municipal Bond Funds.
(17) (l) Statement of Additional
Information dated April 15, 1996 for
Class A and Class I Shares of The
Woodward Money Market, Government,
Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt
Money Market Funds.
(17) (m) Statement of Additional
Information dated April 15, 1996 for
Class A and Class I Shares of The
Woodward Growth/Value, Opportunity,
Intrinsic Value, Capital Growth,
Balanced, Equity Index and
International Equity Funds.
(17) (n) Statement of Additional Information dated
April 15, 1996 for Class A and Class I Shares
of The Woodward Intermediate Bond, Bond and
Short Bond Funds.
(17) (o) Statement of Additional Information dated
April 15, 1996 for Class A and Class I Shares
of The Woodward Municipal Bond and Michigan
Municipal Bond Funds.
(17) (p) Prospectus dated April 11, 1996 for the
Prairie Managed Assets Income Fund, Managed
Assets Fund, Equity Income Fund, Growth Fund,
Special Opportunities Fund, International
Equity Fund, Intermediate Bond Fund, Bond
Fund, International Bond Fund, Intermediate
Municipal Bond Fund, Municipal Bond Fund,
U.S. Government Money Market Fund, Money
Market Fund and Municipal Money Market Fund.
<PAGE>
(17) (q) Statement of Additional Information dated
April 11, 1996 for Class A, Class B and Class
I Shares of the Prairie Managed Assets Income
Fund, Managed Assets Fund, Equity Income
Fund, Growth Fund, Special Opportunities
Fund, International Equity Fund, Intermediate
Bond Fund, Bond Fund, International Bond
Fund, Intermediate Municipal Bond Fund,
Municipal Bond Fund, U.S. Government Money
Market Fund, Money Market Fund and Municipal
Money Market Fund.
(17) (r) Annual Report to Shareholders for The
Woodward Money Market, Government, Treasury
Money Market, Tax-Exempt Money Market and
Michigan Tax-Exempt Money Market Funds dated
December 31, 1995.
(17) (s) Annual Report to Shareholders for The
Woodward Growth/Value, Opportunity,
Intrinsic Value, Capital Growth and
Balanced Funds dated December 31,
1995.
(17) (t) Annual Report to Shareholders for The
Woodward International Equity Fund dated
December 31, 1995.
(17) (u) Annual Report to Shareholders for The
Woodward Intermediate Bond, Bond,
Short Bond, Municipal Bond and
Michigan Municipal Bond Funds dated
December 31, 1995.
(17) (v) Annual Report to Shareholders for The Prairie
Managed Assets Income Fund, Managed Assets
Fund, Equity Income Fund, Growth Fund,
Special Opportunities Fund, International
Equity Fund, Intermediate Bond Fund, Bond
Fund, International Bond Fund, Intermediate
Municipal Bond Fund, Municipal Bond Fund,
U.S. Government Money Market Fund, Money
Market Fund and Municipal Money Market Fund
dated December 31, 1995.
Exhibit (12)
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, PA 19107
(215)988-2700
May 1, 1996
The Woodward Funds
900 Tower Drive
Troy, Michigan 87007-7058
Prairie Institutional Funds
Three First National Plaza
Chicago, Illinois 60670
Re: Agreement and Plan of Reorganization by and
between The Woodward Funds and Prairie
Institutional Funds
-------------------------------------------
Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the
above Agreement and Plan of Reorganization (the "Agreement"), as to certain
Federal income tax consequences of the transactions contemplated therein.
Background
The Woodward Funds ("Woodward") is a Massachusetts business
trust consisting of multiple investment portfolios, including the Money Market
Fund, Treasury Money Market Fund, Tax-Exempt Money Market Fund, Capital
Growth Fund, Bond Fund, Municipal Bond Fund, and Balanced Fund (the "Existing
Woodward Funds") and the Equity Income Fund, International Major Markets Fund,
International Bond Fund, Small Cap Opportunity Fund, Intermediate Municipal
Bond Fund, Income Fund and Managed Assets Conservative Fund (the "New Woodward
Funds" and, together with the Existing Woodward Funds, individually an
"Acquiring Fund" and collectively the "Acquiring Funds"). Prairie
Institutional Funds ("Prairie") is a Massachusetts business trust consisting
of multiple investment portfolios, including the Money Market Fund, U.S.
Government Money Market Fund, Municipal Money Market Fund, Growth Fund, Bond
Fund, Municipal Bond Fund, Managed Assets Fund,
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 2
Equity Income Fund, International Equity Fund, International Bond Fund,
Special Opportunities Fund, Intermediate Municipal Bond Fund, Intermediate
Bond Fund, and Managed Assets Income Fund (individually, an "Acquired Fund"
and collectively, the "Acquired Funds"). Woodward and Prairie are both
open-end management investment companies registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act").
At the Effective Time of the Reorganization for each Acquired
Fund (as defined in the Agreement), it is contemplated that the Acquired Fund
will transfer all of its assets and liabilities to the corresponding Acquiring
Fund in exchange for shares of the Acquiring Fund. Prairie will then
distribute the shares of the Acquiring Fund to the shareholders of the
corresponding Acquired Fund in cancellation of all outstanding shares of the
Acquired Fund, and the existence of Prairie will be terminated. All of the
above steps constitute the "Reorganization." After the Reorganization, the
Acquiring Fund will continue the investment operations of the corresponding
Acquired Fund.
Assumptions
For purposes of this opinion, we have made certain assumptions.
Please advise us if you are aware of any facts inconsistent with any of these
assumptions:
First, each of the Acquired Funds and each of the Existing
Woodward Funds qualified as a "regulated investment company" under Part I of
Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue Code of 1986,
as amended (the "Code"), for its most recently ended fiscal year and each of
the Acquired Funds and each of the Acquiring Funds will so qualify for its
current fiscal year.
Second, each Acquired Fund will tender for acquisition by the
corresponding Acquiring Fund assets consisting of at least 90% of the fair
market value of the net assets of the Acquired Fund and at least 70% of the
fair market value of its gross assets immediately prior to the Reorganization.
For purposes of this assumption, all of the following shall be considered as
assets of such Acquired Fund held immediately prior to the Reorganization: (a)
amounts used by the Acquired Fund to pay its
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 3
expenses in connection with the transactions contemplated hereby and (b) all
amounts used to make redemptions of or distributions on such Acquired Fund's
shares (except for redemptions in the ordinary course of its business, as
required by section 22(e) of the 1940 Act pursuant to a demand for redemption
by a shareholder of the Acquired Fund, and distributions of net investment
income and net capital gains, other than net capital gains resulting from
sales of assets for the purpose of satisfying investment objectives of the
Acquiring Fund, if any, that differ from the existing investment objectives of
the Acquired Fund).
Third, each Acquired Fund will distribute to its shareholders
in complete liquidation of the Acquired Fund the corresponding Acquiring Fund
shares that it will receive in the Reorganization as promptly as practicable
and having made such distributions will take all necessary steps to terminate
its existence.
Fourth, prior to the Reorganization, each Acquired Fund will
continue its historic business within the meaning of Treasury Regulations
section 1.368-1(d) and will not dispose of more than fifty percent (50%) of
the fair market value of its assets for the purpose of satisfying investment
objectives of the corresponding Acquiring Fund, if any, that differ from the
existing investment objectives of the Acquired Fund.
Fifth, following the Reorganization, each Acquiring Fund will
continue the historic business of the corresponding Acquired Fund or will use
a significant portion of the Acquired Fund's historic business assets in a
business.
Sixth, at the Effective Time of the Reorganization for each
Acquired Fund, the adjusted income tax basis and the fair market value of the
assets to be transferred by the Acquired Fund to the corresponding Acquiring
Fund will each equal or exceed the sum of the liabilities to be assumed by the
Acquiring Fund or to which such transferred assets are subject.
Seventh, at the Effective Time of the Reorganization for each
Acquired Fund, there will be no plan or intention by the shareholders of the
Acquired Fund who own five percent (5%) or more of the Acquired Fund's stock
and, to the best of the knowledge of the management of Prairie, no current
plan or intention on the part of the remaining shareholders of the
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 4
Acquired Fund, to sell, exchange or otherwise dispose of a number of shares of
the corresponding Acquiring Fund's stock to be received in the Reorganization
that would reduce the Acquired Fund shareholders' ownership of Acquiring Fund
stock to a number of shares having a value, as of the time of the
Reorganization, of less than fifty percent (50%) of the value of all of the
formerly outstanding stock of the Acquired Fund immediately prior to the
Reorganization. For purposes of this assumption, (a) shares of the Acquired
Fund surrendered by dissenters will be treated as outstanding Acquired Fund
stock immediately prior to the Reorganization, and (b) shares of the Acquired
Fund and the Acquiring Fund held by Acquired Fund shareholders and otherwise
sold, redeemed or disposed of in anticipation of the Reorganization, or
subsequent to the Reorganization pursuant to a plan or intention that existed
at the time of the Reorganization, also will be taken into account.
Eighth, at the Effective Time of the Reorganization for each
Acquired Fund, the Acquiring Fund will have no plan or intention to reacquire
any of its shares issued in the Reorganization, except in the ordinary course
of business.
Ninth, at the Effective Time of the Reorganization for each
Acquired Fund, the corresponding Acquiring Fund will have no plan or intention
to sell or otherwise to dispose of any of the assets of the Acquired Fund
acquired in the Reorganization, except for dispositions made in the ordinary
course of business.
Tenth, there is and will be no intercorporate indebtedness
between any Acquiring Fund and its corresponding Acquired Fund that was
issued, acquired or will be settled at a discount.
Eleventh, no Acquiring Fund owns or will own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any stock of the corresponding Acquired Fund.
Twelfth, no Acquired Fund is or will be under the jurisdiction
of a court in a case under Title 11 of the United States Code or a
receivership, foreclosure or similar proceeding in any Federal or State court.
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 5
Thirteenth, the liabilities of each Acquired Fund that will be
assumed by the corresponding Acquiring Fund and the liabilities, if any, to
which the transferred assets will be subject were incurred by the Acquired
Fund in the ordinary course of its business.
Fourteenth, the Reorganization will be accomplished for the
purposes set forth in the Combined Proxy Statement/Prospectus (the "Proxy
Statement"), a draft of which is part of the Registration Statement (the
"Registration Statement") being filed this day with the SEC.
Fifteenth, the Agreement substantially in the form included as
an exhibit in the Proxy Statement will be duly authorized by the parties and
approved by the shareholders of each Acquired Fund, and the appropriate
documents will be filed with the appropriate government agencies.
Conclusions
Based upon the Code, applicable Treasury Department regulations
in effect as of the date hereof, current published administrative positions of
the Internal Revenue Service contained in revenue rulings and procedures, and
judicial decisions, and upon the information, representations and assumptions
contained herein and in the documents provided to us by you (including the
Proxy Statement and the Agreement), it is our opinion for Federal income tax
purposes that:
(i) the transfer by each Acquired Fund of all of its assets and
liabilities to the corresponding Acquiring Fund in exchange for shares of the
corresponding Acquiring Fund, and the distribution of said shares to the
shareholders of the Acquired Fund, as provided in the Agreement, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
368(a)(1)(D) or section 368(a)(1)(F) of the Code and each of the Acquiring
Funds and the Acquired Funds will be "a party to the reorganization" within
the meaning of section 368(b) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a)
of the Code, no gain or loss will be recognized by any Acquired Fund as a
result of the Reorganization;
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 6
(iii) in accordance with section 1032(a) of the Code, no gain
or loss will be recognized by any Acquiring Fund as a result of the
Reorganization;
(iv) in accordance with section 354(a)(1) of the Code, no gain
or loss will be recognized by the shareholders of any Acquired Fund on the
distribution to them by the Acquired Fund of shares of the corresponding
Acquiring Fund in exchange for their shares of the Acquired Fund;
(v) in accordance with section 358(a)(1) of the Code, the
aggregate basis of the Acquiring Fund shares received by each shareholder of
an Acquired Fund will be the same as the aggregate basis of the shareholder's
Acquired Fund shares exchanged therefor in the Reorganization;
(vi) in accordance with section 362(b) of the Code, the basis
of the assets received by each Acquiring Fund in the Reorganization will be
the same as the basis of such assets in the hands of the corresponding
Acquired Fund immediately before the Reorganization;
(vii) in accordance with section 1223(1) of the Code, a
shareholder's holding period for Acquiring Fund shares will be determined by
including the period for which the shareholder held the shares of the Acquired
Fund exchanged therefor, provided that the shareholder held such shares of the
Acquired Fund as a capital asset;
(viii) in accordance with section 1223(2) of the Code, the
holding period of each Acquiring Fund with respect to the assets acquired in
the Reorganization will include the period for which such assets were held by
the corresponding Acquired Fund; and
(ix) in accordance with section 381(a) of the Code, each
Acquiring Fund will succeed to the tax attributes of the corresponding
Acquired Fund described in section 381(c) of the Code.
We express no opinion relating to any Federal income tax matter
except on the basis of the documents and assumptions described above. In
issuing our opinion, we have relied solely upon existing provisions of the
Code, existing and proposed
<PAGE>
The Woodward Funds
Prairie Institutional Funds
May 1, 1996
Page 7
regulations thereunder, and current administrative positions and judicial
decisions. Such laws, regulations, administrative positions and judicial
decisions are subject to change at any time. Any such change could affect the
validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to our firm under the
caption "Information Relating to the Proposed Reorganization -- Federal Income
Tax Consequences" in the Proxy Statement. This does not constitute a consent
under section 7 of the Securities Act of 1933, and in consenting to such
references to our firm we have not certified any part of the Registration
Statement and do not otherwise come within the categories of persons whose
consent is required under section 7 or under the rules and regulations of the
SEC issued thereunder.
Very truly yours,
/s/ DRINKER BIDDLE & REATH
DRINKER BIDDLE & REATH
Exhibit (13)(a)
CO-ADMINISTRATION AGREEMENT
AGREEMENT dated as of _________, 1996 by and among THE WOODWARD
FUNDS, a Massachusetts business trust (the "Trust"), NBD BANK ("NBD"), a
national banking association, and FIRST CHICAGO INVESTMENT MANAGEMENT COMPANY
("FCIMCO"), a registered investment adviser, and BISYS LIMITED PARTNERSHIP,
d/b/a, BISYS FUND SERVICES (each an "Administrator" and collectively, the
"Administrators").
WHEREAS, the Trust is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain the Administrators to
provide, as co-administrators, certain administration services for the
investment portfolios of the Trust set forth on Schedule 1 hereto (each a
"Fund" and collectively the "Funds") and the Administrators are willing to
furnish such administration services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and intending to be legally bound, it is agreed
between the parties hereto as follows:
1. Appointment of Administrators. The Trust hereby appoints
each of the Administrators jointly to provide administration services for the
Funds on the terms and for the period set forth in this Agreement. The
Administrators each accept such respective appointments and agree to perform
the services and duties set forth in Section 3 below in return for the
compensation provided in Section 5 below.
2. Delivery of Documents. The Trust has furnished each of the
Administrators with copies, properly certified or authenticated, of each of
the following documents and will deliver to each Administrator all future
amendments and supplements, if any:
a. The Trust's Amended and Restated Declaration of Trust, as
filed with the Secretary of the Commonwealth of Massachusetts on May 1, 1992,
as amended (the "Declaration of Trust");
b. The Trust's By-Laws, as amended ("Bylaws");
<PAGE>
c. Resolutions of the Trust's Board of Trustees ("Board of
Trustees") authorizing the execution and delivery of this Agreement;
d. The Trust's most recent amendment to its registration
statement under the Securities Act of 1933, as amended, and under the 1940 Act
on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") and supplements thereto, (such amendment as presently in effect
and as amended or supplemented from time to time, is herein called the
"Registration Statement"); and
e. The Trust's most recent prospectus(es) and statement(s)
of additional information and all amendments and supplements thereto (such
prospectus(es) and statement(s) of additional information and supplements
thereto, as presently in effect and as from time to time amended and
supplemented, are herein called the "Prospectus(es)" and the "Statement(s) of
Additional Information", respectively).
3. Services and Duties. The Administrators enter into the
following covenants jointly and severally with respect to their administration
and duties:
a. Subject to the supervision and control of the Trust's
Board of Trustees, the Administrators shall assist in supervising all aspects
of the Funds' operations, other than those investment advisory functions which
are to be performed by the Trust's investment advisers pursuant to the
Co-Advisory Agreement, those services to be performed by the custodian
pursuant to the Trust's Custodian Agreement, those services to be performed by
the distributor pursuant to the Trust's Distribution Agreement and those
services to be performed by the transfer agent pursuant to the Trust's
Transfer Agency and Services Agreement. In this regard, the Administrators'
responsibilities include:
(1) Assisting in maintaining office facilities (which may
be in the offices of any of the Administrators or a corporate
affiliate but shall be in such location as the Trust shall reasonably
determine);
(2) Furnishing clerical services and stationary and
office supplies;
(3) Providing for the preparing, supervising and mailing
of confirmations for all purchase and redemption orders to
shareholders of record;
(4) Providing and supervising the operation of an
automated data processing system to process purchase and redemption
orders (the Administrators assume
-2-
<PAGE>
responsibility for the accuracy of the data transmitted for
processing or storage);
(5) Maintaining a procedure external to the transfer
agent's system to reconstruct lost purchase and redemption data; and
(6) monitoring the Trust's arrangements with respect to
services provided by certain institutional shareholders ("Shareholder
Servicing Agents") to their customers who own Fund shares pursuant to
agreements between the Trusts and such Shareholder Servicing Agents
(the "Servicing Agreements"), including, among other things, reviewing
the qualifications of Shareholder Servicing Agents wishing to enter
into Servicing Agreements with the Trust, assisting in the execution
and delivery of Servicing Agreements, reporting to the Boards of
Trustees with respect to the amounts paid or payable by the Funds from
time to time under the Servicing Agreements and the nature of the
services provided by Shareholder Servicing Agents, and maintaining
appropriate records in connection with its monitoring duties;
(7) Providing information and distributing written
communications concerning the Funds to their shareholders of record;
handling shareholder problems and calls;
(8) performing all administrative functions for the Trust
and the Funds not otherwise assigned to another person by contract or
otherwise and generally assist in the operations of the Trust and the
Funds.
b. The Administrators shall prepare or review all sales
literature (advertisements, brochures and shareholder communications) for the
Funds.
c. The Administrators shall participate to the extent
requested by the Trust and its counsel in the periodic updating of the Trust's
Registration Statement; compile data and accumulate information for and
prepare (i) reports to shareholders of record and the Commission (e.g., Annual
and Semi-Annual Reports on Form N-SAR) and (ii) notices pursuant to Rule 24f-2;
and timely file with the Commission and other federal and state agencies,
reports and documents including, without limitation, Annual and Semi-Annual
Reports on Form N-SAR, notices pursuant to Rule 24f-2 and federal and state
tax returns and required tax filings other than those required to be filed by
the Trust's custodian or transfer agent.
d. The Administrators, after consultation with the
distributor and counsel for the Trust, shall determine the
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<PAGE>
jurisdictions in which the Trust's shares shall be registered or qualified for
sale. The Administrators shall be responsible registering or qualifying shares
for sale under the securities laws of any state, maintaining such
registrations or qualifications, and for preparing compliance filings pursuant
to state securities laws with the advice of the Trust's counsel. Payment of
share registration fees and any fees for qualifying or continuing the
qualification of the Trust or the Funds as a dealer or broker shall be made by
the Trust or the Funds.
e. The Administrators shall monitor, and assist in
developing compliance procedures for the Funds, which will include without
limitation, procedures to monitor compliance with the Funds' investment
objectives, policies and limitations, tax matters, and applicable laws and
regulations.
f. The Administrators shall assist in monitoring the
regulatory and legislative developments which may affect the Trust; assist in
counseling the Trust with respect to regulatory examinations or investigations
of the Trust; and work with the Trust's counsel in connection with regulatory
matters or litigation.
g. The Administrators agree to maintain all financial
accounts, records, journals, ledgers and schedules for the Trust (other than
those maintained by the Trust's custodian and its transfer agent), and to
install and maintain a system of internal controls appropriate for entities of
the size and complexity of the Trust, and to provide reports, financial
statements and other statistical data as requested from time to time by the
Trust. In addition, the Administrators shall compute the Trust's net asset
value, net income and net capital gain (loss) in accordance with the Trust's
Prospectus and resolutions of its Board of Trustees. The Administrators shall
act as liaison with the Trust's independent public accountants and shall
provide account analyses, fiscal year summaries and other audit related
schedules. The Administrators shall take all reasonable action in the
performance of their obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion, as such may be required by the Trust from time to time.
h. The Administrators shall monitor each Fund's expenses and
shall pay all expenses on proper authorization from each Fund.
i. The Administrators shall monitor each Fund's compliance
with Subchapter M of the Internal Revenue Code of 1986, as amended from time
to time and its status as a regulated investment company thereunder.
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<PAGE>
j. The Administrators shall maintain each Fund's fidelity
bond as required by the 1940 Act.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrators agree that all records which they maintain for
the Trust are the property of the Trust and further agree to surrender
promptly to the Trust any of such records upon the Trust's request. The
Administrators agree to maintain a back-up set of accounts and records of the
Trust (which back-up shall be updated on at least a weekly basis) at a
location other than that where the original accounts and records are stored.
The Administrators shall assist the Trust, the Trust's independent auditors,
or, upon approval of the Trust, any regulatory body, in any requested review
of the Trust's accounts and records, and reports by the Administrators or
their independent accountants concerning their accounting system and internal
auditing controls will be open to such entities for audit or inspection upon
reasonable request. There shall be no additional fee for these services. The
Administrators further agree to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
If the expenses borne by any Fund in any fiscal year exceed the
applicable expense limitations imposed by the securities regulations of any
state in which the Fund's shares are registered or qualified for sale to the
public, the Administrators agree to reimburse such Fund for a portion of any
such excess expense in an amount equal to the portion that the administration
fees otherwise payable by the Fund to the Administrators bear to the total
amount of the investment advisory and administration fees otherwise payable by
the Fund. The expense reimbursement obligation of the Administrators is
limited to the amount of their fees hereunder for such fiscal year, provided,
however, that notwithstanding the foregoing, the Administrators shall
reimburse such Fund for a portion of any such excess expenses in an amount
equal to the proportion that the fees otherwise payable to the Administrators
bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Administrators during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Fund so require. Such
expense reimbursement, if any, will be estimated, reconciled and paid on a
monthly basis.
In performing all of their services and duties as co-
administrators, the Administrators will act in conformity with the Declaration
of Trust, Bylaws, Prospectuses and resolutions and other instructions of the
Trust's Board of Trustees and will comply with the requirements of the 1940
Act and other applicable federal or state laws.
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<PAGE>
4. Services Not Exclusive. The services rendered by
the Administrators hereunder are not to be deemed exclusive, and
the Administrators shall be free to render similar services to
others so long as their services under this Agreement are not
impaired thereby.
5. Expenses Assumed as Administrators. The Administrators will
bear all expenses incurred by them in performing their services and duties as
co-administrators, except as otherwise expressly provided herein. Other
expenses to be incurred in the operation of the Funds, including taxes,
interest, brokerage fees and commissions, if any, salaries and fees of
officers and trustees who are not officers, directors, shareholders, or
employees of the Administrators, or the Trust's investment advisers or
distributor for the Funds, Commission fees and state blue sky qualification
fees, advisory, fund accounting and administration fees, charges of custodians
and transfer agents, certain insurance premiums, outside auditing and legal
expenses, costs of maintaining corporate existence, typesetting and printing
of Prospectuses for regulatory purposes and for distribution to current
shareholders of the Fund, costs of shareholders' reports and corporate
meetings, out-of-pocket expenses of obtaining price quotations from third
party pricing services, and any extraordinary expenses, will be borne by the
Trust.
6. Compensation.
In consideration of services rendered pursuant to
this Agreement, the Trust will pay to NBD and FCIMCO, as agent for the
Administrators, a fee, computed daily and payable monthly, at the annual rate
of 0.15% of the average daily net assets of each Fund. Net asset value shall
be computed in accordance with the Funds' Prospectuses and resolutions of the
Trust's Board of Trustees. The fee for the period from the day of the month
this Agreement is entered into until the end of that month shall be pro-rated
according to the proportion which such period bears to the full monthly
period. Upon any termination of this Agreement before the end of any month,
the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. Such fee as is
attributable to each Fund shall be a separate charge to such Fund and shall be
the several (and not joint or joint and several) obligation of each such Fund.
The Administrators may from time to time employ or
associate with themselves such person or persons as they may believe to be
fitted to assist them in the performance of this Agreement ("Subcontractors").
The compensation of such Subcontractors shall be paid by the Administrators,
and no obligation shall be incurred on behalf of the Trust in such
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<PAGE>
respect. The Administrators shall provide oversight over any Subcontractor(s)
who shall in turn provide services pursuant to an agreement with the
Administrators. Any agreement entered into between the Administrators and a
Subcontractor shall acknowledge that the agreement is for the benefit of the
Trust, that the Subcontractor shall be directly liable and responsible to the
Trust for the performance of its obligations thereunder, and that the Trust
may therefore enforce its rights directly against the Subcontractor.
Notwithstanding such delegation, the Administrators shall continue to be
directly liable to the Trust for the performance of any subcontractor's
obligations under such agreement. In addition to employing Subcontractors, the
Administrators may compensate parties who provide shareholder services or
other services pursuant to contracts entered into directly between such
parties and the Trust.
7. Proprietary and Confidential Information. The Administrators
will treat confidentially and as proprietary information of the Trust all
records and other information relative to the Trust and prior or present
shareholders of the Funds or those persons or entities who respond to
inquiries of the Trust's principal underwriter concerning investment in the
Funds and will not use such records and information for any purpose other than
performance of their responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which approval shall not
be unreasonably withheld and may not be withheld where the Administrators may
be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
8. Limitations of Liability. No Administrator shall be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, Board member, partner, director, employee or agent of an
Administrator, who may be or become an officer, Board member, partner,
employee or agent of the Trust, shall be deemed, when rendering services to
the Trust or acting on any business of the Trust (other than services or
business in connection with the Administrators' duties as co-administrators
hereunder) to be rendering such services to or acting solely for the Trust and
not as an officer, Board member, partner, director, employee or agent or one
under the control or direction of the Administrators even though paid by
either of them. The Administrators agree that their liability under this
Agreement, as set forth herein, shall be joint and several.
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<PAGE>
Whenever, in the course of performing their duties under this
Agreement, the Administrators determine, on the basis of information supplied
to the Administrators by the Trust or its authorized agents, that a violation
of applicable law has occurred or that, to their knowledge, a possible
violation of applicable law may have occurred or, with the passage of time,
would occur, the Administrators shall promptly notify the Trust and its
counsel. Liability arising pursuant to this section shall survive termination
of this agreement.
9. Duration and Termination. Subject to shareholder approval of
the Agreement and Plan of Reorganization ("Reorganization Plan") by and among
the Trust, Prairie Funds, Prairie Intermediate Bond Fund and Prairie Municipal
Bond Fund, Inc. dated ________, 1996, this Agreement shall become effective as
to each Fund upon the first reorganization involving the Trust and one or more
of the Prairie funds as described in the Reorganization Agreement. Unless
sooner terminated as provided herein, this Agreement shall continue until
___________, 199_ ("Initial Term"). Thereafter, if not terminated, this
Agreement shall continue automatically as to the Funds for successive terms of
one year (each a "Renewal Term"), provided such continuance is specifically
approved at least annually (i) by the Trust's Board of Trustees or (ii) by a
vote of a majority of the outstanding voting securities of the Funds, and
provided further that in either event such continuance is also approved by a
majority of the Trust's trustees who are not "interested persons" of any party
to this Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval. (As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested person" and "assignment" shall
have the same meaning as such terms have in the 1940 Act.) On or after the
Initial Term, either party hereto may terminate this Agreement by sixty (60)
days prior written notice to the other party hereto.
The Trust shall have the right to terminate this Agreement
during the Initial Term or any Renewal Term upon forty-five (45) days written
notice if the Administrators materially breach this Agreement. A material
breach means the failure to perform the terms of this Agreement, whether in
one act or omission or a series of acts or omissions, whether or not related,
which (i) results or reasonably could be expected to result in loss or damage,
including expenses, to the Funds exceeding $50,000 in the aggregate, (ii)
results in the institution of civil or criminal proceedings by the Commission
or other regulator, other than a regular audit or examination, (iii)
constitutes gross negligence, bad faith or willful misconduct, (iv)
constitutes a violation of any law, rule or regulation applicable to the
Funds, or the Administrators or any of their affiliates as to which the
Administrators were required to comply under the terms of the Agreement where
the consequences of such
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<PAGE>
violation could reasonably be expected to result in the institution of civil
or criminal proceedings by the Commission or other governmental authorities
against the Funds, or (v) evidences a quantifiable and material decline in the
overall quality of services, provided that the Administrators shall have the
right to cure the breach set forth in this clause (v) within thirty (30) days
after a written notice setting forth in detail the nature of the breach, has
been delivered to the Administrators; provided the Administrators shall have
the right to cure a breach set forth in this clause (v) if and only if no more
than two other quantifiable and material breaches under this clause (v) have
occurred within the twelve (12) months prior to the delivery of such notice of
the breach of this clause.
In the event of the termination of this Agreement, the
Administrators shall use their best efforts to assist in the transfer of their
responsibilities hereunder to any successor administrator and the
Administrators without additional compensation (it being understood that they
would be reimbursed for their reasonable out-of-pocket expenses) shall remain
responsible, which responsibility shall survive termination of this Agreement,
for all regulatory filings, tax returns and other reports which relate to
periods which concluded prior to the termination.
10. Amendment of this Agreement. No provision of this Agreement
may be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought. If a change or discharge is sought against the
Trust, the instrument must be signed by all three (3) Administrators.
11. Assignment. This Agreement will automatically and
immediately terminate in the event of its "assignment." As used in this
Agreement, the term "assignment" shall have the same meaning as such term has
in the 1940 Act.
12. Notices. All notices and other communications hereunder
shall be in writing, shall be deemed to have been given when received or when
sent by telex or facsimile, and shall be given to the following addresses (or
such other addresses as to which notice is given):
To the Administrators:
NBD Bank
611 Woodward Avenue
Detroit, Michigan
First Chicago Investment Management Company
Three First National Plaza
Chicago, Illinois 60670
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<PAGE>
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
To the Fund:
The Woodward Funds
c/o W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
13. Governing Law.
This Agreement shall be construed in accordance with the laws
of the State of Michigan, without reference to principles of conflicts of law,
and with the applicable provisions of the Investment Company Act. To the
extent the applicable law of the State of Michigan or any of the provisions
herein conflict with the applicable provisions of the 1940 Act, the latter
shall control.
14. Miscellaneous.
a. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
b. The names "The Woodward Funds" and "Trustees of The
Woodward Funds" refer, respectively, to the Trust created and the trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated April 21, 1987, as amended on May 1, 1992, which is
hereby referred to and a copy of which is on file at the office of the
Secretary of State of the Commonwealth of Massachusetts and at the principal
office of the Trust. The obligations of the Trust entered into in the name or
on behalf thereof by any of the trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of the
trustees, shareholders or representatives of the Trust personally, but bind
only the Trust property, and all persons dealing with any series of shares in
the Trust must look solely to the Trust property
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<PAGE>
belonging to such series for the enforcement of any claims against the Trust.
15. Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE WOODWARD FUNDS
By:_________________________
NBD BANK
By:_________________________
FIRST CHICAGO INVESTMENT MANAGEMENT COMPANY
By:_________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc., general partner
By:_____________________
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<PAGE>
SCHEDULE 1
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
MICHIGAN MUNICIPAL MONEY MARKET FUND
CASH MANAGEMENT FUND
U.S. GOVERNMENT SECURITIES CASH MANAGEMENT FUND
TREASURY PRIME CASH MANAGEMENT FUND
GROWTH FUND
INTERNATIONAL EQUITY FUND
EQUITY INDEX FUND
GROWTH AND VALUE FUND
INTRINSIC VALUE FUND
MID CAP OPPORTUNITY FUND
EQUITY INCOME FUND
SMALL CAP OPPORTUNITY FUND
BOND FUND
SHORT BOND FUND
MICHIGAN MUNICIPAL BOND FUND
INTERMEDIATE MUNICIPAL BOND FUND
MUNICIPAL BOND FUND
INCOME FUND
INTERMEDIATE BOND FUND
INTERNATIONAL BOND FUND
MANAGED ASSETS BALANCED FUND
MANAGED ASSETS CONSERVATIVE FUND
MANAGED ASSETS GROWTH FUND
INTERNATIONAL MAJOR MARKETS FUND
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Exhibit (13)(b)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this ____ day of __________, 1996 between
The Woodward Funds (the "Fund"), a Massachusetts business trust having its
principal place of business at ___________________________ and FIRST DATA
INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation with
principal offices at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund initially intends to offer shares in those
Portfolios identified in the attached Exhibit 1, each such Portfolio, together
with all other Portfolios subsequently established by the Fund shall be
subject to this Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
FDISG as its transfer agent, dividend disbursing agent and agent in connection
with certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar or
organizational document as the case may be, of the Fund as the same
may be amended from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not
such person is an officer or employee of the Fund, duly authorized to
give Oral Instructions or Written Instructions on behalf of the Fund
as indicated in writing to FDISG from time to time.
<PAGE>
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(i) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interest in a portfolio of securities
and other assets;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(l) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized
Person and actually received by FDISG. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
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<PAGE>
Article 2 Appointment of FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the
Fund and FDISG hereby accepts such appointments and agrees to perform the
duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the
Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time
between FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. FDISG shall
provide the Fund on a regular basis with the total number of Shares of
each Portfolio which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions shall be
the sole responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received
therefor; (ii) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality
of the issuance of any Shares in payment of any dividend; or (iv) the
legality of any recapitalization or readjustment of the Shares.
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<PAGE>
3.2 In addition, the Fund shall (i) identify to FDISG in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each
State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of FDISG for the Fund's blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as
may from time to time be agreed upon in writing between the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule A in accordance
with all applicable laws, rules and regulations, including records required by
Section 31(a) of the 1940 Act. Where applicable, such records shall be
maintained by FDISG for the periods and in the places required by Rule 31a-2
under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG
agrees that all such records prepared or maintained by FDISG relating to the
services to be performed by FDISG hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance with such
section, and will be surrendered promptly to the Fund on and in accordance
with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of
such request and secure Written Instructions as to the handling of such
request. FDISG reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from
the Fund. FDISG will also have no liability when processing Share certificates
which it reasonably believes to bear the proper manual or facsimile
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<PAGE>
signatures of the officers of the Fund and the proper countersignature of
FDISG.
5.2 At any time, FDISG may request Written Instructions from the
Fund and may seek advice from legal counsel for the Fund, or its own legal
counsel, with respect to any matter arising in connection with this Agreement,
and it shall not be liable for any action taken or not taken or suffered by it
in good faith in accordance with such Written Instructions or in accordance
with the opinion of counsel for the Fund or for FDISG. Written Instructions
requested by FDISG will be provided by the Fund within a reasonable period of
time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing
or acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within
one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect FDISG's right to rely on
Oral Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate
FDISG for the performance of its obligations hereunder in accordance with the
fees set forth in the written Fee Schedule annexed hereto as Schedule B and
incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the
Fund on behalf of each of the Portfolios agrees to pay, and will be billed
separately for, out-of-pocket expenses incurred by FDISG in the performance of
its duties hereunder. Out-of-pocket expenses shall include, but shall not be
limited to, items specified in the written schedule of out-of-pocket charges
annexed hereto as Schedule C and incorporated herein. Schedule C may be
modified by written agreement between the parties. Unspecified out-of-pocket
expenses shall be limited to those out-of-pocket expenses reasonably incurred
by FDISG in the performance of its obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all
fees and out-of-pocket expenses within fifteen (15) days following the receipt
of the respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule B, a revised Fee Schedule executed and dated
by the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in
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<PAGE>
Section 9.3 and the limitations on liability and exclusion of remedies in
Section 11.2 and Article 12. Modifying the allocation of risk from what is
stated here would affect the fees that FDISG charges, and in consideration of
those fees, the Fund agrees to the stated allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case with a
reasonable period of time for FDISG to prepare to perform its duties
hereunder, deliver or caused to be delivered to FDISG the documents set forth
in the written schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade
secrets, and other related legal rights utilized by FDISG in connection with
the services provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately
terminate with the termination of this Agreement.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and
perform this Agreement;
(c) all requisite corporate proceedings have been
taken to authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
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<PAGE>
(e) it has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good
standing under the laws of the jurisdiction in which it is
organized;
(b) it is empowered under applicable laws and by its
Article of Incorporation and By-Laws to enter into this
Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to
authorize it to enter into this Agreement;
(d) a registration statement under the Securities Act of
1933, as amended, and the 1940 Act on behalf of each of the Portfolios
is currently effective and will remain effective, and all appropriate
state securities law filings have been made, and will continue to be
made, with respect to all Shares of the Fund being offered for sale;
and
(e) all outstanding Shares are validly issued, fully paid
and non-assessable and when Shares are hereafter issued in accordance
with the terms of the Fund's Articles of Incorporation and its
Prospectus with respect to each Portfolio, such Shares shall be
validly issued, fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN
THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF
DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED
INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY
WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund on behalf of
each Portfolio shall indemnify and hold FDISG harmless from and against any
and all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind which
may be asserted against FDISG or for which FDISG may be held to be liable (a
"Claim") arising out of or attributable to any of the following:
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(a) any actions of FDISG required to be taken pursuant to this
Agreement unless such Claim resulted from a negligent act or omission
to act or bad faith by FDISG in the performance of its duties
hereunder;
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited to the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to
the offer or sale of such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify the Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against the Fund although the failure to do so shall not
prevent recovery by FDISG and shall keep the Fund advised with respect to all
developments concerning such situation. The Fund shall have the option to
defend FDISG against any Claim which may be the subject of this
indemnification, and, in the event that the Fund so elects, such defense shall
be conducted by the Fund and satisfactory to FDISG, and thereupon the Fund
shall take over complete defense of the Claim and FDISG shall sustain no
further legal or other expenses in respect of such Claim. FDISG will not
confess any Claim or make any compromise in any case in which the Fund will be
asked to provide indemnification, except with the Fund's prior written
consent. The obligations of the parties hereto under this Article 10 shall
survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
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<PAGE>
(a) one year after the Fund becomes aware of the event for
which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law
(and injunctive or provisional relief), the provisions of this Article 10
shall be FDISG's sole and exclusive remedy for claims or other actions or
proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of
all services performed under this Agreement, but assumes no responsibility for
loss or damage to the Fund unless said errors are caused by FDISG's own
negligence, bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding any provision in this Agreement to the contrary,
FDISG's cumulative liability (to the fund) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever (including but
not limited to those arising out of or related to this Agreement) and
regardless of the form of action or legal theory shall not exceed the lesser
of (i) $500,000 or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage. Fund understands the limitation on FDISG's damages to be a
reasonable allocation of risk and Fund expressly consents with respect to such
allocation of risk. In allocating risk under the Agreement, the parties agree
that the damage limitation set forth above shall apply to any alternative
remedy ordered by a court in the event such court determines that sole and
exclusive remedy provided for in the Agreement fails of its essential purpose.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR
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<PAGE>
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY
THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY
FOR LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER
PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written
above and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Fund or FDISG provides written notice to the other of its
intent not to renew. Such notice must be received not less than ninety (90)
days and not more than one-hundred eighty (180) days prior to the expiration
of the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting
Party, and if such material breach shall not have been remedied within thirty
(30) days after such written notice is given, then the Non-Defaulting Party
may terminate this Agreement by giving thirty (30) days written notice of such
termination to the Defaulting Party. If FDISG is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other
rights or remedies of FDISG with respect to services performed prior to such
termination or rights of FDISG to be reimbursed for out-of-pocket expenses. In
all cases, termination by the Non-Defaulting Party shall not constitute a
waiver by the Non-Defaulting Party of any other rights it might have under
this Agreement or otherwise against the Defaulting Party.
Article 14 Additional Portfolios.
In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have FDISG render services as transfer agent under the terms
hereof, the Fund shall so notify FDISG in writing, and if FDISG agrees in
writing to
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<PAGE>
provide such services, Exhibit 1 shall be amended to include such additional
Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensors. The Fund and FDISG shall exercise at least the same degree of care,
but not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and FDISG may use the
Confidential Information only to exercise its rights under this Agreement. The
Fund and FDISG shall not duplicate, sell or disclose to others the
Confidential Information of the other, in whole or in part, without the prior
written permission of the other party. The Fund and FDISG may, however,
disclose Confidential Information to its employees who have a need to know the
Confidential Information to perform work for the other, provided that each
shall use reasonable efforts to ensure that the Confidential Information is
not duplicated or disclosed by its employees in breach of this Agreement. The
Fund and FDISG may also disclose the Confidential Information to independent
contractors, auditors, and professional advisors, provided they first agree in
writing to be bound by the confidentiality obligations substantially similar
to this Section 15.1. Notwithstanding the previous sentence, in no event shall
either the Fund or FDISG disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating
to the past, present or future business activities of the Fund or
FDISG, their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or FDISG
a competitive advantage over its competitors; and
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<PAGE>
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes
and models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance
of its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by (i) fire, flood, elements of
nature or other acts of God; (ii) any outbreak or escalation of hostilities,
war, riots or civil disorders in any country, (iii) any act or omission of the
other party or any governmental authority; (iv) any labor disputes (whether or
not the employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause beyond
the reasonable control of such party, including without limitation, failures
or fluctuations in telecommunications or other equipment. In any such event,
the nonconforming party shall be excused from any further performance and
observance of the obligations so affected only for as long as such
circumstances prevail and such party continues to use commercially reasonable
efforts to recommence performance or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
FDISG may, in its sole discretion, assign all its right, title and interest in
this Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement
to be performed by FDISG.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to
this Agreement, or breach hereof, shall be settled by arbitration
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<PAGE>
administered by the American Arbitration Association in Boston, Massachusetts
in accordance with its applicable rules, except that the Federal Rules of
Evidence and the Federal Rules of Civil Procedure with respect to the
discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law
provisions in this Agreement, the parties agree that the Federal Arbitration
Act shall govern and control with respect to the provisions of this Article
18.
Article 19 Notice.
Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or FDISG, shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Attention:__________________
To FDISG:
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: President
with a copy to FDISG's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement
of this agreement. All actions arising from or related to this Agreement shall
be brought in the state and federal courts sitting in the City of Boston, and
FDISG and Client hereby submit themselves to the exclusive jurisdiction of
those courts.
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<PAGE>
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this
Agreement or to the transactions contemplated by it without the prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult
in advance with the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
FDISG's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with respect to
the subject matter hereof and supersedes all prior and contemporaneous
proposals, agreements, contracts, representations, and understandings, whether
written or oral, between the parties with respect to the subject matter
hereof. No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by each
party. No such writing shall be effective as against FDISG unless said writing
is executed by a Senior Vice President, Executive Vice President, or President
of FDISG. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
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<PAGE>
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such
case, the parties shall in good faith modify or substitute such provision
consistent with the original intent of the parties. Without limiting the
generality of this paragraph, if a court determines that any remedy stated in
this Agreement has failed of its essential purpose, then all other provisions
of this Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, as of the day and year first
above written.
THE WOODWARD FUNDS
By:___________________________
Title:________________________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:___________________________
Title:________________________
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Exhibit 1
<PAGE>
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification and which shall indicate whether such Shares
are held in certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder
accounts with respect to its duties hereunder and as may be from time to time
mutually agreed upon between FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG
with an adequate supply of blank share certificates to meet FDISG requirements
therefor. Such Share certificates shall be properly signed by facsimile. The
Fund agrees that, notwithstanding the death, resignation, or removal of any
officer of the Fund whose signature appears on such certificates, FDISG or its
agent may continue to countersign certificates which bear such signatures
until otherwise directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG
of properly executed affidavits and lost certificate bonds, in form
satisfactory to FDISG, with the Fund and FDISG as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate
issued, the number of Shares represented thereby and the Shareholder of
record. With respect to Shares held in open accounts or uncertificated form
(i.e., no certificate being issued with respect thereto) FDISG shall maintain
comparable records of the Shareholders thereof, including their names,
addresses and taxpayer identification. FDISG shall further maintain a stop
transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG
will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
FDISG will prepare Shareholder lists, mail and certify as to the mailing of
proxy materials, process and tabulate returned proxy cards, report on proxies
voted prior to meetings, act as
<PAGE>
inspector of election at meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) FDISG shall not be required to issue any Shares of the Fund
where it has received a Written Instruction from the Fund or official notice
from any appropriate authority that the sale of the Shares of the Fund has
been suspended or discontinued. The existence of such Written Instructions or
such official notice shall be conclusive evidence of the right of FDISG to
rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, FDISG will endeavor to: (i) give
prompt notice of such return to the Fund or its designee; (ii) place a stop
transfer order against all Shares issued as a result of such check or order;
and (iii) take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Purchase
(a) FDISG shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the Fund's Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of
Oral or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption,
accompanied by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. FDISG also reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the requested
transfer or repurchase is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or repurchases which FDISG,
in its good judgement, deems improper or unauthorized, or until it is
reasonably satisfied that there is no basis to any claims adverse to such
transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the
Fund or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate
accounts maintained by FDISG reflecting outstanding Shares of the Fund and
Shares attributed to individual accounts.
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<PAGE>
(e) FDISG, upon receipt of the monies paid to it by the
Custodian for the repurchase of Shares, pay such monies as are received from
the Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Fund after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Fund with respect to
Shares of the Fund, the Fund shall furnish or cause to be furnished to FDISG
Written Instructions setting forth the date of the declaration of such
dividend or distribution, the ex-dividend date, the date of payment thereof,
the record date as of which Shareholders entitled to payment shall be
determined, the amount payable per Share to the Shareholders of record as of
that date, the total amount payable on the payment date, and whether such
dividend or distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Fund will pay to FDISG sufficient cash to make
payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to
make total dividend and/or distribution payments to all Shareholders of the
Fund as of the record date, FDISG will, upon notifying the Fund, withhold
payment to all Shareholders of record as of the record date until sufficient
cash is provided to FDISG.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services
of a transfer agent, registrar, dividend disbursing agent and agent of the
dividend reinvestment and cash purchase plan as described herein consistent
with those requirements in effect as at the date of this Agreement. The
detailed definition, frequency, limitations and associated costs (if any) set
out in the attached fee schedule, include but are not limited to: maintaining
all Shareholder accounts, preparing Shareholder meeting lists, mailing
proxies, tabulating proxies, mailing Shareholder reports to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts where applicable, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to
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<PAGE>
dividends and distributions by federal authorities for all Shareholders.
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<PAGE>
Schedule B
Fee Schedule
<PAGE>
Schedule C
OUT-Of-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort, ZIP+ 4, barcoding, first
class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all
lease, maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection with
such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs,
including, but not limited to exit fees charged by
third party record keeping vendors
- Third party audit reviews
- Ad hoc SQL time
- All Systems enhancements after the conversion at the
rate of $100.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred
by FDISG in performing its duties and responsibilities
under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Fund will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Fund and FDISG mutually agree that such expense are not otherwise
properly borne by FDISG as part of its duties and obligations under the
Agreement.
<PAGE>
Schedule D
Fund Documents
- Certified copy of the Articles of Incorporation of the
Fund, as amended;
- Certified copy of the By-laws of the Fund, as amended;
- Copy of the resolution of the Board of Directors
authorizing the execution and delivery of this
Agreement;
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as to
such approval;
- All account application forms and other documents
relating to Shareholder accounts or to any plan,
program or service offered by the Fund;
- Certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of the Shareholder,
and the number of Shares of the Fund held by each, certificate
numbers and denominations (if any certificates have been
issued), lists of any accounts against which stop transfer
orders have been placed, together with the reasons therefore,
and the number of Shares redeemed by the Fund; and
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation
or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
Exhibit (14)(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Statements" in the Combined Proxy Statement/Prospectus and to the
incorporation by reference of our report on the financial statements of the
Prairie Funds, Prairie Municipal Bond Fund, Inc. and Prairie Intermediate Bond
Fund dated February 23, 1996 in this Registration Statement (Form N-14) of The
Woodward Funds.
ERNST & YOUNG LLP
New York, New York
April 29, 1996
Exhibit (14)(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form N-14 of our reports dated
February 19, 1996 included in The Woodward Funds' Annual Reports to
Shareholders for the year ended December 31, 1995, and to all references to
our Firm included in this registration statement on Form N-14.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
April 29, 1996.
Exhibit (14)(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to
our Firm included in the Registration Statement on Form N-14 under the
Securities Act of 1933 and the Investment Company Act of 1940, respectively.
However, this action does not constitute a consent under Section 7 of the
Securities Act of 1933, because we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or under the rules and
regulations of the Securities and Exchange Commission thereunder.
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
April 29, 1996
Exhibit (17)(c)
As filed with the Securities and Exchange Commission on May 11, 1987
Registration No. 33-13990
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. __ [ ]
(Check appropriate box or boxes)
THE WOODWARD FUNDS
(Exact Name of Registrant as Specified in Charter)
100 Wall Street/27th Floor
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (313) 259-0729
Earl I. Heenan, Jr.
333 West Fort Street
Detroit, Michigan 48226
(Name and Address of Agent for Service)
Copies to:
John Martin, President George G. Martin, Esq.
First of Michigan Corporation Miller, Canfield, Paddock and Stone
100 Renaissance Center/26th Floor 2500 Comerica Building
Detroit, Michigan 48243 Detroit, Michigan 48226
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
===================================================================================================
Proposed
Maximum
Amount Offering Amount of
Being Price Per Registration
Title of Securities Being Registered Registered Unit Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series B Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series C Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series D Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series E Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series F Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
Series G Shares of beneficial interest ($.10 par value) Indefinite $1.00 *
<FN>
- ------------------------------------------------------------------------------
* Pursuant to the provisions of Rule 24f-2 under the Investment
Company Act of 1940, registrant hereby elects to register an indefinite number
of shares of beneficial interest of series class designation. The $500 filing
fee required by said Rule has been paid.
- ------------------------------------------------------------------------------
<PAGE>
The registrant hereby amends this registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that his Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
As filed with the Securities and Exchange Commission on April 15, 1996
Registration No. 33-13990/811-5148
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 30
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 30
THE WOODWARD FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o NBD Bank
900 Tower Drive
P.O. Box 7058
Troy, Michigan 48007-7058
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(313) 259-0729
W. Bruce McConnel, III
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on April 15, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
Registrant has previously registered an indefinite number of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for
the fiscal year ended December 31, 1995 was filed on February 27, 1996.
</TABLE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
MONEY MARKET FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Money
Market Fund (the "Fund"), held of record by the undersigned on April 11, 1996,
the record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's Money
Market Fund (the "Reorganizing
Portfolio") to Woodward's Money
Market Fund (the "Woodward Fund")
in exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies
are authorized to vote upon such
<PAGE>
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated:
X __________________________________
Signature
X __________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the U.S.
Government Money Market Fund (the "Fund"), held of record by the undersigned
on April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's U.S.
Government Money Market Fund (the
"Reorganizing Portfolio") to
Woodward's Treasury Money Market
Fund (the "Woodward Fund") in
exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: __________________________________
X _______________________________________
Signature
X _______________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Municipal Money Market Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Municipal Money Market Fund (the
"Reorganizing Portfolio") to
Woodward's Tax-Exempt Money Market
Fund (the "Woodward Fund") in
exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ______________________________
X ___________________________________
Signature
X ___________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
GROWTH FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Growth
Fund (the "Fund"), held of record by the undersigned on April 11, 1996, the
record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's Growth
Fund (the "Reorganizing Portfolio")
to Woodward's Capital Growth Fund
(the "Woodward Fund") in exchange
for Class A, Class B or Class I
Shares, as applicable, of the
Woodward Fund, the distribution of
the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies
are authorized to vote upon such
<PAGE>
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _________________________________
X ______________________________________
Signature
X ______________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Bond
Fund (the "Fund"), held of record by the undersigned on April 11, 1996, the
record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's Bond
Fund (the "Reorganizing Portfolio")
to Woodward's Bond Fund (the
"Woodward Fund") in exchange for
Class A, Class B or Class I Shares,
as applicable, of the Woodward
Fund, the distribution of the
Woodward Fund's shares so received
to shareholders of the Reorganizing
Portfolio according to their
respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies
are authorized to vote upon such
<PAGE>
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ______________________________________
X ___________________________________________
Signature
X ___________________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE MUNICIPAL BOND FUND, INC.
MUNICIPAL BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE MUNICIPAL
BOND FUND, INC. (the "Company") for use at a Meeting of Shareholders to be
held at the offices of BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
Ohio on June 25, 1996 at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Municipal Bond Fund (the "Fund"), held of record by the undersigned on April
11, 1996, the record date for the meeting, upon the following matters and upon
any other matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Municipal Bond Fund (the
"Reorganizing Portfolio") to
Woodward's Municipal Bond Fund (the
"Woodward Fund") in exchange for
Class A, Class B or Class I Shares,
as applicable, of the Woodward
Fund, the distribution of the
Woodward Fund's shares so received
to shareholders of the Reorganizing
Portfolio according to their
respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ___________________________________
X ________________________________________
Signature
X ________________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
MANAGED ASSETS FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Managed Assets Fund (the "Fund"), held of record by the undersigned on April
11, 1996, the record date for the meeting, upon the following matters and upon
any other matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Managed Assets Fund (the
"Reorganizing Portfolio") to
Woodward's Balanced Fund (the
"Woodward Fund") in exchange for
Class A, Class B or Class I Shares,
as applicable, of the Woodward
Fund, the distribution of the
Woodward Fund's shares so received
to shareholders of the Reorganizing
Portfolio according to their
respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _____________________________________
X __________________________________________
Signature
X __________________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
EQUITY INCOME FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the Equity
Income Fund (the "Fund"), held of record by the undersigned on April 11, 1996,
the record date for the meeting, upon the following matters and upon any other
matter which may come before the meeting, in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's Equity
Income Fund (the "Reorganizing
Portfolio") to Woodward's Equity
Income Fund (the "Woodward Fund")
in exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
2. In their discretion, the proxies
are authorized to vote upon such
<PAGE>
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _________________________________
X ______________________________________
Signature
X ______________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
International Equity Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
International Equity Fund (the
"Reorganizing Portfolio") to
Woodward's International Major
Markets Fund (the "Woodward Fund")
in exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _________________________________
X ______________________________________
Signature
X ______________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
International Bond Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
International Bond Fund (the
"Reorganizing Portfolio") to
Woodward's International Bond Fund
(the "Woodward Fund") in exchange
for Class A, Class B or Class I
Shares, as applicable, of the
Woodward Fund, the distribution of
the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ____________________________________
X _________________________________________
Signature
X _________________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Special Opportunities Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Special Opportunities Fund (the
"Reorganizing Portfolio") to
Woodward's Small Cap Opportunity
Fund (the "Woodward Fund") in
exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _________________________________
X ______________________________________
Signature
X ______________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Intermediate Municipal Bond Fund (the "Fund"), held of record by the
undersigned on April 11, 1996, the record date for the meeting, upon the
following matters and upon any other matter which may come before the meeting,
in their discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Intermediate Municipal Bond Fund
(the "Reorganizing Portfolio") to
Woodward's Intermediate Municipal
Bond Fund (the "Woodward Fund") in
exchange for Class A, Class B or
Class I Shares, as applicable, of
the Woodward Fund, the distribution
of the Woodward Fund's shares so
received to shareholders of the
Reorganizing Portfolio according to
their respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ___________________________________
X ________________________________________
Signature
X ________________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE INTERMEDIATE BOND FUND
INTERMEDIATE BOND FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE
INTERMEDIATE BOND FUND (the "Company") for use at a Meeting of Shareholders to
be held at the offices of BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus, Ohio on June 25, 1996 at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Intermediate Bond Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Intermediate Bond Fund (the
"Reorganizing Portfolio") to
Woodward's Income Fund (the
"Woodward Fund") in exchange for
Class A, Class B or Class I Shares,
as applicable, of the Woodward
Fund, the distribution of the
Woodward Fund's shares so received
to shareholders of the Reorganizing
Portfolio according to their
respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ________________________________
X _____________________________________
Signature
X _____________________________________
Signature, if held jointly
<PAGE>
EXHIBIT 17(d)
[PRELIMINARY COPY]
PROXY
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of PRAIRIE FUNDS (the
"Company") for use at a Meeting of Shareholders to be held at the offices of
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio on June 25, 1996
at ___ a.m./p.m. (Eastern time).
The undersigned hereby appoints _____________ and ____________, and
each of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest, evidencing interests in the
Managed Assets Income Fund (the "Fund"), held of record by the undersigned on
April 11, 1996, the record date for the meeting, upon the following matters
and upon any other matter which may come before the meeting, in their
discretion:
FOR AGAINST ABSTAIN
/ / / / / / 1. Proposal to approve an Agreement
and Plan of Reorganization and the
transactions contemplated thereby,
including the transfer of
substantially all of the assets and
liabilities of the Company's
Managed Assets Income Fund (the
"Reorganizing Portfolio") to
Woodward's Managed Assets
Conservative Fund (the "Woodward
Fund") in exchange for Class A,
Class B or Class I Shares, as
applicable, of the Woodward Fund,
the distribution of the Woodward
Fund's shares so received to
shareholders of the Reorganizing
Portfolio according to their
respective interests, and the
termination of the Company's
existence under state law and the
Investment Company Act of 1940, as
amended.
<PAGE>
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: _________________________________
X ______________________________________
Signature
X ______________________________________
Signature, if held jointly
Exhibit (17)(e)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following five investment portfolios (the "Portfolios"), each having
its own investment objective and policies as described in this Prospectus:
Class A shares of the:
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge by writing to The Woodward Funds at the above
address. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference into this Prospectus in its
entirety.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A CONSTANT
NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Money Market Fund ("Money Market Portfolio"), Woodward
Government Fund ("Government Portfolio"), Woodward Treasury Money Market Fund
("Treasury Portfolio"), Woodward Tax-Exempt Money Market Fund ("Tax-Exempt
Portfolio") and Woodward Michigan Tax-Exempt Money Market Fund ("Michigan
Portfolio"). Class I shares are sold primarily to NBD and its affiliated and
correspondent banks acting on behalf of their respective customers. Class A
shares are sold to the general public primarily through financial institutions
such as banks, brokers and dealers. Class I shares are offered in a separate
Prospectus. Investors should call (800) 688-3350, a Co-Distributor or their
financial institutions if they would like to obtain more information
concerning the Class I shares and/or Class A shares of the Portfolios. The
following table is provided to assist in understanding the various costs and
expenses that an investor will indirectly incur as a beneficial owner of Class
A shares in each of the Portfolios.
<TABLE>
<CAPTION>
Michigan
Money Govern- Tax- Tax-
Market ment Treasury Exempt Exempt
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)............. None None None None None
Sales Load Imposed on
Reinvested Dividends....... None None None None None
Deferred Sales Load........ None None None None None
Redemption Fee............. None None None None None
Exchange Fee............... None None None None None
Annual Operating Expenses
(as a percentage of average
net assets)
Management Fees............... .44% .45% .45% .45% .50%
12b-1 Fees.................... .025% .007% .024% .017% .079%
Shareholder Servicing
Fees(2)..................... .25% .25% .25% .25% .25%
Other Expenses(3)
(before fee waivers
and/or expense
reimbursements)............. .043% .05% .062% .057% .176%
(after fee waivers
and/or expense
reimbursements)............. .035% .043% .026% .033% (.079)%
Total Operating Expenses
(before fee waivers
and/or expense
reimbursements)............ .758% .757% .786% .774% 1.005%
(after fee waivers
and/or expense
reimbursements)............ .75% .75% .75% .75% .75%
<FN>
- --------------------
1. The expenses for each Portfolio have been restated to reflect
current expenses.
2. The Trust has adopted a Shareholder Servicing Plan pursuant to
which the Trust may enter into agreements with institutions under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares in return for a fee of up to .25% per
annum of the value of such shares ("Servicing Fees"). For further information,
-2-
<PAGE>
see "Shareholder Servicing Plan" and "Investment Adviser, Custodian
and Transfer Agent" under the heading "Management" in this Prospectus.
3. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
- -------------------------
</TABLE>
<TABLE>
<CAPTION>
Michigan
Money Govern- Tax- Tax-
Market ment Treasury Exempt Exempt
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
Example
You would pay the following
expenses on a $1,000 investment
assuming:
(1) a 5% annual return and
(2) redemption at the end of
each time period:
<S> <C> <C> <C> <C> <C>
One Year:................ $ 7.68 $ 7.68 $ 7.68 $ 7.68 $ 7.68
Three Years:............. $24.05 $24.05 $24.05 $24.05 $24.05
Five Years:.............. $41.83 $41.83 $41.83 $41.83 $41.83
Ten Years:............... $93.29 $93.29 $93.29 $93.29 $93.29
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE GREATER
OR LESSER THAN THOSE SHOWN.
The example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class A shares in each of the Portfolios,
based upon payment of operating expenses at the respective levels set forth
in the expense table. For more complete descriptions of Portfolio expenses,
see "Investment Adviser, Custodian and Transfer Agent," "Sponsors and
Co-Distributors," "Shareholder Servicing Plan," "Service and Distribution
Plan" and "Trust Expenses" under the heading "Management" in this Prospectus
and the financial statements and related notes contained in the Statement
of Additional Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class A
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them. See "Shareholder Servicing
Plan" and "Investment Adviser, Custodian and Transfer Agent" under
"Management," and see "Dividends and Distributions" and "Other Information"
for a description of the impact that this may have on holders of Class A
shares.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of net investment
income and distributions from net investment income for each of the
Portfolios. The tables have been derived from the Portfolios' financial
statements which have been audited by Arthur Andersen, LLP, the Trust's
independent public accountants, whose report thereon is contained in the
Statement of Additional Information along with the financial statements. The
financial data included in these tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Portfolios is
available in annual reports to shareholders. The Statement of Additional
Information and annual reports to shareholders may be obtained from the Trust
free of charge by calling 1 (800) 688-3350.
<TABLE>
<CAPTION>
Money Market Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income .. $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579 $ 0.0784 $ 0.0877 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ............ $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579 $ 0.0784 $ 0.0877 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income ... $(0.0549) $(0.0378) $(0.0281) $(0.0347) $(0.0579) $(0.0784) $(0.0877) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions ... $(0.0549) $(0.0378) $(0.0281) $(0.0347) $(0.0579) $(0.0784) $(0.0877) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return ............ 5.63% 3.86% 2.85% 3.58% 5.95% 8.14% 9.19% 7.55%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) .... $1,639,695 $1,323,040 $1,326,693 $1,095,354 $775,521 $717,516 $446,466 $250,182
Ratio of Expenses to
Average Net Assets ... 0.51% 0.47% 0.49% 0.52% 0.50% 0.50% 0.51% 0.49%(a)
Ratio of Net Investment
Income to Average Net
Assets ............... 5.49% 3.78% 2.81% 3.47% 5.79% 7.84% 8.77% 7.30%(a)
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Government Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income ... $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564 $ 0.0769 $ 0.0862 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ............ $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564 $ 0.0769 $ 0.0862 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income ...... $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564) $(0.0769) $(0.0862) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions ..... $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564) $(0.0769) $(0.0862) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return ............. 5.57% 3.77% 2.81% 3.63% 5.79% 7.97% 8.98% 7.55%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ...... $474,377 $421,208 $346,665 $261,614 $288,369 $235,858 $196,095 $106,194
Ratio of Expenses to
Average Net Assets ..... 0.51% 0.51% 0.51% 0.51% 0.50% 0.49% 0.50% 0.50%(a)
Ratio of Net Investment
Income to Average Net
Assets ................ 5.44% 3.72% 2.77% 3.57% 5.64% 7.69% 8.62% 7.30%(a)
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Treasury Portfolio
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period ......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment
Operations:
Net Investment Income .......... $ 0.0539 $ 0.0370 $ 0.0273
-------- -------- --------
Total From Investment Operations $ 0.0539 $ 0.0370 $ 0.0273
-------- -------- --------
Less Distributions:
Dividends From Net Investment
Income ....................... $(0.0539) $(0.0370) $(0.0273)
-------- -------- --------
Total Distributions ............ $(0.0539) $(0.0370) $(0.0273)
-------- -------- --------
Net Asset Value, End of Period ... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return ..................... 5.53% 3.77% 2.77%
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ............ $927,696 $785,694 $854,873
Ratio of Expenses to Average
Net Assets ................... 0.53% 0.50% 0.50%
Ratio of Net Investment
Income to Average Net Assets . 5.39% 3.70% 2.73%
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income ... $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422 $ 0.0553 $ 0.0595 $ 0.0498
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ............. $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422 $ 0.0553 $ 0.0595 $ 0.0498
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income ..... $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422) $(0.0553) $(0.0595) $(0.0498)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions .... $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422) $(0.0553) $(0.0595) $(0.0498)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return ............. 3.41% 2.45% 1.98% 2.70% 4.30% 5.67% 6.11% 5.10%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ..... $564,413 $550,736 $498,706 $379,431 $227,808 $235,451 $210,028 $177,645
Ratio of Expenses to
Average Net Assets .... 0.53% 0.51% 0.51% 0.53% 0.52% 0.52% 0.51% 0.49%(a)
Ratio of Net Investment
Income to Average Net
Assets ................ 3.35% 2.42% 1.96% 2.64% 4.22% 5.53% 5.95% 4.98%(a)
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Michigan Portfolio
January 23,
1991
(Commencement
of
Year Year Year Year Operations)
Ended Ended Ended Ended to
Decem- Decem- Decem- Decem- Decem-
ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income From Investment
Operations:
Net Investment Income ... $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
--------- --------- --------- --------- ---------
Total From Investment
Operations ............. $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
--------- --------- --------- --------- ---------
Less Distributions:
Dividends From Net
Investment Income ...... $ (0.0329) $ (0.0235) $ (0.0181) $ (0.0237) $ (0.0353)
--------- --------- --------- --------- ---------
Total Distributions ..... $ (0.0329) $ (0.0235) $ (0.0181) $ (0.0237) $ (0.0353)
--------- --------- --------- --------- ---------
Net Asset Value, End of
Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return ............. 3.32% 2.38% 1.83% 2.40% 3.83%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ..... $ 122,057 $ 78,640 $ 52,557 $ 52,960 $ 38,885
Ratio of Expenses to
Average Net Assets .... 0.69% 0.67% 0.65% 0.64% 0.65%(a)
Ratio of Net Investment
Income to Average Net
Assets ................ 3.30% 2.35% 1.81% 2.37% 3.77%(a)
Ratio of Expenses to
Average Net Assets
Without Fee Waiver .... 0.76% 0.75% -- -- --
Ratio of Net Investment
Income to Average
Net Assets Without
Fee Waiver ............ 3.23% 2.28% -- -- --
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
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<PAGE>
INTRODUCTION
The Trust is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objective and
policies. However, only the Class A shares of the Money Market, Government,
Treasury, Tax-Exempt and Michigan Portfolios are offered pursuant to this
Prospectus. Under the 1940 Act, the Michigan Portfolio is classified as a
non-diversified investment portfolio and the other Portfolios are classified
as diversified investment portfolios.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
such Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Money Market Portfolio, Government Portfolio and Treasury Portfolio
The investment objective of the Money Market Portfolio, Government
Portfolio and Treasury Portfolio is to provide a high level of current income
consistent with the preservation of capital and liquidity.
In seeking to achieve its investment objective, the Money Market
Portfolio invests in the following high quality "money market" instruments:
(1) Obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations");
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<PAGE>
(2) U.S. dollar denominated obligations issued or guaranteed
by the government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof;
(3) Certificates of deposit, bankers' acceptances and time
deposits of U.S. banks or other U.S. financial institutions (including
foreign branches of such banks and institutions) having total assets
in excess of $1 billion and which are members of the Federal Reserve
System or the Federal Deposit Insurance Corporation ("FDIC");
(4) Certificates of deposit, bankers' acceptances and time
deposits of foreign banks and U.S. branches of foreign banks having
assets in excess of the equivalent of $1 billion;
(5) Commercial paper, other short term obligations and
variable rate master demand notes, bonds, debentures and notes; and
(6) Repurchase agreements relating to the above instruments.
In seeking to achieve its investment objective, the Government
Portfolio invests in:
(1) U.S. Government Obligations; and
(2) Repurchase agreements relating to the above obligations.
In seeking to achieve its investment objective, the Treasury Portfolio
invests in:
(1) U.S. Treasury bills, notes, and direct U.S. Treasury
obligations having remaining maturities of 13 months or less; and
(2) Repurchase agreements relating to direct U.S. Treasury
obligations.
In accordance with current SEC regulations, the Money Market,
Government and Treasury Portfolios will limit their respective purchases of
the securities of any one issuer (other than U.S. Government Obligations and
repurchase agreements collateralized by such obligations) to 5% of their
respective total assets, except that each Portfolio may invest more than 5%
but no more than 25% of its total assets in "First Tier Securities" of one
issuer for a period of up to three business days. First Tier Securities
include "eligible securities" (defined below under "Policies Applicable to all
Portfolios") that (i) if rated by more than one nationally recognized
statistical rating organization ("Rating Agency"), are rated (at the time of
purchase) by two or more Rating Agencies in the highest rating category for
such securities, (ii) if rated by only one Rating Agency, are rated by such
Rating Agency in its highest rating category for such securities, (iii) have
no short term rating but have been issued by an issuer that has other
outstanding short term obligations that have been rated in accordance with (i)
or (ii) above and are comparable in priority and security to such securities,
and (iv) are certain unrated securities that have been determined by NBD to be
of comparable quality to such securities pursuant to guidelines established by
the Trust's Board of Trustees. In addition, the Money Market and Government
Portfolios will limit their investments in "Second Tier Securities" (which are
eligible securities other than First Tier Securities) to 5% of their
respective total assets, with investments in any one issuer of such securities
being limited to no more than 1% of their respective total assets or $1
million, whichever is greater. Because of these limitations, the Money Market,
Government and Treasury Portfolios will not be able to purchase lower rated or
longer term securities from which a higher income, although a greater degree
of risk, might be derived.
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<PAGE>
Tax-Exempt Portfolio and Michigan Portfolio
The investment objective of the Tax-Exempt Portfolio is to provide a
high level of current interest income that is exempt from federal income taxes
consistent with the preservation of capital and liquidity. In seeking to
achieve its investment objective, the Portfolio invests in high quality debt
obligations issued by states, territories and possessions of the United
States, by the District of Columbia, and by their respective political
subdivisions, agencies, instrumentalities and authorities, the interest on
which is, in the opinion of bond counsel for the issuers, exempt from regular
federal income tax ("Municipal Securities").
The investment objective of the Michigan Portfolio is to provide a
high level of current interest income that is exempt from federal and State of
Michigan income taxes, consistent with the preservation of capital and
liquidity. In seeking to achieve its investment objective, the Portfolio
invests in high quality debt obligations issued by the State of Michigan, its
political subdivisions, municipalities, corporations and authorities, the
interest on which, in the opinion of bond counsel to the issuers, is exempt
from federal and State of Michigan income taxes ("Michigan Municipal
Securities") and in related repurchase agreements. Income earned by the
Portfolio with respect to repurchase agreements is not exempt from federal
income tax. To the extent acceptable Michigan Municipal Securities are at any
time unavailable for investment by the Portfolio, the Portfolio invests
primarily in other Municipal Securities the interest on which is, in the
opinion of bond counsel, exempt from federal, but not State of Michigan,
income tax.
Municipal Securities acquired by the Tax-Exempt Portfolio or Michigan
Portfolio include:
(1) Municipal bonds;
(2) Municipal notes;
(3) Variable rate demand notes;
(4) Tax-exempt commercial paper and floating rate
instruments; and
(5) Unrated notes, paper or other instruments that are of
comparable quality as determined by the Adviser under guidelines
established by the Trust's Board of Trustees. Where necessary to
assure that an instrument is of high quality, the Portfolios may only
purchase the instrument if the issuer's obligation to pay the
principal is backed by an unconditional bank letter of credit, line of
credit, guaranty or commitment to lend.
At least 80% of each of the Tax-Exempt Portfolio's and Michigan
Portfolio's total assets will be invested in Municipal Securities except in
extraordinary circumstances, such as when the Adviser believes that market
conditions indicate that a Portfolio should adopt a temporary defensive
position by holding uninvested cash or investing in taxable short term
securities ("Taxable Investments"), such as those in which the Money Market
Portfolio may invest. This policy is fundamental with respect to the
Tax-Exempt Portfolio and Michigan Portfolio and may not be changed without the
approval of the holders of a majority of a Portfolio's outstanding shares. In
addition, with respect to the Michigan Portfolio, at least 65% of its total
assets will be invested under normal market conditions in Michigan Municipal
Securities and the remainder may be invested in securities that are not
Michigan Municipal Securities and therefore may be subject to Michigan income
taxes. See "Taxes."
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<PAGE>
Policies Applicable To All Portfolios
Each Portfolio will only purchase "eligible securities" that present
minimal credit risks as determined by the Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities include (i)
U.S. Government Obligations, (ii) securities that are rated (at the time of
purchase) by Rating Agencies in the two highest rating categories for such
securities, and (iii) certain securities that are not so rated but are of
comparable quality to rated eligible securities as determined by the Adviser.
See "Investment Objectives, Policies and Risk Factors" in the Statement of
Additional Information for a more complete description of eligible securities.
A description of ratings is contained in the Statement of Additional
Information.
Each Portfolio is managed so that the average maturity of all
instruments in the Portfolio (on a dollar-weighted basis) will not exceed 90
days. In no event will the Portfolios purchase any securities which are deemed
to mature more than 13 months from the date of purchase (except for certain
variable and floating rate instruments and securities underlying repurchase
agreements and collateral underlying loans of portfolio securities).
OTHER INVESTMENT POLICIES
Bank Obligations
Domestic and foreign bank obligations in which the Money Market
Portfolio may invest include certificates of deposit, bankers' acceptances and
fixed time deposits. Total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.
Obligations issued or guaranteed by foreign branches of U.S. banks
(commonly known as "Eurodollar" obligations) or U.S. branches of foreign banks
(commonly known as "Yankee dollar" obligations) may be general obligations of
the parent bank or obligations only of the issuing branch. Where the
obligation is only that of the issuing branch, the parent bank has no legal
duty to pay such obligation. Such obligations would thus be subject to risks
comparable to those which would be present if the issuing branch were a
separate bank. The Money Market Portfolio will not invest in a Eurodollar
obligation if upon making such investment the total of Eurodollar obligations
which are not general obligations of domestic parent banks would thereby
exceed 25% of the total assets of the Money Market Portfolio.
Obligations of foreign issuers may involve risks that are different
than those of obligations of domestic issuers. These risks include unfavorable
political and economic developments, possible imposition of withholding taxes
on interest income, possible seizure or naturalization of foreign deposits,
possible establishment of exchange controls, or adoption of other foreign
governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks and, generally, there may be less publicly available information
regarding such issuers. The Trust could also encounter difficulties in
obtaining or enforcing a judgment against a foreign issuer (including a
foreign branch of a U.S. bank).
Commercial Paper
Commercial paper issued by corporations and other institutions,
including variable rate notes and other short term corporate obligations, must
be rated in one of the two highest categories by at least two Rating Agencies,
or if not
-13-
<PAGE>
rated, must have been independently determined by the Adviser to be of
comparable quality.
Government Obligations
The Money Market, Government and Treasury Portfolios may invest in
direct obligations of the U.S. Treasury consisting of bills, notes and bonds.
The Money Market and Government Portfolios may also invest in other
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities, such
as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
investments may be variable or floating rate instruments.
Variable and Floating Rate Obligations
Each Portfolio may purchase rated and unrated variable and floating
rate obligations which may have stated maturities in excess of 13 months but
will, in any event, permit a Portfolio to demand payment of the principal of
the instrument at least once every 13 months on not more than thirty days'
notice (unless the instrument is a U.S. Government Obligation), provided that
the demand feature may be sold, transferred, or assigned only with the
underlying instrument involved. Such instruments may include variable rate
demand notes which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for
a Portfolio to dispose of instruments if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise
its demand rights, and the Portfolio could, for these or other reasons, suffer
a loss with respect to such instruments. Variable and floating rate
instruments held by a Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment
of the principal amount within seven days and a reliable trading market is
absent.
Repurchase and Reverse Repurchase Agreements
Each Portfolio may agree to purchase portfolio securities which it may
otherwise purchase from financial institutions subject to the seller's
agreement to repurchase them at a mutually agreed-upon date and price
("repurchase agreements"). No Portfolio will enter into repurchase agreements
with the Adviser, Co-Distributors, or any of their affiliates. Although the
securities subject to repurchase agreements may bear maturities exceeding 13
months provided the repurchase agreement itself matures in one year or less,
the Portfolios generally intend to enter into repurchase agreements which
terminate within seven days after notice by the Portfolios. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
-14-
<PAGE>
Each Portfolio may also borrow funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase. Whenever a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets equal to the repurchase price marked to market daily (including
accrued interest) and will subsequently monitor the account to ensure such
equivalent value is maintained.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans may include cash or
securities of the U.S. Government, its agencies or instrumentalities, some of
which may bear maturities exceeding 13 months. Such loans will not be made if,
as a result, the aggregate of all outstanding loans of a particular Portfolio
exceeds one-third of the value of its total assets. Loans of securities
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or possibly loss of rights in the collateral should the
borrower of the securities become insolvent. In the event a Portfolio is
unable to recover the securities loaned in a particular transaction, it will
promptly sell any collateral which bears a maturity exceeding 13 months. Loans
will be made only to borrowers that provide the requisite collateral comprised
of liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
When-Issued Securities
Each Portfolio may purchase portfolio securities on a "when-issued"
basis and may purchase or sell such securities on a "forward commitment"
basis. These transactions involve commitment by a Portfolio to purchase or
sell particular securities with payment and delivery taking place in the
future, beyond the normal settlement date, at a stated price and yield.
Securities purchased on a when-issued basis or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, or if the value of the security to be sold
increases prior to the settlement date. When a Portfolio enters into such
transactions, the Custodian will maintain in a segregated account cash or
liquid portfolio securities equal to the amount of the commitment. The
Portfolios do not earn income with respect to these transactions until the
subject securities are delivered to the Portfolios. The Portfolios do not
intend to purchase when-issued securities for speculative purposes but only
for the purposes of acquiring portfolio securities. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25%
of the value of its total assets absent unusual market conditions.
Municipal and Related Securities
Municipal Securities may include general obligations, revenue
obligations, notes, and moral obligation bonds. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the
-15-
<PAGE>
user of the facility being financed. Private activity bonds (i.e. bonds issued
by industrial development authorities) are in most cases revenue securities
and are not payable from the unrestricted revenues of the issuer. Private
activity bonds are included within the term "Municipal Securities" only if the
interest paid thereon is exempt from regular federal income tax and not
treated as a specific tax preference item under the federal alternative
minimum tax. See "Taxes." Consequently, the credit quality of a private
activity bond is usually directly related to the credit standing of the
private user of the facility involved. Notes are short-term instruments which
are obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Moral obligation bonds are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of
the state or municipality which created the issuer. Municipal Securities also
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities.
Municipal lease/purchase agreements may be subject to the Portfolio's 10%
limitation on illiquid investments. See "Restricted Securities."
The Michigan Portfolio may purchase from financial institutions
participation interests in Municipal Securities. A participation interest
gives the Portfolio an undivided interest in the Municipal Security in the
proportion that the Portfolio's participation interest bears to the total
principal amount of the Municipal Security. These instruments may have fixed,
floating or variable rates of interest, with remaining maturities of 13 months
or less as determined in accordance with SEC regulations (although the
securities held by the financial institution may have longer maturities). If
the participation interest is unrated, or has been given a raving below that
which otherwise is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank that the Trust's Board of Trustees has determined meets
the prescribed quality standards for banks set forth below, or the payment
obligation otherwise will be collateralized by U.S. Government securities. For
certain participation interests, the Portfolio will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Portfolio's participation interest in the Municipal Security, plus accrued
interest. As to these instruments, the Portfolio intends to exercise its right
to demand payment only upon a default under the terms of the Municipal
Security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. Participation interests
that do not have this demand feature will be considered illiquid investments
subject to the 10% limitation.
The Tax-Exempt and Michigan Portfolios may acquire "stand-by
commitments" with respect to Municipal Securities they hold. Under a stand-by
commitment, a dealer agrees to purchase at the Portfolio's option specified
Municipal Securities at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield of the
Municipal Securities to which the commitment relates. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
The Tax-Exempt Portfolio has no policy of seeking particularly to
invest in Municipal Securities issued by or within any single state or select
group of states. However, certain states traditionally are sources of large
amounts of Municipal Securities, e.g., California, Colorado, Florida,
Michigan, New York and Texas. The Portfolio may from time to time have more
than 25% of its assets invested in securities issued by or from any of the
above states. To the extent that the Portfolio's assets are invested in
Municipal Securities issued by or from a single state or a few states, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such
-16-
<PAGE>
state or states to a greater extent than would be the case if its assets were
not so concentrated. If any state or political subdivision thereof were to
suffer serious financial difficulties jeopardizing its ability to pay its
obligations, the marketability of such obligations held by the Portfolio, and
consequently its net asset value, could be adversely affected.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax (and, with respect to
Michigan Municipal Securities, Michigan income taxes) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor its Adviser will review the proceedings relating to the issuance of
Municipal Securities or the bases for such opinions.
Special Risk Considerations Applicable to the Michigan Portfolio
The Michigan Portfolio will under normal market conditions consist of
Michigan Municipal Securities to the extent of 65% or more of its total
assets. This concentration in securities issued by governmental units of only
one state exposes the Portfolio to risk of loss greater than that of a more
diversified portfolio holding securities issued by governmental units of
different states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent
upon the automobile manufacturing industry. This industry is highly cyclical.
This factor affects the revenue streams of the State of Michigan and its
political subdivisions because it impacts tax sources, particularly sales
taxes, income taxes, and Michigan single business taxes.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
The heavy concentration of the Michigan Portfolio in Michigan
Municipal Securities and the cyclical nature of the economy of the State of
Michigan may adversely affect the liquidity of the Portfolio.
In 1993 and 1994, Michigan adopted complex statutory and
constitutional changes which, among several other changes in tax methods and
rates, have the effect of imposing limits on annual assessment increases and
of transferring a significant part of the operating cost of public education
from locally based property tax sources to state based sources, including
increased sales tax. These changes will affect state and local revenues of
Michigan governmental units in future years in differing ways, not all of
which can be presently known with certainty.
Guaranteed Investment Contracts
The Money Market Portfolio may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Pursuant to such contracts, the Portfolio makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the Portfolio on a monthly basis guaranteed interest which is
based on an index (in most cases this index will be the Salomon Brothers CD
Index). The GICs provide that this guaranteed interest will not be less than a
certain minimum rate. Generally, a GIC allows a purchaser to buy an annuity
with the monies accumulated under contract; however, the Portfolio will not
purchase any such annuity. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a
GIC becomes a part of the general assets of the issuer, and the contract is
paid from the general assets
-17-
<PAGE>
of the issuer. The Portfolio will only purchase GICs from issuers which meet
quality and credit standards established by the Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs are considered by the Portfolio to be illiquid investments
subject to the limitation on illiquid investments set forth below.
Restricted Securities
In accordance with its fundamental investment limitation described
below, each Portfolio will not invest more than 10% of the value of its total
assets in securities that are illiquid. Illiquid investments may include
securities having legal or contractual restrictions on resale or no readily
available market, GICs (in the case of the Money Market Portfolio), municipal
lease/purchase agreements (in the case of the Tax-Exempt and Michigan
Portfolios) and instruments (including repurchase agreements, variable and
floating rate instruments and time deposits) that do not provide for payment
to a Portfolio within seven days after notice. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed to be illiquid for purposes of this limitation.
Each Portfolio may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development, and it is not possible to predict how
this market will develop. The Board of Trustees will carefully monitor any
investments by the Portfolios in these securities.
Securities of Other Investment Companies
Within the limits prescribed by the 1940 Act, each Portfolio may
invest in securities issued by other investment companies which invest in high
quality, short term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Portfolio bears directly in connection with
its own operations.
Miscellaneous
The Trust will give 30 days notice to investors of any material change
in any Portfolio's investment policies.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
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investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase the securities of issuers conducting their principal
business activity in the same industry if immediately after such purchase the
value of its investments in such industry would exceed 25% of the value of its
total assets, provided that (a) utilities will be divided according to their
services, wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents, the personal credit and business
credit businesses will be considered separate industries and (b) there is no
limitation with respect to or arising out of investments in Municipal
Securities in the case of the Tax-Exempt Portfolio and Michigan Portfolio,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, domestic bank obligations, or repurchase agreements by any
of the foregoing.
2. Borrow money, except from banks or through reverse repurchase
agreements, and except for temporary or emergency purposes and then only in
amounts not exceeding at any one time 20% of the value of its net assets at
the time of the borrowing. A Portfolio will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
net assets are outstanding. Borrowings will only be effected in conformity
with the requirements of the 1940 Act.
3. Make loans, except (i) through the purchase of debt obligations in
accordance with its investment objective and policies, (ii) through repurchase
agreements and (iii) through the lending of investment securities.
Each of the Money Market, Government and Tax-Exempt Portfolios may not
invest more than 10% of its total assets in illiquid investments, including
restricted securities, securities having no readily available market
quotations, non-negotiable time deposits maturing in more than seven days, and
repurchase agreements with maturities of more than seven days.
Each of the Treasury and Michigan Portfolios may not invest more than
10% of its total assets in illiquid investments. See "Restricted Securities"
above.
With respect to 75% of its assets, the Tax-Exempt Portfolio may not
invest more than 5% of its assets in the securities of any one issuer, except
U.S. Government obligations. In addition, the Tax-Exempt Portfolio may not
invest less than 80% of its net assets in securities the interest on which is
exempt from federal income tax, except during temporary defensive periods.
The Michigan Portfolio may not:
1. Invest less than 80% of its net assets in securities the interest
on which is exempt from federal income tax, except during temporary defensive
periods or periods of unusual market conditions. For purposes of this
investment limitation, securities the interest on which is treated as a
specific tax preference item under the federal alternative minimum tax are
considered taxable.
2. With respect to 50% of its total assets, invest more than 5% of
its assets in the securities of any one issuer, except U.S. Government
Obligations or securities of other regulated investment companies.
For purposes of the Investment Limitation above applicable to the
Money Market, Government, Treasury and Tax-Exempt Portfolios and No. 2 above
applicable to the Michigan Portfolio: (i) a security is considered to be
issued by the government entity (or entities) whose assets and revenues back
the security, or,
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with respect to a private activity bond that is backed only by the assets and
revenues of a nongovernmental user, a security is considered to be issued by
such non-governmental user; (ii) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (iii) U.S. Government Obligations (including securities
backed by the full faith and credit of the United States) are deemed to be
U.S. Government obligations for purposes of the 1940 Act.
Generally, a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in value of a Portfolio's securities will not constitute a violation of
the limitation for purposes of the 1940 Act.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class A shares are sold to the public primarily through financial
institutions such as banks, brokers and dealers. Investors may purchase Class
A shares directly in accordance with the procedures set forth below or through
procedures established by their financial institutions in connection with the
requirements of their accounts.
Financial institutions may impose different minimum investment and
other requirements on their customers and may charge additional fees in
connection with the establishment of accounts with the institutions and
purchase and redemption of Class A shares. Persons wishing to purchase Class A
shares through their accounts at an institution or a Co-Distributor should
contact the institution or Co-Distributor directly for appropriate
instructions and fee information. In addition, certain financial institutions
may enter into shareholder servicing agreements with the Trust whereby they
would perform various administrative support services for their customers who
are the beneficial owners of Class A shares in return for fees from the
Portfolio. See "Shareholder Servicing Plan" under the heading "Management" in
this Prospectus.
All shareholders of record will receive confirmations of share
purchases and redemptions. Class A shares purchased by institutions on behalf
of their customers will normally be held of record by them. Institutions will
record their customers' beneficial ownership of such shares and provide
regular account statements reflecting such beneficial ownership.
Institutions will be responsible for transmitting purchase and
redemption orders to FoM, Essex or NBD acting as transfer agent (the "Transfer
Agent") on a timely basis in accordance with the procedures stated below.
Purchase Procedures
The minimum initial investment is $500 for each Portfolio, except for
purchases through an institution whose clients have invested an aggregate
minimum of $500 or for investments made through a Co-Distributor's or an
institution's sweep privilege, the Trust's Automatic Investment Plan described
below or the Trust's IRA program described below. There is no minimum for
subsequent investments other than those made pursuant to the Automatic
Investment Plan. The Trust reserves the right to reject any purchase order.
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Orders for Class A shares may be placed by telephone (by calling
(800) 688-3350 (provided an investor has made the appropriate election in his
account application)) or by mail (by completing the account application which
accompanies this Prospectus and mailing the completed form and the payment for
shares to FoM, Essex or the Transfer Agent). Orders received by FoM, Essex or
the Transfer Agent for purchase accompanied by a check or other negotiable
draft will be accepted and executed at the time the net asset value is next
determined after conversion to federal funds, normally two Business Days after
receipt. All checks must be drawn on a bank located within the United States
and must be payable in U.S. dollars. Subsequent investments in an existing
account in a Portfolio may be made at any time by sending a check or money
order along with either (a) the detachable form that regularly accompanies the
Trust's confirmation of a prior transaction, (b) a subsequent order form which
may be obtained from the Trust, or (c) a letter stating the amount of the
investment, the name of the Portfolio and the account number in which the
investment is to be made. If any check used for investment in an account does
not clear, the order will be cancelled and notice thereof will be given; in
such event the account will be responsible for any loss to the Trust as well
as a $15 fee imposed by the Transfer Agent.
In order to afford the Trust a reasonable opportunity to invest funds
that are received on the same day, purchase orders received by a
Co-Distributor or the Transfer Agent with respect to the Tax-Exempt and
Michigan Portfolios by noon, Eastern time, and with respect to the Money
Market, Government and Treasury Portfolios, by 3:00 p.m., Eastern time, will
be executed the same day if NBD, acting as the Portfolios' custodian (the
"Custodian"), has received confirmation of receipt of a wire transfer of
federal funds prior to noon and 3:00 p.m., Eastern time, respectively, and the
shares purchased will thus be eligible for that day's dividend; and otherwise
such purchase will be effected, and dividends will begin to accrue, on the
following Business Day (as defined below). With the exception of the customers
of FoM, Class A shares may also be paid for by wiring federal funds to the
Transfer Agent, NBD Bank, ABA 072000326, for the account of The Woodward
Funds, Account Number GL 325612, and identifying the customer name and account
number. Before wiring payment, customers should notify the Transfer Agent by
calling (800) 688-3350.
If customers of FoM wire payment in federal funds, they should direct
payment to NBD Bank, ABA 072000326, for the Account of First of Michigan
Corporation re: The Woodward Funds, Account Number 059-41, and should identify
the customer name and account number. Before wiring payment, customers of FoM
should call FoM at (800) 544-8275 (outside Michigan) or (800) 852-7730 (within
Michigan).
The Trust will not accept payment in cash or third party checks for
the purchase of shares. Federal regulations require that each shareholder
provide a certified taxpayer identification number upon opening or reopening
an account. Applications without a taxpayer identification number will not be
accepted. See the account application for further information about this
requirement.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined by the Adviser as of noon and as of 3:00
p.m., Eastern Time, on each day the New York Stock Exchange ("Exchange"), NBD
Bank or its bank affiliates are open for business ("Business Day") except:
(i) those holidays which the Exchange, NBD Bank or its bank affiliates
observe (currently New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day);
and (ii) those Business Days on which the Exchange closes prior to the
close of its regular trading hours ("Early Closing Time"), in which event
the net asset value of
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each Portfolio will be determined and its shares will be Priced as of such
Early Closing Time. Net asset value per Class A share of a Portfolio is
calculated by dividing the value of all securities and other assets belonging
to the Portfolio allocable to that Class A, less the liabilities charged to
that Class A, by the number of the outstanding shares of such Class A.
The assets in each Portfolio are valued based upon the amortized cost
method. Although the Trust seeks to maintain the net asset value per share of
the Portfolios at $1.00, there can be no assurance that the net asset value
will not vary.
REDEMPTION OF SHARES
In General
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption in
accordance with the procedures set forth below.
Redemption orders must be placed with or through the same financial
institution that placed the original purchase order. It is the responsibility
of the financial institutions to transmit redemption orders to the Transfer
Agent. Redemption proceeds are paid by check or credited to the investor's
account with his financial institution. Investors who purchased shares
directly from the Trust should follow the redemption procedures set forth
below.
Redemption Procedures
Written and telephone redemption requests will be effected on the same
Business Day if the request is received by the Transfer Agent with respect to
the Tax-Exempt and Michigan Portfolios before noon, Eastern time, and with
respect to the Money Market, Government and Treasury Portfolios, before 3:00
p.m. Eastern time. Redemption requests received after noon and 3:00 p.m.,
Eastern time, respectively, will normally be effected on the next Business Day
(and in any event within seven calendar days).
Shareholders of record may redeem shares in any amount by calling
(800) 688-3350 (provided they have made the appropriate election on the account
application) or by sending a written request to The Woodward Funds, c/o NBD
Bank, P.O. Box 7058, Troy, Michigan 48007-7058. Written requests to redeem
shares having a net asset value of more than $50,000 must have all signatures
of the registered owner(s) or their authorized legal representative guaranteed
by a commercial bank or trust company which is a member of the Federal Reserve
System or FDIC, a member firm of a national securities exchange or a savings
and loan association. A signature guaranteed by a savings bank or notarized by
a notary public is not acceptable. A signature guarantee will also be required
for redemption requests (in any amount) if the address of record for the
account has been changed within the previous 15 days or which requests that
the proceeds be paid to an account other than the one preauthorized on the
application, a payee or payees other than the registered owners of the
account, or an address other than the address of record. The Trust may require
additional supporting documents for redemptions made by corporations,
fiduciaries, executors, administrators, trustees, guardians and institutional
investors.
Redemption orders for Class A shares may be placed through an
institution or directly by telephone by calling (800) 688-3350. During periods
of unusual economic or market changes, telephone redemptions may be difficult
to implement. In such event, shareholders should mail their redemption
requests to their financial institutions or The Woodward Funds, c/o NBD Bank
at the address shown above. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed
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to be genuine. In attempting to confirm that telephone instructions are
genuine, the Trust and its Transfer Agent will use such procedures as are
considered reasonable, including recording those instructions and requesting
information as to account registration (including, but not limited to, the
name in which an account is registered, the account number, or recent
transactions in the account). To the extent that the Trust and its Transfer
Agent fail to use reasonable procedures to verify the genuineness of telephone
instructions, they may be liable for such instructions that prove to be
fraudulent and unauthorized. In all other cases, shareholders will bear the
risk of loss for fraudulent telephone transactions.
Shareholders will not be credited with dividends on shares being
redeemed on the date of redemption. If a shareholder redeems all of his shares
in a Portfolio (which must be effected through a written redemption request),
he will receive, in addition to the net asset value of the shares, all
declared but unpaid dividends thereon.
Other Redemption Information
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934. After receipt by the Transfer Agent of a request in proper form, except
as provided by the rules of the SEC. If shares to be redeemed were purchased
by check, the Trust will transmit the redemption proceeds promptly upon
clearance of such check, which could take up to fifteen days from the purchase
date. A shareholder having purchased shares by wire must have filed an account
application before any redemption requests can be honored.
Currently, the Trust imposes no charge when shares are redeemed.
However, institutions may charge a fee for providing services in connection
with investments in Portfolio shares; NBD currently charges $16 for wire
transactions. The Trust reserves the right to redeem accounts involuntarily,
after sixty days' notice, if redemptions cause the account's value to remain
at $400 or less. The Trust may also redeem shares of the Portfolio
involuntarily or make payment for redemption in securities or other property
if it is appropriate to do so in light of the Trust's responsibilities under
the 1940 Act.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350 or an investor's institution.
Redemption Draft Privilege
The Trust will provide each shareholder, upon request with drafts
("Redemption Drafts") which may be drawn on a Portfolio. Redemption Drafts may
be made payable to the order of any person in any amount not less than $500.
This privilege does not constitute a banking function and owning shares in a
Portfolio is not equivalent to a bank checking account. When a shareholder
presents a Redemption Draft for payment, a sufficient number of whole and
fractional shares in his Portfolio account will be redeemed to cover the
amount of the Redemption Draft. To use this method of redemption, a
shareholder must complete and file an authorization form contained in the
account application; an initial supply of Redemption Drafts will be mailed
within two or three weeks thereafter. At the date of this Prospectus there is
no charge for this service.
SHAREHOLDER SERVICES
The shareholder services and privileges under this heading may not be
available to certain clients of particular financial institutions, and some
may impose conditions on their clients that are different from those described
below.
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Investors should consult their own financial institutions in this regard.
Other investors should direct any questions to the Transfer Agent. The Trust
may modify or terminate any of the following services and privileges at any
time.
Exchange Privilege
Investors may exchange Class A shares which have been owned for at
least thirty days of the Money Market, Government, Treasury, Tax-Exempt and
Michigan Portfolios, of the Woodward Equity Index Fund and of other investment
portfolios of the Trust which may be offered in the future and sold without a
sales charge (each a "no load portfolio") and Class A shares which have been
owned for at least thirty days of the Woodward Growth/Value, Opportunity,
Intrinsic Value, Capital Growth, Balanced, International Equity, Intermediate
Bond, Bond, Short Bond, Municipal Bond or Michigan Municipal Bond Funds and of
other investment portfolios of the Trust which may be offered in the future
and sold with a sales charge (each a "load portfolio"). The cost of the
acquired Class A shares will be their net asset value plus the applicable
sales load, if any. Class A shares of a no load portfolio may be exchanged for
Class A shares of another no load portfolio without payment of any sales load.
Any exchange of Class A shares of a no load portfolio for Class A shares of a
load portfolio will be subject to the payment of the applicable sales load,
unless the investor is exchanging shares of a no load portfolio which were
received in a previous exchange transaction involving Class A shares of a load
portfolio. In such case, the investor will receive the appropriate credit for
the sales load previously paid. Shareholders contemplating an exchange should
carefully review the Prospectus of the portfolio into which the exchange is
being considered which may be obtained from an investor's financial
institution or from the Transfer Agent by calling (800) 688-3350.
Exchanges will be effected by a redemption of Class A shares of the
portfolio held and the purchase of Class A shares of the portfolio acquired.
Investors should make their exchange requests in writing or by telephone to
the financial institutions through which they purchased their original Class A
shares. It is the responsibility of financial institutions to transmit
exchange requests to the Transfer Agent. Other investors should transmit
exchange requests directly to the Transfer Agent. The total value of shares
being exchanged must at least equal the minimum investment requirement of the
portfolio whose shares are being acquired in the exchange. Only one exchange
in any thirty-day period is permitted and only Class A shares that may be
legally sold in the state of the investor's residence may be acquired in an
exchange. The Trust reserves the right to reject any exchange request.
Investors wishing to make an exchange should contact their financial
institutions or the Transfer Agent (as appropriate). Exchange requests in the
required form which are received by the Transfer Agent with respect to the
Tax-Exempt and Michigan Portfolios prior to noon, Eastern time, and with
respect to the Money Market, Government and Treasury Portfolios, prior to
3:00 p.m., Eastern time, will be effected on the same Business Day after such
request is received. Requests received after noon and 3:00 p.m., Eastern time,
respectively, will be effected on the next Business Day after such request is
received. During periods of significant economic or market change, telephone
exchanges may be difficult to complete. In such event, an investor should mail
the exchange request to his financial institution or the Transfer Agent.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions
are genuine, the Trust and its Transfer Agent will use such procedures as are
considered reasonable, including recording those instructions and requesting
information as to account registration (including, but not limited to, the
name in which an account is registered, the account number, or recent
transactions in the account). To the extent that the Trust and its Transfer
Agent fail to use reasonable procedures to verify the genuineness
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of telephone instructions, they may be liable for such instructions that prove
to be fraudulent and unauthorized. In all other cases, shareholders will bear
the risk of loss for fraudulent telephone transactions. The Trust reserves the
right to modify or terminate its exchange procedures upon sixty days' notice
to shareholders.
Option to Make Systematic Withdrawals
The Trust has available to shareholders a Systematic Withdrawal Plan
pursuant to which a shareholder who owns Class A shares of any investment
portfolio having a minimum value of $5,000 at the time he elects under the
Plan may have a fixed sum distributed in redemption at regular intervals. An
application form and additional information regarding this service may be
obtained from an investor's financial institution or the Transfer Agent (by
calling (800) 688-3350).
Automatic Investment
The Trust offers an Automatic Investment Plan (the "Plan") whereby a
shareholder may automatically purchase Class A shares on a regular basis in
accordance with an election in his account application. An application may be
obtained from the Transfer Agent by calling (800) 688-3350. Under the Plan, a
shareholder's financial institution debits a pre-authorized amount from his
account and applies the amount to the purchase of Class A shares. The minimum
per transaction is $25. The minimum initial investment in a Portfolio is also
$25 for the following shareholders who elect the Plan: (1) current and retired
directors, officers and employees of NBD or any of its affiliates; (2) the
trustees, former trustees and officers of the Trust; (3) broker/dealers which
have entered into an agreement with a Co-Distributor or the Trust pursuant to
the Trust's Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (4) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in paragraphs (1), (2) and (3) above. An NAV Account Application
may be obtained from the Transfer Agent by calling (800) 688-3350. The Plan
can be implemented with any financial institution that is a member of the
Automated Clearing House. No service fee is currently charged by the Trust for
participating in the Plan. Death or legal incapacity will terminate a
shareholder's participation in the Plan. Deposits, withdrawals and adjustments
will be made electronically under the rules of the Automated Clearing House
Association.
Cross Reinvestment of Dividend Plan
The Trust makes available to shareholders a Cross Reinvestment of
Dividend Plan (the "Plan") pursuant to which a shareholder who owns Class A
shares of any portfolio with a minimum value of $10,000 at the time he elects
under the Plan may have dividends paid by such portfolio automatically
reinvested into Class A shares of another portfolio in which he has invested a
minimum of $500. Shareholders may obtain an application and additional
information from an investor's financial institution or the Transfer Agent by
calling (800) 688-3350.
The Woodward Funds Individual Retirement Custodial Account
Class A shares may be purchased in conjunction with the Trust's
Individual Retirement Custodial Account program ("IRA") where NBD acts as
custodian. Investors should consult their institutions or a Co-Distributor for
information as to applications and annual fees. The minimum investment for an
IRA is $250 for investors who are not employees of NBD and $25 for investors
who are
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employees of NBD. Investors should also consult their tax advisers to
determine whether the benefits of an IRA are available or appropriate.
Other Retirement Plans
NBD and its affiliates offer a variety of pension and profit sharing
plans including IRAs, defined contribution plans, 401(k) Plans, 403(b)(7)
Plans and 451 Plans through which shareholders may purchase Class A shares.
The minimum investment for these Plans may differ from the minimum discussed
above in "Purchase of Shares." For details concerning any of the retirement
plans, please call the Transfer Agent or a Co-Distributor.
Direct Deposit Program
If an investor receives federal salary, social security, or certain
veteran's, military or other payments from the federal government or elects to
use his employer's payroll deposit program, he is eligible for the Direct
Deposit Program. With this Program, an investor may purchase Class A shares
(minimum of $25) by having these payments automatically deposited into his
Portfolio account. For instructions on how to enroll in the Direct Deposit
Program, an investor should call his institution or the Transfer Agent. Death
or legal incapacity will terminate an investor's participation in the Program.
An investor may elect at any time to terminate his participation by notifying
in writing the appropriate federal agency. Further, the Trust may terminate an
investor's participation upon thirty days' notice to him.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance and yields of each class of shares of the Portfolios may be quoted
and compared to those of other mutual funds with similar investment objectives
and to stock or other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the yields of the Money Market,
Government and Treasury Portfolios may be compared to the Donoghue's Money
Fund Average, Donoghue's Government Money Fund Average and Donoghue's Treasury
Money Fund Average, respectively, which are averages compiled by
IBC/Donoghue's Money Fund Report, a widely recognized independent publication
that monitors the performance of money market funds, or to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. The yields of the Tax-Exempt Portfolio and
Michigan Portfolio may be compared to the Donoghue's Tax-Free Money Fund
Average. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in publications of a local
or regional nature, may also be used in comparing the performance and yields
of the Portfolios.
"Yield" refers to the income generated in a class of shares of a
Portfolio over a seven-day period identified in the advertisement. This income
is annualized, i.e., the income during a particular week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. Each Portfolio may also advertise its "effective yield" which is
calculated similarly but, when annualized, income is assumed to be reinvested,
thereby making the "effective yield" slightly higher because of the
compounding effect of the assumed reinvestment. The Tax-Exempt Portfolio and
Michigan Portfolio may from time to time advertise a "tax-equivalent yield" to
demonstrate the level of taxable yield necessary to produce an after-tax yield
equivalent to that achieved by the Portfolios. The "tax-equivalent yield" will
be computed by dividing the
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tax-exempt portion of a Portfolio's yield by a denominator consisting of one
minus a stated federal (and/or Michigan) income tax rate and adding the
product to that portion, if any, of the Portfolio's yield which is not
tax-exempt.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. Since
yields fluctuate, yield data cannot necessarily be used to compare an
investment in a class' shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Performance and yield are generally
functions of kind and quality of the instruments held in a portfolio,
portfolio maturity, operating expenses, and market conditions. Any fees
charged by financial institutions directly to their customer accounts in
connection with investments in shares will not be reflected in performance
calculations.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's net investment income will be declared daily as a
dividend to shareholders of record at the close of business on the day of
declaration. Shareholders will receive dividends in additional Class A shares
of the applicable Portfolio unless they elect to receive cash. Shareholders
must make such election, or any revocation thereof, in writing to their
financial institutions or the Transfer Agent. If an account is established
with telephone privileges, the registered owner or his preauthorized legal
representative may change the election to receive dividends in cash to an
election to receive dividends in shares by telephoning the Transfer Agent
at (800) 688-3350. The election will become effective with respect to
dividends paid after its receipt. Reinvestment or payment of dividends will
be effected monthly at the net asset value per Class A share of the applicable
Portfolio on the date effected, and will include fractional shares if
necessary. If cash payment is requested, checks will be mailed within five
Business Days after the last day of each month.
TAXES
Federal Taxes
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Portfolio of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company for a taxable year
requires, among other things, that each Portfolio distribute to its
shareholders an amount equal to at least the sum of 90% of its tax-exempt
interest income net of certain deductions and 90% of its investment company
taxable income for each taxable year. In general, a Portfolio's investment
company taxable income will be its taxable income, including interest, subject
to certain adjustments and excluding the excess of any net long term capital
gain for the taxable year over the net short term capital loss, if any, for
such year. Each Portfolio's policy is to distribute as dividends substantially
all of its investment company taxable income each year. Such dividends will be
taxable as ordinary income to the Portfolio's shareholders who are not
currently exempt from federal income taxes, whether such income or gain is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) In the case of the
Tax-Exempt Portfolio and Michigan Portfolio, dividends derived from tax-exempt
interest income ("exempt-interest dividends") may be treated by shareholders
as items of interest excludable from their gross income under Section 103(a)
of the Code unless under the circumstances applicable to the particular
shareholder the exclusion would be disallowed. (See Statement of
-27-
<PAGE>
Additional Information under "Additional Information Concerning Taxes.") An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Tax-Exempt Portfolio or Michigan Portfolio and
designated as an exempt-interest dividend in a written notice mailed to
shareholders not later than sixty days after the close of the Portfolio's
taxable year which does not exceed in its aggregate the net Municipal
Securities interest received by the Portfolio for the taxable year. It is
anticipated that no part of any distribution by the Portfolios will be
eligible for the dividends received deduction for corporations. In addition,
none of the Portfolios expects to pay capital gain dividends within the
meaning of the Code.
If the Tax-Exempt Portfolio or Michigan Portfolio should hold certain
private activity bonds issued after August 7, 1986, shareholders must include,
as an item of tax preference, the portion of dividends paid by the Portfolio
that is attributable to interest on such bonds in their federal alternative
minimum taxable income for purposes of determining liability (if any) for the
alternative minimum tax applicable to individuals and corporations and the
environmental tax applicable to corporations. Corporate shareholders must also
take all exempt-interest dividends into account in determining certain
adjustments for alternative minimum and environmental tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Portfolio on
December 31 of such year if such dividends are actually paid during January of
the following year.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
State and Local Taxes
Dividends paid by the Tax-Exempt Portfolio and Michigan Portfolio that
are derived from interest attributable to tax-exempt Michigan Municipal
Securities will be exempt from Michigan income tax, Michigan intangibles tax
and Michigan single business tax. Conversely, to the extent that the
Portfolios' dividends are derived from interest on obligations other than
Michigan Municipal Securities or certain U.S. Government Obligations (or are
derived from short term or long term gains), such dividends will be subject to
Michigan income tax, Michigan intangibles tax and Michigan single business
tax, even though the dividends may be exempt for federal income tax purposes.
The Portfolios are unable to predict in advance the portion of their dividends
that will be derived from interest on Michigan Municipal Securities, but will
mail to their respective shareholders not later than sixty days after the
close of the Portfolios' taxable year a written notice containing information
as to the interest derived from Michigan obligations and exempt from Michigan
income tax, Michigan intangibles tax and Michigan single business tax.
Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income
under other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust
and its shareholders under such laws may differ from treatment under federal
income tax laws. In certain states, review with a shareholder's tax adviser of
the effect of portfolio investments in repurchase agreements and U.S.
Government Obligations
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<PAGE>
upon state income taxation may be appropriate. Shareholders are advised to
consult their tax advisers concerning the application of state and local
taxes, which may have different tax consequences from those of the federal
income tax laws.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992) and
Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of Henry
Ford Health System); Trustee, Henry Ford Health Sciences Center (since 1987);
Trustee, Henry Ford Continuing Care Corporation (since 1980); Trustee,
Earhart Foundation (since 1980). He is 77 years old and his address is
333 West Fort Street, Detroit, Michigan 48226.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
- --------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
-29-
<PAGE>
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago; Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor of
Finance, Indiana University (1970-1991); Vice President, Trust &
Investment Advisers, Inc. (1990-1991); Director, Federal Home Loan Bank
of Indianapolis (1981 to 1985). He is 61 years old, and his address is
5 Boar's Head Lane, Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
- -----------------------------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
-30-
<PAGE>
Investment Adviser; Custodian and Transfer Agent
The investment adviser of the Trust is NBD, a wholly owned subsidiary
of First Chicago NBD Corporation, a bank holding company. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion of which in excess of $3.7
billion were money market instruments. NBD has been in the business of
providing such services since 1933. Included among NBD's accounts are pension
and profit sharing funds for major corporations and state and local
governments, as well as commingled trust funds and a variety of institutional
and personal advisory accounts, estates and trusts, all of which are potential
customers for shares of the Trust. NBD also acts as investment adviser for
other registered investment company portfolios.
Under the Advisory Agreement, NBD is subject to the general
supervision of the Trust's Board of Trustees and manages each Portfolio in
conformance with the stated policies of the Trust. In this regard, it is the
responsibility of NBD to make investment decisions for the Trust and to place
all purchase and sale orders for its portfolio transactions. Under the
Advisory Agreement, NBD also provides the Trust with certain administrative
services, such as maintaining the Trust's general ledger and assisting in the
preparation of various regulatory reports.
NBD is entitled to receive fees for advisory and administrative
services provided to the Portfolios, computed daily and payable monthly, at
annual rates of: (i) .45% of the first $1.0 billion of each of the Money
Market, Government, Treasury and Tax-Exempt Portfolio's average daily net
assets, .425% of the next $1.0 billion, and .40% of each such Portfolio's
average daily net assets in excess of $2.0 billion; and (ii) .50% of the
average daily net assets of the Michigan Portfolio. In addition, NBD is
entitled to 4/10ths of the gross income earned by a Portfolio on each loan of
securities (excluding capital gains and losses, if any). NBD may, however,
waive its fees in whole or in part. (The Trust will give 30 days notice to
investors of the discontinuance of advisory fee waivers.)
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
NBD is reimbursed for postage and other out-of-pocket expenses in
connection with the above duties and also receives compensation from the Trust
for costs associated with clearing redemption drafts through NBD, and for its
standard bank charges for processing lock box deposits, processing redemption
drafts, and performing other services.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance
of its shares, and prohibit banks generally from underwriting securities, but
do not prohibit such a bank holding company or affiliate from acting as
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of a
customer. NBD and the Trust believe that NBD may perform the advisory,
custodial and transfer agency services for the Trust described in this
Prospectus, and that NBD, subject to such banking laws and regulations, may
perform the shareholder services contemplated by this Prospectus, without
violation of such banking laws or regulations. However, future changes in
legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
prevent NBD from continuing to perform investment advisory, custodial or
transfer agency services for the Trust or require NBD to alter or discontinue
the services it provides to shareholders.
-31-
<PAGE>
If NBD were prohibited from performing investment advisory, custodial
or transfer agency services for the Trust, it is expected that the Board of
Trustees of the Trust would recommend that shareholders approve new agreements
with another entity or entities qualified to perform such services and
selected by the Board. If NBD or its affiliates were required to discontinue
all or part of its shareholder servicing activities, their customers would be
permitted to remain the beneficial owners of Trust shares and alternative
means for continuing the servicing of such customers would be sought. The
Trust does not anticipate that investors would suffer any adverse financial
consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges, and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below. Neither FoM
nor Essex receives a sales load in connection with the sale of the Portfolios'
shares.
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of the Portfolios: (i) fees payable
to the Co-Distributors pursuant to the Distribution Agreement; (ii) the
actual costs and expenses in connection with advertising and marketing the
Portfolios' shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions, and other professionals ("Service Agents")
for administration or servicing of Portfolio shareholders ("Servicing").
Servicing may include, among other things: answering client inquiries
regarding the Trust and the Portfolios; assisting clients in changing dividend
options, account designations and addresses; performing sub-accounting;
establishing and maintaining shareholder accounts and records; processing
purchase and redemption transactions; investing client cash account balances
automatically in Portfolio shares; providing periodic statements showing a
client's account balance and integrating such statements with those of other
transactions and balances in the client's other accounts serviced by the
Service Agent; arranging for bank wires; and such other services as the Trust
may request, to the extent the Service Agent is permitted by applicable
statute, rule or regulation. Under the Plan, the Trust also bears the cost of
preparing and printing Prospectuses for use in selling shares of the
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<PAGE>
Trust and costs associated with implementing and operating the Plan. These
costs are included in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .025% of the aggregate average net assets invested
in the Portfolios up to $400,000,000 and .005% of such assets in excess of
$400,000,000, and Essex is entitled to receive a fee at the annual rate of
.10% of the aggregate average net assets of the Trust's investment portfolios
attributable to investments by clients of Essex. The payments to be made to
the Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Shareholder Servicing Plan
Pursuant to a Shareholder Servicing Plan ("Servicing Plan") adopted by
its Board of Trustees, the Trust may enter into agreements with banks and
financial institutions, which may include the Adviser and its affiliates
("Shareholder Servicing Agents"), under which they will render shareholder
administrative support services for their customers who beneficially own Class
A shares of the Portfolios. Such services, which are described more fully in
the Statement of Additional Information, may include processing purchase and
redemption requests from customers, placing net purchase and redemption orders
with the Co- Distributors; processing, among other things, distribution
payments from the Trust, providing necessary personnel and facilities to
establish and maintain customer accounts and records, and providing
information periodically to customers showing their positions in Class A
shares.
For these services, the Trust will pay fees to Shareholder Servicing
Agents at an annual rate of up to .25% of the average daily net asset value of
Class A shares held by such Shareholder Servicing Agents for the benefit of
their customers and, at the Trust's option, it may reimburse the Shareholder
Servicing Agents' out-of-pocket expenses. Shareholder Servicing Agents are
required to provide their customers with a schedule of any credits, fees or
other conditions that may be applicable to the investment of customer assets
in Class A shares. The fees payable under such servicing agreements will be
allocated exclusively to the Class A shares in each Portfolio.
Conflict of interest restrictions may apply to the receipt of
compensation paid by the Trust to a Shareholder Servicing Agent in connection
with the investment of fiduciary funds in Portfolio shares. Banks and other
institutions regulated by the Comptroller of the Currency or other federal or
state regulatory agencies, and investment advisers and other money managers
subject to the
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<PAGE>
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult legal counsel before entering into servicing
agreements.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets, the fees and expenses of NBD as the Trust's Custodian and
as its Transfer Agent, the fees payable to the Co-Distributors under the
Distribution Agreement, the fees and expenses of Trustees, expenses associated
with the Trust's Distribution Plan and Shareholder Servicing Plan, outside
auditing and legal expenses, all taxes and corporate fees payable by the
Trust, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs to shareholder reports and shareholder meetings, and any
extraordinary expenses. Each Portfolio also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular portfolio of the Trust will
be charged to that portfolio, and expenses not readily identifiable as
belonging to a particular portfolio will be allocated by the Board of Trustees
among one or more portfolios in such a manner as it deems fair and equitable.
For the fiscal year ended December 31, 1995, the Money Market, Government,
Treasury, Tax-Exempt and Michigan Portfolios' total expenses were .51%, .51%,
.53%, .53% and .69% (after fee waivers), if any of their average net assets,
respectively. The Statement of Additional Information describes in more detail
the fees and expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust, which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Intermediate Bond Fund, Bond Fund, Short
Bond Fund, Municipal Bond Fund, Michigan Municipal Bond Fund, Growth/Value
Fund, Opportunity Fund, Intrinsic Value Fund, Capital Growth Fund, Balanced
Fund, International Equity Fund and Equity Index Fund. The Trust has
established the following two distinct classes of shares within each
Portfolio described herein: Class I shares (Special Class 1) and
Class A shares (Original Class). A sales person and any other person or
institution entitled to receive compensation for selling or servicing shares
may receive different compensation with respect to different classes of shares
in the Series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determine that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly, the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
-34-
<PAGE>
As of March 29, 1996, NBD held beneficially or of record
approximately 30.70%, 15.67%, 7.64%, 41.45% and 16.85% of the outstanding
shares of the Money Market, Government, Treasury, Tax-Exempt and Michigan
Portfolios, respectively, and therefore may be considered to be a controlling
person of the Portfolios for purposes of the 1940 Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
-35-
<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give any information or to
make any representations not contained in this Prospectus, or in the
Portfolios' Statement of Additional Information incorporated herein by
reference, in connection with the offering made by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust, Adviser or Sponsors and Co- Distributors.
This Prospectus does not constitute an offering by the Portfolios or by their
Co-Distributors in any jurisdiction in which such offering may not lawfully
be made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY................................. 2
BACKGROUND...................................... 4
FINANCIAL HIGHLIGHTS............................ 5
INTRODUCTION.................................... 10
PROPOSED REORGANIZATION......................... 10
INVESTMENT OBJECTIVES,
POLICIES AND RISK
FACTORS................................. 10
OTHER INVESTMENT POLICIES....................... 12
PURCHASE OF SHARES.............................. 19
REDEMPTION OF SHARES............................ 21
SHAREHOLDER SERVICES............................ 23
PERFORMANCE AND YIELD
INFORMATION............................. 25
DIVIDENDS AND DISTRIBUTIONS..................... 26
TAXES ........................................ 27
MANAGEMENT...................................... 28
OTHER INFORMATION............................... 34
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, PA 19107
<PAGE>
[ BACK COVER, COLUMN 2 ]
CLASS A SHARES IN THE:
WOODWARD MONEY MARKET FUND
WOODWARD GOVERNMENT FUND
WOODWARD TREASURY MONEY MARKET FUND
WOODWARD TAX-EXEMPT MONEY
MARKET FUND
WOODWARD MICHIGAN TAX-EXEMPT
MONEY MARKET FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
-36-
Exhibit (17(f)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following five investment portfolios (the "Portfolios"), each having
its own investment objective and policies as described in this Prospectus:
Class I shares of the:
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge by writing to The Woodward Funds at the above
address. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference into this Prospectus in its
entirety.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A CONSTANT
NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Money Market Fund ("Money Market Portfolio"), Woodward
Government Fund ("Government Portfolio"), Woodward Treasury Money Market Fund
("Treasury Portfolio"), Woodward Tax-Exempt Money Market Fund ("Tax-Exempt
Portfolio") and Woodward Michigan Tax-Exempt Fund ("Michigan Portfolio").
Class I shares are sold primarily to NBD and its affiliated and correspondent
banks acting on behalf of their respective customers. Class A shares are sold
to the general public primarily through financial institutions such as banks,
brokers and dealers. Class A shares are offered in a separate Prospectus.
Investors should call (800) 688-3350, a Co-Distributor or their financial
institutions if they would like to obtain more information concerning the
Class I shares and/or Class A shares of the Portfolios. The following table is
provided to assist in understanding the various costs and expenses that an
investor will indirectly incur as a beneficial owner of Class I shares in each
of the Portfolios.
<TABLE>
<CAPTION>
Money Govern- Tax-
Market ment Treasury Exempt Michigan
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases........................ None None None None None
(as a percentage of
offering price)
Sales Load
Imposed on Reinvested
Dividends....................... None None None None None
Deferred Sales Load................ None None None None None
Redemption Fee..................... None None None None None
Exchange Fee....................... None None None None None
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average
net assets)
Management Fees.................... .44% .45% .45% .45% 0.50%
12b-1 Fees......................... .025% .003% .024% .017% 0.079%
Other Expenses(2).................. .055% .083% .076% .053% .121%
Total Operating Expenses........... .52% .54% .55% .52% 0.70%
<FN>
- --------------------
1. The expenses for each of the Portfolios have been restated to
reflect current expenses.
2. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Money Govern- Tax-
Market ment Treasury Exempt Michigan
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Example
You would pay the following
expenses on a $1,000 investment
assuming:
(1) a 5% annual return and
(2) redemption at the end of
each time period:
One Year:..................... $ 5.33 $ 5.53 $ 5.64 $ 5.33 $ 7.17
Three Years:.................. 16.71 17.35 17.67 16.71 22.46
Five Years:................... 29.14 30.24 30.80 29.14 39.08
Ten Years:.................... 65.40 67.84 69.07 65.40 87.28
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE GREATER
OR LESSER THAN THOSE SHOWN.
The example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class I shares in each of the Portfolios,
based upon payment of operating expenses at the respective levels set forth in
the expense table. For more complete descriptions of Portfolio expenses, see
"Investment Adviser, Custodian and Transfer Agent," "Sponsors and Co-
Distributors," "Service and Distribution Plan" and "Trust Expenses" under the
heading "Management" in this Prospectus and the financial statements and
related notes contained in the Statement of Additional Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class I
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate servicing fees payable
under the plan exclusively to such shares.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of net investment
income and distributions from net investment income for each of the
Portfolios. The tables have been derived from the Portfolios' financial
statements which have been audited by Arthur Andersen LLP, the Trust's
independent public accountants, whose report thereon is contained in the
Statement of Additional Information along with the financial statements. The
financial data included in these tables should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Portfolios is
available in annual reports to shareholders. The Statement of Additional
Information and annual reports to shareholders may be obtained from the Trust
free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Money Market Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income ... $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579 $ 0.0784 $ 0.0877 $ 0.0730
---------- ---------- ---------- ---------- -------- -------- -------- --------
Total From Investment
Operations ............. $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579 $ 0.0784 $ 0.0877 $ 0.0730
---------- ---------- ---------- ---------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income...... $ (0.0549) $ (0.0378) $ (0.0281) $ (0.0347) $(0.0579) $(0.0784) $(0.0877) $(0.0730)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Total Distributions..... $ (0.0549) $ (0.0378) $ (0.0281) $ (0.0347) $(0.0579) $(0.0784) $(0.0877) $(0.0730)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ======== ======== ======== ========
Total Return ............. 5.63% 3.86% 2.85% 3.58% 5.95% 8.14% 9.19% 7.55%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ..... $1,639,695 $1,323,040 $1,326,693 $1,095,354 $775,521 $717,516 $446,466 $250,182
Ratio of Expenses to
Average Net Assets .... 0.51% 0.47% 0.49% 0.52% 0.50% 0.50% 0.51% 0.49%(a)
Ratio of Net Investment
Income to Average Net
Assets ............... 5.49% 3.78% 2.81% 3.47% 5.79% 7.84% 8.77% 7.30%(a)
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Government Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
of Period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income .. $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564 $ 0.0769 $ 0.0862 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ........... $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564 $ 0.0769 $ 0.0862 $ 0.0730
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income ..... $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564) $(0.0769) $(0.0862) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions .... $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564) $(0.0769) $(0.0862) $(0.0730)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return ............ 5.57% 3.77% 2.81% 3.63% 5.79% 7.97% 8.98% 7.55%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ..... $474,377 $421,208 $346,665 $261,614 $288,369 $235,858 $196,095 $106,194
Ratio of Expenses to
Average Net Assets .... 0.51% 0.51% 0.51% 0.51% 0.50% 0.49% 0.50% 0.50%(a)
Ratio of Net Investment
Income to Average Net
Assets ............... 5.44% 3.72% 2.77% 3.57% 5.64% 7.69% 8.62% 7.30%(a)
<FN>
- ---------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Treasury Portfolio
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
-------------- -------------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from Investment
Operations:
Net Investment Income.... $0.0539 $0.0370 $0.0273
------- ------- -------
Total From Investment Operations $0.0539 $0.0370 $0.0273
------- ------- -------
Less Distributions:
Dividends From Net Investment
Income................. $ (0.0539) $(0.0370) $(0.0273)
--------- --------- ---------
Total Distributions...... $ (0.0539) $(0.0370) $(0.0273)
--------- --------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00
========= ========= =========
Total Return............... 5.53% 3.77% 2.77%
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's)...... $ 927,696 $ 785,694 $ 854,873
Ratio of Expenses to Average
Net Assets............. 0.53% 0.50% 0.50%
Ratio of Net Investment
Income to Average Net Assets 5.39% 3.70% 2.73%
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Portfolio
January 4,
1988
(Commence-
Year Year Year Year Year Year Year ment of
Ended Ended Ended Ended Ended Ended Ended Operations)
Decem- Decem- Decem- Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income ... $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422 $ 0.0553 $ 0.0595 $ 0.0498
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ............. $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422 $ 0.0553 $ 0.0595 $ 0.0498
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From Net
Investment Income ..... $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422) $(0.0553) $(0.0595) $(0.0498)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions .... $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422) $(0.0553) $(0.0595) $(0.0498)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return ............. 3.41% 2.45% 1.98% 2.70% 4.30% 5.67% 6.11% 5.10%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's) ..... $564,413 $550,736 $498,706 $379,431 $227,808 $235,451 $210,028 $177,645
Ratio of Expenses to
Average Net Assets .... 0.53% 0.51% 0.51% 0.53% 0.52% 0.52% 0.51% 0.49%(a)
Ratio of Net Investment
Income to Average
Net Assets ............ 3.35% 2.42% 1.96% 2.64% 4.22% 5.53% 5.95% 4.98%(a)
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Michigan Portfolio
January 23, 1991
Year Year Year Year (Commencement
Ended Ended Ended Ended of Operations)
Decem- Decem- Decem- Decem- to Decem-
ber 31, ber 31, ber 31, ber 31, ber 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income From Investment
Operations:
Net Investment Income..... $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
--------- --------- --------- --------- ---------
Total From Investment
Operations............... $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
--------- --------- --------- --------- ---------
Less Distributions:
Dividends From Net
Investment Income........ $ (0.0329) $ (0.0235) $ (0.0181) $ (0.0237) $ (0.0353)
--------- --------- --------- --------- ---------
Total Distributions....... $ (0.0329) $ (0.0235) $ (0.0181) $ (0.0237) $ (0.0353)
--------- --------- --------- --------- ---------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return............... 3.32% 2.38% 1.83% 2.40% 3.83%(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000's)....... $ 122,057 $ 78,640 $ 52,557 $ 52,960 $ 38,885
Ratio of Expenses to
Average Net Assets...... 0.69% 0.67% 0.65% 0.64% 0.65%(a)
Ratio of Net Investment
Income to Average Net
Assets.................. 3.30% 2.35% 1.81% 2.37% 3.77%(a)
Ratio of Expenses to
Average Net Assets
Without Fee Waiver...... 0.76% 0.75% 0.00% 0.00% 0.00%
Ratio of Net Investment
Income to Average
Net Assets
Without Fee Waiver...... 3.23% 2.28% 0.00% 0.00% 0.00%
<FN>
- ---------------------
(a) Total returns and ratios are annualized for periods less than one
year for comparability purposes. Actual annual returns and ratios may be less
than or greater than those shown.
</TABLE>
-9-
<PAGE>
INTRODUCTION
The Trust is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objectives and
policies. However, only the Class I shares of the Money Market, Government,
Treasury, Tax-Exempt and Michigan Portfolios are offered pursuant to this
Prospectus. Under the 1940 Act, the Michigan Portfolio is classified as a
non-diversified investment portfolio and the other Portfolios are classified
as diversified investment portfolios.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
such Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Money Market Portfolio, Government Portfolio and Treasury Portfolio
The investment objective of the Money Market Portfolio, Government
Portfolio and Treasury Portfolio is to provide a high level of current income
consistent with the preservation of capital and liquidity.
In seeking to achieve its investment objective, the Money Market
Portfolio invests in the following high quality "money market" instruments:
(1) Obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations");
(2) U.S. dollar denominated obligations issued or guaranteed
by the government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof;
-10-
<PAGE>
(3) Certificates of deposit, bankers' acceptances and time
deposits of U.S. banks or other U.S. financial institutions (including
foreign branches of such banks and institutions) having total assets
in excess of $1 billion and which are members of the Federal Reserve
System or the Federal Deposit Insurance Corporation ("FDIC");
(4) Certificates of deposit, bankers' acceptances and time
deposits of foreign banks and U.S. branches of foreign banks having
assets in excess of the equivalent of $1 billion;
(5) Commercial paper, other short term obligations and
variable rate master demand notes, bonds, debentures and notes; and
(6) Repurchase agreements relating to the above instruments.
In seeking to achieve its investment objective, the Government
Portfolio invests in:
(1) U.S. Government Obligations; and
(2) Repurchase agreements relating to the above obligations.
In seeking to achieve its investment objective, the Treasury Portfolio
invests in:
(1) U.S. Treasury bills, notes, and direct U.S. Treasury
obligations having remaining maturities of 13 months or less; and
(2) Repurchase agreements relating to direct U.S. Treasury
obligations.
In accordance with current SEC regulations, the Money Market,
Government and Treasury Portfolios will limit their respective purchases of
the securities of any one issuer (other than U.S. Government Obligations and
repurchase agreements collateralized by such obligations) to 5% of their
respective total assets, except that each Portfolio may invest more than 5%
but no more than 25% of its total assets in "First Tier Securities" of one
issuer for a period of up to three business days. First Tier Securities
include "eligible securities" (defined below under "Policies Applicable to all
Portfolios") that (i) if rated by more than one nationally recognized
statistical rating organization ("Rating Agency"), are rated (at the time of
purchase) by two or more Rating Agencies in the highest rating category for
such securities, (ii) if rated by only one Rating Agency, are rated by such
Rating Agency in its highest rating category for such securities, (iii) have
no short term rating but have been issued by an issuer that has other
outstanding short term obligations that have been rated in accordance with (i)
or (ii) above and are comparable in priority and security to such securities,
and (iv) are certain unrated securities that have been determined by NBD to be
of comparable quality to such securities pursuant to guidelines established by
the Trust's Board of Trustees. In addition, the Money Market and Government
Portfolios will limit their investments in "Second Tier Securities" (which are
eligible securities other than First Tier Securities) to 5% of their
respective total assets, with investments in any one issuer of such securities
being limited to no more than 1% of their respective total assets or $1
million, whichever is greater. Because of these limitations, the Money Market,
Government and Treasury Portfolios will not be able to purchase lower rated or
longer term securities from which a higher income, although a greater degree
of risk, might be derived.
Tax-Exempt Portfolio and Michigan Portfolio
The investment objective of the Tax-Exempt Portfolio is to provide a
high level of current interest income that is exempt from federal income taxes
consistent with the preservation of capital and liquidity. In seeking to
achieve its investment objective, the Portfolio invests in high quality debt
obligations issued by states, territories and possessions of the United
States, by the District of Columbia, and by their respective political
-11-
<PAGE>
subdivisions, agencies, instrumentalities and authorities, the interest on
which is, in the opinion of bond counsel for the issuers, exempt from regular
federal income tax ("Municipal Securities").
The investment objective of the Michigan Portfolio is to provide a
high level of current interest income that is exempt from federal and State of
Michigan income taxes, consistent with the preservation of capital and
liquidity. In seeking to achieve its investment objective, the Portfolio
invests in high quality debt obligations issued by the State of Michigan, its
political subdivisions, municipalities, corporations and authorities, the
interest on which, in the opinion of bond counsel to the issuers, is exempt
from federal and State of Michigan income taxes ("Michigan Municipal
Securities") and in related repurchase agreements. Income earned by the
Portfolio with respect to repurchase agreements and securities lending
transactions is not exempt from federal income tax. To the extent acceptable
Michigan Municipal Securities are at any time unavailable for investment by
the Portfolio, the Portfolio invests primarily in other Municipal Securities
the interest on which is, in the opinion of bond counsel, exempt from federal,
but not State of Michigan, income tax.
Municipal Securities acquired by the Tax-Exempt Portfolio or Michigan
Portfolio include:
(1) Municipal bonds;
(2) Municipal notes;
(3) Variable rate demand notes;
(4) Tax-exempt commercial paper and floating rate
instruments; and
(5) Unrated notes, paper or other instruments that are of
comparable quality as determined by the Adviser under guidelines
established by the Trust's Board of Trustees. Where necessary to
assure that an instrument is of high quality, the Portfolios may only
purchase the instrument if the issuer's obligation to pay the
principal is backed by an unconditional bank letter of credit, line of
credit, guaranty or commitment to lend.
At least 80% of each of the Tax-Exempt Portfolio's and Michigan
Portfolio's total assets will be invested in Municipal Securities, except in
extraordinary circumstances, such as when the Adviser believes that market
conditions indicate that a Portfolio should adopt a temporary defensive
position by holding uninvested cash or investing in taxable short term
securities ("Taxable Investments"), such as those in which the Money Market
Portfolio may invest. This policy is fundamental with respect to the Tax-
Exempt Portfolio and Michigan Portfolio and may not be changed without the
approval of the holders of a majority of a Portfolio's outstanding shares. In
addition, with respect to the Michigan Portfolio, at least 65% of its total
assets will be invested under normal market conditions in Michigan Municipal
Securities and the remainder may be invested in securities that are not
Michigan Municipal Securities and therefore may be subject to Michigan income
taxes. A security is included within the term "Municipal Securities" only if
the interest paid thereon is exempt from regular federal income tax and not
treated as a specific tax preference item under the federal alternative
minimum tax. See "Taxes."
Policies Applicable To All Portfolios
Each Portfolio will only purchase "eligible securities" that present
minimal credit risks as determined by the Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities include (i)
U.S. Government Obligations, (ii) securities that are rated (at the time of
purchase) by Rating Agencies in the two highest rating categories for such
securities, and (iii) certain securities that are not so rated but are of
comparable quality to rated eligible securities as determined by the Adviser.
-12-
<PAGE>
See "Investment Objectives, Policies and Risk Factors" in the Statement of
Additional Information for a more complete description of eligible securities.
A description of ratings is contained in the Statement of Additional
Information.
Each Portfolio is managed so that the average maturity of all
instruments in the Portfolio (on a dollar-weighted basis) will not exceed 90
days. In no event will the Portfolios purchase any securities which are deemed
to mature more than 13 months from the date of purchase (except for certain
variable and floating rate instruments and securities underlying repurchase
agreements and collateral underlying loans of portfolio securities).
OTHER INVESTMENT POLICIES
Bank Obligations
Domestic and foreign bank obligations in which the Money Market
Portfolio may invest include certificates of deposit, bankers' acceptances and
fixed time deposits. Total assets of a bank are determined on the basis of the
bank's most recent annual financial statements.
Obligations issued or guaranteed by foreign branches of U.S. banks
(commonly known as "Eurodollar" obligations) or U.S. branches of foreign banks
(commonly known as "Yankee dollar" obligations) may be general obligations of
the parent bank or obligations only of the issuing branch. Where the
obligation is only that of the issuing branch, the parent bank has no legal
duty to pay such obligation. Such obligations would thus be subject to risks
comparable to those which would be present if the issuing branch were a
separate bank. The Money Market Portfolio will not invest in a Eurodollar
obligation if upon making such investment the total of Eurodollar obligations
which are not general obligations of domestic parent banks would thereby
exceed 25% of the total assets of the Money Market Portfolio.
Obligations of foreign issuers may involve risks that are different
than those of obligations of domestic issuers. These risks include unfavorable
political and economic developments, possible imposition of withholding taxes
on interest income, possible seizure or naturalization of foreign deposits,
possible establishment of exchange controls, or adoption of other foreign
governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks and, generally, there may be less publicly available information
regarding such issuers. The Trust could also encounter difficulties in
obtaining or enforcing a judgment against a foreign issuer (including a
foreign branch of a U.S. bank).
Commercial Paper
Commercial paper issued by corporations and other institutions,
including variable rate notes and other short term corporate obligations, must
be rated in one of the two highest categories by at least two Rating Agencies,
or if not rated, must have been independently determined by the Adviser to be
of comparable quality.
Government Obligations
The Money Market, Government and Treasury Portfolios may invest in
direct obligations of the U.S. Treasury consisting of bills, notes and bonds.
The Money Market and Government Portfolios may also invest in other
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities, such
as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
-13-
<PAGE>
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
investments may be variable or floating rate instruments.
Variable and Floating Rate Obligations
Each Portfolio may purchase rated and unrated variable and floating
rate obligations which may have stated maturities in excess of 13 months but
will, in any event, permit a Portfolio to demand payment of the principal of
the instrument at least once every 13 months on not more than thirty days'
notice (unless the instrument is a U.S. Government Obligation), provided that
the demand feature may be sold, transferred, or assigned only with the
underlying instrument involved. Such instruments may include variable rate
demand notes which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for
a Portfolio to dispose of instruments if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise
its demand rights, and the Portfolio could, for these or other reasons, suffer
a loss with respect to such instruments. Variable and floating rate
instruments held by a Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment
of the principal amount within seven days and a reliable trading market is
absent.
Repurchase and Reverse Repurchase Agreements
Each Portfolio may agree to purchase portfolio securities which it may
otherwise purchase from financial institutions subject to the seller's
agreement to repurchase them at a mutually agreed-upon date and price
("repurchase agreements"). No Portfolio will enter into repurchase agreements
with the Adviser, Co-Distributors, or any of their affiliates. Although the
securities subject to repurchase agreements may bear maturities exceeding 13
months provided the repurchase agreement itself matures in one year or less,
the Portfolios generally intend to enter into repurchase agreements which
terminate within seven days after notice by the Portfolios. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also borrow funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase. Whenever a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets equal to the repurchase price marked to market daily (including
accrued interest) and will subsequently monitor the account to ensure such
equivalent value is maintained.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans may include cash or
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securities of the U.S. Government, its agencies or instrumentalities, some of
which may bear maturities exceeding 13 months. Such loans will not be made if,
as a result, the aggregate of all outstanding loans of a particular Portfolio
exceeds one-third of the value of its total assets. Loans of securities
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or possibly loss of rights in the collateral should the
borrower of the securities become insolvent. In the event a Portfolio is
unable to recover the securities loaned in a particular transaction, it will
promptly sell any collateral which bears a maturity exceeding 13 months. Loans
will be made only to borrowers that provide the requisite collateral comprised
of liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
When-Issued Securities
Each Portfolio may purchase portfolio securities on a "when-issued"
basis and may purchase or sell such securities on a "forward commitment"
basis. These transactions involve commitment by a Portfolio to purchase or
sell particular securities with payment and delivery taking place in the
future, beyond the normal settlement date, at a stated price and yield.
Securities purchased on a when-issued basis or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, or if the value of the security to be sold
increases prior to the settlement date. When a Portfolio enters into such
transactions, the Custodian will maintain in a segregated account cash or
liquid portfolio securities equal to the amount of the commitment. The
Portfolios do not earn income with respect to these transactions until the
subject securities are delivered to the Portfolios. The Portfolios do not
intend to purchase when-issued securities for speculative purposes but only
for the purposes of acquiring portfolio securities. Each Portfolio's when-
issued purchases and forward commitments are not expected to exceed 25% of the
value of its total assets absent unusual market conditions.
Municipal and Related Securities
Municipal Securities may include general obligations, revenue
obligations, notes, and moral obligation bonds. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the user of the facility being financed. Private activity bonds
(i.e. bonds issued by industrial development authorities) are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of a private activity bond is usually
directly related to the credit standing of the private user of the facility
involved. Notes are short-term instruments which are obligations of the
issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Moral obligation bonds
are normally issued by special purpose public authorities. If the issuer of a
moral obligation bond is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Municipal Securities also include municipal lease/purchase
agreements which are similar to installment purchase contracts for property or
equipment issued by municipalities. Municipal lease/purchase agreements may be
considered illiquid investments.
See "Restricted Securities."
The Michigan Portfolio may purchase from financial institutions
participation interests in Municipal Securities. A participation interest
gives the Portfolio an undivided interest in the Municipal Security in the
proportion that the Portfolio's participation interest bears to the total
principal amount of the Municipal Security. These instruments may have fixed,
floating or variable rates of interest, with remaining maturities of 13 months
or less as determined in accordance with SEC regulations (although the
securities held by the financial institution may have longer maturities). If
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the participation interest is unrated, or has been given a rating below that
which otherwise is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank that the Trust's Board of Trustees has determined meets
the prescribed quality standards for banks set forth below, or the payment
obligation otherwise will be collateralized by U.S. Government securities. For
certain participation interests, the Portfolio will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Portfolio's participation interest in the Municipal Security, plus accrued
interest. As to these instruments, the Portfolio intends to exercise its right
to demand payment only upon a default under the terms of the Municipal
Security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. Participation interests
that do not have this demand feature will be considered illiquid investments.
The Tax-Exempt and Michigan Portfolios may acquire "stand-by
commitments" with respect to Municipal Securities they hold. Under a stand-by
commitment, a dealer agrees to purchase at the Portfolio's option specified
Municipal Securities at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield of the
Municipal Securities to which the commitment relates. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
The Tax-Exempt Portfolio has no policy of seeking particularly to
invest in Municipal Securities issued by or within any single state or select
group of states. However, certain states traditionally are sources of large
amounts of Municipal Securities, e.g., California, Colorado, Florida,
Michigan, New York and Texas. The Portfolio may from time to time have more
than 25% of its assets invested in securities issued by or from any of the
above states. To the extent that the Portfolio's assets are invested in
Municipal Securities issued by or from a single state or a few states, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such state or states to a greater extent than
would be the case if its assets were not so concentrated. If any state or
political subdivision thereof were to suffer serious financial difficulties
jeopardizing its ability to pay its obligations, the marketability of such
obligations held by the Portfolio, and consequently its net asset value, could
be adversely affected.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax (and, with respect to
Michigan Municipal Securities, Michigan income taxes) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor its Adviser will review the proceedings relating to the issuance of
Municipal Securities or the bases for such opinions.
Special Risk Considerations Applicable to the Michigan Portfolio
The Michigan Portfolio will under normal market conditions consist of
Michigan Municipal Securities to the extent of 65% or more of its total
assets. This concentration in securities issued by governmental units of only
one state exposes the Portfolio to risk of loss greater than that of a more
diversified portfolio holding securities issued by governmental units of
different states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent
upon the automobile manufacturing industry. This industry is highly cyclical.
This factor affects the revenue streams of the State of Michigan and its
political subdivisions because it impacts tax sources, particularly sales
taxes, income taxes, and Michigan single business taxes.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
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The heavy concentration of the Michigan Portfolio in Michigan
Municipal Securities and the cyclical nature of the economy of the State of
Michigan may adversely affect the liquidity of the Portfolio.
In 1993 and 1994, Michigan adopted complex statutory and
constitutional changes which, among several other changes in tax methods and
rates, have the effect of imposing limits on annual assessment increases and
of transferring a significant part of the operating cost of public education
from locally based property tax sources to state based sources, including
increased sales tax. These changes will affect state and local revenues of
Michigan governmental units in future years in differing ways, not all of
which can be presently known with certainty.
Guaranteed Investment Contracts
The Money Market Portfolio may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
Pursuant to such contracts, the Portfolio makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the Portfolio on a monthly basis guaranteed interest which is
based on an index (in most cases this index will be the Salomon Brothers CD
Index). The GICs provide that this guaranteed interest will not be less than a
certain minimum rate. Generally, a GIC allows a purchaser to buy an annuity
with the monies accumulated under contract; however, the Portfolio will not
purchase any such annuity. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a
GIC becomes a part of the general assets of the issuer, and the contract is
paid from the general assets of the issuer. The Portfolio will only purchase
GICs from issuers which meet quality and credit standards established by the
Adviser. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market
in GICs does not currently exist. Therefore, GICs are considered by the
Portfolio to be illiquid investments and subject to the limitation on illiquid
investments set forth below.
Restricted Securities
In accordance with its fundamental investment limitation described
below, each Portfolio will not invest more than 10% of the value of its total
assets in securities that are illiquid. Illiquid investments may include
securities having legal or contractual restrictions on resale or no readily
available market, GICs (in the case of the Money Market Portfolio), municipal
lease/purchase agreements (in the case of the Tax-Exempt and Michigan
Portfolios) and instruments (including repurchase agreements, variable and
floating rate instruments and time deposits) that do not provide for payment
to a Portfolio within seven days after notice. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed to be illiquid for purposes of this limitation.
Each Portfolio may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development, and it is not possible to predict how
this market will develop. The Board of Trustees will carefully monitor any
investments by the Portfolios in these securities.
Securities of Other Investment Companies
Within the limits prescribed by the 1940 Act, each Portfolio may
invest in securities issued by other investment companies which invest in high
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quality, short term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Portfolio bears directly in connection with
its own operations.
Miscellaneous
The Trust will give 30 days notice to investors of any material change
in any Portfolio's investment policies.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase the securities of issuers conducting their principal
business activity in the same industry if immediately after such purchase the
value of its investments in such industry would exceed 25% of the value of its
total assets, provided that (a) utilities will be divided according to their
services, wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents, the personal credit and business
credit businesses will be considered separate industries and (b) there is no
limitation with respect to or arising out of investments in Municipal
Securities in the case of the Tax-Exempt Portfolio and Michigan Portfolio,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, domestic bank obligations, or repurchase agreements by any
of the foregoing.
2. Borrow money, except from banks or through reverse repurchase
agreements, and except for temporary or emergency purposes and then only in
amounts not exceeding at any one time 20% of the value of its net assets at
the time of the borrowing. A Portfolio will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
net assets are outstanding. Borrowings will only be effected in conformity
with the requirements of the 1940 Act.
3. Make loans, except (i) through the purchase of debt obligations in
accordance with its investment objective and policies, (ii) through repurchase
agreements and (iii) through the lending of investment securities.
Each of the Money Market, Government and Tax-Exempt Portfolios may not
invest more than 10% of its total assets in illiquid investments, including
restricted securities, securities having no readily available market
quotations, non-negotiable time deposits maturing in more than seven days, and
repurchase agreements with maturities of more than seven days.
Each of the Treasury and Michigan Portfolios may not invest more than
10% of its total assets in illiquid investments. See "Restricted Securities"
above.
With respect to 75% of its assets, the Tax-Exempt Portfolio may not
invest more than 5% of its assets in the securities of any one issuer, except
U.S. Government Obligations.
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In addition, the Tax-Exempt Portfolio may not invest less than 80% of
its net assets in securities the interest on which is exempt from federal
income tax, except during temporary defensive periods.
The Michigan Portfolio may not:
1. Invest less than 80% of its net assets in securities the interest
on which is exempt from federal income tax, except during temporary defensive
periods or periods of unusual market conditions. For purposes of this
investment limitation, securities the interest on which is treated as a
specific tax preference item under the federal alternative minimum tax are
considered taxable.
2. With respect to 50% of its total assets, invest more than 5% of its
assets in the securities of any one issuer, except U.S. Government Obligations
or securities of other regulated investment companies.
For purposes of the Investment Limitation above applicable to the
Money Market, Government, Treasury and Tax-Exempt Portfolios and No. 2 above
applicable to the Michigan Portfolio: (i) a security is considered to be
issued by the government entity (or entities) whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only
by the assets and revenues of a nongovernmental user, a security is considered
to be issued by such nongovernmental user; (ii) in certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee; and (iii) U.S. Government Obligations
(including securities backed by the full faith and credit of the United
States) are deemed to be U.S. Government obligations for purposes of the 1940
Act.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in value of a Portfolio's securities will not constitute a violation of
the limitation for purposes of the 1940 Act.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class I shares are sold primarily to NBD and its affiliated and
correspondent banks (the "Banks") acting on behalf of their respective
customers. The Banks may impose different minimum investment and other
requirements, as well as account charges, on their customers and may establish
separate operational arrangements by which shares may be purchased and
redeemed. Customers should contact their Banks for further information.
It is the responsibility of the Banks to transmit their customers'
purchase orders to NBD acting as transfer agent (the "Transfer Agent") and to
deliver required funds on a timely basis. Class I shares will normally be held
of record by the Banks. Confirmations of share purchases and redemptions will
be sent to the Banks. Beneficial ownership of Class I shares will be recorded
by the Banks and reflected in the account statements provided by them to their
customers.
In order to afford the Trust a reasonable opportunity to invest funds
that are received on the same day, purchase orders received by a Co-
Distributor or the Transfer Agent with respect to the Tax-Exempt and Michigan
Portfolios by noon, Eastern time, and with respect to the Money Market,
Government and Treasury Portfolios by 3:00 p.m., Eastern time, will be
executed the same day if NBD acting as the Portfolios' custodian (the
"Custodian") has received confirmation of receipt of a wire transfer of
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federal funds prior to noon and 3:00 p.m., Eastern time, respectively, and the
shares purchased will thus be eligible for that day's dividend, and otherwise
such purchase will be effected, and dividends will begin to accrue, on the
following business day.
Questions concerning the purchase of shares should be directed to
the Transfer Agent at (800) 688-3350.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined by the Adviser as of noon and as of 3:00
p.m., Eastern Time, on each day the New York Stock Exchange ("Exchange"), NBD
Bank or its bank affiliates are open for business ("Business Day") except:
(i) those holidays which the Exchange observes (currently New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day); and (ii) those Business Days on
which the Exchange closes prior to the close of its regular trading
hours ("Early Closing Time"), in which event the net asset value of
each Portfolio will be determined and its shares will be priced as of
such Early Closing Time. Net asset value per Class I share of a Portfolio
is calculated by dividing the value of all securities and other assets
belonging to the Portfolio allocable to that Class I, less the liabilities
charged to that Class I, by the number of the outstanding shares of such
Class I.
The assets in each Portfolio are valued based upon the amortized cost
method. Although the Trust seeks to maintain the net asset value per share of
the Portfolios at $1.00, there can be no assurance that the net asset value
will not vary.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption. It is
the responsibility of the Banks to transmit redemption orders to the Transfer
Agent and credit their customers' accounts with the redemption proceeds on a
timely basis.
Written and telephone redemption requests will be effected on the same
Business Day if the request is received by the Transfer Agent with respect to
the Tax-Exempt and Michigan Portfolios before noon, Eastern time, and with
respect to the Money Market, Government and Treasury Portfolios, before 3:00
p.m., Eastern time. Redemption requests received after noon and 3:00 p.m.,
Eastern time, respectively, will normally be effected on the next Business Day
(and in any event within seven calendar days).
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934 after receipt by the Transfer Agent of a request in proper form. If
shares to be redeemed were purchased by check, the Trust will transmit the
redemption proceeds promptly upon clearance of such check, which could take up
to fifteen days from the purchase date. A shareholder of record having
purchased shares by wire must have filed an account application before any
redemption requests can be honored.
Written requests to redeem shares having a net asset value of more
than $50,000 must have all signatures of the registered owner(s) or their
authorized legal representative guaranteed by a commercial bank or trust
company which is a member of the Federal Reserve System or FDIC, a member firm
of a national securities exchange or a savings and loan association. A
signature guaranteed by a savings bank or notarized by a notary public is not
acceptable. A signature guarantee will also be required for a redemption
request (in any amount) if the address of record for the account has been
changed within the previous 15 days or which requests that the proceeds be
paid to an account other than the one preauthorized on the application, a
payee or payees other than the registered owners of the account, or an address
other than the address of record. The Trust may require additional supporting
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documents for redemptions made by corporations, fiduciaries, executors,
administrators, trustees, guardians and institutional investors.
Currently, the Trust imposes no charge when shares are redeemed.
However, Banks may charge a fee for providing services in connection with
investments in shares. The Trust reserves the right to redeem accounts
involuntarily, after sixty days' notice, if redemptions cause the account's
value to remain at $400 or less. Under certain circumstances, the
Trust may make payment for redemptions in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance and yields of each class of shares of the Portfolios may be quoted
and compared to the performance and yields of other mutual funds with similar
investment objectives and to stock or other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, yields of the Money
Market, Government and Treasury Portfolios may be compared to the Donoghue's
Money Fund Average, Donoghue's Government Money Fund Average and Donoghue's
Treasury Money Fund Average, respectively, which are averages compiled by
IBC/Donoghue's Money Fund Report, a widely recognized independent publication
that monitors the performance of money market funds, or to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. The yields of the Tax-Exempt Portfolio and
Michigan Portfolio may be compared to the Donoghue's Tax-Free Money Fund
Average. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in publications of a local
or regional nature, may also be used in comparing the performance and yields
of the Portfolios.
"Yield" refers to the income generated in a class of shares of a
Portfolio over a seven-day period identified in the advertisement. This income
is annualized, i.e., the income during a particular week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. Each Portfolio may also advertise its "effective yield" which is
calculated similarly but, when annualized, income is assumed to be reinvested,
thereby making the "effective yield" slightly higher because of the
compounding effect of the assumed reinvestment. The Tax-Exempt Portfolio and
Michigan Portfolio may from time to time advertise a "tax-equivalent yield" to
demonstrate the level of taxable yield necessary to produce an after-tax yield
equivalent to that achieved by the Portfolios. The "tax- equivalent yield"
will be computed by dividing the tax-exempt portion of a Portfolio's yield by
a denominator consisting of one minus a stated federal (and/or Michigan)
income tax rate and adding the product to that portion, if any, of the
Portfolio's yield which is not tax-exempt.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. Since
yields fluctuate, yield data cannot necessarily be used to compare an
investment in a class' shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Performance and yield are generally
functions of kind and quality of the instruments held in a portfolio,
portfolio maturity, operating expenses and market conditions. Any fees charged
by financial institutions directly to their customer accounts in connection
with investments in shares will not be reflected in performance calculations.
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DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's net investment income will be declared daily as a
dividend to shareholders of record at the close of business on the day of
declaration. Shareholders will receive dividends in additional Class I shares
of the applicable Portfolio unless they elect to receive cash. Shareholders
must make such election, or any revocation thereof, in writing to their Banks.
If an account is established with telephone privileges, the registered owner
or his preauthorized legal representative may change the election to receive
dividends in cash to an election to receive dividends in shares by telephoning
the Transfer Agent at (800) 688-3350. The election will become effective
with respect to dividends paid after its receipt. Reinvestment or
payment of dividends will be effected monthly at the net asset value per Class
I share of the applicable Portfolio on the date effected, and will include
fractional shares if necessary. If cash payment is requested, checks will be
mailed within five Business Days after the last day of each month.
TAXES
Federal Taxes
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Portfolio of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company for a taxable year
requires, among other things, that each Portfolio distribute to its
shareholders an amount equal to at least the sum of 90% of 23 its tax-exempt
interest income net of certain deductions and 90% of its investment company
taxable income for each taxable year. In general, a Portfolio's investment
company taxable income will be its taxable income, including interest, subject
to certain adjustments and excluding the excess of any net long term capital
gain for the taxable year over the net short term capital loss, if any, for
such year. Each Portfolio's policy is to distribute as dividends substantially
all of its investment company taxable income each year. Such dividends will be
taxable as ordinary income to the Portfolio's shareholders who are not
currently exempt from federal income taxes, whether such income or gain is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) In the case of the
Tax-Exempt Portfolio and Michigan Portfolio, dividends derived from tax-exempt
interest income ("exempt-interest dividends") may be treated by shareholders
as items of interest excludable from their gross income under Section 103(a)
of the Code unless under the circumstances applicable to the particular
shareholder the exclusion would be disallowed. (See Statement of Additional
Information under "Additional Information Concerning Taxes.") An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Tax-Exempt Portfolio or Michigan Portfolio and
designated as an exempt-interest dividend in a written notice mailed to
shareholders not later than sixty days after the close of the Portfolio's
taxable year which does not exceed in its aggregate the net Municipal
Securities interest received by the Portfolio for the taxable year. It is
anticipated that no part of any distribution by the Portfolios will be
eligible for the dividends received deduction for corporations. In addition,
none of the Portfolios expects to pay capital gain dividends within the
meaning of the Code.
If the Tax-Exempt Portfolio or Michigan Portfolio should hold certain
private activity bonds issued after August 7, 1986, shareholders must include,
as an item of tax preference, the portion of dividends paid by the Portfolio
that is attributable to interest on such bonds in their federal alternative
minimum taxable income for purposes of determining liability (if any) for the
alternative minimum tax applicable to individuals and corporations and the
environmental tax applicable to corporations. Corporate shareholders must also
take all exempt-interest dividends into account in determining certain
adjustments for alternative minimum and environmental tax purposes.
Shareholders receiving Social Security benefits should note that all exempt-
-22-
<PAGE>
interest dividends will be taken into account in determining the taxability of
such benefits.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Portfolio on
December 31 of such year if such dividends are actually paid during January of
the following year.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
State and Local Taxes
Dividends paid by the Tax-Exempt Portfolio and Michigan Portfolio that
are derived from interest attributable to tax-exempt Michigan Municipal
Securities will be exempt from Michigan income tax, Michigan intangibles tax
and Michigan single business tax. Conversely, to the extent that the
Portfolios' dividends are derived from interest on obligations other than
Michigan Municipal Securities or certain U.S. Government Obligations (or are
derived from short term or long term gains), such dividends will be subject to
Michigan income tax, Michigan intangibles tax and Michigan single business
tax, even though the dividends may be exempt for federal income tax purposes.
The Portfolios are unable to predict in advance the portion of their dividends
that will be derived from interest on Michigan Municipal Securities, but will
mail to their respective shareholders not later than sixty days after the
close of the Portfolios' taxable year a written notice containing information
as to the interest derived from Michigan obligations and exempt from Michigan
income tax, Michigan intangibles tax and Michigan single business tax.
Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income
under other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust
and its shareholders under such laws may differ from treatment under federal
income tax laws. In certain states, review with a shareholder's tax adviser of
the effect of portfolio investments in repurchase agreements and U.S.
Government Obligations upon state income taxation may be appropriate.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences
from those of the federal income tax laws.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992) and
Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of Henry
Ford Health System); Trustee, Henry Ford Health Sciences Center (since 1987);
Trustee, Henry Ford Continuing Care Corporation (since 1980); Trustee,
Earhart Foundation (since 1980). He is 77 years old and his address is
333 West Fort Street, Detroit, Michigan 48226.
- -----------------------------
* Trustees who are "interested persons" of the Trust, as defined in the
1940 Act.
-23-
<PAGE>
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 76 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago, Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago School of Business, 1101 East 58th Street, Chicago,
Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
- -----------------------------
* Trustees who are "interested persons" of the Trust, as defined in the
1940 Act.
-24-
<PAGE>
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor
of Finance, Indiana University (1970-1991); Vice President, Trust &
Investment Advisers, Inc. (1990-1991); Director, Federal Home Loan
Bank of Indianapolis (1981 to 1985). He is 61 years old, and his
address is 5 Boar's Head Lane, Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser of the Trust is NBD, a wholly owned subsidiary
of First Chicago NBD Corporation, a bank holding company. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion of which in excess of $3.7
billion were money market instruments. NBD has been in the business of
providing such services since 1933. Included among NBD's accounts are pension
and profit sharing funds for major corporations and state and local
governments, as well as commingled trust funds and a variety of institutional
and personal advisory accounts, estates and trusts, all of which are potential
customers for shares of the Trust. NBD also acts as investment adviser for
other registered investment company portfolios.
Under the Advisory Agreement, NBD is subject to the general
supervision of the Trust's Board of Trustees and manages each Portfolio in
conformance with the stated policies of the Trust. In this regard, it is the
responsibility of NBD to make investment decisions for the Trust and to place
all purchase and sale orders for its portfolio transactions. Under the
Advisory Agreement, NBD also provides the Trust with certain administrative
services, such as maintaining the Trust's general ledger and assisting in the
preparation of various regulatory reports.
NBD is entitled to receive fees for advisory and administrative
services provided to the Portfolios, computed daily and payable monthly, at
annual rates of: (i) .45% of the first $1.0 billion of each of the Money
Market, Government, Treasury and Tax-Exempt Portfolio's average daily net
assets, .425% of the next $1.0 billion, and .40% of each such Portfolio's
average daily net assets in excess of $2.0 billion; and (ii) .50% of the
average daily net assets of the Michigan Portfolio. In addition, NBD is
entitled to 4/10ths of the gross income earned by a Portfolio on each loan of
securities (excluding capital gains and losses, if any). NBD may, however,
waive its fees in whole or in part. (The Trust will give 30 days notice to
investors of the discontinuance of advisory fee waivers.)
- -----------------------------
* Trustees who are "interested persons" of the Trust, as defined in the
1940 Act.
-25-
<PAGE>
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
NBD is reimbursed for postage and other out-of-pocket expenses in
connection with the above duties and also receives compensation from the Trust
for costs associated with clearing redemption drafts through NBD, and for its
standard bank charges for processing lock box deposits, processing redemption
drafts, and performing other services.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance
of its shares, and prohibit banks generally from underwriting securities, but
do not prohibit such a bank holding company or affiliate from acting as
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of a
customer. NBD and the Trust believe that NBD may perform the advisory,
custodial and transfer agency services for the Trust described in this
Prospectus, and that NBD, subject to such banking laws and regulations, may
perform the shareholder services contemplated by this Prospectus, without
violation of such banking laws or regulations. However, future changes in
legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
prevent NBD from continuing to perform investment advisory, custodial or
transfer agency services for the Trust or require NBD to alter or discontinue
the services it provides to shareholders.
If NBD were prohibited from performing investment advisory, custodial
or transfer agency services for the Trust, it is expected that the Board of
Trustees would recommend that shareholders approve new agreements with another
entity or entities qualified to perform such services and selected by the
Board. If NBD or its affiliates were required to discontinue all or part of
its shareholder servicing activities, their customers would be permitted to
remain the beneficial owners of Trust shares and alternative means for
continuing the servicing of such customers would be sought. The Trust does not
anticipate that investors would suffer any adverse financial consequences as a
result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
-26-
<PAGE>
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of the Portfolios: (i) fees payable
to the Co-Distributors pursuant to the Distribution Agreement; (ii) the actual
costs and expenses in connection with advertising and marketing the
Portfolios' shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions, and other professionals ("Service Agents")
for administration or servicing of Portfolio shareholders ("Servicing").
Servicing may include, among other things: answering client inquiries
regarding the Trust and the Portfolios; assisting clients in changing dividend
options, account designations and addresses; performing sub-accounting;
establishing and maintaining shareholder accounts and records; processing
purchase and redemption transactions; investing client cash account balances
automatically in Portfolio shares; providing periodic statements showing a
client's account balance and integrating such statements with those of other
transactions and balances in the client's other accounts serviced by the
Service Agent; arranging for bank wires; and such other services as the Trust
may request, to the extent the Service Agent is permitted by applicable
statute, rule or regulation. Under the Plan, the Trust also bears the cost of
preparing and printing Prospectuses for use in selling shares of the Trust and
costs associated with implementing and operating the Plan. These costs are
included in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .025% of the aggregate average net assets invested
in the Portfolios up to $400,000,000 and .005% of such assets in excess of
$400,000,000, and Essex is entitled to receive a fee at the annual rate of
.10% of the aggregate average net assets of the Trust's investment portfolios
attributable to investments by clients of Essex. The payments to be made to
the Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets, the fees and expenses of NBD as the Trust's Custodian and
as its Transfer Agent, the fees payable to the Co-Distributors under the
Distribution Agreement, the fees and expenses of Trustees, expenses associated
with the Trust's Distribution Plan and Shareholder Servicing Plan, outside
auditing and legal expenses, all taxes and corporate fees payable by the
-27-
<PAGE>
Trust, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs to shareholder reports and shareholder meetings, and any
extraordinary expenses. Each Portfolio also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular portfolio of the Trust will
be charged to that portfolio and expenses not readily identifiable as
belonging to a particular portfolio will be allocated by the Board of Trustees
among one or more portfolios in such a manner as it deems fair and equitable.
For the fiscal year ended December 31, 1995, the Money Market, Government,
Treasury, Tax-Exempt and Michigan Portfolios' total expenses were .51%, .51%,
.53%, .53% and .69% (after fee waivers) of their average net assets,
respectively. The Statement of Additional Information describes in more detail
the fees and expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust, which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Intermediate Bond Fund, Bond Fund, Short
Bond Fund, Municipal Bond Fund, Michigan Municipal Bond Fund, Growth/Value
Fund, Opportunity Fund, Intrinsic Value Fund, Capital Growth Fund, Balanced
Fund, International Equity Fund and Equity Index Fund. The Trust has
established the following two distinct classes of shares within each Portfolio:
described herein Class I shares (Special Class 1) and Class A shares
(Original Class). A sales person and any other person or institution
entitled to receive compensation for selling or servicing shares may receive
different compensation with respect to different classes of shares in the
Series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 29, 1996, NBD held beneficially or of record
approximately 30.70%, 15.67%, 7.64%, 41.45% and 16.85% of the outstanding
shares of the Money Market, Government, Treasury, Tax-Exempt and Michigan
Portfolios, respectively, and therefore may be considered to be a controlling
person of the Portfolios for purposes of the 1940 Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
-28-
<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Portfolios'
Statement of Additional Information incorporated herein by reference, in
connection with the offering made by this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust, Adviser or Sponsors and Co-Distributors. This
Prospectus does not constitute an offering by the Portfolios or by their
Co-Distributors in any jurisdiction in which such offering may not lawfully be
made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY.............................. 2
BACKGROUND................................... 4
FINANCIAL HIGHLIGHTS......................... 5
INTRODUCTION................................. 9
PROPOSED REORGANIZATION...................... 9
INVESTMENT OBJECTIVES,
POLICIES AND RISK
FACTORS.............................. 9
OTHER INVESTMENT POLICIES.................... 12
PURCHASE OF SHARES........................... 18
REDEMPTION OF SHARES......................... 19
PERFORMANCE AND YIELD
INFORMATION.......................... 20
DIVIDENDS AND DISTRIBUTIONS.................. 21
TAXES ..................................... 21
MANAGEMENT................................... 22
OTHER INFORMATION............................ 27
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities,
Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, PA 19107
<PAGE>
[ BACK COVER, COLUMN 2 ]
CLASS I SHARES OF THE:
WOODWARD MONEY MARKET FUND
WOODWARD GOVERNMENT FUND
WOODWARD TREASURY MONEY MARKET FUND
WOODWARD TAX-EXEMPT MONEY MARKET
FUND
WOODWARD MICHIGAN TAX-EXEMPT MONEY
MARKET FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
-29-
Exhibit (17)(g)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- -------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following six investment portfolios (the "Portfolios"), each having its
own investment objective and policies as described in this Prospectus:
Class A shares of the:
Woodward Growth/Value Fund
Woodward Opportunity Fund
Woodward Intrinsic Value Fund
Woodward Capital Growth Fund
Woodward Balanced Fund
Woodward International Equity Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing to The Woodward Funds at the address above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into the Prospectus.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Growth/Value Fund ("Growth/Value Portfolio"), Woodward
Opportunity Fund ("Opportunity Portfolio"), Woodward Intrinsic Value Fund
("Intrinsic Value Portfolio"), Woodward Capital Growth Fund ("Capital Growth
Portfolio"), Woodward Balanced Fund ("Balanced Portfolio") and Woodward
International Equity Fund ("International Equity Portfolio"). Class I shares
are sold primarily to NBD and its affiliated and correspondent banks acting on
behalf of their respective customers. Class A shares are sold to the general
public primarily through financial institutions such as banks, brokers and
dealers. Class I shares are offered in a separate Prospectus. Investors should
call (800) 688-3350, a Co-Distributor or their financial institutions if they
would like to obtain more information concerning Class I shares and/or Class A
shares of the Portfolios. The following table is provided to assist investors
in understanding the various costs and expenses that an investor will
indirectly incur as a beneficial owner of Class A shares in each of the
Portfolios.
<TABLE>
<CAPTION>
Inter-
Growth/ Oppor- Intrinsic Capital national
Value tunity Value Growth Balanced Equity
Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases............... 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
(as a percentage of
offering price)
Sales Load
Imposed on Reinvested
Dividends................. None None None None None None
Deferred Sales Load........... None None None None None None
Redemption Fee................ None None None None None None
Exchange Fee.................. None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees............... .75% .75% .75% .75% .75% .75%
12b-1 Fees(2)................. .011% .015% .011% .005% .013% .004%
Shareholder Servicing Fees(3). .25% .25% .25% .25% .25% .25%
Other Expenses(4)
(before fee waivers and/or
expense reimbursements).... .039% .035% .089% 0.145% 0.327% 0.596%
(after fee waivers and/or
expense reimbursements).... N/A N/A N/A 0.125% .187% 0.406%
Total Operating Expenses
(before fee waivers and/or
expense reimbursements).... 1.05% 1.05% 1.10% 1.15% 1.34% 1.60%
(after fee waivers and/or
expense reimbursements).... N/A N/A N/A 1.13% 1.20% 1.41%
<FN>
- ---------------------
1. The expenses for each of the Portfolios have been restated to
reflect current expenses.
2. As a result of the payment of sales loads and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. (the "NASD"). Rules adopted by the NASD generally limit the
aggregate sales charges and payments under the Trust's Service and
Distribution Plan ("Distribution Plan") to a certain percentage of total new
gross share sales,
-2-
<PAGE>
plus interest. The Trust would stop accruing 12b-1 fees if, to the extent, and
for as long as, such limit would otherwise be exceeded.
3. The Trust has adopted a Shareholder Servicing Plan pursuant to
which the Trust may enter into agreements with institutions under which they
will render shareholder administrative support services for their customers
who beneficially own shares in return for a fee of up to .25% per annum of the
value of such shares ("Servicing Fees"). For further information,
see "Shareholder Servicing Plan" and "Investment Adviser, Custodian
and Transfer Agent" under the heading "Management" in this Prospectus.
4. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
- -------------------
</TABLE>
<TABLE>
<CAPTION>
Inter-
Growth/ Oppor- Intrinsic Capital national
Value tunity Value Growth Balanced Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Example
You would pay the following
expenses on a $1,000
investment, assuming:
(1) a 5% annual return
and (2) redemption at the
end of each time period:
One Year.................. $ 10.76 $ 10.76 $ 11.27 $ 11.58 $ 12.30 $ 14.45
Three Years............... 33.57 33.57 35.15 36.09 38.30 44.91
Five Years................ 58.20 58.20 60.91 62.53 66.31 77.58
Ten Years................. 128.75 128.75 134.57 138.04 146.10 169.97
Example
You would pay the following
expenses on a $1,000
investment, assuming (1) a
5% annual return, (2)
redemption at the end
of each time period
and (3) the imposition
of a maximum sales load at
the beginning of the period:
One Year:................ $ 60.22 $ 60.22 $ 60.71 $ 61.00 $ 61.68 $ 63.72
Three Years:............. 81.89 81.89 83.39 84.29 86.39 92.67
Five Years:.............. 105.29 105.29 107.86 109.40 112.99 123.70
Ten Years:............... 172.32 172.32 177.84 181.14 188.80 211.47
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The examples demonstrate the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class A shares in each of the Portfolios,
based upon payment by the Portfolios of operating expenses at the respective
levels set forth in the expense table. For more complete descriptions of
Portfolio expenses, see "Investment Adviser, Custodian and Transfer Agent",
"Sponsors and Co- Distributors", "Shareholder Servicing Plan", "Service and
Distribution Plan" and "Trust Expenses" under the heading "Management" in this
Prospectus and the financial statements and related notes contained in the
Statement of Additional Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class A
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them. See "Shareholder Servicing
Plan" and "Investment Adviser, Custodian and Transfer Agent" under
"Management," and see "Dividends and Distributions" and "Other Information"
for a description of the impact that this may have on holders of Class A
shares.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of how each Portfolio's
net asset value has changed during the periods presented. The tables have been
derived from the Portfolios' financial statements which have been audited by
Arthur Andersen LLP, the Trust's independent public accountants, whose report
thereon is contained in the Statement of Additional Information along with the
financial statements. The financial data included in these tables should be
read in conjunction with the financial statements and related notes included
in the Statement of Additional Information. Further information about the
performance of the Portfolios is available in annual reports to shareholders.
The Statement of Additional Information and annual reports to shareholders may
be obtained from the Trust free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Growth/Value Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $10.67 $11.16 $10.51 $ 9.86 $10.00
Income from investment
operations:
Net investment income.......... 0.21 0.23 0.20 0.22 0.14
Net realized and unrealized
gains (losses) on
investments.................. 2.76 (0.17) 1.24 0.75 (0.14)
------ ------- ------ ------ -------
Total from investment
operations................... $ 2.97 $ 0.06 $ 1.44 $ 0.97 $ 0.00
------ ------ ------ ------ ------
Less distributions:
From net investment
income...................... $ (0.22) $ (0.21) $(0.20) $(0.22) $(0.14)
From realized
gains....................... (0.26) (0.30) (0.59) (0.10) (0.00)
In excess of realized
gains....................... 0.00 (0.01) 0.00 0.00 0.00
Tax return of capital.......... 0.00 (0.03) 0.00 0.00 0.00
------- ------- ------- ------- -------
Total distributions......... $ (0.48) $ (0.55) $ (0.79) $ (0.32) $ (0.14)
------- ------- ------- ------- -------
Net asset value, end of
period...................... $13.16 $10.67 $11.16 $10.51 $ 9.86
====== ====== ====== ====== ======
Total return(b).................. 28.04% 0.55% 13.79% 9.87% 0.17%(a)
Ratios/Supplemental Data
Net assets, end of period........ $737,167,067 $571,370,711 $429,635,045 $287,344,809 $238,085,630
Ratio of expenses to average
net assets..................... 0.84% 0.84% 0.83% 0.83% 0.85%(a)
Ratio of net investment income
to average net assets.......... 1.73% 2.07% 1.84% 2.20% 2.56%(a)
Portfolio turnover rate.......... 26.80% 28.04% 42.31% 16.28% 0.94%
Average Commission Rate.......... $0.04
<FN>
- ------------------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Opportunity Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $13.34 $14.49 $12.37 $10.40 $10.00
Income from investment
operations:
Net investment income.......... 0.06 0.07 0.10 0.11 0.09
Net realized and unrealized
gains (losses) on
investments.................. 2.57 (0.54) 2.87 2.43 0.43
------ ------- ------ ------ ------
Total from investment
operations................... $ 2.63 $ (0.47) $ 2.97 $ 2.54 $ 0.52
------ ------- ------ ------ ------
Less distributions:
From net investment
income....................... $(0.06) $(0.07) $(0.10) $(0.11) $(0.09)
From realized
gains........................ (0.76) (0.49) (0.75) (0.46) (0.03)
In excess of realized
gains......................... 0.00 (0.02) 0.00 0.00 0.00
Tax return of capital.......... 0.00 (0.10) 0.00 0.00 0.00
------- ------- ------ ------ ------
Total distributions........... $ (0.82) $ (0.68) $ (0.85) $ (0.57) $ (0.12)
------- ------- ------- ------- -------
Net asset value, end of
period......................... $15.15 $13.34 $14.49 $12.37 $10.40
====== ====== ====== ====== ======
Total return(b).................. 19.88% (3.27%) 24.01% 24.56% 8.92%(a)
Ratios/Supplemental Data
Net assets, end of period........ $650,952,268 $524,999,120 $365,664,513 $166,423,073 $108,046,450
Ratio of expenses to average
net assets..................... 0.89% 0.90% 0.86% 0.84% O.84%(a)
Ratio of net investment income
to average net assets.......... 0.37% 0.53% 0.71% 1.09% 1.56%(a)
Portfolio turnover rate 53.55% 37.51% 33.99% 34.44% 2.92%
Average Commission Rate.......... $0.04
<FN>
- ------------------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Intrinsic Value Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $10.48 $11.05 $10.40 $ 9.89 $10.00
Income from investment
operations:
Net investment income.......... 0.29 0.31 0.29 0.29 0.17
Net realized and unrealized
gains (losses) on
investments.................. 2.24 (0.38) 1.23 1.14 ( 0.02)
------ ------- ------ ------ -------
Total from investment
operations................... $ 2.53 $(0.07) $ 1.52 $ 1.43 $ 0.15
------- ------- ------ ------ ------
Less distributions:
From net investment
income....................... $(0.30) $(0.30) $(0.28) $(0.28) $(0.17)
From realized
gains........................ (0.82) (0.20) ( 0.59) ( 0.64) ( 0.09)
------ ------- ------- ------- -------
Total distributions............ $ (1.12) $ (0.50) $ (0.87) $ (0.92) $ (0.26)
------- ------- ------- ------- -------
Net asset value, end of
period......................... $11.89 $10.48 $11.05 $10.40 $9.89
====== ====== ====== ====== =====
Total return(b).................. 24.38% (0.60%) 14.71% 14.56% 2.70%(a)
Ratios/Supplemental Data
Net assets, end of period........ $255,884,859 $220,028,096 $192,555,183 $107,260,873 $77,450,163
Ratio of expenses to average
net assets..................... 0.91% 0.91% 0.86% 0.84% O.84%(a)
Ratio of net investment income
to average net assets.......... 2.49% 2.92% 2.67% 2.78% 3.03%(a)
Portfolio turnover rate.......... 45.55% 58.62% 63.90% 48.52% 1.80%
Average Commission Rate.......... $0.03
<FN>
- ------------------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Capital Growth Portfolio
July 2, 1994
(Commencement
Year Ended of Operations) to
December 31, December 31,
1995 1994
------------ -----------------
<S> <C> <C>
Net asset value, beginning of period .......... $ 10.44 $ 10.00
Income from investment operations:
Net investment income ....................... 0.08 0.05
Net realized and unrealized gains (losses) on
investments ............................... 2.93 0.43
--------------- ---------------
Total from investment operations ............ $ 3.01 $ 0.48
--------------- ---------------
Less distributions:
From net investment income .................. $ (0.08) $ (0.04)
From net realized gains ..................... (0.11) 0.00
--------------- ---------------
Total distributions ......................... $ (0.19) $ (0.04)
--------------- ---------------
Net asset value, end of period ................ $ 13.26 $ 10.44
=============== ===============
Total return (b) .............................. 28.90% 9.62%(a)
Ratios/Supplemental Data
Net assets, end of period ..................... $ 195,861,178 $ 81,269,604
Ratio of expenses to average net assets ....... 0.86% 0.85%(a)
Ratio of net investment income to average net
assets ...................................... 0.65% 1.25%(a)
Ratio of expenses to average net assets without
fee waivers/reimbursed expenses ............. 0.90% 0.95%(a)
Ratio of net investment income to average net
assets without fee waivers/reimbursed
expenses .................................... 0.61% 1.15%(a)
Portfolio turnover rate ....................... 6.97% 3.29%
Average Commission Rate ....................... $ 0.04
<FN>
- ---------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Net asset value, beginning
of period .............................. $ 9.53 $ 10.00
Income from investment
operations:
Net investment income .................. 0.35 0.28
Net realized and unrealized
gains (losses) on
investments .......................... 1.83 (0.48)
-------------- --------------
Total from investment
operations ........................... $ 2.18 $ (0.20)
-------------- --------------
Less distributions:
From net investment
income ............................... $ (0.35) $ (0.27)
From realized
gains ................................ (0.12) 0.00
-------------- --------------
Total distributions .................... $ (0.47) $ (0.27)
-------------- --------------
Net asset value, end of
period ................................. $ 11.24 $ 9.53
============== ==============
Total return(a) .......................... 23.18% (1.95%)
Ratios/Supplemental Data
Net assets, end of period ................ $ 93,623,801 $ 54,167,192
Ratio of expenses to average
net assets ............................. 0.91% 0.85%
Ratio of net investment income
to average net assets .................. 3.40% 3.41%
Ratio of expenses to average net assets
without fee waivers/reimbursed expenses 1.09% 1.56%
Ratio of net investment income to average
net assets without fee waivers/reimbursed
expenses ................................ 3.22% 2.70%
Portfolio turnover rate .................. 31.76% 37.49%
Average Commission Rate .................. $ 0.05
<FN>
- ------------------------
(a) Total returns as presented do not include any applicable sales load.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
International Equity Portfolio
December 3, 1994
Year Ended (Commencement
December 31, of Operations) to
1995 December 31, 1994
------------ -----------------
<S> <C> <C>
Net asset value, beginning
of period ............................. $ 10.01 $ 10.00
Income from investment
operations:
Net investment income ................. 0.10 0.01
Net realized and unrealized
gains (losses) on
investments ......................... 1.05 0.00
Total from investment
operations .......................... $ 1.15 $ 0.01
--------------- ---------------
Less distributions:
From net investment
income .............................. $ (0.11) $ 0.00
From realized
gains ............................... (0.00) 0.00
--------------- ---------------
Total distributions ................... $ (0.11) $ 0.00
--------------- ---------------
Net asset value, end of
period ................................ $ 11.05 $ 10.01
=============== ===============
Total return(b) ......................... 11.47% 1.26%(a)
Ratios/Supplemental Data
Net assets, end of period ............... $ 107,288,301 $ 36,545,470
Ratio of expenses to average
net assets ............................ 1.16% 1.15%(a)
Ratio of net investment income
to average net assets ................. 1.43% 1.18%(a)
Ratio of expenses to average net
assets without reimbursed
expenses .............................. 1.24% 1.92%(a)
Ratio of net investment income to average
net assets without reimbursed
expenses .............................. 1.35% 0.41%(a)
Portfolio turnover rate ................. 2.09% 0.30%
Average Commission Rate ................. $ 0.05
<FN>
- ------------------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total return as presented does not include any applicable sales
load.
</TABLE>
-10-
<PAGE>
INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objective and
policies. However, only the Class A shares of the Growth/Value, Opportunity,
Intrinsic Value, Capital Growth, Balanced and International Equity Portfolios
are offered pursuant to this Prospectus. Each such Portfolio is classified as
a diversified investment portfolio under the 1940 Act.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
such Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Growth/Value Portfolio
The investment objective of the Growth/Value Portfolio is to achieve
long-term capital appreciation and, secondarily, to produce current income
approximating that prevailing within the general equity market. The Portfolio
seeks to achieve this objective by investing primarily in equity securities of
relatively large companies. The Adviser believes that well managed, larger
companies historically have provided investors with attractive returns, high
liquidity and lower than average volatility. The Portfolio invests in
companies which the Adviser believes have earnings growth expectations that
exceed those implied by the market's current valuation. In addition, the
Portfolio seeks to maintain a portfolio of companies whose earnings will
increase at a faster rate than within the general equity market. The equity
portion of the portfolio generally will be constructed in a "bottom-up"
manner. "Bottom-up" refers to an analytical approach to securities selection
which first focuses on the company
-11-
<PAGE>
and company-related matters as contrasted to a "top-down" analysis which first
focuses on the industry or the economy. In the Adviser's opinion this
procedure may generally be expected to result in a portfolio characterized by
lower price/earnings ratios, above average growth prospects, and average
market risk.
Opportunity Portfolio
The investment objective of the Opportunity Portfolio is to achieve
long-term capital appreciation and, secondarily, to maintain a moderate level
of dividend income. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies with small to intermediate market
capitalization. The Adviser believes that there are many companies in this
size range that enjoy enhanced growth prospects, operate in more stable market
niches, and have greater ability to respond to new business opportunities, all
of which increase their likelihood of attaining superior levels of
profitability and investment returns. However, they may escape many investors'
attention because they are less well known than some larger companies. Shares
of these companies may also be more volatile than those of larger companies,
so the Opportunity Portfolio can be expected to exhibit somewhat greater
volatility than market indices dominated by very large companies. The Adviser
intends to reduce the volatility and enhance the potential return of the
Portfolio's holdings by concentrating on companies which have demonstrated
records of superior profitability, maintain conservative balance sheets, and
are, in general, of above-average quality, although stocks of lesser quality
may be purchased by the Portfolio if the Adviser believes they offer
sufficient opportunity for capital appreciation.
Intrinsic Value Portfolio
The investment objective of the Intrinsic Value Portfolio is to
provide long-term capital growth, with income a secondary consideration. The
Portfolio seeks to achieve this objective by investing primarily in equity
securities of companies believed by the Adviser to represent a value or
potential worth which is not fully recognized by prevailing market prices. In
selecting investments for the Portfolio, screening techniques are employed to
isolate issues believed to be attractively priced. The Adviser then evaluates
the underlying earning power and dividend paying ability of these potential
investments. The Portfolio's holdings are usually characterized by lower
price/earnings, price/cash flow and price/book value ratios and by above
average current dividend yields relative to the equity market. Companies
purchased by the Portfolio are often deemed by the Adviser to be overlooked
and out of favor by the marketplace at the time of purchase. In general the
Portfolio's investments are diversified among industry groups that meet the
Portfolio's valuation criteria to attempt to reduce certain of the risks
inherent in common stock investments.
Capital Growth Portfolio
The investment objective of the Capital Growth Portfolio is to
maximize long-term capital appreciation with current income not a significant
consideration. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies with a market capitalization of at
least $1 billion. In selecting investments for the Portfolio, the Adviser will
employ screening techniques and a research intensive approach emphasizing
superior, sustainable annual earnings growth which is supported by strong
revenue growth, margin expansion and conservative financial leverage. Because
of this growth orientation, certain market sectors may be over represented in
the Portfolio's investments; however, investments will be diversified among
industry groups and individual issuers. The value of the Portfolio's
investments will fluctuate based on market and specific industry conditions,
and other factors such as investment-style preferences. It is anticipated
that, generally, the dividend yield of the Portfolio will be less than or
equal to that of the broad
-12-
<PAGE>
equity market and will likely fluctuate. Therefore, the Portfolio is intended
for investors seeking long-term capital appreciation.
Investment Policies Applicable to the Growth/Value, Opportunity, Intrinsic Value
and Capital Growth Portfolios
The Growth/Value, Opportunity, Intrinsic Value and Capital Growth
Portfolios invest primarily in publicly traded common stocks of companies
incorporated in the United States, although each such Portfolio may also
invest up to 25% of its total assets in the securities of foreign issuers,
either directly or through American Depository Receipts. In addition, they may
invest in securities convertible into common stock, such as certain bonds and
preferred stocks, and may invest up to 5% of their respective net assets in
other types of securities having common stock characteristics (such as rights
and warrants to purchase equity securities). The Portfolios may also enter
into futures contracts and related options and may utilize options. Under
normal market conditions, each Portfolio expects to invest at least 65% of the
value of its total assets in equity securities. Each Portfolio may also hold
up to 35% of its total assets in short-term obligations issued or guaranteed
by the U.S. Government, or its agencies or instrumentalities, money market
instruments, repurchase agreements and cash.
Balanced Portfolio
The investment objective of the Balanced Portfolio is to achieve
long-term total return through a combination of capital appreciation and
current income. The Portfolio seeks to achieve its investment objective by
investing its assets primarily in three major asset groups: equity securities;
fixed income securities; and cash equivalent securities. In pursuing the
Portfolio's investment objective, the Adviser allocates the Portfolio's
investments primarily based on its evaluation of the long-term relative
attractiveness of the major asset groups. The Adviser bases its evaluations of
relative attractiveness on its outlook for the capital market. This outlook
includes, but is not limited to, judgments about where the economy appears to
be in the business cycle together with expectations for inflation, interest
rates, and long-term corporate earnings growth.
Under normal market conditions, the Portfolio's policy is to invest at
least 25% of the value of its total assets in fixed income senior securities
and no more than 75% in equity securities. Compliance with these percentage
requirements may limit the ability of the Portfolio to maximize total return.
The actual percentage of assets invested in equity securities, fixed income
securities and cash equivalent securities will vary from time to time,
depending on the judgment of the Adviser as to general market and economic
conditions, trends in yields, interest rates and changes in fiscal and
monetary developments.
Equity Securities. The equity securities in which the Balanced
Portfolio normally invests are common stocks, preferred stocks, rights,
warrants and securities convertible into common or preferred stocks. The
equity portion of the Balanced Portfolio's investments will be invested
primarily in publicly traded stocks of companies incorporated in the United
States, although up to 20% of its total assets may be invested in the equity
securities of foreign issuers, either directly or through American Depository
Receipts.
The Adviser selects equity securities for the Portfolio based on such
factors as general financial condition, price/earnings, price/cash flow and
price/book value ratios, above average current dividend yields relative to the
equity market, market share, product leadership and other investment criteria.
The Portfolio invests in the equity securities of companies which the Adviser
believes have earnings growth expectations that exceed those implied by the
market's current valuation and that will increase at a faster rate than within
the general equity market. The Adviser may also select equity securities of
-13-
<PAGE>
companies with small to intermediate market capitalization which enjoy
enhanced growth prospects, operate in market niches, and have greater ability
to respond to new business opportunities, all of which increase their
likelihood of attaining superior levels of profitability and investment
returns. The Adviser may also select equity securities of companies it
believes represent a value or potential worth which is not fully recognized by
prevailing market prices.
Debt Securities. The Balanced Portfolio invests the fixed income
portion of its portfolio of investments in a broad range of debt securities
rated "investment grade" or higher at the time of purchase, or unrated
investments deemed by the Adviser to be of comparable quality. Debt securities
in which the Portfolio normally invests are: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; (ii)
corporate, bank and commercial obligations; (iii) securities issued or
guaranteed by foreign governments, their agencies or instrumentalities; (iv)
securities issued by supranational banks; (v) mortgage backed securities; and
(vi) securities representing interests in pools of assets. Investments include
fixed and variable-rate bonds, zero coupon bonds, debentures, and various
types of demand instruments. Obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities may include mortgage backed
securities, as well as "stripped securities" (both interest-only and
principal-only) and custodial receipts for Treasury securities. Most fixed
income obligations acquired by the Portfolio will be issued by companies or
governmental entities located within the United States. Up to 15% of the total
assets of the Portfolio may, however, be invested in dollar-denominated debt
obligations (including cash equivalent securities) of foreign issuers.
The Adviser manages the fixed income portion of the Portfolio based on
anticipated interest rate changes and the use of active management strategies
such as sector rotation, intra-sector adjustments and yield curve and
convexity considerations. In use of such active management strategies, the
Adviser seeks value in investment grade fixed income securities. Sector
rotation involves the Adviser selecting among different economic or industry
sectors based upon apparent or relative attractiveness. Thus at times a sector
offers yield advantages relative to other sectors. An intra-sector adjustment
occurs when the Adviser determines to select a particular issue within a
sector. Yield curve considerations involve the Adviser attempting to compare
the relationship between time to maturity and yield to maturity in order to
identify the relative value in the relationship. Convexity considerations
consist of the Adviser seeking securities that rise in price more quickly, or
decline in price less quickly, than the typical security of that price risk
level and therefore enable the Adviser to obtain an additional return when
interest rates change dramatically.
In acquiring particular fixed income securities for the Portfolio, the
Adviser will consider, among other things, historical yield relationships
between private and governmental debt securities, intermarket yield
relationships among various industry sectors, current economic cycles and the
attractiveness and creditworthiness of particular issuers. Depending upon the
Adviser's analysis of these and other factors, the Portfolio's holdings of
issues in particular industry sectors may be overweighted when compared to the
relative industry weightings in the Lehman Brothers Aggregate Bond Index, or
other recognized indices. The value of the fixed income portion of the
Portfolio can be expected to vary inversely with changes in prevailing
interest rates.
Cash Equivalent Securities and Other Investments. The cash equivalent
securities in which the Balanced Portfolio normally invests are short-term
obligations issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, "high quality" money market instruments such as
certificates of deposit, bankers' acceptances, time deposits, repurchase
agreements, reverse repurchase agreements, short-term obligations issued by
state and local governmental issuers which carry yields that are competitive
with those of other types of high quality money market instruments, commercial
paper, notes, other
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short-term obligations and variable rate master demand notes. "High quality"
money market instruments are money market instruments which are rated at the
time of purchase within the two highest rating categories or which are unrated
at such time but are deemed by the Adviser to be of comparable quality. Such
investments may include obligations of foreign banks and foreign branches of
U.S. banks. The Portfolio may also invest its cash balances in securities
issued by other investment companies which invest in high-quality, short-term
debt securities. As a shareholder of another investment company, the Portfolio
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would
be in addition to the advisory and other expenses that the Portfolio bears
directly in connection with its own operations.
The Balanced Portfolio may also enter into futures contracts
and related options and utilize options as more fully described below.
International Equity Portfolio
The investment objective of the International Equity Portfolio is to
achieve long-term capital appreciation and, secondarily, to produce current
income. The Portfolio seeks to achieve its objective by investing primarily in
equity securities of foreign issuers. The Portfolio may exhibit more
volatility than the U.S. equity market in general.
The Adviser's investment approach to managing the Portfolio's assets
emphasizes active country selection involving global economic and political
assessments together with valuation analysis of selected countries' securities
markets. This country allocation approach is based on absolute/relative
valuations, expected total returns including currency and changing
fundamentals. In situations where an investment's attractiveness outweighs
prospects for currency weakness, the Adviser will take suitable hedging
measures. An index approach is typically used at the stock selection level.
The Adviser employs quantitative techniques in conjunction with its
judgment and experience to determine the foreign equity markets that the
Portfolio will be invested in and the percentage of total assets the Portfolio
will hold by country. This investment approach focuses on economic
developments in foreign countries, fundamental analysis at the country level
and the political environment. After the country weightings have been
determined, investments are typically made in country "baskets" of equity
securities. A country "basket" is comprised of equity securities of a
particular country and is constructed using a quantitatively-oriented sampling
technique to replicate the performance of an individual country's stock market
index. The Morgan Stanley Capital International Country Indexes have, for some
time, been the accepted benchmarks in the U.S. for international equity fund
country comparisons. The Portfolio may also invest in individual equity
securities the Adviser believes offer opportunity for capital appreciation.
The Portfolio's investments will generally be diversified among
geographic regions and countries. The Portfolio's assets may be invested in
equity securities located in but not limited to the United Kingdom and
European continent, Japan, other Far East areas and Latin America. The
Portfolio may also invest in other regions seeking to capitalize on investment
opportunities in other parts of the world. The Portfolio's assets will be
invested at all times in the securities of issuers located in at least three
different foreign countries. Investments in a particular country may exceed
25% of the Portfolio's total assets, thus making its performance more
dependent upon the political and economic circumstances of a particular
country than a more widely diversified portfolio.
The Portfolio will be primarily invested in equity securities of
foreign companies consisting of common stocks, preferred stocks, rights,
warrants, and
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securities convertible into common or preferred stock. Equity investments also
include American Depository Receipts, European Depository Receipts and similar
securities that are either sponsored or unsponsored. Under normal market
conditions, the Portfolio expects to invest at least 65% of the value of its
total assets in equity securities of foreign issuers. The Portfolio may hold
up to 35% of its total assets in debt securities, and cash equivalent holdings
consisting of short-term debt obligations and cash. However, the Portfolio
does not expect to have a substantial portion of its assets invested in debt
securities and cash equivalent holdings under normal market conditions. Debt
securities in which the Portfolio may invest consist of: (i) debt securities
of foreign issuers, foreign governments and agencies that the Adviser
believes, based on market conditions, the financial condition of the issuer,
general economic conditions and other relevant factors, offer opportunities
for capital appreciation; (ii) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (iii) corporate, bank and
commercial obligations; (iv) mortgage backed securities; and (v) securities
representing interests in pools of assets. In the event the Adviser determines
that unusual and adverse market conditions exist, the Portfolio may adopt a
temporary defensive posture and invest without limitation in debt securities
and cash equivalent holdings. To the extent the Portfolio is so invested, its
investment objective may not be achieved.
The Portfolio may also enter into futures contracts, related options,
foreign currency transactions and forward contracts, and utilize options.
OTHER INVESTMENT POLICIES
Ratings
If not rated as commercial paper, debt obligations acquired by any of
the Portfolios will be investment grade at the time of purchase, i.e.,
obligations rated AAA, AA, A or BBB by Standard & Poor's Rating Group,
Division of McGraw Hill ("S&P"), Fitch Investors Service, Inc. ("Fitch"), Duff
& Phelps Credit Co. ("Duff") or IBCA, Inc. ("IBCA") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's") (each a "Rating Agency") or be
unrated but deemed by the Adviser to be comparable in quality at the time of
purchase to instruments that are so rated. Obligations rated in the lowest of
the top four rating categories (Baa by Moody's or BBB by S&P, Fitch, Duff or
IBCA) are considered to have less capacity to pay interest and repay principal
and have certain speculative characteristics. The debt ratings are described
in the Statement of Additional Information.
Short-Term Investments
Each Portfolio may hold the types of short-term investments described
under "Balanced Portfolio - Cash Equivalent Securities and Other Investments"
above.
U.S. Government Obligations
The Portfolios may invest in all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. The Portfolios may also invest in interests in the
foregoing securities, including collateralized mortgage obligations guaranteed
by a U.S. Government agency or instrumentality, and in Government-backed
trusts which hold obligations of
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foreign governments that are guaranteed or backed by the full faith and credit
of the United States.
Obligations of certain U.S. Government agencies and instrumentalities
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not legally obligated to do so.
Stripped Government Obligations
To the extent consistent with their respective investment objectives,
the Balanced and International Equity Portfolios may purchase Treasury
receipts and other "stripped" securities that evidence ownership in either the
future interest payments or the future principal payments on U.S. Government
obligations. These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality) or by private issuers such as
banks and other institutions, are issued at a discount to their "face value,"
and may include stripped mortgage backed securities ("SMBS"), which are
derivative multi-class mortgage securities. Stripped securities, particularly
SMBS, may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, a Portfolio may
fail to fully recoup its initial investment in these securities. The market
value of the class consisting entirely of principal payments generally is
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage backed obligations because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped.
Custodial Receipts for Treasury Securities
The Balanced and International Equity Portfolios may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATs) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. These participations are normally issued at a discount to their
"face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
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Repurchase and Reverse Repurchase Agreements
To increase its income, each Portfolio may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price ("repurchase
agreements"). No Portfolio will enter into repurchase agreements with the
Adviser, the Co-Distributors, or any of their affiliates. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also obtain funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans could include cash or
securities of the U.S. Government, its agencies or instrumentalities. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Portfolio exceeds one-third of the value of its total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned or possible loss of rights in the
collateral should the borrower of the securities become insolvent. Loans will
be made only to borrowers that provide the requisite collateral comprised of
liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
Illiquid Securities
In accordance with their fundamental investment limitation described
below, the Growth/Value, Opportunity and Intrinsic Value Portfolios will not
knowingly invest more than 10% and the Capital Growth, Balanced and
International Equity Portfolios will not knowingly invest more than 15% of the
value of their respective total assets in securities that are illiquid.
Securities having legal or contractual restrictions on resale or no readily
available market, and instruments (including repurchase agreements, variable
and floating rate instruments and time deposits) that do not provide for
payment to the Portfolios within seven days after notice are subject to this
limitation. Securities that have legal or contractual restrictions on resale
but have a readily available market are not deemed to be illiquid for purposes
of this limitation.
The Portfolios may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under
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Rule 144A is a recent development, and it is not possible to predict how this
market will develop. The Board of Trustees will carefully monitor any
investments by a Portfolio in these securities.
Borrowings
The Portfolios may borrow money for temporary purposes in accordance
with the investment limitations described below. Borrowings may be effected
through reverse repurchase agreements under which the Portfolios would sell
portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities
it is obligated to repurchase.
Foreign Securities
As stated above, the Growth/Value, Opportunity, Intrinsic Value,
Capital Growth, Balanced and International Equity Portfolios may invest up to
25%, 25%, 25%, 25%, 20% and 100% of their respective total assets (exclusive
of short-term cash investments) in foreign securities. Investments in foreign
securities, whether made directly or indirectly, involve certain inherent
risks, such as political or economic instability of the issuer or the country
of issue, the difficulty of predicting international trade patterns, changes
in exchange rates of foreign currencies and the possibility of adverse changes
in investment or exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company.
Listed foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. Further, foreign stock markets are generally not as
developed or efficient as those in the U.S. and in most foreign markets volume
and liquidity are less than in the U.S. Fixed commissions on foreign stock
exchanges are generally higher than the negotiated commissions on U.S.
exchanges, and there is generally less government supervision and regulation
of foreign stock exchanges, brokers and listed companies than in the U.S. With
respect to certain foreign countries, there is a possibility of expropriation
or confiscatory taxation, limitations on the removal of funds or other assets
or diplomatic developments that could affect investment within those
countries. Because of these and other factors, securities of foreign companies
acquired by a Portfolio may be subject to greater fluctuation in price than
securities of domestic companies.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. Some currency exchange costs may be incurred
when a Portfolio changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the Portfolios from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Portfolio will reduce its net income available for distribution to
investors.
American Depository Receipts ("ADRs")
The Portfolios may invest in securities of foreign issuers in the form
of ADRs or similar securities representing securities of foreign issuers.
These securities may not be denominated in the same currency as the securities
they represent. ADRs are receipts typically issued by a United States bank or
trust
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company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. Certain such institutions issuing ADRs may not be
sponsored by the issuer. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer.
European Depository Receipts ("EDRs")
The Capital Growth and International Equity Portfolios may invest in
securities of foreign issuers in the form of EDRs or similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. EDRs are
receipts issued by a European financial institution evidencing ownership of
the underlying foreign securities and are generally denominated in foreign
currencies. Generally, EDRs, in bearer form, are designed for use in the
European securities markets.
Supranational Bank Obligations
The Balanced Portfolio may invest in obligations of supranational
banks. Supranational banks are international banking institutions designed or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the World Bank). Obligations of
supranational banks may be supported by appropriated but unpaid commitments of
their member countries and there is no assurance that these commitments will
be undertaken or met in the future.
Convertible Securities
A convertible security is a security that may be converted either at a
stated price or rate within a specified period of time into a specified number
of shares of common stock. By investing in convertible securities, a Portfolio
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock. Convertible securities acquired by a Portfolio will be rated
investment grade by a Rating Agency, or if unrated, will be of comparable
quality as determined by the Adviser. Subsequent to its purchase by a
Portfolio, a rated security may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Portfolio. The Adviser
will consider such an event in determining whether the Portfolio involved
should continue to hold the security. The Adviser expects, however, to
promptly sell any securities that are non-investment grade as a result of
these events that exceed 5% of a Portfolio's net assets where it has
determined that such sale is in the best interest of the Portfolio.
Warrants
Each Portfolio may invest up to 5% of its assets at the time of
purchase in warrants and similar rights (other than those that have been
acquired in units or attached to other securities). Warrants represent rights
to purchase securities at a specified price valid for a specified period of
time. The prices of warrants do not necessarily correlate with the prices of
the underlying securities.
When-Issued Purchases and Forward Commitments
The Portfolios may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock-in a price or
yield on a
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security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when the securities delivery takes
place. Each Portfolio's forward commitments and when-issued purchases are not
expected to exceed 25% of the value of its total assets absent unusual market
conditions. The Portfolios do not earn income with respect to these
transactions until the subject securities are delivered to the Portfolios. The
Portfolios do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their
investment objectives.
Asset Backed Securities
Asset Backed Securities held by the Balanced and International Equity
Portfolios arise through the grouping by governmental, government-related and
private organizations of loans, receivables and other assets originated by
various lenders, as described below.
The yield characteristics of Asset Backed Securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an Asset
Backed Security is purchased at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an Asset Backed Security is purchased at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the Portfolios, the maturity of Asset Backed Securities
will be based on estimates of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments.
Like other fixed income securities, when interest rates rise the value of an
Asset Backed Security generally will decline; however, when interest rates
decline, the value of an Asset Backed Security with prepayment features may
not increase as much as that of other fixed income securities, and, as noted
above, changes in market rates of interest may accelerate or retard
prepayments and thus affect maturities.
These characteristics may result in a higher level of price volatility
for these assets under certain market conditions. In addition, while the
trading market for short-term mortgages and Asset Backed Securities is
ordinarily quite liquid, in times of financial stress the trading market for
these securities sometimes becomes restricted.
Mortgage Backed Securities. Asset Backed Securities acquired by the
Balanced and International Equity Portfolios consist of both mortgage and
non-mortgage backed securities. Mortgage backed securities represent an
ownership interest in a pool of mortgages, the interest on which is in most
cases issued and guaranteed by an agency or instrumentality of the U.S.
Government, although not necessarily by the U.S. Government itself. Mortgage
backed securities include collateralized mortgage obligations and mortgage
pass-through certificates.
Collateralized mortgage obligations ("CMOs") provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
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("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways. In
most cases, however, payments of principal are applied to the CMO classes in
the order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. These multiple class securities may be issued
or guaranteed by U.S. Government agencies or instrumentalities, including the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"), or
issued by trusts formed by private originators of, or investors in, mortgage
loans. Classes in CMOs which the Portfolios may hold are known as "regular"
interests. CMOs also issue "residual" interests, which in general are junior
to and more volatile than regular interests. The Portfolios do not intend to
purchase residual interests.
Mortgage pass-through certificates provide the holder with a pro rata
interest in the underlying mortgages. One type of such certificate in which
the Portfolios may invest is a GNMA Certificate which is backed as to the
timely payment of principal and interest by the full faith and credit of the
U.S. Government. Another type is a FNMA Certificate, the principal and
interest of which are guaranteed only by FNMA itself, not by the full faith
and credit of the U.S. Government. Another type is a FHLMC Participation
Certificate which is guaranteed by FHLMC as to timely payment of principal and
interest. However, like a FNMA security it is not guaranteed by the full faith
and credit of the U.S. Government. Privately issued mortgage backed securities
will carry a rating at the time of purchase of at least A by S&P or by Moody's
or, if unrated, will be in the Adviser's opinion equivalent in credit quality
to such rating. Mortgage backed securities issued by private issuers, whether
or not such obligations are subject to guarantees by the private issuer, may
entail greater risk than obligations directly or indirectly guaranteed by the
U.S. Government.
Non-Mortgage Backed Securities. The Balanced and International Equity
Portfolios may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
Non-mortgage backed securities involve certain risks that are not
presented by mortgage backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
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Variable and Floating Rate Instruments
The Balanced Portfolio may invest in leveraged inverse floating rate
debt instruments ("inverse floaters"). The interest rate of an inverse floater
resets in the opposite direction from the market rate of interest to which it
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent
in inverse floaters is associated with greater volatility in their market
values.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for the
Balanced Portfolio to dispose of the instruments if the issuer defaulted on
its payment obligation or during periods that the Portfolio is not entitled
to exercise demand rights, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments. Variable and floating rate
instruments (including inverse floaters) will be subject to the Portfolio's
limitation on illiquid investments. See "Illiquid Securities."
Zero Coupon Obligations
Each Portfolio may invest in zero coupon obligations which are
discount debt obligations that do not make periodic interest payments although
income is generally imputed to the holder on a current basis. Such obligations
may have higher price volatility than those which require the payment of
interest periodically. The Adviser will consider the liquidity needs of a
Portfolio when any investment in zero coupon obligations is made.
Foreign Currency Transactions
The International Equity and Balanced Portfolios may engage in
currency exchange transactions to the extent consistent with their respective
investment objectives or to hedge their portfolios. The Portfolios will
conduct their currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward contracts to purchase or sell currencies. A forward
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Forward
currency exchange contracts are entered into in the interbank market conducted
directly between currency traders (typically commercial banks or other
financial institutions) and their customers. They may be used to reduce the
level of volatility caused by changes in foreign currency exchange rates or
when such transactions are economically appropriate for the reduction of risks
in the ongoing management of the Portfolios. Although forward currency
exchange contracts may be used to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such currency
increase. The Portfolios also may combine forward currency exchange contracts
with investments in securities denominated in other currencies.
The International Equity Portfolio also may maintain short positions
in forward currency exchange transactions, which would involve the Portfolio
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency the Portfolio contracted to receive
in the exchange.
Each of the International Equity and Balanced Portfolios will maintain
in a segregated custodial account cash or U.S. Government securities or other
high quality liquid debt securities at least equal to the aggregate amount of
its short positions (in the case of the International Equity Portfolio) and of
its total assets committed to consummation of its forward currency exchange
contracts, plus accrued interest, in accordance with applicable requirements
of the SEC.
Options on Foreign Currency
The International Equity and Balanced Portfolios may purchase and sell
call and put options on foreign currency for the purpose of hedging against
changes in future currency exchange rates. Call options convey the right to
buy the underlying currency at a price which is expected to be lower than the
spot price
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of the currency at the time the option expires. Put options convey the right
to sell the underlying currency at a price which is anticipated to be higher
than the spot price of the currency at the time the option expires. The
Portfolios may use foreign currency options for the same purposes as forward
currency exchange and futures transactions, as described herein. See also
"Options" and "Currency Futures and Options on Currency Futures" below.
Futures Contracts and Related Options
Each Portfolio may trade futures contracts and options on futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange. To the
extent permitted under applicable law, the International Equity Portfolio may
also trade futures contracts and related options on exchanges located outside
the United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer advantages
such as trading in commodities that are not currently traded in the United
States or arbitrage possibilities not available in the United States. Foreign
markets, however, may have greater risk potential than domestic markets.
Each Portfolio may purchase and sell futures contracts which obligate
it to take or make delivery of certain securities at maturity, as well as
stock index futures contracts which are bilateral agreements pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value
(which assigns relative values to the common stocks included in the index) at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. The Capital Growth, Balanced and International
Equity Portfolios may enter into contracts for the future delivery of
fixed-income securities commonly known as interest rate futures contracts.
A Portfolio may sell a futures contract in order to offset an expected
decrease in the value of its portfolio that might otherwise result from a
market decline or currency exchange fluctuation. A Portfolio may do so either
to hedge the value of its securities portfolio as a whole, or to protect
against declines occurring prior to sales of securities in the value of the
securities to be sold. In addition, a Portfolio may utilize futures contracts
in anticipation of changes in the composition of its holdings or in currency
exchange rates.
The Capital Growth, Balanced and International Equity Portfolios may
also purchase options on futures contracts and may purchase and write put and
call options on stock indices listed on U.S. and, in the case of the
International Equity Portfolio foreign exchanges, or traded in the
over-the-counter market. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period
of the option.
When a Portfolio sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised.
In anticipation of a market advance, a Portfolio may purchase call options on
futures contracts as a substitute for the purchase of futures contracts to
hedge against a possible increase in the price of securities which the
Portfolio intends to purchase. Similarly, if the value of a Portfolio's
portfolio securities is expected to decline, the Portfolio might purchase put
options or sell call options on futures contracts rather than sell futures
contracts.
The Portfolios' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodities and Futures Trading Commission ("CFTC"). In addition, a
Portfolio may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options,
other than for bona
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fide hedging transactions, would exceed 5% of the liquidation value of its
assets, after taking into account unrealized profits and unrealized losses on
such contracts it has entered into; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the percentage limitation. Pursuant to SEC
requirements, the Portfolios will be required to segregate cash or high
quality money market instruments in connection with their commodities
transactions in an amount generally equal to the value of the underlying
commodity. The Trust intends to comply with the regulations of the CFTC
exempting the Portfolios from registration as a "commodity pool operator".
For a more detailed description of futures contracts and related
options, see Appendix B to the Statement of Additional Information.
Currency Futures and Options on Currency Futures
The International Equity and Balanced Portfolios may purchase and sell
currency futures contracts and options thereon. By selling foreign currency
futures, a Portfolio can establish the number of U.S. dollars that it will
receive in the delivery month for a certain amount of a foreign currency. In
this way, if a Portfolio anticipates a decline of a foreign currency against
the U.S. dollar, the Portfolio can attempt to fix the U.S. dollar value of
some or all of its securities that are denominated in that currency. By
purchasing foreign currency futures, a Portfolio can establish the number of
U.S. dollars that it will be required to pay for a specified amount of a
foreign currency in the delivery month. Thus, if a Portfolio intends to buy
securities in the future and expects the U.S. dollar to decline against the
relevant foreign currency during the period before the purchase is effected,
the Portfolio, for the price of the currency future, can attempt to fix the
price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow a Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires. If the Portfolios, in purchasing an option, have
been correct in their judgment concerning the direction in which the price of
a foreign currency would move as against the U.S. dollar, they may exercise
the option and thereby take a futures position to hedge against the risk they
had correctly anticipated or close out the option position at a gain that will
offset, to some extent, currency exchange losses otherwise suffered by the
Portfolios. If exchange rates move in a way a Portfolio did not anticipate,
the Portfolio will have incurred the expense of the option without obtaining
the expected benefit. As a result, a Portfolio's profits on the underlying
securities transactions may be reduced or overall losses may be incurred.
Options
The Capital Growth, Balanced and International Equity Portfolios may
purchase and sell put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation for hedging purposes.
Such transactions may be effected on a principal basis with primary reporting
dealers in U.S. Government securities in an amount not exceeding 5% of a
Portfolio's net assets, as described further in the Statement of Additional
Information. Such options may relate to particular securities or to various
stock indices or bond indices. Purchasing options is a specialized investment
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the option. Each such Portfolio may also
purchase and write put and call options on stock indices listed on foreign
exchanges or traded in the over-the-counter market.
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<PAGE>
The Capital Growth, Balanced and International Equity Portfolios may
purchase and sell put options on portfolio securities at or about the same
time that they purchase the underlying security or at a later time. By buying
a put, a Portfolio limits its risk of loss from a decline in the market value
of the security until the put expires. Any appreciation in the value of and
yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by a Portfolio in
order to acquire the underlying security at a later date at a price that
avoids any additional cost that would result from an increase in the market
value of the security. A Portfolio may also purchase call options to increase
its return to investors at a time when the call is expected to increase in
value due to anticipated appreciation of the underlying security. Prior to its
expiration, a purchased put or call option may be sold in a closing sale
transaction (a sale by a Portfolio, prior to the exercise of an option that it
has purchased, of an option of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the
premium paid for the option plus the related transaction costs.
In addition, the Capital Growth, Balanced and International Equity
Portfolios may write covered call and secured put options. A covered call
option means that a Portfolio owns or has the right to acquire the underlying
security subject to call at all times during the option period. A secured put
option means that a Portfolio maintains in a segregated account with its
custodian cash or U.S. Government securities in an amount not less than the
exercise price of the option at all times during the option period. Such
options will be listed on a national securities exchange and issued by the
Options Clearing Corporation and may be effected on a principal basis with
primary reporting dealers in U.S. Government securities. The aggregate value
of the securities subject to options written by a Portfolio will not exceed
25% of the value of its net assets. In order to close out an option position
prior to maturity, a Portfolio may enter into a "closing purchase transaction"
by purchasing a call or put option (depending upon the position being closed
out) on the same security with the same exercise price and expiration date as
the option which it previously wrote.
By writing a covered call option, a Portfolio forgoes the opportunity
to profit from an increase in the market price of the underlying security
above the exercise price except insofar as the premium represents such a
profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Portfolio effects a closing purchase
transaction by purchasing an option of the same series. If a Portfolio writes
a secured put option, it assumes the risk of loss should the market value of
the underlying security decline below the exercise price of the option. The
use of covered call and secured put options will not be a primary investment
technique of the Portfolios.
For additional information relating to option trading practices,
including particular risks thereof, see the Statement of Additional
Information.
Risk Factors Associated with Futures, Options and Currency Futures and Options
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, due to the risk of an imperfect correlation between securities
in its portfolio that are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge will not be
fully effective in that, for example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of gains on the portfolio securities that were the
subject of the hedge. In futures contracts based on indices, the risk of
imperfect correlation increases as the composition of the Portfolio varies
from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures
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<PAGE>
contracts, the Portfolio may buy or sell futures contracts in a greater or
lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the futures contract has been less or greater
than that of the securities. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements
are not as anticipated when the hedge is established.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of
securities prices, interest rates, currency exchange rates and other economic
factors. For example, if the Portfolio has hedged against the possibility of a
decline in the market adversely affecting the value of securities held in its
portfolio and prices increase instead, the Portfolio will lose part or all of
the benefit of the increased value of securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which reflect
the rising market. The Portfolio may have to sell securities at a time when it
may be disadvantageous to do so.
Although a Portfolio intends to enter into futures contracts and
options transactions only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. See "Illiquid Securities" above. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contracts prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. If it is not possible, or the Portfolio
determines not, to close a futures position in anticipation of adverse price
movements, it will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses on
the futures contract.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad. The foreign
currency market offers less protection against defaults in the forward trading
of currencies than is available when trading in currencies occurs on an
exchange. Since a forward currency contract is not guaranteed by an exchange
or clearinghouse, a default on the contract would deprive the Portfolio of
unrealized profits or force the Portfolio to cover its commitments for
purchase or resale, if any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC and may be subject to greater
risks than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. In addition,
unless the Portfolio hedges against fluctuations in the exchange rate between
the U.S. dollar and the currencies in which trading is done on foreign
exchanges, any profits that the Portfolio might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Portfolio could
incur losses as a
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<PAGE>
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Risk Factors Associated with Derivative Instruments
Each Portfolio may purchase derivative instruments. Derivative
instruments are instruments that derive value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include (but are not limited to) futures contracts, options, forward currency
contracts and structured debt obligations (including collateralized mortgage
obligations and other types of asset-backed securities, "stripped" securities
and various floating rate instruments, including "inverse" floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative instruments are more complex than others, and for those
instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Adviser will evaluate the risks presented by the derivative
instruments purchased by the Portfolios, and will determine, in connection
with its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that the Adviser's evaluations will prove to be inaccurate or incomplete and,
even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in derivative instruments.
Portfolio Turnover
Generally the Portfolios will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Portfolio may sell a portfolio investment soon after its
acquisition if the Adviser believes that such a disposition is consistent with
or in furtherance of the Portfolio's investment objective. Portfolio
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, such Portfolios
are likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
(See "Taxes-Federal" in the Prospectus and "Additional Information Concerning
Taxes" in the Statement of Additional Information.) While it is not possible
to accurately predict portfolio turnover rates, the annual turnover rates for
the Growth/Value, Opportunity, Intrinsic Value, Capital Growth and
International Equity Portfolios are not expected to exceed 100% and the annual
turnover rate for the Balanced Portfolio is not expected to exceed 75%.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
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investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by a
Portfolio, except that up to 25% of the value of the Portfolio's total assets
may be invested without regard to these limitations.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured by such
instruments; (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding one-third of its total assets.
4. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Portfolio's total assets at the time of such borrowing. No Portfolio will
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Portfolio's
investment practices described in the Statement of Additional Information or
in this Prospectus are not deemed to be pledged for purposes of this
limitation.
In addition, the Growth/Value, Opportunity and Intrinsic Value
Portfolios may not invest more than 10% of their respective total assets in
illiquid investments. The Capital Growth, Balanced and International Equity
Portfolios may invest up to 15% of their respective total assets in illiquid
securities. See "Illiquid Securities" above.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Portfolio's portfolio securities will not constitute
a violation of such limitation for purposes of the 1940 Act.
In order to permit the sale of a Portfolio's shares in certain states,
the Portfolios may make commitments more restrictive than the investment
policies and limitations described above. Should a Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio, it
will revoke the commitment by terminating sales of its shares in the state
involved.
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<PAGE>
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class A shares are sold to the public primarily through financial
institutions such as banks, brokers and dealers. Investors may purchase Class
A shares directly in accordance with the procedures set forth below or through
procedures established by their financial institutions in connection with the
requirements of their accounts.
Financial institutions may impose different minimum investment and
other requirements on their customers and may charge additional fees in
connection with the establishment of accounts with the institutions and
purchase and redemption of Class A shares. Persons wishing to purchase Class A
shares through their accounts at an institution or a Co-Distributor should
contact the institution or Co-distributor directly for appropriate
instructions and fee information. In addition, certain financial institutions
may enter into shareholder servicing agreements with the Trust whereby they
would perform various administrative support services for their customers who
are the beneficial owners of Class A shares in return for fees from the
Portfolios. See "Shareholder Servicing Plan" under the heading "Management" in
this Prospectus.
All shareholders of record will receive confirmations of share
purchases and redemptions. Class A shares purchased by institutions on behalf
of their customers will normally be held of record by them. Institutions will
record their customers' beneficial ownership of such shares and provide
regular account statements reflecting such beneficial ownership.
Institutions will be responsible for transmitting purchase and
redemption orders to FoM, Essex or NBD acting as transfer agent (the "Transfer
Agent") on a timely basis, in accordance with the procedures stated below.
Purchase Procedures
The minimum initial investment is $1,000, except for purchases through
an institution whose customers have invested an aggregate minimum of $1,000 or
for investments made through a Co-Distributor's or an institution's sweep
privilege, the Trust's Automatic Investment Plan described below, or the
Trust's IRA program described below. The minimum subsequent investment is
$100, except for reinvested dividends or as otherwise described below. The
Trust reserves the right to reject any purchase order.
Orders for Class A shares may be placed by telephone by calling (800)
688-3350 (provided an investor has made the appropriate election in his
account application) or by mail (by completing the account application which
accompanies this Prospectus and mailing the completed form and the payment for
shares to FoM, Essex or the Transfer Agent). All checks must be drawn on a
bank located within the United States and must be payable in U.S. dollars.
Subsequent investments in an existing account in a Portfolio may be made at
any time by sending a check or money order along with either (a) the
detachable form that regularly accompanies the Trust's confirmation of a prior
transaction, (b) a subsequent order form which may be obtained from the Trust,
or (c) a letter stating the amount of the investment, the name of the
Portfolio and the account number in which the investment is to be made. If any
check used for investment in an account does not clear, the order will be
cancelled and notice thereof will be given; in such event the account will be
responsible for any loss to the Trust as well as a $15 fee imposed by the
Transfer Agent.
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With the exception of customers of FoM and residents of
the state of Texas, Class A shares may also be paid for by wiring
federal funds to the Transfer Agent, NBD Bank, ABA 072000326, for the
account of The Woodward Funds, Account Number GL 325612, and
identifying the customer name and account number. Before wiring payment,
customers should notify the Transfer Agent by calling (800) 688-3350.
If customers of FoM wire payment in federal funds, they should direct
payment to NBD Bank, ABA 072000326, for the account of First of Michigan
Corporation re: The Woodward Funds, Account Number 059-41, and should identify
the customer name and account number. Before wiring payment, customers of FoM
should call FoM at (800) 544-8275 (outside Michigan) or (800) 852-7730 (within
Michigan).
Purchase orders which are accompanied by payment (by check or wire
transfer) and received by the Transfer Agent in proper form on a Business Day
(as defined below) prior to the close of the New York Stock Exchange are
priced at the public offering price (i.e. net asset value plus the applicable
sales load set forth below) of the particular Portfolio determined on that
Business Day. Purchase orders which are received by the Transfer Agent after
the close of trading on the Exchange on a Business Day or on non-Business Days
will be executed as of the determination of net asset value on the next
Business Day.
The Trust will not accept payment in cash or third party checks for
the purchase of shares. Federal regulations require that each investor provide
a certified taxpayer identification number upon opening or reopening an
account. Applications without a taxpayer identification number will not be
accepted. See the account application for further information about this
requirement.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined as of the close of trading on the floor
of the New York Stock Exchange ("Exchange") (currently 4:00 p.m. New York
Time), on each day the Exchange is open for business ("Business
Day") except: (i) those holidays which the Exchange observes (currently New
Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day); and
(ii) those Business Days on which the Exchange closes prior to the close of
its regular trading hours ("Early Closing Time"), in which event the net asset
value of each Portfolio will be determined and its shares will be priced as
of such Early Closing Time. Net asset value per Class I share of
a Portfolio is calculated by dividing the value of all securities
and other assets belonging to the Portfolio allocable to that Class I,
less the liabilities charged to that Class I, by the number of the
outstanding shares of such Class I.
Securities held by the Portfolios which are traded on a recognized
U.S. stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded or at the last sale
price on the national securities market. Securities which are primarily traded
on foreign securities exchanges are generally valued at the latest closing
price on their respective exchanges, except when an occurrence subsequent to
the time a value was established is likely to have changed such value, in
which case the fair value of those securities will be determined through
consideration of other factors by the Adviser under the supervision of the
Board of Trustees. Securities, whether U.S. or foreign, traded on only
over-the-counter markets and securities for which there were no transactions
are valued at the average of the current bid and asked prices. Fixed income
securities held by the Portfolios are valued according to the broadest and
most representative market, which ordinarily will be the over-the-counter
markets, whether in the United States or in foreign countries. Such securities
are valued at the average of the current bid and asked prices. Securities for
which accurate market quotations are not readily
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available, and other assets are valued at fair value by the Adviser under the
supervision of the Board of Trustees. Securities may be valued on the basis of
prices provided by independent pricing services when the Adviser believes such
prices reflect the fair market value of such securities. The prices provided
by pricing services take into account institutional size trading in similar
groups of securities and any developments related to specific securities. For
valuation purposes, the value of assets and liabilities expressed in foreign
currencies will be converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation. A Portfolio's open futures contracts will
be "marked-to-market."
PUBLIC OFFERING PRICE
The public offering price for Class A shares of the Portfolios is the
sum of the net asset value per share of the Class A shares being purchased
plus a sales load as follows:
<TABLE>
<CAPTION>
Reallowance to
Total Sales Load Institutions
------------------------------- --------------
As a % of As a % of As a % of
offering price net asset value offering price
Amount of Transaction per share per share per share
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $49,999................... 5.00 5.26 4.50
$50,000 to $99,999.................. 4.50 4.71 4.00
$100,000 to $249,999................ 3.50 3.63 3.00
$250,000 to $499,999................ 2.50 2.56 2.00
$500,000 to $999,999................ 2.00 2.04 1.75
$1,000,000 and over................. .00 .00 .00
</TABLE>
The sales load described above will not be applicable to purchases of
Class A shares by: (1) any bank, trust company or other institution acting on
behalf of its fiduciary customer accounts or any other account maintained by
its trust department (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended); (2) any individual, trust,
corporation or other person where the shares are acquired in connection with
the distribution of assets held in any account referred to in (l) above with
NBD or its affiliates; (3) individual retirement accounts maintained by the
trust division of NBD or of its affiliates; (4) current and retired directors,
officers and employees of NBD or any of its affiliates; (5) the trustees,
former trustees and officers of the Trust; (6) broker/dealers which have
entered into an agreement with a Co- Distributor or the Trust pursuant to the
Trust's Service and Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (7) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in paragraphs (4), (5) and (6) above. An application to qualify
for such purchases of Class A shares (an "NAV Account Application") may be
obtained from the Transfer Agent by calling (800) 688-3350. In addition, no
sales load is charged on the reinvestment of dividends or distributions, or in
connection with certain share exchanges described below under "Shareholder
Services -- Exchange Privilege." The Trust may terminate any exemption from
the sales load by providing notice in the Prospectus, but any such termination
would only affect future purchases of Class A shares. The reallowance to
institutions may be changed from time to time.
From time to time, the Co-Distributors, at their expense, may offer
additional promotional incentives to dealers.
Quantity Discounts
An investor may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, even if the
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investor does not wish to make an investment of a size that would normally
qualify for a quantity discount.
An investor must notify his institution or the Transfer Agent at the
time of purchase whenever a quantity discount applies. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity
discounts may be modified or terminated at any time and are subject to
confirmation of an investor's holdings. For more information about quantity
discounts, an investor should contact his institution or call (800) 688-3350.
Right of Accumulation. A reduced sales load applies to any purchase of
Class A shares of the Portfolios and any other portfolio which is currently
offered or may be offered in the future by the Trust that is sold with a sales
load ("Eligible Portfolios") where an investor's then current aggregate
investment is $50,000 or more. "Aggregate investment" means the total of: (a)
the dollar amount of the then current purchase; and (b) the value (based on
current net asset value) of Class A shares of Eligible Portfolios on which a
sales load has been paid (including shares acquired through reinvestment of
dividends or distributions on shares that were subject to a sales load). If,
for example, an investor beneficially owns Class A shares of the Growth/Value
Portfolio with an aggregate current value of $49,500 and subsequently
purchases additional Class A shares having a current value of $1,000, the load
applicable to the subsequent purchase would be reduced to 4.50% of the
offering price. Similarly, with respect to each subsequent investment, the
current value of all Class A shares of Eligible Portfolios that are
beneficially owned by the investor at the time of investment may be combined
to determine the applicable sales load.
Letter of Intent. By signing a Letter of Intent form (available from
his institution or the Transfer Agent) an investor becomes eligible for the
reduced sales load applicable to the total number of Eligible Portfolio Class
A shares purchased in a thirteen-month period (net of redemptions) pursuant to
the terms and under the conditions set forth in the Letter of Intent. To
compute the applicable sales load, the offering price of Class A shares an
investor beneficially owns (on the date of submission of the Letter of Intent)
in any Eligible Portfolio that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the
Letter of Intent. However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow Class A shares equal to the
amount indicated in the Letter of Intent for payment of a higher sales load if
an investor does not purchase the full amount specified in the Letter of
Intent. The escrow will be released when an investor fulfills the terms of the
Letter of Intent by purchasing the specified amount. If total purchases within
the thirteen-month period of the Letter of Intent exceed the amount specified,
an adjustment will be made in the form of additional Class A shares credited
to the shareholder's account to reflect further reduced sales charges
applicable to such purchases. If total purchases are less than the amount
specified, an investor will be requested to remit an amount equal to the
difference between the sales load actually paid and the sales load applicable
to the total purchases. If such remittance is not received within thirty days,
the Transfer Agent, as attorney-in-fact pursuant to the terms of the Letter of
Intent, will redeem an appropriate number of Class A shares held in escrow to
realize the difference. Signing a Letter of Intent does not bind an investor
to purchase the full amount indicated at the sales load in effect at the time
of signing, but an investor must complete the intended purchase to obtain the
reduced sales load.
Qualification for Discounts. For the purpose of applying the Right of
Accumulation and Letter of Intent privileges described above, the scale of
sales loads applies to the combined purchases made by any individual and/or
spouse purchasing securities for his, her or their own account or for the
account of any minor children under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act, or the aggregate investments of a trustee or
custodian of any
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qualified pension or profit sharing plan or IRA established, or the aggregate
investment of a trustee or other fiduciary, for the benefit of the persons
listed above.
REDEMPTION OF SHARES
In General
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption in
accordance with the procedures set forth below.
Redemption orders must be placed with or through the same financial
institution that placed the original purchase order. It is the responsibility
of the financial institutions to transmit redemption orders to the Transfer
Agent. Redemption proceeds are paid by check or credited to the investor's
account with his financial institution. Investors who purchased shares
directly from the Trust should follow the redemption procedures set forth
below.
Redemption Procedures
Shareholders of record may redeem shares in any amount by calling
(800) 688-3350 (provided they have made the appropriate election on the account
application) or by sending a written request to The Woodward Funds, c/o NBD
Bank, P.O. Box 7058, Troy, Michigan 48007-7058. Written requests to redeem
shares having a net asset value of more than $50,000 must have all signatures
of the registered owner(s) or their authorized legal representative guaranteed
by a commercial bank or trust company which is a member of the Federal Reserve
System or FDIC, a member firm of a national securities exchange or a savings
and loan association. A signature guaranteed by a savings bank or notarized by
a notary public is not acceptable. A signature guarantee will also be required
for redemption requests (in any amount) if the address of record for the
account has been changed within the previous 15 days or which requests that
the proceeds be paid to an account other than the one preauthorized on the
application, a payee or payees other than the registered owners of the
account, or an address other than the address of record. The Trust may require
additional supporting documents for redemptions made by corporations,
fiduciaries, executors, administrators, trustees, guardians and institutional
investors.
Redemption orders for Class A shares may be placed through an
institution or directly by telephone by calling (800) 688-3350. During periods
of unusual economic or market changes, telephone redemptions may be difficult
to implement. In such event, shareholders should mail their redemption
requests to their financial institutions or The Woodward Funds, c/o NBD Bank
at the address shown above. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration (including,
but not limited to, the name in which an account is registered, the account
number, or recent transactions in the account). To the extent that the Trust
and its Transfer Agent fail to use reasonable procedures to verify the
genuineness of telephone instructions, they may be liable for such
instructions that prove to be fraudulent and unauthorized. In all other cases,
shareholders will bear the risk of loss for fraudulent telephone transactions.
Other Redemption Information
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934 after receipt by the Transfer Agent of a request in proper form. If
shares to
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be redeemed were purchased by check, the Trust will transmit the redemption
proceeds promptly upon clearance of such check, which could take up to fifteen
days from the purchase date. A shareholder having purchased shares by wire
must have filed an account application before any redemption requests can be
honored.
Currently, the Trust imposes no charge when shares are redeemed.
However, institutions may charge a fee for providing services in connection
with investments in Portfolio shares; NBD currently charges $16 for wire
transactions. The Trust reserves the right to redeem accounts involuntarily,
after sixty days' notice, if redemptions cause the account's net asset value
to remain at $1,000 or less. Under certain circumstances, the Trust may make
payment for redemption in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350 or an investor's financial
institution.
SHAREHOLDER SERVICES
The shareholder services and privileges under this heading may not be
available to certain clients of particular financial institutions, and some
may impose conditions on their clients that are different from those described
below. investors should consult their own financial institutions in this
regard. Other investors should direct any questions to the Transfer Agent. The
Trust may modify or terminate any of the following services and privileges at
any time.
Exchange Privilege
Investors may exchange Class A shares which have been owned for at
least thirty days of the Growth/Value, Opportunity, Intrinsic Value, Capital
Growth, Balanced and International Equity Portfolios, of the Woodward
Intermediate Bond, Bond, Short Bond, Municipal Bond and Michigan Municipal
Bond Funds and of other investment portfolios of the Trust which may be
offered in the future and sold with a sales charge (each a "load portfolio")
and Class A shares which have been owned for at least thirty days of the
Woodward Equity Index, Money Market, Government, Treasury Money Market,
Tax-Exempt Money Market and Michigan Tax-Exempt Money Market Funds and of
other investment portfolios of the Trust which may be offered in the future
and sold without a sales charge (each a "no load portfolio"). The cost of the
acquired Class A shares will be their net asset value plus the applicable
sales load, if any.
With respect to exchanges between load portfolios other than exchanges
involving the Woodward Short Bond Fund, no additional sales load will be
payable, provided that the investor previously paid a sales load upon the
acquisition of Class A shares of a load Portfolio. Investors exchanging Class
A shares of the Woodward Short Bond Fund will be required to pay the
difference between the sales load previously paid and the sales load
applicable on the Class A shares being acquired in the exchange, unless the
investor's holding of Class A shares of the Woodward Short Bond Fund resulted
from a previous exchange of Class A shares with respect to which the investor
had paid a higher sales load.
Exchanges of Class A shares of a load portfolio for Class A shares of
a no load portfolio and exchanges of Class A shares of a no load portfolio for
Class A shares of another no load portfolio will not be subject to the payment
of a sales load.
Any exchange of Class A shares of a no load portfolio for Class A
shares of a load portfolio will be subject to the payment of the applicable
sales load, unless the investor is exchanging shares of a no load portfolio
which were received in a previous exchange transaction involving Class A
shares of a load portfolio. In such case, the investor will receive a credit
for any sales load
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previously paid and no additional sales load will be payable, except as noted
above with respect to the Woodward Short Bond Fund.
Shareholders contemplating an exchange should carefully review the
prospectus of the portfolio into which the exchange is being considered. The
Prospectus for any portfolio of the Trust may be obtained from an investor's
financial institution or from the Transfer Agent by calling (800) 688-3350.
Exchanges will only be made into shares of Portfolios which are legally
registered for sale in the state of residence of the investor.
Exchanges will be effected by a redemption of Class A shares of the
portfolio held and the purchase of Class A shares of the portfolio acquired.
Investors should make their exchange requests in writing or by telephone to
the financial institutions through which they purchased their original Class A
shares. It is the responsibility of financial institutions to transmit
exchange requests to the Transfer Agent. Other investors should transmit
exchange requests directly to the Transfer Agent. The total value of shares
being exchanged must at least equal the minimum investment requirement of the
portfolio whose shares are being acquired in the exchange. Only one exchange
in any thirty-day period is permitted and only Class A shares that may be
legally sold in the state of the investor's residence may be acquired in an
exchange. The Trust reserves the right to reject any exchange request.
Investors wishing to make an exchange should contact their
institutions or the Transfer Agent (as appropriate). Exchange requests in the
required form which are received by the Transfer Agent prior to 4:00 p.m.,
Eastern time or Early Closing Time, will be effected on the same
Business Day after such request is received. Requests received after
4:00 p.m., Eastern time or Early Closing Time, will be effected on
the next Business Day after such request is received. During periods of
significant economic or market change, telephone exchanges may be difficult to
complete. In such event, an investor should mail the exchange request to his
financial institution or the Transfer Agent. Neither the Trust nor the
Transfer Agent will be responsible for the authenticity of instructions
received by telephone that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, the Trust and
its Transfer Agent will use such procedures as are considered reasonable,
including recording those instructions and requesting information as to
account registration (including, but not limited to, the name in which an
account is registered, the account number, or recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions,
they may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to modify or
terminate its exchange procedures upon sixty days notice to shareholders.
Reinvestment Privilege
Class A shares of a Portfolio may be purchased at net asset value by
persons who have redeemed within the previous 120 days their Class A shares of
that Portfolio or another investment portfolio of the Trust which were
purchased with a sales load. The amount which may be so reinvested is limited
to an amount up to the redemption proceeds. In order to exercise this
privilege, a written order for the purchase of Class A shares of the Portfolio
must be received by the Transfer Agent within 120 days after the redemption.
Reinvestment will be at the next calculated net asset value after receipt.
Option to Make Systematic Withdrawals
The Trust has available to shareholders a Systematic Withdrawal Plan
pursuant to which a shareholder who owns Class A shares of any investment
portfolio having a minimum value of $15,000 at the time he elects under the
Plan may have a fixed sum distributed in redemption at regular intervals. An
application form and additional information regarding this service may be
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obtained from an investor's financial institution or the Transfer Agent by
calling (800) 688-3350.
Automatic Investment
The Trust offers an Automatic Investment Plan (the "Plan") whereby a
shareholder may automatically purchase Class A shares on a regular basis in
accordance with an election in his account application. An application may be
obtained from the Transfer Agent by calling (800) 688-3350. Under the Plan a
shareholder's financial institution debits a pre-authorized amount from his
account and applies the amount to the purchase of Class A shares. The minimum
per transaction is $25. The minimum initial investment in a Portfolio is also
$25 for the following shareholders who elect the Plan: (1) current and retired
directors, officers and employees of NBD or any of its affiliates; (2) the
trustees, former trustees and officers of the Trust; (3) broker/dealers which
have entered into an agreement with a Co-Distributor or the Trust pursuant to
the Trust's Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (4) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in (l), (2) and (3) above. An NAV Account Application may be
obtained from the Transfer Agent by calling (800) 688-3350. The Plan can be
implemented with any financial institution that is a member of the Automated
Clearing House. No service fee is currently charged by the Trust for
participating in the Plan. Death or legal incapacity will terminate a
shareholder's participation in the Plan. Deposits, withdrawals and adjustments
will be made electronically under the rules of the Automated Clearing House
Association.
Cross Reinvestment of Dividend Plan
The Trust makes available to shareholders a Cross Reinvestment of
Dividend Plan (the "Plan") pursuant to which a shareholder who owns Class A
shares of any portfolio with a minimum value of $10,000 at the time he elects
under the Plan may have dividends paid by such portfolio automatically
reinvested into Class A shares of another portfolio in which he has invested a
minimum of $1,000. Shareholders may obtain an application and additional
information from their institutions or the Transfer Agent by calling
(800) 688-3350.
The Woodward Funds Individual Retirement Custodial Account
Class A shares may be purchased in conjunction with the Trust's
Individual Retirement Custodial Account program ("IRA") where NBD acts as
custodian. investors should consult their institutions or a Co-Distributor for
information as to applications and annual fees. The minimum investment for an
IRA is $250 for investors who are not employees of NBD and $25 for investors
who are employees of NBD. Investors should also consult their tax advisers to
determine whether the benefits of an IRA are available or appropriate.
Other Retirement Plans
NBD and its affiliates offer a variety of pension and profit sharing
plans including IRAs, defined contribution plans, 401(k) Plans, 403(b)(7)
Plans and 457 Plans through which investors may purchase Class A shares. The
minimum investment for these Plans may differ from the minimum discussed above
in "Purchase of Shares." For details concerning any of the retirement plans,
please call the Transfer Agent or a Co-Distributor.
Direct Deposit Program
If an investor receives federal salary, social security, or certain
veteran's, military or other payments from the federal government or elects to
use his employer's payroll deposit program, he is eligible for the Direct
Deposit Program. With this Program, an investor may purchase Class A shares
(minimum of
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$25) by having these deposits automatically deposited into his Portfolio
account. For instructions on how to enroll in the Direct Deposit Program, an
investor should call his institution or the Transfer Agent. Death or legal
incapacity will terminate an investor's participation in the Program. An
investor may elect at any time to terminate his participation by notifying in
writing the appropriate federal agency. Further, the Trust may terminate an
investor's participation upon thirty days' notice to him.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance of each class of shares of the Portfolios may be compared to the
performance of other mutual funds with similar investment objectives and to
stock and other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, performance may be compared to data
prepared by Lipper Analytical Services, Inc. In addition, the performance of
the Portfolios may be compared to the Standard & Poor's 500 Index, an index of
unmanaged groups of common stocks, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of thirty
industrial companies listed on the New York Stock Exchange. Performance data
as reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications
of a local or regional nature, may also be used in comparing the performance
of a Portfolio.
The Portfolios calculate their total returns on an "average annual
total return" basis for various periods from the date they commenced
investment operations and for other periods as permitted under the rules of
the SEC. Average annual total return of a class reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns may also be calculated on an "aggregate total return
basis" for various periods. Aggregate total return reflects the total
percentage change in value over the measuring period. Both methods of
calculating total return also reflect changes in the price of the shares and
assume that any dividends and capital gain distributions made by the class
during the period are reinvested in shares of the class. When considering
average total return figures for periods longer than one year, it is important
to note that a class' annual total return for any one year in the period might
have been greater or less than the average for the entire period.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. The
investment return and principal value of an investment in a class will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Performance data should also be considered
in light of the risks associated with a Portfolio's portfolio composition,
quality, maturity, operating expenses and market conditions. Any fees charged
by financial institutions directly to their customer accounts in connection
with investments in shares will not be reflected in performance calculations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid quarterly
by each Portfolio, except the International Equity Portfolio which declares
and pays dividends annually. Each Portfolio's net realized capital gains are
distributed at least annually.
Dividends and distributions will reduce a class' net asset value by
the amount of the dividend or distribution. All dividends and distributions
are automatically reinvested (without any sales charge) in additional Class A
shares
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of the same Portfolio at their net asset value per share determined on the
payment date, unless the holder has notified the Transfer Agent in writing
that he elects to have dividends or capital gain distributions (or both) paid
in cash. Shareholders must make such election, or any revocation thereof, in
writing to their financial institutions or Transfer Agent. If an account
is established with telephone privileges, the registered owner or his
preauthorized legal representative may change the election to receive
dividends in cash to an election to receive dividends in shares by
telephoning the Transfer Agent at (800) 688-3350. The election will
become effective with respect to dividends paid after its receipt by the
Transfer Agent.
TAXES
Federal
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification will relieve the Portfolios of liability for federal income
taxes to the extent their earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Portfolio distribute to
its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. In general, a Portfolio's investment company taxable income will be its
taxable income, subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Portfolio intends to distribute as
dividends substantially all of its investment company taxable income and any
net tax-exempt interest income each year. Such dividends will be taxable as
ordinary income to the Portfolio's shareholders who are not currently exempt
from federal income taxes regardless of whether a distribution is received in
cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolios will generally have no tax liability with respect to such gains and
the distributions will be taxable to Portfolio shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the shares and whether such
gains are received in cash or reinvested in additional shares.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed for federal tax purposes to have been paid by the Portfolio and
received by the shareholders on December 31 of such year if such dividends are
paid during January of the following year.
Prior to purchasing shares of a Portfolio, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after the purchase of shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of
the dividend or distribution. All or a portion of such amounts, although in
effect a return of capital, is subject to tax.
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A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of shares of a Portfolio depending upon the
tax basis and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase
of Portfolio shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Portfolio within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included under certain
circumstances in the tax basis of the new shares.
It is expected that dividends and certain interest income earned by
the International Equity Portfolio from foreign securities will be subject to
foreign withholding taxes or other taxes. So long as more than 50% of the
value of the Portfolio's total assets at the close of any taxable year
consists of equity or debt securities of foreign corporations, the Portfolio
may elect, for U.S. federal income tax purposes, to treat certain foreign
taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid its shareholders. The Portfolio may make this election.
As a consequence, the amount of such foreign taxes paid by the Portfolio will
be included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and the shareholders will be
entitled (a) to credit their proportionate amounts of such taxes against their
U.S. federal income tax liabilities, or (b) if they itemize their deductions,
to deduct such proportionate amounts from their U.S. income.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
State and Local
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust
and its shareholders under such laws may differ from treatment under federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
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*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992)
and Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate
of Henry Ford Health System); Trustee, Henry Ford Health Sciences Center
(since 1987); Trustee, Henry Ford Continuing Care Corporation (since 1980);
Trustee, Earhart Foundation (since 1980). He is 77 years old and his
address is 333 West Fort Street, Detroit, Michigan 48226.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1986-1990); President (1981-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago; Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
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* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor of
Finance, Indiana University (1970-1991); Vice President, Trust & Investment
Advisers, Inc. (1990-1991); Director, Federal Home Loan Bank of Indianapolis
(1981 to 1985). He is 61 years old, and his address is 5 Boar's Head Lane,
Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser for each Portfolio is NBD, a wholly owned
subsidiary of First Chicago NBD Corporation, a bank holding company. NBD has
offices at 611 Woodward Avenue, Detroit, Michigan 48226. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion. NBD has been in the business
of providing such services since 1933. Included among NBD's accounts are
pension and profit sharing funds for major corporations and state and local
governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
NBD provides investment advisory and certain administrative services
to each Portfolio pursuant to an Advisory Agreement. Subject to the overall
supervision of the Board of Trustees, NBD makes investment decisions for each
of the Portfolios.
- -----------------------------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
-42-
<PAGE>
Jeffrey C. Beard, First Vice President and Gary L. Konsler, First Vice
President, are primarily responsible for the day-to-day management of the
Growth/Value and Capital Growth Portfolios. Mr. Beard joined NBD in 1982 after
receiving an MBA in Finance from Michigan State University in 1981. Mr.
Konsler joined NBD in 1973 after receiving a JD from Indiana University.
Ronald L. Doyle, First Vice President, and Joseph R. Gatz, Second Vice
President, are primarily responsible for the day-to-day management of the
Opportunity Portfolio. Mr. Doyle joined NBD in 1982 after receiving his MBA in
Finance from Michigan State University. Mr. Gatz joined NBD in 1986 after
receiving his MBA from Indiana University.
Chris M. Gassen, Vice President, and F. Richard Neumann, Vice
President, are primarily responsible for the day-to-day management of the
Intrinsic Value Portfolio. Mr. Gassen joined NBD in 1985 after receiving an
MBA in Finance from Indiana University. Mr. Neumann joined NBD in 1981 after
receiving an MBA in Finance/Accounting from the University of Chicago.
Claude B. Erb, First Vice President, is primarily responsible
for the day-to-day portfolio management of the Balanced Portfolio. Mr. Erb
joined First Chicago NBD Corporation in 1993, after receiving his MBA in
Finance from the University of California.
Richard P. Kost, First Vice President and Clyde L. Carter, Jr.,
Assistant Vice President, are primarily responsible for the day-to-day
portfolio management of the International Equity Portfolio. Mr. Kost joined
NBD in 1964 after he received his MBA from the University of Michigan. Mr.
Carter joined NBD in 1987 after he received his MBA from Western Michigan
University.
For its services under the Advisory Agreement, NBD is entitled to
receive advisory fees, computed daily and payable monthly, at an annual rate
of .75% of the average daily net assets of each of the Portfolios. In
addition, NBD is entitled to 4/10ths of the gross income earned by a Portfolio
on each loan of securities (excluding capital gains and losses, if any). NBD
may voluntarily waive its fees in whole or in part with respect to any
particular Portfolio.
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
a customer. The Adviser and the Trust believe that the Adviser may perform the
advisory, custodial and transfer agency services for the Trust described in
this Prospectus, and that the Adviser, subject to such banking laws and
regulations, may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform investment
advisory, custodial or transfer agency services for the Trust or require the
Adviser to alter or discontinue the services provided by it to shareholders.
If the Adviser were prohibited from performing investment advisory,
custodial or transfer agency services for the Trust, it is expected that the
Board of Trustees of the Trust would recommend that shareholders approve new
-43-
<PAGE>
agreements with another entity or entities qualified to perform such services
and selected by the Board. If the Adviser or its affiliates were required to
discontinue all or part of its shareholder servicing activities, their
customers would be permitted to remain the beneficial owners of Portfolio
shares and alternative means for continuing the servicing of such customers
would be sought. The Trust does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges, and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of each Portfolio: (i) fees payable
to the Co- Distributors pursuant to the Distribution Agreement; (ii) the
actual costs and expenses in connection with advertising and marketing the
Portfolio's shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions and other professionals ("Service Agents") for
administration or servicing of Portfolio shareholders ("Servicing"). Servicing
may include, among other things: answering client inquiries regarding the
Trust and the Portfolios; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing
and maintaining shareholder accounts and records; processing purchase and
redemption transactions; investing client cash account balances automatically
in Portfolio shares; providing periodic statements showing a client's account
balance and integrating such statements with those of other transactions and
balances in the client's other accounts serviced by the Service Agent;
arranging for bank wires; and such other services as the Trust may request, to
the extent the Service Agent is permitted by applicable statute, rule or
regulation. Under the Plan, the Trust also bears the cost of preparing and
printing Prospectuses for use in selling shares of the Trust and costs
associated with implementing and operating the Plan. These costs are included
in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .005% of a Portfolio's average net assets, and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net
-44-
<PAGE>
assets of the Trust's investment portfolios attributable to investments by
clients of Essex. The payments to be made to the Co-Distributors which are
based on a percentage of the net assets of the Portfolios are designed to
compensate the Co-Distributors for their participation in the distribution of
the Portfolios' shares and to reimburse the Co-Distributors for certain
distribution costs. Nonreimbursable expenses of the Co-Distributors include
salaries of executives, sales and clerical personnel performing services for
the Trust, and overhead expenses. Such costs are by their nature not subject
to precise quantification and the Trustees have determined that the fees to be
paid to the Co-Distributors are reasonable under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Shareholder Servicing Plan
Pursuant to a Shareholder Servicing Plan ("Servicing Plan") adopted by
its Board of Trustees, the Trust may enter into agreements ("Servicing
Agreements") with banks and financial institutions, which may include the
Adviser and its affiliates ("Shareholder Servicing Agents"), under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares of the Portfolios. Such services, which
are described more fully in the Statement of Additional Information, may
include processing purchase and redemption requests from customers, placing
net purchase and redemption orders with a Co-Distributor, processing, among
other things, distribution payments from the Trust, providing necessary
personnel and facilities to establish and maintain customer accounts and
records, and providing information periodically to customers showing their
positions in Class A shares.
For these services, the Trust will pay fees to Shareholder Servicing
Agents at an annual rate of up to .25% of the average daily net asset value of
Class A shares held by such Shareholder Servicing Agents for the benefit of
their customers and, at the Trust's option, it may reimburse the Shareholder
Servicing Agents' out-of-pocket expenses. Shareholder Servicing Agents are
required to provide their customers with a schedule of any credits, fees or
other conditions that may be applicable to the investment of customer assets
in Class A shares. The fees payable under such servicing agreements will be
allocated exclusively to the Class A shares in each Portfolio.
Conflict of interest restrictions may apply to the receipt of
compensation paid by the Trust to a Shareholder Servicing Agent in connection
with the investment of fiduciary funds in Portfolio shares. Banks and other
institutions regulated by the Comptroller of the Currency or other federal or
state bank regulatory agencies, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal counsel before
entering into Servicing Agreements.
-45-
<PAGE>
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets such as brokerage fees, commissions and other transaction
charges, the fees and expenses of NBD as the Trust's Custodian and as its
Transfer Agent, the fees payable to the Co-Distributors under the Distribution
Agreement, the fees and expenses of Trustees, expenses associated with the
Trust's Distribution Plan and Shareholder Servicing Plan, outside auditing and
legal expenses, all taxes and corporate fees payable by the Trust, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders,
costs of shareholder reports and shareholder meetings, and any extraordinary
expenses. Each Portfolio also pays for brokerage commissions and transfer
taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular Portfolio of the Trust will
be charged to that Portfolio, and expenses not readily identifiable as
belonging to a particular Portfolio will be allocated by the Board of Trustees
among one or more Portfolios in such a manner as it shall deem fair and
equitable. For the fiscal year ended December 31, 1995, the Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Portfolios' total expenses were .84%, .89%, .91%, .86%, .91% and 1.16%
(after fee waivers, if any) of their average net assets, respectively. The
Statement of Additional Information describes in more detail the fees and
expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Money Market Fund, Government Fund,
Treasury Money Market Fund, Tax- Exempt Money Market Fund, Michigan Tax-Exempt
Money Market Fund, Intermediate Bond Fund, Bond Fund, Short Bond Fund,
Municipal Bond Fund, Michigan Municipal Bond Fund and Equity Index Fund. The
Trust has established the following two distinct classes of shares within each
Portfolio described herein: Class I shares (Original Class) and Class A shares
(Special Class 1). A sales person and any other person or institution entitled
to receive compensation for selling or servicing shares may receive different
compensation with respect to different classes of shares in the Series. Each
share has $.10 par value, represents an equal proportionate interest in the
related Portfolio with other shares of the same class outstanding, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such Portfolio as are declared in the discretion of the
Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly, the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
-46-
<PAGE>
As of March 29, 1996, NBD held beneficially or of record
approximately 84.53%, 80.72%, 79.93%, 69.57%, 88.25% and 89.56% of the
outstanding shares of the Growth/Value, Opportunity, Intrinsic Value, Capital
Growth, Balanced and International Equity Portfolios, respectively, and
therefore may be considered to be a controlling person of the Trust for
purposes of the 1940 Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
-47-
<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give
any information or to make any
representations not contained in this
Prospectus, or in the Portfolios'
Statement of Additional Information
incorporated herein by reference, in
connection with the offering made by
this Prospectus and, if given or
made, such information or
representations must not be relied
upon as having been authorized by the
Trust, Adviser or Sponsors and Co-
Distributors. This Prospectus does
not constitute an offering by the
Portfolios or by their Co-
Distributors, in any jurisdiction in
which such offering may not lawfully
be made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY............................. 2
BACKGROUND.................................. 4
FINANCIAL HIGHLIGHTS........................ 5
INTRODUCTION................................ 11
PROPOSED REORGANIZATION..................... 11
INVESTMENT OBJECTIVES, POLICIES AND
RISK FACTORS.......................... 11
OTHER INVESTMENT POLICIES................... 16
PURCHASE OF SHARES.......................... 30
PUBLIC OFFERING PRICE....................... 32
REDEMPTION OF SHARES........................ 34
SHAREHOLDER SERVICES........................ 35
PERFORMANCE INFORMATION..................... 38
DIVIDENDS AND DISTRIBUTIONS................. 38
TAXES .................................... 39
MANAGEMENT.................................. 40
OTHER INFORMATION........................... 46
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania
19107-3496
<PAGE>
[ BACK COVER, COLUMN 2 ]
CLASS A SHARES OF THE:
WOODWARD GROWTH/VALUE FUND
WOODWARD OPPORTUNITY FUND
WOODWARD INTRINSIC VALUE FUND
WOODWARD CAPITAL GROWTH FUND
WOODWARD BALANCED FUND
WOODWARD INTERNATIONAL EQUITY FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
-48-
Exhibit (17)(h)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following seven investment portfolios (the "Portfolios"), each having
its own investment objective and policies as described in this Prospectus:
Class I shares of the:
Woodward Growth/Value Fund
Woodward Opportunity Fund
Woodward Intrinsic Value Fund
Woodward Capital Growth Fund
Woodward Balanced Fund
Woodward Equity Index Fund
Woodward International Equity Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing to The Woodward Funds at the address above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into the Prospectus.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Growth/Value Fund ("Growth/Value Portfolio"), Woodward
Opportunity Fund ("Opportunity Portfolio"), Woodward Intrinsic Value Fund
("Intrinsic Value Portfolio"), Woodward Capital Growth Fund ("Capital Growth
Portfolio"), Woodward Balanced Fund ("Balanced Portfolio"), Woodward Equity
Index Fund ("Equity Index Portfolio") and Woodward International Equity Fund
("International Equity Portfolio"). Class I shares are sold primarily to NBD
and its affiliated and correspondent banks acting on behalf of their
respective customers. Class A shares are sold to the general public primarily
through financial institutions such as banks, brokers and dealers. Class A
shares are offered in a separate Prospectus. Investors should call (800)
688-3350, a Co-Distributor or their financial institutions if they would like
to obtain more information concerning Class I shares and/or Class A shares of
the Portfolios. The following table is provided to assist investors in
understanding the various costs and expenses that an investor will indirectly
incur as a beneficial owner of Class I shares in each of the Portfolios.
<TABLE>
<CAPTION>
Inter-
Growth/ Oppor- Intrinsic Capital Equity national
Value tunity Value Growth Balanced Index Equity
Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price....... None None None None None None None
Sales Load Imposed on
Reinvested Dividends. None None None None None None None
Deferred Sales Load..... None None None None None None None
Redemption Fee.......... None None None None None None None
Exchange Fee............ None None None None None None None
Annual Operating Expenses
(as a percentage of
average net assets)
Management Fees......... .75% .75% .75% .75% .75% .10% .75%
12b-1 Fees.............. .011% .015% .011% .005% .013% .03% .004%
Other Expenses(2)
(before no fee waivers
and/or expense
reimbursements)...... .039% .035% .089% .145% .327% .03% 0.596%
(after fee waivers
and/or expense
reimbursements)...... N/A N/A N/A .125% .187% N/A .406%
Total Operating Expenses
(before fee waivers
and/or expense
reimbursements)...... .80% .80% .85% .90% 1.09% .16% 1.35%
(after fee waivers
and/or expense
reimbursements....... N/A N/A N/A .88% .95% N/A 1.16%
<FN>
- ---------------------
1. The expenses for each Portfolio have been restated to reflect
current expenses.
-2-
<PAGE>
2. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
- -------------------
</TABLE>
<TABLE>
<CAPTION>
Inter-
Growth/ Oppor- Intrinsic Capital Equity national
Value tunity Value Growth Balanced Index Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------------- --------- --------- ---------
Example
You would pay the following
expenses on a $1,000
investment, assuming:
(1) a 5% annual return
and (2) redemption at the
end of each time period:
<S> <C> <C> <C> <C> <C> <C> <C>
One Year:..... $ 8.20 $ 8.20 $ 8.71 $ 9.02 $ 9.73 $ 1.64 $ 11.89
Three Years:.. 25.64 25.64 27.23 28.18 30.40 5.16 37.04
Five Years:... 44.57 44.57 47.31 48.95 52.76 9.03 64.15
Ten Years:.... 99.27 99.27 105.22 108.78 117.05 20.47 141.50
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class I shares in each of the Portfolios,
based upon payment by the Portfolios of operating expenses at the respective
levels set forth in the expense table. For more complete descriptions of
Portfolio expenses, see "Investment Adviser, Custodian and Transfer Agent,"
"Sponsors and Co-Distributors," "Service and Distribution Plan" and "Trust
Expenses" under the heading "Management" in this Prospectus and the financial
statements and related notes contained in the Statement of Additional
Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class I
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of how each Portfolio's
net asset value has changed during the periods presented. The tables have been
derived from the Portfolios' financial statements which have been audited by
Arthur Andersen LLP, the Trust's independent public accountants, whose report
thereon is contained in the Statement of Additional Information along with the
financial statements. The financial data included in these tables should be
read in conjunction with the financial statements and related notes included
in the Statement of Additional Information. Further information about the
performance of the Portfolios is available in annual reports to shareholders.
The Statement of Additional Information and annual reports to shareholders may
be obtained from the Trust free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Growth/Value Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $ 10.67 $ 11.16 $ 10.51 $ 9.86 $ 10.00
Income from investment
operations:
Net investment income ...... 0.21 0.23 0.20 0.22 0.14
Net realized and unrealized
gains (losses) on
investments .............. 2.76 (0.17) 1.24 0.75 (0.14)
--------------- --------------- --------------- --------------- ---------------
Total from investment
operations ............... $ 2.97 $ 0.06 $ 1.44 $ 0.97 $ 0.00
--------------- --------------- --------------- --------------- ---------------
Less distributions:
From net investment
income ................... $ (0.22) $ (0.21) $ (0.20) $ (0.22) $ (0.14)
From realized
gains .................... (0.26) (0.30) (0.59) (0.10) 0.00
In excess
of realized gains ......... 0.00 (0.01) 0.00 0.00 0.00
Tax return of capital ....... 0.00 (0.03) 0.00 0.00 0.00
--------------- --------------- --------------- --------------- ---------------
Total distributions ........ $ (0.48) $ (0.55) $ (0.79) $ (0.32) $ (0.14)
--------------- --------------- --------------- --------------- ---------------
Net asset value, end of
period ..................... $ 13.16 $ 10.67 $ 11.16 $ 10.51 $ 9.86
=============== =============== =============== =============== ===============
Total return ................. 28.04% 0.55% 13.79% 9.87% 0.17%(a)
Ratios/Supplemental Data
Net assets, end of period .... $ 737,167,067 $ 571,370,711 $ 429,635,045 $ 287,344,809 $ 238,085,630
Ratio of expenses to average
net assets ................. 0.84% 0.84% 0.83% 0.83% 0.85%(a)
Ratio of net investment income
to average net assets ...... 1.73% 2.07% 1.84% 2.20% 2.56%(a)
Portfolio turnover rate ...... 26.80% 28.04% 42.31% 16.28% 0.94%
Average Commission Rate ...... $ 0.04
<FN>
- ---------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Opportunity Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $ 13.34 $ 14.49 $ 12.37 $ 10.40 $ 10.00
Income from investment
operations:
Net investment income ...... 0.06 0.07 0.10 0.11 0.09
Net realized and unrealized
gains (losses) on
investments .............. 2.57 (0.54) 2.87 2.43 0.43
------------ ------------ ------------ ------------ ------------
Total from investment
operations ............... $ 2.63 $ (0.47) $ 2.97 $ 2.54 $ 0.52
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment
income ................... $ (0.06) $ (0.07) $ (0.10) $ (0.11) $ (0.09)
From realized
gains .................... (0.76) (0.49) (0.75) (0.46) (0.03)
In excess
of realized gains ......... 0.00 (0.02) 0.00 0.00 0.00
Tax return of capital ...... 0.00 (0.10) 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------
Total distributions ........ $ (0.82) $ (0.68) $ (0.85) $ (0.57) $ (0.12)
------------ ------------ ------------ ------------ ------------
Net asset value, end of
period ..................... $ 15.15 $ 13.34 $ 14.49 $ 12.37 $ 10.40
============ ============ ============ ============ ============
Total return ................. $ 19.88% (3.27%) 24.01% 24.56% 8.92%(a)
Ratios/Supplemental Data
Net assets, end of period .... $650,952,268 $524,999,120 $365,664,513 $166,423,073 $108,046,450
Ratio of expenses to average
net assets ................. 0.89% 0.90% 0.86% 0.84% O.84%(a)
Ratio of net investment income
to average net assets ...... 0.37% 0.53% 0.71% 1.09% 1.56%(a)
Portfolio turnover rate ...... 53.55% 37.51% 33.99% 34.44% 2.92%
Average Commission Rate ...... $ 0.04
<FN>
- ------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Intrinsic Value Portfolio
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
December December December December December 31,
31, 1995 31, 1994 31, 1993 31, 1992 1991
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $ 10.48 $ 11.05 $ 10.40 $ 9.89 $ 10.00
Income from investment
operations:
Net investment income ...... 0.29 0.31 0.29 0.29 0.17
Net realized and unrealized
gains (losses) on
investments .............. 2.24 (0.38) 1.23 1.14 (0.02)
------------ ------------ ------------ ------------ ------------
Total from investment
operations ............... $ 2.53 $ (0.07) $ 1.52 $ 1.43 $ 0.15
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment
income ................... $ (0.30) $ (0.30) $ (0.28) $ (0.28) $ (0.17)
From realized
gains .................... $ (0.82) $ (0.20) (0.59) (0.64) (0.09)
------------ ------------ ------------ ------------ ------------
Total distributions ........ $ (1.12) $ (0.50) $ (0.87) $ (0.92) $ (0.26)
------------ ------------ ------------ ------------ ------------
Net asset value, end of
period ..................... $ 11.89 $ 10.48 $ 11.05 $ 10.40 $ 9.89
============ ============ ============ ============ ============
Total return ................. 24.38% (0.60%) 14.71% 14.56% 2.70%(a)
Ratios/Supplemental Data
Net assets, end of period .... $255,884,859 $220,028,096 $192,555,183 $107,260,873 $ 77,450,163
Ratio of expenses to average
net assets ................. 0.91% 0.91% 0.86% 0.84% 0.84%(a)
Ratio of net investment income
to average net assets ...... 2.49% 2.92% 2.67% 2.78% 3.03%(a)
Portfolio turnover rate ...... 45.55% 58.62% 63.90% 48.52% 1.80%
Average Commission Rate ...... $ 0.03
<FN>
- ------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Capital Growth Portfolio
July 2, 1994
(Commencement
Year Ended of Operations) to
December 31, December 31,
1995 1994
------------ ----------------
<S> <C> <C>
Net asset value, beginning of period ....... $ 10.44 $ 10.00
Income from investment operations:
Net investment income .................... 0.08 0.05
Net realized and unrealized gains (losses)
on investments ......................... 2.93 0.43
------------ ------------
Total from investment operations ......... $ 3.01 $ 0.48
------------ ------------
Less distributions:
From net investment income ............... $ (0.08) $ (0.04)
From net realized gains .................. (0.11) 0.00
------------ ------------
Total distributions ...................... $ (0.19) $ (0.04)
------------ ------------
Net asset value, end of period ............. $ 13.26 $ 10.44
============ ============
Total return ............................... 28.90% 9.62%(a)
Ratios/Supplemental Data
Net assets, end of period .................. $195,861,178 $ 81,269,604
Ratio of expenses to average net assets .... 0.86% 0.85%(a)
Ratio of net investment income to average
net assets ................................ 0.65% 1.25%(a)
Ratio of expenses to average net assets
without fee waivers/reimbursed
expenses .................................. 0.90% 0.95%(a)
Ratio of net investment income to average
net assets without fee waivers/reimbursed
expenses ................................. 0.61% 1.15%(a)
Portfolio turnover rate .................... 6.97% 3.29%
Average Commission Rate .................... $ 0.04
<FN>
- ------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Net asset value, beginning
of period .............................. $ 9.53 $ 10.00
Income from investment
operations:
Net investment income .................. 0.35 0.28
Net realized and unrealized
gains (losses) on
investments .......................... 1.83 (0.48)
------------ ------------
Total from investment
operations ........................... $ 2.18 $ (0.20)
------------ ------------
Less distributions:
From net investment
income ............................... $ (0.35) $ (0.27)
From realized
gains ................................ (0.12) 0.00
------------ ------------
Total distributions .................... $ (0.47) $ (0.27)
------------ ------------
Net asset value, end of
period ................................. $ 11.24 $ 9.53
============ ============
Total return ............................. 23.18% (1.95%)
Ratios/Supplemental Data
Net assets, end of period ................ $ 93,623,801 $ 54,167,192
Ratio of expenses to average
net assets ............................. 0.91% 0.85%
Ratio of net investment income
to average net assets .................. 3.40% 3.41%
Ratio of expenses to average net assets
without fee waivers/reimbursed expenses 1.09% 1.56%
Ratio of net investment income to average
net assets without fee waivers/reimbursed
expenses ................................ 3.22% 2.70%
Portfolio turnover rate .................. 31.76% 37.49%
Average Commission Rate .................. $ 0.05
- ------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Equity Index Fund
July 10, 1992
(Commencement of
Year Ended Year Ended Year Ended Operations) to
December 31, December 31, December 31, December 31,
1995 1994 1993 1992
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ................... $ 10.65 $ 11.15 $ 10.52 $ 10.00
Income from investment
operations:
Net investment income ....... 0.30 0.31 0.28 0.12
Net realized and unrealized
gains (losses) on
investments ............... 3.65 (0.20) 0.75 0.52
------------ ------------ ------------ ------------
Total from investment
operations ................ $ 3.95 $ 0.11 $ 1.03 $ 0.64
------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment
income .................... $ (0.31) $ (0.30) $ (0.27) $ (0.12)
Distributions from realized
gains ..................... $ (0.14) $ (0.23) (0.13) 0.00
Distributions in excess of
realized gains ............ (0.00) (0.08) 0.00 0.00
------------ ------------ ------------ ------------
Total distributions ......... $ (0.45) $ (0.61) $ (0.40) $ (0.12)
------------ ------------ ------------ ------------
Net asset value, end of
period ...................... $ 14.15 $ 10.65 $ 11.15 $ 10.52
============ ============ ============ ============
Total return .................. 37.35% 1.02% 9.77% 13.61%(a)
Ratios/Supplemental Data
Net assets, end of period ..... $528,202,913 $340,808,050 $325,328,903 $242,057,866
Ratio of expenses to average
net assets .................. 0.15% 0.17% 0.20% O.22%(a)
Ratio of net investment income
to average net assets ....... 2.39% 2.71% 2.59% 2.71%(a)
Portfolio turnover rate ....... 10.66% 24.15% 16.01% 0.50%
Average Commission Rate ....... $ 0.03
<FN>
- ------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
International Equity Portfolio
December 3, 1994
(Commencement
Year Ended of Operations) to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Net asset value, beginning
of period ........................................ $ 10.01 $ 10.00
Income from investment
operations:
Net investment income ............................ 0.10 0.01
Net realized and unrealized
gains (losses) on
investments .................................... 1.05 0.00
------------ ------------
Total from investment
operations ..................................... $ 1.15 $ 0.01
------------ ------------
Less distributions:
From net investment
income ......................................... $ (0.11) $ 0.00
From realized
gains .......................................... (0.00) 0.00
------------ ------------
Total distributions .............................. $ (0.11) $ 0.00
------------ ------------
Net asset value, end of
period ........................................... $ 11.05 $ 10.01
============ ============
Total return ....................................... 11.47% 1.26%(a)
Ratios/Supplemental Data
Net assets, end of period .......................... $107,288,301 $ 36,545,470
Ratio of expenses to average
net assets ....................................... 1.16% 1.15%(a)
Ratio of net investment income
to average net assets ............................ 1.43% 1.18%(a)
Ratio of expenses to average net assets without fee
waivers/reimbursed expenses ...................... 1.24% 1.92%(a)
Ratio of net investment income to average net assets
without fee waivers/reimbursed expenses .......... 1.35% 0.41%(a)
Portfolio turnover rate ............................ 2.09% 0.30%
Average Commission Rate ............................ $ 0.05
<FN>
- ------------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
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<PAGE>
INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objectives and
policies. However, only the Class I shares of the Growth/Value, Opportunity,
Intrinsic Value, Capital Growth, Balanced, Equity Index and International
Equity Portfolios are offered pursuant to this Prospectus. Each such Portfolio
is classified as a diversified investment portfolio under the 1940 Act.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is to expected be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
such Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Growth/Value Portfolio
The investment objective of the Growth/Value Portfolio is to achieve
long-term capital appreciation and, secondarily, to produce current income
approximating that prevailing within the general equity market. The Portfolio
seeks to achieve this objective by investing primarily in equity securities of
relatively large companies. The Adviser believes that well managed, larger
companies historically have provided investors with attractive returns, high
liquidity and lower than average volatility. The Portfolio invests in
companies which the Adviser believes have earnings growth expectations that
exceed those implied by the market's current valuation. In addition, the
Portfolio seeks to maintain a portfolio of companies whose earnings will
increase at a faster rate than within the general equity market. The equity
portion of the portfolio generally will be constructed in a "bottom-up"
manner. "Bottom-up" refers to an analytical approach to securities selection
which first focuses on the company and company-related matters as contrasted
to a "top-down" analysis which first
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<PAGE>
focuses on the industry or the economy. In the Adviser's opinion this
procedure may generally be expected to result in a portfolio characterized by
lower price/earnings ratios, above average growth prospects, and average
market risk.
Opportunity Portfolio
The investment objective of the Opportunity Portfolio is to achieve
long-term capital appreciation and, secondarily, to maintain a moderate level
of dividend income. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies with small to intermediate market
capitalization. The Adviser believes that there are many companies in this
size range that enjoy enhanced growth prospects, operate in more stable market
niches, and have greater ability to respond to new business opportunities, all
of which increase their likelihood of attaining superior levels of
profitability and investment returns. However, they may escape many investors'
attention because they are less well known than some larger companies. Shares
of these companies may also be more volatile than those of larger companies,
so the Opportunity Portfolio can be expected to exhibit somewhat greater
volatility than market indices dominated by very large companies. The Adviser
intends to reduce the volatility and enhance the potential return of the
Portfolio's holdings by concentrating on companies which have demonstrated
records of superior profitability, maintain conservative balance sheets, and
are, in general, of above-average quality, although stocks of lesser quality
may be purchased by the Portfolio if the Adviser believes they offer
sufficient opportunity for capital appreciation.
Intrinsic Value Portfolio
The investment objective of the Intrinsic Value Portfolio is to
provide long-term capital growth, with income a secondary consideration. The
Portfolio seeks to achieve this objective by investing primarily in equity
securities of companies believed by the Adviser to represent a value or
potential worth which is not fully recognized by prevailing market prices. In
selecting investments for the Portfolio, screening techniques are employed to
isolate issues believed to be attractively priced. The Adviser then evaluates
the underlying earning power and dividend paying ability of these potential
investments. The Portfolio's holdings are usually characterized by lower
price/earnings, price/cash flow and price/book value ratios and by above
average current dividend yields relative to the equity market. Companies
purchased by the Portfolio are often deemed by the Adviser to be overlooked
and out of favor by the marketplace at the time of purchase. In general the
Portfolio's investments are diversified among industry groups that meet the
Portfolio's valuation criteria to attempt to reduce certain of the risks
inherent in common stock investments.
Capital Growth Portfolio
The investment objective of the Capital Growth Portfolio is to
maximize long-term capital appreciation with current income not a significant
consideration. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies with a market capitalization of at
least $1 billion. In selecting investments for the Portfolio, the Adviser will
employ screening techniques and a research intensive approach emphasizing
superior, sustainable annual earnings growth which is supported by strong
revenue growth, margin expansion and conservative financial leverage. Because
of this growth orientation, certain market sectors may be over represented in
the Portfolio's investments; however, investments will be diversified among
industry groups and individual issuers. The value of the Portfolio's
investments will fluctuate based on market and specific industry conditions,
and other factors such as investment-style preferences. It is anticipated
that, generally, the dividend yield of the Portfolio will be less than or
equal to that of the broad equity market and will likely fluctuate. Therefore,
the Portfolio is intended for investors seeking long-term capital
appreciation.
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<PAGE>
Investment Policies Applicable to the Growth/Value, Opportunity, Intrinsic
Value and Capital Growth Portfolios
The Growth/Value, Opportunity, Intrinsic Value and Capital Growth
Portfolios invest primarily in publicly traded common stocks of companies
incorporated in the United States, although each such Portfolio may also
invest up to 25% of its total assets in the securities of foreign issuers,
either directly or through American Depository Receipts. In addition, they may
invest in securities convertible into common stock, such as certain bonds and
preferred stocks, and may invest up to 5% of their respective net assets in
other types of securities having common stock characteristics (such as rights
and warrants to purchase equity securities). The Portfolios may also enter
into futures contracts and related options and may utilize options. Under
normal market conditions, each Portfolio expects to invest at least 65% of the
value of its total assets in equity securities. Each Portfolio may also hold
up to 35% of its total assets in investment grade short-term obligations
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, money market instruments, repurchase agreements and cash.
Balanced Portfolio
The investment objective of the Balanced Portfolio is to achieve
long-term total return through a combination of capital appreciation and
current income. The Portfolio seeks to achieve its investment objective by
investing its assets primarily in three major asset groups: equity securities;
fixed income securities; and cash equivalent securities. In pursuing the
Portfolio's investment objective, the Adviser allocates the Portfolio's
investments primarily based on its evaluation of the long-term relative
attractiveness of the major asset groups. The Adviser bases its evaluations of
relative attractiveness on its outlook for the capital market. This outlook
includes, but is not limited to, judgments about where the economy appears to
be in the business cycle together with expectations for inflation, interest
rates, and long-term corporate earnings growth.
Under normal market conditions, the Portfolio's policy is to invest at
least 25% of the value of its total assets in fixed income senior securities
and no more than 75% in equity securities. Compliance with these percentage
requirements may limit the ability of the Portfolio to maximize total return.
The actual percentage of assets invested in equity securities, fixed income
securities and cash equivalent securities will vary from time to time,
depending on the judgment of the Adviser as to general market and economic
conditions, trends in yields, interest rates and changes in fiscal and
monetary developments.
Equity Securities. The equity securities in which the Balanced
Portfolio normally invests are common stocks, preferred stocks, rights,
warrants and securities convertible into common or preferred stocks. The
equity portion of the Balanced Portfolio's investments will be invested
primarily in publicly traded stocks of companies incorporated in the United
States, although up to 20% of its total assets may be invested in the equity
securities of foreign issuers, either directly or through American Depository
Receipts.
The Adviser selects equity securities for the Portfolio based on such
factors as general financial condition, price/earnings, price/cash flow and
price/book value ratios, above average current dividend yields relative to the
equity market, market share, product leadership and other investment criteria.
The Portfolio invests in the equity securities of companies which the Adviser
believes have earnings growth expectations that exceed those implied by the
market's current valuation and that will increase at a faster rate than within
the general equity market. The Adviser may also select equity securities,
generally listed on a national exchange, of companies with small to
intermediate market capitalizations generally above $100 million which enjoy
enhanced growth prospects, operate in market niches, and have greater ability
to respond to new
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<PAGE>
business opportunities, all of which increase their likelihood of attaining
superior levels of profitability and investment returns. The Adviser may also
select equity securities of companies it believes represent a value or
potential worth which is not fully recognized by prevailing market prices.
Debt Securities. The Balanced Portfolio invests the fixed income
portion of its portfolio of investments in a broad range of debt securities
rated "investment grade" or higher at the time of purchase, or unrated
investments deemed by the Adviser to be of comparable quality. Debt securities
in which the Portfolio normally invests are: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; (ii)
corporate, bank and commercial obligations; (iii) securities issued or
guaranteed by foreign governments, their agencies or instrumentalities; (iv)
securities issued by supranational banks; (v) mortgage backed securities; and
(vi) securities representing interests in pools of assets. Investments include
fixed and variable-rate bonds, zero coupon bonds, debentures, and various
types of demand instruments. Obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities may include mortgage backed
securities, as well as "stripped securities" (both interest-only and
principal-only) and custodial receipts for Treasury securities. Most fixed
income obligations acquired by the Portfolio will be issued by companies or
governmental entities located within the United States. Up to 15% of the total
assets of the Portfolio may, however, be invested in dollar-denominated debt
obligations (including cash equivalent securities) of foreign issuers.
The Adviser manages the fixed income portion of the Portfolio based on
anticipated interest rate changes and the use of active management strategies
such as sector rotation, intra-sector adjustments and yield curve and
convexity considerations. In use of such active management strategies, the
Adviser seeks value in investment grade fixed income securities. Sector
rotation involves the Adviser selecting among different economic or industry
sectors based upon apparent or relative attractiveness. Thus at times a sector
offers yield advantages relative to other sectors. An intra-sector adjustment
occurs when the Adviser determines to select a particular issue within a
sector. Yield curve considerations involve the Adviser attempting to compare
the relationship between time to maturity and yield to maturity in order to
identify the relative value in the relationship. Convexity considerations
consist of the Adviser seeking securities that rise in price more quickly, or
decline in price less quickly, than the typical security of that price risk
level and therefore enable the Adviser to obtain an additional return when
interest rates change dramatically.
In acquiring particular fixed income securities for the Portfolio, the
Adviser will consider, among other things, historical yield relationships
between private and governmental debt securities, intermarket yield
relationships among various industry sectors, current economic cycles and the
attractiveness and creditworthiness of particular issuers. Depending upon the
Adviser's analysis of these and other factors, the Portfolio's holdings of
issues in particular industry sectors may be overweighted when compared to the
relative industry weightings in the Lehman Brothers Aggregate Bond Index, or
other recognized indices. The value of the fixed income portion of the
Portfolio can be expected to vary inversely with changes in prevailing
interest rates.
Cash Equivalent Securities and Other Investments. The cash equivalent
securities in which the Balanced Portfolio normally invests are short-term
obligations issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, "high quality" money market instruments such as
certificates of deposit, bankers' acceptances, time deposits, repurchase
agreements, reverse repurchase agreements, short-term obligations issued by
state and local governmental issuers which carry yields that are competitive
with those of other types of high quality money market instruments, commercial
paper, notes, other short-term obligations and variable rate master demand
notes. "High quality" money market instruments are money market instruments
which are rated at the time
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<PAGE>
of purchase within the two highest rating categories or which are unrated at
such time but are deemed by the Adviser to be of comparable quality. Such
investments may include obligations of foreign banks and foreign branches of
U.S. banks. The Portfolio may also invest its cash balances in securities
issued by other investment companies which invest in high-quality, short-term
debt securities. As a shareholder of another investment company, the Portfolio
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would
be in addition to the advisory and other expenses that the Portfolio bears
directly in connection with its own operations.
The Balanced Portfolio may also enter into futures contracts
and related options and utilize options as more fully described below.
Equity Index Portfolio
The investment objective of the Equity Index Portfolio is to provide
an investment return which substantially duplicates the price and yield
performance of domestically traded common stocks in the aggregate, as
represented by the Standard & Poor's Composite Stock Price Index (the "S&P 500
Index" or "Index"). The Portfolio uses the S&P 500 Index as a benchmark for
comparison because it represents roughly two-thirds of the market value of all
publicly traded common stocks in the United States, is well known to investors
and is a widely accepted measure of common stock investment returns. The Index
contains a representative sample of common stocks that trade on the New York
and American Stock Exchanges and also contains over-the-counter stocks that
are a part of the National Market System. The S&P 500 Index is constructed
using a "bottom-up" approach through identification of important industry
categories and allocation of a representative sample of stocks to these
categories.
The Portfolio seeks to achieve a 95% correlation coefficient between
its performance and that of the Index. Therefore, the Portfolio's price
changes are expected to closely match movements in the underlying Index. In
addition, the total return of the Portfolio is expected to substantially match
that of the Index. However, there is no assurance that the Portfolio's
objective will be attained. Deviations from the performance of the Index
("tracking error") may result from shareholder purchases and redemptions of
shares of the Portfolio that occur daily, as well as from the expenses borne
by the Portfolio. To the extent that a cash reserve is held to meet expected
redemptions or pending investment in securities, to the extent that securities
must be sold to meet redemption requests, and to the extent that purchases and
sales are made to conform the Portfolio's holdings more closely with that of
the Index in response to cash inflows or outflows and associated brokerage
costs are incurred, these daily inflows or outflows of cash may increase the
Portfolio's tracking error. In addition, tracking error may occur due to
changes made in the S&P 500 Index and the manner in which the Index is
calculated by S&P among other factors. In the event the performance of the
Portfolio is not comparable to the performance of the Index, the Board of
Trustees will examine the reasons for the deviation and the availability of
corrective measures. These measures may include adjustments to the Adviser's
portfolio management practices. If substantial deviation in the Portfolio's
performance were to continue for extended periods, it is expected that the
Board of Trustees would consider possible changes to the Portfolio's
investment objective.
The Portfolio will not be managed by using traditional economic,
financial or market analysis. Instead, the Portfolio utilizes a sampling
methodology to determine which stocks to purchase or sell in order to closely
replicate the performance of the S&P 500 Index. Stocks are selected for the
Portfolio based on both capitalization weighing in the Index and industry
representation. Larger market capitalization securities in the Index are added
to the Portfolio according to their relative weight. Smaller capitalization
securities are then added to the Portfolio in equal weights according to an
analysis of the industry
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<PAGE>
diversification of the Index. Therefore, while all industry weights in the
Portfolio are essentially matched to those of the S&P 500 Index, not
necessarily all 500 stocks are held in the Portfolio. The Adviser believes
that a sampling methodology allows the Portfolio to maintain a close
correlation to the performance of the S&P 500 Index while at the same time
controlling the portfolio turnover and transaction costs of the Portfolio.
Under normal market conditions, the Portfolio invests substantially
all of its total assets in the common stocks that comprise the Index in
accordance with their relative capitalization and sector weightings as
described above. It is possible, that if an issuer drops in ranking, or is
eliminated entirely from the Index, the Adviser may be required to sell some
or all of the common stock of such issuer then held by the Portfolio. Sales of
portfolio securities may be made at times when, if the Adviser were not
required to effect purchases and sales of portfolio securities in accordance
with the Index, such securities might not be sold. Such sales may result in
lower prices for such securities than may have been realized or in losses that
may not have been incurred if the Adviser were not required to effect the
purchases and sales. The failure of an issuer to declare or pay dividends, the
institution against an issuer of materially adverse legal proceedings, the
existence or threat of defaults materially and adversely affecting an issuer's
future declaration and payment of dividends, or the existence of other
materially adverse credit factors will not necessarily be the basis for the
disposition of portfolio securities, unless such event causes the issuer to be
eliminated entirely from the Index. The Portfolio may receive from time to
time as part of a "spin-off" or corporate restructuring of an issuer included
in the Index, securities that are themselves outside of the Index. Such
securities will be disposed of by the Portfolio in due course consistent with
the Portfolio's investment objective. In addition, the Portfolio may invest up
to 25% of its assets in the securities of foreign issuers through American
Depository Receipts. An investment in the Portfolio involves risks similar to
those of investing in common stocks.
Pending investment and to meet anticipated redemption requests, the
Portfolio may hold up to 5% of its total assets in short-term obligations
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities, money market instruments, repurchase agreements and cash.
In addition, up to 5% of the Portfolio's total assets may be invested in
futures contracts and related options in an effort to maintain exposure to
price movements in the Index pending investment of funds or while maintaining
liquidity to meet potential shareholder redemptions.
International Equity Portfolio
The investment objective of the International Equity Portfolio is to
achieve long-term capital appreciation and, secondarily, to produce current
income. The Portfolio seeks to achieve its objective by investing primarily in
equity securities of foreign issuers. The Portfolio may exhibit more
volatility than the U.S. equity market in general.
The Adviser's investment approach to managing the Portfolio's assets
emphasizes active country selection involving global economic and political
assessments together with valuation analysis of selected countries' securities
markets. This country allocation approach is based on absolute/relative
valuations, changing fundamentals and expected total returns including
currency. In situations where an investment's attractiveness outweighs
prospects for currency weakness, the Adviser will take suitable hedging
measures. An index approach is typically used at the stock selection level.
The Adviser employs quantitative techniques in conjunction with its
judgment and experience to determine the foreign equity markets that the
Portfolio will be invested in and the percentage of total assets the Portfolio
will hold by country. This investment approach focuses on economic
developments
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in foreign countries, fundamental analysis at the country level and the
political environment. After the country weightings have been determined,
investments are typically made in country "baskets" of equity securities. A
country "basket" is comprised of equity securities of a particular country and
is constructed using a quantitatively-oriented sampling technique to replicate
the performance of an individual country's stock market index. The Morgan
Stanley Capital International Country Indexes have, for some time, been the
accepted benchmarks in the U.S. for international equity fund country
comparisons. The Portfolio may also invest in individual equity securities the
Adviser believes offer opportunity for capital appreciation.
The Portfolio's investments will generally be allocated among
countries and geographic regions. The Portfolio's assets may be invested in
equity securities located in but not limited to the United Kingdom and
European continent, Japan, other Far East areas and Latin America. The
Portfolio may also invest in other regions seeking to capitalize on investment
opportunities in other parts of the world. The Portfolio's assets will be
invested at all times in the securities of issuers located in at least three
different foreign countries. Investments in a particular country may exceed
25% of the Portfolio's total assets, thus making its performance more
dependent upon the political and economic circumstances of a particular
country than a more widely diversified portfolio.
The Portfolio will be primarily invested in equity securities of
foreign companies consisting of common stocks, preferred stocks, rights,
warrants, and securities convertible into common or preferred stock. Equity
investments also include American Depository Receipts, European Depository
Receipts and similar securities that are either sponsored or unsponsored.
Under normal market conditions, the Portfolio expects to invest at least 65%
of the value of its total assets in equity securities of foreign issuers. The
Portfolio may hold up to 35% of its total assets in debt securities, and cash
equivalent holdings consisting of short-term debt obligations and cash.
However, the Portfolio does not expect to have a substantial portion of its
assets invested in debt securities and cash equivalent holdings under normal
market conditions. Debt securities in which the Portfolio may invest consist
of: (i) debt securities of foreign issuers, foreign governments and agencies
that the Adviser believes, based on market conditions, the financial condition
of the issuer, general economic conditions and other relevant factors, offer
opportunities for capital appreciation; (ii) obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; (iii) corporate,
bank and commercial obligations; (iv) mortgage backed securities; and (v)
securities representing interests in pools of assets. In the event the Adviser
determines that unusual and adverse market conditions exist, the Portfolio may
adopt a temporary defensive posture and invest without limitation in debt
securities and cash equivalent holdings. To the extent the Portfolio is so
invested, its investment objective may not be achieved.
The Portfolio may also enter into futures contracts, related options,
foreign currency transactions and forward contracts, and utilize options.
OTHER INVESTMENT POLICIES
Ratings
If not rated as commercial paper, debt obligations acquired by
any of the Portfolios will be investment grade at the time of purchase, i.e.,
obligations rated AAA, AA, A or BBB by Standard & Poor's Rating Group,
Division of McGraw Hill ("S&P"), Fitch Investors Service, Inc. ("Fitch"),
Duff & Phelps Credit Co. ("Duff") or IBCA, Inc. ("IBCA") or Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. ("Moody's") (each a "Rating Agency")
or be unrated but deemed by the Adviser to be comparable in quality at the
time of purchase to instruments that are so rated. Obligations rated in
the lowest of the top four rating
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categories (Baa by Moody's or BBB by S&P, Fitch, Duff or IBCA) are considered
to have less capacity to pay interest and repay principal and have certain
speculative characteristics. The debt ratings are described in the Statement
of Additional Information.
Short-Term Investments
Each Portfolio may hold the types of short-term investments described
under "Balanced Portfolio - Cash Equivalent Securities and Other Investments"
above.
U.S. Government Obligations
The Portfolios may invest in all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. The Portfolios may also invest in interests in the
foregoing securities, including collateralized mortgage obligations guaranteed
by a U.S. Government agency or instrumentality, and in Government-backed
trusts which hold obligations of foreign governments that are guaranteed or
backed by the full faith and credit of the United States.
Obligations of certain U.S. Government agencies and instrumentalities
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities have historically involved little risk of loss of
principal if held to maturity. The value of these securities may fluctuate
significantly, which may result in a significant decline in a Portfolio's net
asset value. In such event, an investor potentially may suffer a loss if the
investor liquidates his portfolio shares. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not legally obligated to do so.
Stripped Government Obligations
To the extent consistent with their respective investment objectives,
the Balanced and International Equity Portfolios may purchase Treasury
receipts and other "stripped" securities that evidence ownership in either the
future interest payments or the future principal payments on U.S. Government
obligations. These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality) or by private issuers such as
banks and other institutions, are issued at a discount to their "face value,"
and may include stripped mortgage backed securities ("SMBS"), which are
derivative multi-class mortgage securities. Stripped securities, particularly
SMBS, may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage
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backed obligations. A common type of SMBS will have one class receiving all of
the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and
most of the principal while the other class will receive most of the interest
and the remainder of the principal. If the underlying obligations experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments generally is extremely
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally higher than
prevailing market yields on other mortgage backed obligations because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.
Custodial Receipts for Treasury Securities
The Balanced and International Equity Portfolios may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATs) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. These participations are normally issued at a discount to their
"face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Repurchase and Reverse Repurchase Agreements
To increase its income, each Portfolio may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price ("repurchase
agreements"). No Portfolio will enter into repurchase agreements with the
Adviser, the Co-Distributors, or any of their affiliates. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also obtain funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans could include cash or
securities of the U.S. Government, its agencies or instrumentalities. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Portfolio exceeds one-third of the value of its total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned or possible loss of rights in the
collateral should the borrower of the securities become insolvent. Loans will
be made only to borrowers that provide the requisite collateral comprised of
liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
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Illiquid Securities
In accordance with their fundamental investment limitation described
below, the Growth/Value, Opportunity, Intrinsic Value and Equity Index
Portfolios will not knowingly invest more than 10% and the Capital Growth,
Balanced and International Equity Portfolios will not knowingly invest more
than 15% of the value of their respective total assets in securities that are
illiquid. Securities having legal or contractual restrictions on resale or no
readily available market, and instruments (including repurchase agreements,
variable and floating rate instruments and time deposits) that do not provide
for payment to the Portfolios within seven days after notice are subject to
this limitation. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed to be illiquid for
purposes of this limitation.
The Portfolios may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development, and it is not possible to predict how
this market will develop. The Board of Trustees will carefully monitor any
investments by a Portfolio in these securities.
Borrowings
The Portfolios may borrow money for temporary purposes in accordance
with the investment limitations described below. Borrowings may be effected
through reverse repurchase agreements under which the Portfolios would sell
portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities
it is obligated to repurchase.
Foreign Securities
As stated above, the Growth/Value, Opportunity, Intrinsic Value,
Capital Growth, Balanced and International Equity Portfolios may invest up to
25%, 25%, 25%, 25%, 20% and 100% of their respective total assets (exclusive
of short-term cash investments) in foreign securities. In addition the Equity
Index Portfolio may invest up to 25% of its total assets in American
Depository Receipts. Investments in foreign securities, whether made directly
or indirectly, involve certain inherent risks, such as political or economic
instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns, changes in exchange rates of foreign
currencies and the possibility of adverse changes in investment or exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company. Listed foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. Further,
foreign stock markets are generally not as developed or efficient as those in
the U.S. and in most foreign markets volume and liquidity are less than in the
U.S. Fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets or
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diplomatic developments that could affect investment within those countries.
Because of these and other factors, securities of foreign companies acquired
by a Portfolio may be subject to greater fluctuation in price than securities
of domestic companies.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. Some currency exchange costs may be incurred
when a Portfolio changes investments from one country to another.
Furthermore, some securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the Portfolios from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Portfolio will reduce its net income available for distribution to
investors.
American Depository Receipts ("ADRs")
Each Portfolio may invest in securities of foreign issuers in the form
of ADRs or similar securities representing securities of foreign issuers.
These securities may not be denominated in the same currency as the securities
they represent. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying foreign securities and
are denominated in U.S. dollars. Certain such institutions issuing ADRs may
not be sponsored by the issuer. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to
provide under its contractual arrangements with the issuer.
European Depository Receipts ("EDRs")
The Capital Growth and International Equity Portfolios may invest in
securities of foreign issuers in the form of EDRs or similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. EDRs are
receipts issued by a European financial institution evidencing ownership of
the underlying foreign securities and are generally denominated in foreign
currencies. Generally, EDRs, in bearer form, are designed for use in the
European securities markets.
Supranational Bank Obligations
The Balanced Portfolio may invest in obligations of supranational
banks. Supranational banks are international banking institutions designed or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the World Bank). Obligations of
supranational banks may be supported by appropriated but unpaid commitments of
their member countries and there is no assurance that these commitments will
be undertaken or met in the future.
Convertible Securities
A convertible security is a security that may be converted either at a
stated price or rate within a specified period of time into a specified number
of shares of common stock. By investing in convertible securities, a Portfolio
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
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common stock. Convertible securities acquired by a Portfolio will be rated
investment grade by a Rating Agency, or if unrated, will be of comparable
quality as determined by the Adviser. Subsequent to its purchase by a
Portfolio, a rated security may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Portfolio. The Adviser
will consider such an event in determining whether the Portfolio involved
should continue to hold the security. The Adviser expects, however, to
promptly sell any securities that are non-investment grade as a result of
these events that exceed 5% of a Portfolio's net assets where it has
determined that such sale is in the best interest of the Portfolio.
Warrants
Each Portfolio may invest up to 5% of its assets at the time of
purchase in warrants and similar rights (other than those that have been
acquired in units or attached to other securities). Warrants represent rights
to purchase securities at a specified price valid for a specified period of
time. The prices of warrants do not necessarily correlate with the prices of
the underlying securities.
When-Issued Purchases and Forward Commitments
The Portfolios may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock-in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. When-issued and forward commitment transactions
involve the risk, however, that the yield obtained in a transaction may be
less favorable than the yield available in the market when the securities
delivery takes place. Each Portfolio's forward commitments and when-issued
purchases are not expected to exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolios do not earn income with
respect to these transactions until the subject securities are delivered to
the Portfolios. The Portfolios do not intend to engage in when-issued
purchases and forward commitments for speculative purposes but only in
furtherance of their investment objectives.
Asset Backed Securities
Asset backed securities held by the Balanced and International Equity
Portfolios arise through the grouping by governmental, government-related and
private organizations of loans, receivables and other assets originated by
various lenders ("Asset Backed Securities") as described below.
The yield characteristics of Asset Backed Securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an Asset
Backed Security is purchased at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an Asset Backed Security is purchased at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the Portfolios, the maturity of Asset Backed Securities
will be based on estimates of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than
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mortgage loans and is less likely to experience substantial prepayments. Like
other fixed income securities, when interest rates rise the value of an Asset
Backed Security generally will decline; however, when interest rates decline,
the value of an Asset Backed Security with prepayment features may not
increase as much as that of other fixed income securities, and, as noted
above, changes in market rates of interest may accelerate or retard
prepayments and thus affect maturities.
These characteristics may result in a higher level of price volatility
for these assets under certain market conditions. In addition, while the
trading market for short-term mortgages and Asset Backed Securities is
ordinarily quite liquid, in times of financial stress the trading market for
these securities sometimes becomes restricted.
Mortgage Backed Securities. Asset Backed Securities acquired by the
Balanced and International Equity Portfolios consist of both mortgage and
non-mortgage backed securities. Mortgage backed securities represent an
ownership interest in a pool of mortgages, the interest on which is in most
cases issued and guaranteed by an agency or instrumentality of the U.S.
Government, although not necessarily by the U.S. Government itself. Mortgage
backed securities include collateralized mortgage obligations and mortgage
pass-through certificates.
Collateralized mortgage obligations ("CMOs") provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways.
These multiple class securities may be issued or guaranteed by U.S. Government
agencies or instrumentalities, including the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by trusts formed
by private originators of, or investors in, mortgage loans. Classes in CMOs
which the Portfolios may hold are known as "regular" interests. CMOs also
issue "residual" interests, which in general are junior to and more volatile
than regular interests. The Portfolios do not intend to purchase residual
interests.
Mortgage pass-through certificates provide the holder with a pro rata
interest in the underlying mortgages. One type of such certificate in which
the Portfolios may invest is GNMA Certificate which is backed as to the timely
payment of principal and interest by the full faith and credit of the U.S.
Government. Another type is a FNMA Certificate, the principal and interest of
which are guaranteed only by FNMA itself, not by the full faith and credit of
the U.S. Government. Another type is a FHLMC Participation Certificate which
is guaranteed by FHLMC as to timely payment of principal and interest.
However, like a FNMA security, it is not guaranteed by the full faith and
credit of the U.S. Government. Privately issued mortgage backed securities
will carry a rating at the time of purchase of at least A by S&P or by Moody's
or, if unrated, will be in the Adviser's opinion equivalent in credit quality
to such rating. Mortgage backed securities issued by private issuers, whether
or not such obligations are subject to guarantees by the private issuer, may
entail greater risk than obligations directly or indirectly guaranteed by the
U.S. Government.
Non-Mortgage Backed Securities. The Balanced and International Equity
Portfolios may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as
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the debt of a special purpose entity organized solely for the purpose of
owning such assets and issuing such debt. Non-mortgage backed securities are
not issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Non-mortgage backed securities involve certain risks that are not
presented by mortgage backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
Variable and Floating Rate Instruments
The Balanced Portfolio may invest in inverse floating rate debt
instruments ("inverse floaters") which may or may not be leveraged. The
interest rate of an inverse floater resets in the opposite direction from the
market rate of interest to which it is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for the
Balanced Portfolio to dispose of the instruments if the issuer defaulted on
its payment obligation or during periods that the Portfolio is not entitled to
exercise demand rights, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments. Variable and floating rate
instruments (including inverse floaters) will be subject to the Portfolio's
limitation on illiquid investments. See "Illiquid Securities."
Zero Coupon Obligations
Each Portfolio may invest in zero coupon obligations which are
discount debt obligations that do not make periodic interest payments although
income is generally imputed to the holder on a current basis. Such obligations
may have higher price volatility than those which require the payment of
interest periodically. The Adviser will consider the liquidity needs of a
Portfolio when any investment in zero coupon obligations is made.
Foreign Currency Transactions
The International Equity and Balanced Portfolios may engage in
currency exchange transactions to the extent consistent with their respective
investment objectives or to hedge their portfolios. The Portfolios will
conduct their currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward contracts to purchase or sell currencies. A forward
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which must be more than two days from the
date of the contract, at a price set at the time of the contract. Forward
currency exchange contracts are entered into in the interbank market conducted
directly between currency traders (typically commercial banks or other
financial institutions) and their customers.
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They may be used to reduce the level of volatility caused by changes in
foreign currency exchange rates or when such transactions are economically
appropriate for the reduction of risks in the ongoing management of the
Portfolios. Although forward currency exchange contracts may be used to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of such currency increase. The Portfolios also may
combine forward currency exchange contracts with investments in securities
denominated in other currencies.
The International Equity Portfolio also may maintain short positions
in forward currency exchange transactions, which would involve the Portfolio
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency the Portfolio contracted to receive
in the exchange.
Each of the International Equity and Balanced Portfolios will maintain
in a segregated custodial account cash or U.S. Government securities or other
high quality liquid debt securities at least equal to the aggregate amount of
its short positions (in the case of the International Equity Portfolio) and of
its total assets committed to consummation of its forward currency exchange
contracts, plus accrued interest, in accordance with applicable requirements
of the SEC.
Options on Foreign Currency
The International Equity and Balanced Portfolios may purchase and sell
call and put options on foreign currency for the purpose of hedging against
changes in future currency exchange rates. Call options convey the right to
buy the underlying currency at a price which is expected to be lower than the
spot price of the currency at the time the option expires. Put options convey
the right to sell the underlying currency at a price which is anticipated to
be higher than the spot price of the currency at the time the option expires.
The Portfolios may use foreign currency options for the same purposes as
forward currency exchange and futures transactions, as described herein. See
also "Options" and "Currency Futures and Options on Currency Futures" below.
Futures Contracts and Related Options
Each Portfolio may trade futures contracts and options on futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange. To the
extent permitted under applicable law, the International Equity Portfolio may
also trade futures contracts and related options on exchanges located outside
the United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer advantages
such as trading in commodities that are not currently traded in the United
States or arbitrage possibilities not available in the United States. Foreign
markets, however, may have greater risk potential than domestic markets.
Each Portfolio may purchase and sell futures contracts which obligate
it to take or make delivery of certain securities at maturity, as well as
stock index futures contracts which are bilateral agreements pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value
(which assigns relative values to the common stocks included in the index) at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. The Capital Growth, Balanced and International
Equity Portfolios may enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts.
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A Portfolio may sell a futures contract in order to offset an expected
decrease in the value of its portfolio that might otherwise result from a
market decline or currency exchange fluctuation. A Portfolio may do so either
to hedge the value of its securities portfolio as a whole, or to protect
against declines occurring prior to sales of securities in the value of the
securities to be sold. In addition, a Portfolio may utilize futures contracts
in anticipation of changes in the composition of its holdings or in currency
exchange rates.
The Capital Growth, Balanced, Equity Index and International Equity
Portfolios may also purchase options on futures contracts and may purchase and
write put and call options on stock indices listed on U.S. and, in the case of
the International Equity Portfolio foreign exchanges, or traded in the
over-the-counter market. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period
of the option.
When a Portfolio sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised.
In anticipation of a market advance, a Portfolio may purchase call options on
futures contracts as a substitute for the purchase of futures contracts to
hedge against a possible increase in the price of securities which the
Portfolio intends to purchase. Similarly, if the value of a Portfolio's
portfolio securities is expected to decline, the Portfolio might purchase put
options or sell call options on futures contracts rather than sell futures
contracts.
The Portfolios' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodities and Futures Trading Commission ("CFTC"). In addition, a
Portfolio may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of its assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the
percentage limitation. Pursuant to SEC requirements, the Portfolios will be
required to segregate cash or high quality money market instruments in
connection with their commodities transactions in an amount generally equal to
the value of the underlying commodity. The Trust intends to comply with the
regulations of the CFTC exempting the Portfolios from registration as a
"commodity pool operator."
For a more detailed description of futures contracts and related
options, see Appendix B to the Statement of Additional Information.
Currency Futures and Options on Currency Futures
The International Equity and Balanced Portfolios may purchase and sell
currency futures contracts and options thereon. By selling foreign currency
futures, a Portfolio can establish the number of U.S. dollars that it will
receive in the delivery month for a certain amount of a foreign currency. In
this way, if a Portfolio anticipates a decline of a foreign currency against
the U.S. dollar, the Portfolio can attempt to fix the U.S. dollar value of
some or all of its securities that are denominated in that currency. By
purchasing foreign currency futures, a Portfolio can establish the number of
U.S. dollars that it will be required to pay for a specified amount of a
foreign currency in the delivery month. Thus, if a Portfolio intends to buy
securities in the future and expects the U.S. dollar to decline against the
relevant foreign currency during the period before the purchase is effected,
the Portfolio, for the price of the currency future, can attempt to fix the
price in U.S. dollars of the securities it intends to acquire.
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The purchase of options on currency futures will allow a Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires. If the Portfolios, in purchasing an option, have
been correct in their judgment concerning the direction in which the price of
a foreign currency would move as against the U.S. dollar, they may exercise
the option and thereby take a futures position to hedge against the risk they
had correctly anticipated or close out the option position at a gain that will
offset, to some extent, currency exchange losses otherwise suffered by the
Portfolios. If exchange rates move in a way a Portfolio did not anticipate,
the Portfolio will have incurred the expense of the option without obtaining
the expected benefit. As a result, a Portfolio's profits on the underlying
securities transactions may be reduced or overall losses may be incurred.
Options
The Capital Growth, Balanced and International Equity Portfolios may
purchase and sell put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation for hedging purposes.
Such transactions may be effected on a principal basis with primary reporting
dealers in U.S. Government securities in an amount not exceeding 5% of a
Portfolio's net assets, as described further in the Statement of Additional
Information. Such options may relate to particular securities or to various
stock indices or bond indices. Purchasing options is a specialized investment
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the option. Each such Portfolio may also
purchase and write put and call options on stock indices listed on foreign
exchanges or traded in the over-the-counter market.
The Capital Growth, Balanced and International Equity Portfolios may
purchase and sell put options on portfolio securities at or about the same
time that they purchase the underlying security or at a later time. By buying
a put, a Portfolio limits its risk of loss from a decline in the market value
of the security until the put expires. Any appreciation in the value of and
yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by a Portfolio in
order to acquire the underlying security at a later date at a price that
avoids any additional cost that would result from an increase in the market
value of the security. A Portfolio may also purchase call options to increase
its return to investors at a time when the call is expected to increase in
value due to anticipated appreciation of the underlying security. Prior to its
expiration, a purchased put or call option may be sold in a closing sale
transaction (a sale by a Portfolio, prior to the exercise of an option that it
has purchased, of an option of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the
premium paid for the option plus the related transaction costs.
In addition, the Capital Growth, Balanced and International Equity
Portfolios may write covered call and secured put options. A covered call
option means that a Portfolio owns or has the right to acquire the underlying
security subject to call at all times during the option period. A secured put
option means that a Portfolio maintains in a segregated account with its
custodian cash or U.S. Government securities in an amount not less than the
exercise price of the option at all times during the option period. Such
options will be listed on a national securities exchange and issued by the
Options Clearing Corporation and may be effected on a principal basis with
primary reporting dealers in U.S. Government securities. The aggregate value
of the securities subject to options written by a Portfolio will not exceed
25% of the value of its net assets. In order to close out an option position
prior to maturity, a Portfolio may enter into a "closing purchase transaction"
by purchasing a call or put option
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(depending upon the position being closed out) on the same security with the
same exercise price and expiration date as the option which it previously
wrote.
By writing a covered call option, a Portfolio forgoes the opportunity
to profit from an increase in the market price of the underlying security
above the exercise price except insofar as the premium represents such a
profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Portfolio effects a closing purchase
transaction by purchasing an option of the same series. If a Portfolio writes
a secured put option, it assumes the risk of loss should the market value of
the underlying security decline below the exercise price of the option. The
use of covered call and secured put options will not be a primary investment
technique of the Portfolios.
For additional information relating to option trading practices,
including particular risks thereof, see the Statement of Additional
Information.
Risk Factors Associated with Futures, Options and Currency Futures and Options
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, due to the risk of an imperfect correlation between securities
in its portfolio that are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge will not be
fully effective. For example, losses on the portfolio securities may be in
excess of gains on the futures contract or losses on the futures contract may
be in excess of gains on the portfolio securities that were the subject of the
hedge. In futures contracts based on indices, the risk of imperfect
correlation increases as the composition of the Portfolio varies from the
composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
contract has been less or greater than that of the securities. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net
investment results if market movements are not as anticipated when the hedge
is established.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of
securities prices, interest rates, currency exchange rates and other economic
factors. For example, if the Portfolio has hedged against the possibility of a
decline in the market adversely affecting the value of securities held in its
portfolio and prices increase instead, the Portfolio will lose part or all of
the benefit of the increased value of securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which reflect
the rising market. The Portfolio may have to sell securities at a time when it
may be disadvantageous to do so.
Although a Portfolio intends to enter into futures contracts and
options transactions only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. See "Illiquid Securities" above. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contracts prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. If it is not possible, or the Portfolio
determines not, to close a futures position in
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anticipation of adverse price movements, it will be required to make daily
cash payments of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may offset
partially or completely losses on the futures contract.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad. The foreign
currency market offers less protection against defaults in the forward trading
of currencies than is available when trading in currencies occurs on an
exchange. Since a forward currency contract is not guaranteed by an exchange
or clearinghouse, a default on the contract would deprive the Portfolio of
unrealized profits or force the Portfolio to cover its commitments for
purchase or resale, if any, at the current market price.
Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC and may be subject to greater
risks than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. In addition,
unless the Portfolio hedges against fluctuations in the exchange rate between
the U.S. dollar and the currencies in which trading is done on foreign
exchanges, any profits that the Portfolio might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Portfolio could
incur losses as a result of those changes. Transactions on foreign exchanges
may include both commodities which are traded on domestic exchanges and those
which are not.
Risk Factors Associated with Derivative Instruments
Each Portfolio may purchase certain "derivative instruments."
Derivative instruments are instruments that derive value from the performance
of underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, futures contracts, options, forward currency
contracts and structured debt obligations (including collateralized mortgage
obligations and other types of asset backed securities, "stripped" securities
and various floating rate instruments, including inverse floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative instruments are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
The Adviser will evaluate the risks presented by the derivative
instruments purchased by the Portfolios, and will determine, in connection
with its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that the Adviser's evaluations will prove to be inaccurate or incomplete and,
even when accurate and
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complete, it is possible that the Portfolios will, because of the risks
discussed above, incur loss as a result of their investments in derivative
instruments.
Portfolio Turnover
Generally, the Portfolios will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Portfolio may sell a portfolio investment soon after its
acquisition if the Adviser believes that such a disposition is consistent with
or in furtherance of the Portfolio's investment objective. Portfolio
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, such Portfolios
are likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
(See "Taxes-Federal" in the Prospectus and "Additional Information Concerning
Taxes" in the Statement of Additional Information.) While it is not possible
to accurately predict portfolio turnover rates, the annual turnover rates for
the Growth/Value, Opportunity, Intrinsic Value, Capital Growth and
International Equity Portfolios are not expected to exceed 100% and the annual
turnover rate for the Balanced Portfolio is not expected to exceed 75%. Equity
index funds typically have lower levels of turnover than actively managed
funds.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by a
Portfolio, except that up to 25% of the value of the Portfolio's total assets
may be invested without regard to these limitations.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured by such
instruments; (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding one-third of its total assets.
4. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary
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purposes in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of the
Portfolio's total assets at the time of such borrowing. No Portfolio will
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Portfolio's
investment practices described in the Statement of Additional Information or
in this Prospectus are not deemed to be pledged for purposes of this
limitation.
In addition, the Growth/Value, Opportunity, Intrinsic Value and Equity
Index Portfolios may not invest more than 10% of their respective total assets
in illiquid investments. The Capital Growth, Balanced and International Equity
Portfolios may invest up to 15% of their respective total assets in illiquid
securities. See "Illiquid Securities" above.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Portfolio's portfolio securities will not constitute
a violation of such limitation for purposes of the 1940 Act.
In order to permit the sale of a Portfolio's shares in certain states,
the Portfolios may make commitments more restrictive than the investment
policies and limitations described above. Should a Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio, it
will revoke the commitment by terminating sales of its shares in the state
involved.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class I shares are sold primarily to NBD and its affiliated and
correspondent banks (the "Banks") acting on behalf of their respective
customers. The Banks may impose different minimum investment and other
requirements, as well as account charges, on their customers and may establish
separate operational arrangements by which shares may be purchased and
redeemed. Customers should contact their Banks for further information.
It is the responsibility of the Banks to transmit their customers'
purchase orders to NBD acting as transfer agent (the "Transfer Agent") and to
deliver required funds on a timely basis. Class I shares will normally be held
of record by the Banks. Confirmations of share purchases and redemptions will
be sent to the Banks. Beneficial ownership of Class I shares will be recorded
by the Banks and reflected in the account statements provided by them to their
customers.
Purchase orders which are accompanied by payment (by check or wire
transfer) and received by the Transfer Agent in proper form on a Business Day
(as defined below) prior to the close of the New York Stock Exchange
("Exchange") are priced at the net asset value of the particular Portfolio
determined on that Business Day. Purchase orders which are received by the
Transfer Agent after the close of trading on the Exchange on a Business Day or
on non-Business Days will be executed as of the determination of net asset
value on the next Business Day.
Questions concerning the purchase of shares should be directed to
the Transfer Agent at (800) 688-3350.
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Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined as of the close of trading on the floor
of the New York Stock Exchange ("Exchange") (currently 4:00 p.m., New York
Time), on each day the Exchange is open for business ("Business Day") except:
(i) those holidays which the Exchange observes (currently New Year's Day,
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day); and (ii) those
Business Days on which the Exchange closes prior to the close of
its regular trading hours ("Early Closing Time"), in which event the
net asset value of each Portfolio will be determined and its shares
will be priced as of such Early Closing Time. Net asset value per
Class I share of a Portfolio is calculated by dividing the value
of all securities and other assets belonging to the Portfolio allocable
to that Class I, less the liabilities charged to that Class I, by the
number of the outstanding shares of such Class I.
Securities held by the Portfolios which are traded on a recognized
U.S. stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded or at the last sale
price on the national securities market. Securities which are primarily traded
on foreign securities exchanges are generally valued at the latest closing
price on their respective exchanges, except when an occurrence subsequent to
the time a value was established is likely to have changed such value, in
which case the fair value of those securities will be determined through
consideration of other factors by the Adviser under the supervision of the
Board of Trustees. Securities, whether U.S. or foreign, traded on only
over-the-counter markets and securities for which there were no transactions
are valued at the average of the current bid and asked prices. Fixed income
securities held by the Portfolios are valued according to the broadest and
most representative market, which ordinarily will be the over-the-counter
markets, whether in the United States or in foreign countries. Such securities
are valued at the average of the current bid and asked prices. Securities for
which accurate market quotations are not readily available, and other assets
are valued at fair value by the Adviser under the supervision of the Board of
Trustees. Securities may be valued on the basis of prices provided by
independent pricing services when the Adviser believes such prices reflect the
fair market value of such securities. The prices provided by pricing services
take into account institutional size trading in similar groups of securities
and any developments related to specific securities. For valuation purposes,
the value of assets and liabilities expressed in foreign currencies will be
converted to U.S. dollars equivalent at the prevailing market rate on the day
of valuation. A Portfolio's open futures contracts will be "marked-to-
market."
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption. It is
the responsibility of the Banks to transmit redemption orders to the Transfer
Agent and credit their customers' accounts with the redemption proceeds on a
timely basis.
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934 after receipt by the Transfer Agent of a request in proper form. If
shares to be redeemed were purchased by check, the Trust will transmit the
redemption proceeds promptly upon clearance of such check, which could take up
to fifteen days from the purchase date. A shareholder of record having
purchased shares by wire must have filed an account application before any
redemption requests can be honored.
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Written requests to redeem shares having a net asset value of more
than $50,000 must have all signatures of the registered owner(s) or their
authorized legal representative guaranteed by a commercial bank or trust
company which is a member of the Federal Reserve System or FDIC, a member firm
of a national securities exchange or a savings and loan association. A
signature guaranteed by a savings bank or notarized by a notary public is not
acceptable. A signature guarantee will also be required for a redemption
request (in any amount) if the address of record for the account has been
changed within the previous 15 days or which requests that the proceeds be
paid to an account other than the one preauthorized on the application, a
payee or payees other than the registered owners of the account, or an address
other than the address of record. The Trust may require additional supporting
documents for redemptions made by corporations, fiduciaries, executors,
administrators, trustees, guardians and institutional investors.
Currently, the Trust imposes no charge when shares are redeemed.
However, Banks may charge a fee for providing services in connection with
investments in Portfolio shares. The Trust reserves the right to redeem
Portfolio shares involuntarily, after sixty days notice, if redemptions cause
an account's value to remain at $1,000 or less. Under certain circumstances,
the Trust may make payment for redemptions in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance of each class of shares of the Portfolios may be compared to the
performance of other mutual funds with similar investment objectives and to
stock or other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, performance may be compared to data
prepared by Lipper Analytical Services, Inc. In addition, the performance of
the Portfolios may be compared to the Standard & Poor's 500 Index, an index of
unmanaged groups of common stocks, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of thirty
industrial companies listed on the New York Stock Exchange. Performance data
as reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications
of a local or regional nature, may also be used in comparing the performance
of a Portfolio.
The Portfolios calculate their total returns on an "average annual
total return" basis for various periods from the date they commenced
investment operations and for other periods as permitted under the rules of
the SEC. Average annual total return of a class reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns may also be calculated on an "aggregate total return
basis" for various periods. Aggregate total return reflects the total
percentage change in value over the measuring period. Both methods of
calculating total return also reflect changes in the price of the shares and
assume that any dividends and capital gain distributions made by the class
during the period are reinvested in shares of the class. When considering
average total return figures for periods longer than one year, it is important
to note that a class' annual total return for any one year in the period might
have been greater or less than the average for the entire period.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. The
investment return and principal value of an investment in a class will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank
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deposits and other investments which provide a fixed yield for a stated period
of time. Performance data should also be considered in light of the risks
associated with a Portfolio's portfolio composition, quality, maturity,
operating expenses and market conditions. Any fees charged by financial
institutions directly to their customer accounts in connection with
investments in shares will not be reflected in performance calculations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid quarterly
by each Portfolio, except the International Equity Portfolio which declares
and pays dividends annually. Each Portfolio's net realized capital gains are
distributed at least annually.
Dividends and distributions will reduce a class' net asset value by
the amount of the dividend or distribution. All dividends and distributions
are automatically reinvested in additional Class I shares of the same
Portfolio at their net asset value per share determined on the payment date,
unless the holder has notified the Bank in writing that he elects to have
dividends or capital gain distributions (or both) paid in cash. Shareholders
must make such election, or any revocation thereof, in writing to their
financial institutions. If an account is established with telephone
privileges, the registered owner or his preauthorized legal representative
may change the election to receive dividends in cash to an election to
receive dividends in shares by telephoning the Transfer Agent at
(800) 688-3350. The election will become effective with respect to
dividends paid after its receipt by the Transfer Agent.
TAXES
Federal
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification will relieve the Portfolios of liability for federal income
taxes to the extent their earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Portfolio distribute to
its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. In general, a Portfolio's investment company taxable income will be its
taxable income, subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Portfolio intends to distribute as
dividends substantially all of its investment company taxable income and any
net tax-exempt interest income each year. Such dividends will be taxable as
ordinary income to the Portfolio's shareholders who are not currently exempt
from federal income taxes regardless of whether a distribution is received in
cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolios will generally have no tax liability with respect to such gains and
the distributions will be taxable to Portfolio shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how
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<PAGE>
long the shareholders have held the shares and whether such gains are received
in cash or reinvested in additional shares.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed for federal tax purposes to have been paid by the Portfolio and
received by the shareholders on December 31 of such year if such dividends are
paid during January of the following year.
Prior to purchasing shares of a Portfolio, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after the purchase of shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of
the dividend or distribution. All or a portion of such amounts, although in
effect a return of capital, is subject to tax.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of shares of a Portfolio depending upon the
tax basis and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase
of Portfolio shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Portfolio within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included under certain
circumstances in the tax basis of the new shares.
It is expected that dividends and certain interest income earned by
the International Equity Portfolio from foreign securities will be subject to
foreign withholding taxes or other taxes. So long as more than 50% of the
value of the Portfolio's total assets at the close of any taxable year
consists of equity or debt securities of foreign corporations, the Portfolio
may elect, for U.S. federal income tax purposes, to treat certain foreign
taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid its shareholders. The Portfolio may make this election.
As a consequence, the amount of such foreign taxes paid by the Portfolio will
be included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and the shareholders will be
entitled (a) to credit their proportionate amounts of such taxes against their
U.S. federal income tax liabilities, or (b) if they itemize their deductions,
to deduct such proportionate amounts from their U.S. income.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
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<PAGE>
State and Local
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust
and its shareholders under such laws may differ from treatment under federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992) and
Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of
Henry Ford Health System); Trustee, Henry Ford Health Sciences Center
(since 1987); Trustee, Henry Ford Continuing Care Corporation (since 1980);
Trustee, Earhart Foundation (since 1980). He is 77 years old and his
address is 333 West Fort Street, Detroit, Michigan 48226.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities
- --------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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<PAGE>
Authority (since 1991). He is 53 years old and his address is 3650 Shorewood
Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate
School of Business (since 1984); Dean of the University of Chicago Graduate
School of Business (1983-1993); Member of Economic Club of Chicago and
Commercial Club of Chicago; Director of Harbor Capital Advisors and
Dimensional Fund Advisors; Trustee, Prairie Family of Funds. He is 57
years old and his address is University of Chicago Graduate School of
Business, 1101 East 58th Street, Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor
of Finance, Indiana University (1970-1991); Vice President, Trust &
Investment Advisers, Inc. (1990-1991); Director, Federal Home Loan
Bank of Indianapolis (1981 to 1985). He is 61 years old, and his
address is 5 Boar's Head Lane, Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
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* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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<PAGE>
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser for each Portfolio is NBD, a wholly owned
subsidiary of First Chicago NBD Corporation, a bank holding company. NBD has
offices at 611 Woodward Avenue, Detroit, Michigan 48226. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion. NBD has been in the business
of providing such services since 1933. Included among NBD's accounts are
pension and profit sharing funds for major corporations and state and local
governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
NBD provides investment advisory and certain administrative services
to each Portfolio pursuant to an Advisory Agreement. Subject to the overall
supervision of the Board of Trustees, NBD makes investment decisions for each
of the Portfolios.
Jeffrey C. Beard, First Vice President, and Gary L. Konsler, First
Vice President are primarily responsible for the day-to-day management of the
Growth/Value and Capital Growth Portfolios. Mr. Beard joined NBD in 1982
after receiving an MBA in Finance from Michigan State University. Mr. Konsler
joined NBD in 1973 after receiving a JD from Indiana University.
Ronald L. Doyle, First Vice President, and Joseph R. Gatz, Vice
President, are primarily responsible for the day-to-day management of the
Opportunity Portfolio. Mr. Doyle joined NBD in 1982 after receiving his MBA in
Finance from Michigan State University. Mr. Gatz joined NBD in 1986 after
receiving an MBA from Indiana University.
Chris M. Gassen, Vice President, and F. Richard Neumann, Vice
President, are primarily responsible for the day-to-day management of the
Intrinsic Value Portfolio. Mr. Gassen joined NBD in 1985 after receiving
an MBA in Finance from Indiana University. Mr. Neumann joined NBD in
1981 after receiving an MBA in Finance/Accounting from the University of
Chicago.
Claude B. Erb, First Vice President, is primarily responsible for the
day-to-day portfolio management of the Balanced Portfolio. Mr. Erb joined
First Chicago NBD Corporaiton in 1993, after receiving his MBA in Finance
from the University of California.
F. Richard Neumann, Vice President and Henry Kaczmarek, Assistant
Vice President, are primarily responsible for the day-to-day management
of the Equity Index Portfolio. Mr. Kaczmarek joined NBD in 1993 after receiving
an MBA in Finance from Indiana University.
Richard P. Kost, First Vice President, and Clyde L. Carter, Jr.,
Assistant Vice President are primarily responsible for the day-to-day
portfolio management of the International Equity Portfolio. Mr. Kost joined
NBD in 1964, after receiving his MBA from the University of Michigan.
Mr. Carter joined NBD in 1987 after he received his MBA from Western
Michigan University.
For its services under the Advisory Agreement, NBD is entitled to
receive advisory fees, computed daily and payable monthly, at an annual rate
of .75% of the average daily net assets of each of the Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Portfolios and .10% of the average daily net assets of the Equity Index
Portfolio. In addition, NBD is entitled to 4/10ths of the gross income earned
by each Portfolio on each loan of securities (excluding capital gains and
losses, if any). NBD may voluntarily waive its fees in whole or in part with
respect to any particular Portfolio.
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<PAGE>
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
a customer. The Adviser and the Trust believe that the Adviser may perform the
advisory, custodial and transfer agency services for the Trust described in
this Prospectus, and that the Adviser, subject to such banking laws and
regulations, may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform investment
advisory, custodial or transfer agency services for the Trust or require the
Adviser to alter or discontinue the services provided by it to shareholders.
If the Adviser were prohibited from performing investment advisory,
custodial or transfer agency services for the Trust, it is expected that the
Board of Trustees would recommend that shareholders approve new agreements
with another entity or entities qualified to perform such services and
selected by the Board. If the Adviser or its affiliates were required to
discontinue all or part of its shareholder servicing activities, their
customers would be permitted to remain the beneficial owners of Portfolio
shares and alternative means for continuing the servicing of such customers
would be sought. The Trust does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
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<PAGE>
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of each Portfolio: (i) fees payable
to the Co-Distributors pursuant to the Distribution Agreement; (ii) the
actual costs and expenses in connection with advertising and marketing the
Portfolio's shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions and other professionals ("Service Agents") for
administration or servicing of Portfolio shareholders ("Servicing"). Servicing
may include, among other things: answering client inquiries regarding the
Trust and the Portfolios; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing
and maintaining shareholder accounts and records; processing purchase and
redemption transactions; investing client cash account balances automatically
in Portfolio shares; providing periodic statements showing a client's account
balance and integrating such statements with those of other transactions and
balances in the client's other accounts serviced by the Service Agent;
arranging for bank wires; and such other services as the Trust may request, to
the extent the Service Agent is permitted by applicable statute, rule or
regulation. Under the Plan, the Trust also bears the cost of preparing and
printing Prospectuses for use in selling shares of the Trust and costs
associated with implementing and operating the Plan. These costs are included
in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .005% of a Portfolio's average net assets, and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of the Trust's investment portfolios attributable to
investments by clients of Essex. The payments to be made to the
Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust, and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets such as brokerage fees, commissions and other transaction
charges, the fees and expenses of NBD as the Trust's Custodian and as its
Transfer Agent, the fees payable to the Co-Distributors under the Distribution
Agreement, the fees and expenses of Trustees, expenses associated with the
Trust's Distribution Plan
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<PAGE>
and Shareholder Servicing Plan, outside auditing and legal expenses, all taxes
and corporate fees payable by the Trust, SEC fees, state securities
qualification fees, costs of preparing and printing prospectuses for
regulatory purposes and for distribution to shareholders, costs of shareholder
reports and shareholder meetings, and any extraordinary expenses. Each
Portfolio also pays for brokerage commissions and transfer taxes (if any) in
connection with the purchase and sale of portfolio securities. Expenses
attributable to a particular Portfolio of the Trust will be charged to that
Portfolio and expenses not readily identifiable as belonging to a particular
Portfolio will be allocated by the Board of Trustees among one or more
Portfolios in such a manner as it shall deem fair and equitable. For the
fiscal year ended December 31, 1995, the Growth/Value, Opportunity, Intrinsic
Value, Capital Growth, Balanced, Equity Index and International Equity
Portfolios' total expenses were .84%, .89%, .91%, .86%, .91%, .15% and 1.16%
(after fee waivers, if any) of their average net assets, respectively. The
Statement of Additional Information describes in more detail the fees and
expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Money Market Fund, Government Fund,
Treasury Money Market Fund, Tax-Exempt Money Market Fund, Michigan Tax-Exempt
Money Market Fund, Intermediate Bond Fund, Bond Fund, Short Bond Fund,
Municipal Bond Fund and Michigan Municipal Bond Fund. The Trust has
established the following two distinct classes of shares within each
Portfolio described herein: Class I shares (Original Class) and Class A
shares (Special Class 1). A sales person and any other person or institution
entitled to receive compensation for selling or servicing shares may receive
different compensation with respect to different classes of shares in the
Series. Each share has $.10 par value, represents an equal proportionate
interest in the related Portfolio with other shares of the same class
outstanding, and is entitled to such dividends and distributions out of
the income earned on the assets belonging to such Portfolio as are declared
in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 29, 1996, NBD held beneficially or of record
approximately 84.53%, 80.72%, 79.93%, 89.57%, 88.25%, 91.41% and 89.56% of the
outstanding shares of the Growth/Value, Opportunity, Intrinsic Value, Capital
Growth, Balanced, Equity Index and International Equity Portfolios,
respectively, and therefore may be considered to be a controlling person of
the Trust for purposes of the 1940 Act.
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<PAGE>
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
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<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give
any information or to make any
representations not contained in this
Prospectus, or in the Portfolios'
Statement of Additional Information
incorporated herein by reference, in
connection with the offering made by
this Prospectus and, if given or
made, such information or
representations must not be relied
upon as having been authorized by the
Trust, Adviser or Sponsors and Co-
Distributors. This Prospectus does
not constitute an offering by the
Portfolios or by their Co-
Distributors, in any jurisdiction in
which such offering may not lawfully
be made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY............................. 2
BACKGROUND.................................. 4
FINANCIAL HIGHLIGHTS........................ 5
INTRODUCTION................................ 12
PROPOSED REORGANIZATION..................... 12
INVESTMENT OBJECTIVES, POLICIES AND
RISK FACTORS............................ 12
OTHER INVESTMENT POLICIES................... 18
PURCHASE OF SHARES.......................... 32
REDEMPTION OF SHARES........................ 33
PERFORMANCE INFORMATION..................... 34
DIVIDENDS AND DISTRIBUTIONS................. 35
TAXES .................................... 35
MANAGEMENT.................................. 37
OTHER INFORMATION........................... 42
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania
19107-3496
<PAGE>
[ BACK COVER, COLUMN 1 ]
CLASS I SHARES OF THE:
WOODWARD GROWTH/VALUE FUND
WOODWARD OPPORTUNITY FUND
WOODWARD INTRINSIC VALUE FUND
WOODWARD CAPITAL GROWTH FUND
WOODWARD BALANCED FUND
WOODWARD EQUITY INDEX FUND
WOODWARD INTERNATIONAL EQUITY FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
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Exhibit (17)(i)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following three investment portfolios (the "Portfolios"), each having
its own investment objective and policies as described in this Prospectus:
Class A shares of the:
Woodward Intermediate Bond Fund
Woodward Bond Fund
Woodward Short Bond Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing to The Woodward Funds at the address above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into the Prospectus.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
______________________________________________________________________________
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Intermediate Bond Fund ("Intermediate Bond
Portfolio"), Woodward Bond Fund ("Bond Portfolio") and Woodward Short Bond
Fund ("Short Bond Portfolio"). Class I shares are sold primarily to NBD and
its affiliated and correspondent banks acting on behalf of their respective
customers. Class A shares are sold to the general public primarily through
financial institutions such as banks, brokers and dealers. Class I shares are
offered in a separate Prospectus. Investors should call (800) 688-3350, a
Co-Distributor or their financial institutions if they would like to obtain
more information concerning Class I shares and/or Class A shares of the
Portfolios. The following table is provided to assist investors in
understanding the various costs and expenses that an investor will indirectly
incur as a beneficial owner of Class A shares in each of the Portfolios.
<TABLE>
<CAPTION>
Intermediate Bond Short Bond
Bond Portfolio(1) Portfolio(1) Portfolio(1)
--------------- ---------- ----------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load
Imposed on Purchases....... 4.75% 4.75% 3.00%
(as a percentage of
offering price)
Sales Load
Imposed on Reinvested
Dividends................. None None None
Deferred Sales Load........... None None None
Redemption Fee................ None None None
Exchange Fee.................. None None None
Annual Operating Expenses
(as a percentage of
average net assets)
Management Fees............... .65% .65% .65%
12b-1 Fees(2)................. .008% .01% .004%
Shareholder Servicing
Fees(3).................... .25% .25% .25%
Other Expenses(4)
(before fee waivers
and/or expense
reimbursements)............ .062% .06% .156%
(after fee waivers
and/or expense
reimbursements)............ N/A N/A (.044)%
Total Operating Expenses
(before fee waivers
and/or expense
reimbursements)............ .97% .97% 1.06%
(after fee waivers
and/or expense
reimbursements)............ N/A N/A .86%
- ---------
<FN>
1. The expenses for each Portfolio have been restated to reflect
current expenses.
2. As a result of the payment of sales loads and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. (the "NASD"). Rules adopted by the NASD generally limit the
aggregate sales charges and payments under the Trust's Service and
Distribution Plan ("Distribution Plan") to a certain percentage of total new
gross share sales,
-2-
<PAGE>
plus interest. The Trust would stop accruing 12b-1 fees if, to the extent,
and for as long as, such limit would otherwise be exceeded.
3. The Trust has adopted a Shareholder Servicing Plan pursuant to
which the Trust may enter into agreements with institutions under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares in return for a fee of up to .25% per
annum of the value of such shares ("Servicing Fees"). For further information,
see "Shareholder Servicing Plan" and "Investment Adviser, Custodian and
Transfer Agent" under the heading "Management" in this Prospectus.
4. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
</TABLE>
<TABLE>
<CAPTION>
Intermediate Bond Short Bond
Bond Portfolio Portfolio Portfolio
-------------- --------- ---------
<S> <C> <C> <C>
Example
You would pay the following
expenses on a $1,000
investment, assuming:
(1) a 5% annual return
and (2) redemption at the
end of each time period:
One Year................... $ 9.94 $ 9.94 $ 8.81
Three Years................ 31.03 31.03 27.54
Five Years................. 53.85 53.85 47.85
Ten Years.................. 119.40 119.40 106.41
Example
You would pay the following
expenses on a $1.00
investment, assuming
(1) a 5% annual return,
(2) redemption at the end
of each time period and
(3) the imposition of a
maximum sales load at the
beginning of the period:
One Year:.................. $ 56.97 $ 56.97 $ 38.55
Three Years:............... 77.06 77.06 56.72
Five Years:................ 98.79 98.79 76.42
Ten Years:................. 161.23 161.23 133.22
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The examples demonstrate the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class A shares in each of the Portfolios,
based upon payment by the Portfolios of operating expenses at the respective
levels set forth in the expense table. For more complete descriptions of
Portfolio expenses, see "Investment Adviser, Custodian and Transfer Agent",
"Sponsors and Co-Distributors", "Shareholder Servicing Plan", "Service and
Distribution Plan" and "Trust Expenses" under the heading "Management" in this
Prospectus and the financial statements and related notes contained in the
Statement of Additional Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class A
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them. See "Shareholder Servicing
Plan" and "Investment Adviser, Custodian and Transfer Agent" under
"Management," and see "Dividends and Distributions" and "Other Information"
for a description of the impact that this may have on holders of Class A
shares.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of how each Portfolio's
net asset value has changed during the periods presented. The tables have been
derived from the Portfolios' financial statements which have been audited by
Arthur Andersen LLP, the Trust's independent public accountants, whose report
thereon is contained in the Statement of Additional Information along with the
financial statements. The financial data included in these tables should be
read in conjunction with the financial statements and related notes included
in the Statement of Additional Information. Further information about the
performance of the Portfolios is available in annual reports to shareholders.
The Statement of Additional Information and annual reports to shareholders may
be obtained from the Trust free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Intermediate Bond Portfolio
June 1, 1991
(Commencement
of operations)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $ 9.21 $10.41 $10.28 $10.55 $10.00
Income from investment
operations:
Net investment income.......... 0.59 0.56 0.59 0.71 0.40
Net realized and unrealized
gains (losses) on
investments.................. 1.16 (1.20) 0.26 (0.10) 0.57
------------ ------------ ----------- ------------ ------------
Total from investment
operations................... $ 1.75 $(0.64) $ 0.85 $ 0.61 $ 0.97
------------ ------------ ----------- ------------ ------------
Less distributions:
From net investment
income....................... $(0.59) $(0.55) $(0.59) $(0.71) $(0.40)
From realized
gains........................ (0.00) (0.01) ( 0.13) ( 0.17) ( 0.02)
------------ ------------ ----------- ------------ ------------
Total distributions............ $(0.59) $(0.56) ($0.72) ($0.88) ($0.42)
------------ ------------ ----------- ------------ ------------
Net asset value, end of
period......................... $10.37 $ 9.21 $10.41 $10.28 $10.55
============ ============ =========== ============ ============
Total return(b).................. 19.48% (6.31%) 8.41% 6.00% 16.62%(a)
Ratios/Supplemental Data
Net assets, end of period....... $405,309,939 $393,019,168 $429,789,85 $220,432,255 $130,367,032
Ratio of expenses to average
net assets..................... 0.73% 0.74% 0.74% 0.74% 0.75%(a)
Ratio of net investment income
to average net assets.......... 5.98% 5.73% 5.44% 6.91% 6.59%(a)
Portfolio turnover rate 36.47% 54.60% 92.80% 56.30% 7.38%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Bond Portfolio
June 1, 1991
(Commencement
of operations)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $ 9.01 $10.32 $10.25 $10.55 $10.00
Income from investment
operations:
Net investment income.......... 0.63 0.61 0.76 0.83 0.51
Net realized and unrealized
gains (losses) on
investments.................. 1.45 (1.31) 0.38 ( 0.17) 0.57
------------ ------------ ------------ ------------ ------------
Total from investment
operations................... $ 2.08 $(0.70) $ 1.14 $ 0.66 $ 1.08
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment
income....................... $(0.64) $(0.59) $(0.76) $(0.83) $(0.51)
From realized
gains........................ (0.00) (0.02) (0.31) (0.13) (0.02)
------------ ------------ ------------ ------------ ------------
Total distributions............ $(0.64) $(0.61) $(1.07) $(0.96) $(0.53)
------------ ------------ ------------ ------------ ------------
Net asset value, end of
period......................... $10.45 $ 9.01 $10.32 $10.25 $10.55
============ ============ ============ ============ ============
Total return(b).................. 23.75% (6.99%) 11.39% 6.56% 18.45%(a)
Ratios/Supplemental Data
Net assets, end of period....... $517,565,579 $427,168,395 $501,196,278 $321,758,333 $237,673,316
Ratio of expenses to average
net assets..................... 0.74% 0.74% 0.73% 0.73% 0.75%(a)
Ratio of net investment income
to average net assets.......... 6.39% 6.36% 7.20% 8.08% 8.44%(a)
Portfolio turnover rate 41.91% 75.67% 111.52% 90.45% 8.19%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Short Bond Portfolio
September 17, 1994
(Commencement
Year Ended of Operations) to
December 31, December 31,
------------ ------------------
1995 1994
<S> <C> <C>
Net asset value, beginning
of period...................... $ 9.84 $10.00
Income from investment
operations:
Net investment income.......... 0.58 0.17
Net realized and unrealized
gains (losses) on
investments.................. 0.39 (0.16)
------------ -----------
Total from investment
operations................... $ 0.97 $ 0.01
------------ -----------
Less distributions:
From net investment
income....................... $(0.58) $(0.17)
From realized
gains........................ (0.00) 0.00
------------ -----------
Total distributions............ $(0.58) $(0.17)
------------ -----------
Net asset value, end of
period......................... $10.23 $ 9.84
============ ===========
Total return(b).................. 10.07% 0.21%(a)
Ratios/Supplemental Data
Net assets, end of period....... $163,336,885 $64,239,163
Ratio of expenses to average
net assets..................... 0.75% 0.75%(a)
Ratio of net investment income
to average net assets.......... 5.74% 5.92%(a)
Ratio of expenses to average
net assets without fee
waivers/reimbursed expenses..... 0.81% 0.93%(a)
Ratio of net investment income
to average net assets without
fee waivers/reimbursed expenses. 5.68% 5.74%(a)
Portfolio turnover rate.......... 30.94% 10.20%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total return as presented does not include any applicable sales
load.
</TABLE>
-7-
<PAGE>
INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objective and
policies. However, only the Class A shares of the Intermediate Bond, Bond and
Short Bond Portfolios are offered pursuant to this Prospectus. Each such
Portfolio is classified as a diversified investment portfolio under the 1940
Act.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
such Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Intermediate Bond Portfolio
The investment objective of the Intermediate Bond Portfolio is to
maximize total rate of return while providing relative stability of principal
by investing predominantly in intermediate-term debt securities. While the
Portfolio may purchase securities with maturities or average lives of up to 15
years, during normal market conditions, its average weighted portfolio
maturity is expected to be between 3 and 6 years.
Bond Portfolio
The investment objective of the Bond Portfolio is to maximize total
rate of return by investing predominantly in intermediate and long-term debt
securities. During normal market conditions, the Portfolio's average weighted
portfolio maturity is expected to be between 6 and 12 years.
Short Bond Portfolio
-8-
<PAGE>
The investment objective of the Short Bond Portfolio is to maximize
total rate of return while providing relative stability of principal. While
the Portfolio may purchase securities with maturities or average lives of up
to 10 years, during normal market conditions, its average weighted portfolio
maturity will be limited to a maximum of 3 years.
Investment Policies Applicable to the Portfolios
The two components of total rate of return consist of current income
and capital appreciation. The Portfolios are more likely to exceed the
performance level of equity funds in the market with respect to current
income; however, it is more probable that the capital appreciation performance
of equity funds will surpass that of the Portfolios.
In pursuing their respective investment objectives, the Portfolios may
invest in the following debt securities: (i) obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; (ii) corporate,
bank and commercial obligations; (iii) securities issued or guaranteed by
foreign governments, their agencies or instrumentalities; (iv) securities
issued by supranational banks; (v) mortgage backed securities; and (vi)
securities representing interests in pools of assets. Obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities may
include mortgage backed securities, as well as "stripped securities" (both
interest-only and principal-only) and custodial receipts for Treasury
securities. The Portfolios may also invest in options and futures contracts
and related options. In addition, each Portfolio may invest in high quality
short-term obligations. For further information concerning these securities,
see "Other Investment Policies" below.
Each of the Portfolios invests at least 65% of the total value of its
assets in obligations, including mortgage backed securities, which are
investment grade or are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Most obligations acquired by the Portfolios
will be issued by companies or governmental entities located within the United
States. Up to 15% of the total assets of each Portfolio may, however, be
invested in dollar denominated debt obligations of foreign issuers.
The debt securities in which the Portfolios may invest will be rated
investment grade, or if unrated, will be deemed by the Adviser to be
comparable in quality at the time of purchase to instruments that are so
rated. By so restricting their investments, the Portfolios' ability to
maximize total rate of return will be limited.
Although fixed income securities acquired by the Intermediate Bond and
Bond Portfolios will normally have intermediate or long-term maturities,
during temporary defensive periods the Portfolios may invest without
limitation in high quality short-term investments.
The Adviser manages the Portfolios based on anticipated interest rate
changes and the use of active management strategies such as sector rotation,
intra-sector adjustments and yield curve and convexity considerations. In use
of such active management strategies, the Adviser seeks value in investment
grade fixed income securities. Sector rotation involves the Adviser selecting
among different economic or industry sectors based upon apparent or relative
attractiveness. Thus at times a sector offers yield advantages relative to
other sectors. An intra-sector adjustment occurs when the Adviser determines
to select a particular issue within a sector. Yield curve considerations
involve the Adviser attempting to compare the relationship between time to
maturity and yield to maturity in order to identify the relative value in the
relationship. Convexity considerations consist of the Adviser seeking
securities that rise in price more quickly, or decline in price less quickly,
than the typical security
-9-
<PAGE>
of that price risk level and therefore enable the Adviser to obtain an
additional return when interest rates change dramatically.
In acquiring particular portfolio securities for a Portfolio, the
Adviser will consider, among other things, historical yield relationships
between private and governmental debt securities, intermarket yield
relationships among various industry sectors, current economic cycles and the
attractiveness and creditworthiness of particular issuers. Depending upon the
Adviser's analysis of these and other factors, a Portfolio's holdings of
issues in particular industry sectors may be overweighted when compared to the
relative industry weightings in related recognized indices. The value of the
Portfolios can be expected to vary inversely with changes in prevailing
interest rates.
OTHER INVESTMENT POLICIES
Ratings
If not rated as commercial paper, debt obligations acquired by the
Portfolios will be rated investment grade at the time of purchase, i.e.,
obligations rated AAA, AA, A or BBB by Standard & Poor's Rating Group,
Division of McGraw Hill ("S&P"), Fitch Investors Service ("Fitch"), Duff &
Phelps Credit Co. ("Duff") or IBCA, Inc. ("IBCA") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's") (each a "Rating Agency") or be
unrated but deemed by the Adviser to be comparable in quality at the time of
purchase to instruments that are so rated. Obligations rated in the lowest of
the top four rating categories (Baa by Moody's, BBB by S&P or Fitch or IBCA)
are considered to have less capacity to pay interest and repay principal and
have certain speculative characteristics. The debt ratings are described in
the Statement of Additional Information.
Short-Term Investments
Each Portfolio may hold short-term U.S. Government obligations, "high
quality" money market instruments such as certificates of deposit, bankers'
acceptances and time deposits (i.e. those rated at the time of purchase within
the two highest rating categories or which are unrated at such time but are
deemed by the Adviser to be of comparable quality), repurchase agreements,
reverse repurchase agreements, short-term obligations issued by state and
local governmental issuers which carry yields that are competitive with those
of other types of high quality money market instruments, commercial paper,
notes, other short-term obligations, variable rate master demand notes, and
cash, pending investment, to meet anticipated redemption requests or if, in
the opinion of the Adviser, suitable bonds or other fixed income securities in
which the Portfolios invest are unavailable. Such investments may be in such
proportions as, in the opinion of the Adviser, existing circumstances may
warrant, and may include obligations of foreign banks and foreign branches of
U.S banks. The Portfolios may also invest their cash balances in securities
issued by other investment companies which invest in high-quality, short-term
debt securities. These short- term investments are described in greater detail
in the Statement of Additional Information.
U.S. Government Obligations
The Portfolios may invest in all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. Each
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<PAGE>
Portfolio may also invest in interests in the foregoing securities, including
collateralized mortgage obligations guaranteed by a U.S. Government agency or
instrumentality, and in Government-backed trusts which hold obligations of
foreign governments that are guaranteed or backed by the full faith and credit
of the United States.
Obligations of certain U.S. Government agencies and instrumentalities
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not legally obligated to do so.
Stripped Government Obligations
The Intermediate Bond, Bond and Short Bond Portfolios may purchase
Treasury receipts and other "stripped" securities that evidence ownership in
either the future interest payments or the future principal payments on U.S.
Government obligations. These participations, which may be issued by the U.S.
Government (or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions, are issued at a discount to
their "face value," and may include stripped mortgage backed securities
("SMBS"), which are derivative multi-class mortgage securities. Stripped
securities, particularly SMBS, may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, a Portfolio may
fail to fully recoup its initial investment in these securities. The market
value of the class consisting entirely of principal payments generally is
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage backed obligations because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped.
Custodial Receipts for Treasury Securities
The Portfolios may purchase participations in trusts that hold U.S.
Treasury securities (such as TIGRs and CATs) where the trust participations
evidence ownership in either the future interest payments or the future
principal payments on the U.S. Treasury obligations. These participations are
normally issued at a discount to their "face value," and may exhibit greater
price volatility than ordinary debt securities because of the manner in which
their principal and interest are returned to investors.
-11-
<PAGE>
Repurchase and Reverse Repurchase Agreements
To increase its income, each Portfolio may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price ("repurchase
agreements"). No Portfolio will enter into repurchase agreements with the
Adviser, the Co-Distributors, or any of their affiliates. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also obtain funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans could include cash or
securities of the U.S. Government, its agencies or instrumentalities. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Portfolio exceeds one-third of the value of its total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned or possible loss of rights in the
collateral should the borrower of the securities become insolvent. Loans will
be made only to borrowers that provide the requisite collateral comprised of
liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
Illiquid Securities
In accordance with their fundamental investment limitation described
below, the Intermediate Bond and Bond Portfolios will not knowingly invest
more than 10% and the Short Bond Portfolio will not knowingly invest more than
15% of the value of their respective total assets in securities that are
illiquid. Securities having legal or contractual restrictions on resale or no
readily available market, and instruments (including repurchase agreements,
variable and floating rate instruments and time deposits) that do not provide
for payment to the Portfolios within seven days after notice are subject to
this limitation. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed to be illiquid for
purposes of this limitation.
The Portfolios may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under
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<PAGE>
Rule 144A is a recent development, and it is not possible to predict how this
market will develop. The Board of Trustees will carefully monitor any
investments by a Portfolio in these securities.
Borrowings
The Portfolios may borrow money for temporary purposes in accordance
with the investment limitations described below. Borrowings may be effected
through reverse repurchase agreements under which the Portfolios would sell
portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities
it is obligated to repurchase.
Asset Backed Securities
Asset Backed Securities held by the Portfolios arise through the
grouping by governmental, government-related and private organizations of
loans, receivables and other assets originated by various lenders, as
described below.
The yield characteristics of Asset Backed Securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an Asset
Backed Security is purchased at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an Asset Backed Security is purchased at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the Portfolios, the maturity of Asset Backed Securities
will be based on estimates of average life.
Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments.
Like other fixed income securities, when interest rates rise the value of an
Asset Backed Security generally will decline; however, when interest rates
decline, the value of an Asset Backed Security with prepayment features may
not increase as much as that of other fixed income securities, and, as noted
above, changes in market rates of interest may accelerate or retard
prepayments and thus affect maturities.
These characteristics may result in a higher level of price volatility
for these assets under certain market conditions. In addition, while the
trading market for short-term mortgages and Asset Backed Securities is
ordinarily quite liquid, in times of financial stress the trading market for
these securities sometimes becomes restricted.
Mortgage Backed Securities. Asset Backed Securities acquired by the
Portfolios consist of both mortgage and non-mortgage backed securities.
Mortgage backed securities represent an ownership interest in a pool of
mortgages, the interest on which is in most cases issued and guaranteed by an
agency or instrumentality of the U.S. Government, although not necessarily by
the U.S. Government itself. Mortgage backed securities include collateralized
mortgage obligations and mortgage pass-through certificates.
Collateralized mortgage obligations ("CMOs") provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
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mortgage backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways. In
most cases, however, payments of principal are applied to the CMO classes in
the order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. These multiple class securities may be issued
or guaranteed by U.S. Government agencies or instrumentalities, including the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"), or
issued by trusts formed by private originators of, or investors in, mortgage
loans. Classes in CMOs which the Portfolio may hold are known as "regular"
interests. CMOs also issue "residual" interests, which in general are junior
to and more volatile than regular interests. The Portfolios do not intend to
purchase residual interests.
Mortgage pass-through certificates provide the holder with a pro rata
interest in the underlying mortgages. One type of such certificate in which
the Portfolios may invest is a GNMA Certificate which is backed as to the
timely payment of principal and interest by the full faith and credit of the
U.S. Government. Another type is a FNMA Certificate, the principal and
interest of which are guaranteed only by FNMA itself, not by the full faith
and credit of the U.S. Government. Another type is a FHLMC Participation
Certificate which is guaranteed by FHLMC as to timely payment of principal and
interest. However, like a FNMA security it is not guaranteed by the full faith
and credit of the U.S. Government. Privately issued mortgage backed securities
will carry a rating at the time of purchase of at least A by S&P or by Moody's
or, if unrated, will be in the Adviser's opinion equivalent in credit quality
to such rating. Mortgage backed securities issued by private issuers, whether
or not such obligations are subject to guarantees by the private issuer, may
entail greater risk than obligations directly or indirectly guaranteed by the
U.S. Government.
Non-Mortgage Backed Securities. The Portfolios may also invest in non-
mortgage backed securities including interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities may also be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Non-mortgage backed securities are not issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
Non-mortgage backed securities involve certain risks that are not
presented by mortgage backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
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Variable and Floating Rate Instruments
The Portfolios may invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate of an inverse floater
resets in the opposite direction from the market rate of interest to which it
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent
in inverse floaters is associated with greater volatility in their market
values.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of the instruments if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise
demand rights, and the Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments. Variable and floating rate instruments
(including inverse floaters) will be subject to the Portfolio's limitation on
illiquid investments when a Portfolio may not demand payment of the principal
amount within seven days and a reliable trading market is absent. See
"Illiquid Securities."
Zero Coupon Obligations
Each Portfolio may invest in zero coupon obligations which are
discount debt obligations that do not make periodic interest payments although
income is generally imputed to the holder on a current basis. Such obligations
may have higher price volatility than those which require the payment of
interest periodically. The Adviser will consider the liquidity needs of the
Portfolios when any investment in zero coupon obligations is made.
Futures Contracts and Related Options
The Portfolios may trade futures contracts and options on futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange. They may
purchase and sell futures contracts which obligate a Portfolio to take or make
delivery of fixed income securities at maturity, commonly known as interest
rate futures contracts.
A Portfolio may sell a futures contract in order to offset an expected
decrease in the value of its portfolio that might otherwise result from a
market decline. A Portfolio may do so either to hedge the value of its
securities portfolio as a whole, or to protect against declines occurring
prior to sales of securities in the value of the securities to be sold. In
addition, a Portfolio may utilize futures contracts in anticipation of changes
in the composition of its holdings.
The Portfolios may also purchase options on futures contracts and may
purchase and write put and call options on bond indices listed on U.S.
exchanges or traded in the over-the-counter market. A futures option gives the
holder, in return for the premium paid, the right to buy (call) from or sell
(put) to the writer of the option a futures contract at a specified price at
any time during the period of the option.
When a Portfolio sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised.
In anticipation of a market advance, a Portfolio may purchase call options on
futures contracts as a substitute for the purchase of futures contracts to
hedge against a possible increase in the price of securities which the
Portfolio intends to purchase. Similarly, if the value of a Portfolio's
portfolio securities is expected to decline, the Portfolio might purchase put
options or sell call options on futures contracts rather than sell futures
contracts.
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The Portfolios' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodities and Futures Trading Commission ("CFTC"). In addition, a
Portfolio may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of its assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the
percentage limitation. Pursuant to SEC requirements, the Portfolios may be
required to segregate cash or high quality money market instruments in
connection with their commodities transactions in an amount generally equal to
the value of the underlying commodity. The Trust intends to comply with the
regulations of the CFTC exempting the Portfolios from registration as a
"commodity pool operator."
For a more detailed description of futures contracts and related
options, see Appendix B to the Statement of Additional Information.
Options
Each Portfolio may purchase and sell put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation
for hedging purposes. Such transactions may be effected on a principal basis
with primary reporting dealers in U.S. Government securities in an amount not
exceeding 5% of a Portfolio's net assets, as described further in the
Statement of Additional Information. Such options may relate to particular
securities or to various bond indices. Purchasing options is a specialized
investment technique which entails a substantial risk of a complete loss of
the amounts paid as premiums to the writer of the option.
A Portfolio may purchase and sell put options on portfolio securities
at or about the same time that they purchase the underlying security or at a
later time. By buying a put, a Portfolio limits its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Call options may be
purchased by a Portfolio in order to acquire the underlying security at a
later date at a price that avoids any additional cost that would result from
an increase in the market value of the security. A Portfolio may also purchase
call options to increase its return to investors at a time when the call is
expected to increase in value due to anticipated appreciation of the
underlying security. Prior to its expiration, a purchased put or call option
may be sold in a closing sale transaction (a sale by a Portfolio, prior to the
exercise of an option that it has purchased, of an option of the same series),
and profit or loss from the sale will depend on whether the amount received is
more or less than the premium paid for the option plus the related transaction
costs.
In addition, each Portfolio may write covered call and secured put
options. A covered call option means that a Portfolio owns or has the right to
acquire the underlying security subject to call at all times during the option
period. A secured put option means that a Portfolio maintains in a segregated
account with its custodian cash or U.S. Government securities in an amount not
less than the exercise price of the option at all times during the option
period. Such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation and may be effected on a principal
basis with primary reporting dealers in U.S. Government securities. The
aggregate value of the securities subject to options written by the
Intermediate Bond or Bond Portfolio will not exceed 25% of the value of its
net assets. In order to close out an option position prior to maturity, a
Portfolio may enter into a "closing purchase transaction" by purchasing a call
or put option (depending upon the position
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being closed out) on the same security with the same exercise price and
expiration date as the option which it previously wrote.
By writing a covered call option, a Portfolio forgoes the opportunity
to profit from an increase in the market price of the underlying security
above the exercise price except insofar as the premium represents such a
profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Portfolio effects a closing purchase
transaction by purchasing an option of the same series. If a Portfolio writes
a secured put option, it assumes the risk of loss should the market value of
the underlying security decline below the exercise price of the option. The
use of covered call and secured put options will not be a primary investment
technique of the Portfolios.
For additional information relating to option trading practices,
including particular risks thereof, see the Statement of Additional
Information.
Risk Factors Associated with Futures and Related Options
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, due to the risk of an imperfect correlation between securities
in its portfolio that are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge will not be
fully effective in that, for example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of gains on the portfolio securities that were the
subject of the hedge. In futures contracts based on indices, the risk of
imperfect correlation increases as the composition of the Portfolio varies
from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
contract has been less or greater than that of the securities. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net
investment results if market movements are not as anticipated when the hedge
is established.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of
securities prices, interest rates and other economic factors. For example, if
the Portfolio has hedged against the possibility of a decline in the market
adversely affecting the value of securities held in its portfolio and prices
increase instead, the Portfolio will lose part or all of the benefit of the
increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the rising market. The
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
Although a Portfolio intends to enter into futures contracts and
options transactions only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. See "Illiquid Securities" above. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contracts prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. If it is not possible, or the Portfolio
determines not, to close a futures position in anticipation of adverse price
movements, it will be required to make daily cash
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payments of variation margin. In such circumstances, an increase in the value
of the portion of the portfolio being hedged, if any, may offset partially or
completely losses on the futures contract.
Risk Factors Associated with Derivative Instruments
The Portfolios may purchase certain "derivative" instruments.
"Derivative" instruments are instruments that derive value from the
performance of underlying assets, interest or currency exchange rates, or
indices, and include (but are not limited to) futures contracts, options,
forward currency contracts and structured debt obligations (including
collateralized mortgage obligations and other types of asset backed
securities, "stripped" securities and various floating rate instruments,
including "inverse" floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the "derivative"
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a "derivative"
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a "derivative" instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
"derivative" instruments are more complex than others, and for those
instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Adviser will evaluate the risks presented by the "derivative"
instruments purchased by the Portfolios, and will determine, in connection
with its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that the Adviser's evaluations will prove to be inaccurate or incomplete and,
even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in "derivative" instruments.
Foreign Securities
The Portfolios may invest in dollar-denominated obligations of foreign
issuers. Such investments may include both obligations of foreign corporations
and banks, as well as obligations of foreign governments and their political
subdivisions. Investments in foreign securities, whether made directly or
indirectly, involve certain inherent risks, such as political or economic
instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns, changes in exchange rates of foreign
currencies and the possibility of adverse changes in investment or exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company. Listed foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. Further,
foreign stock markets are generally not as developed or efficient as those in
the U.S. and in most foreign markets volume and liquidity are less than in the
U.S. Fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation limitations
on the removal of funds or other assets or diplomatic developments that could
affect investment within those countries. Because of these and other factors,
securities of foreign companies acquired by
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a Portfolio may be subject to greater fluctuation in price than securities of
domestic companies.
Furthermore, some securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the Portfolios from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Portfolio will reduce its net income available for distribution to
investors.
Supranational Bank Obligations
The Portfolios may invest in obligations of supranational banks.
Supranational banks are international banking institutions designed or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the World Bank). Obligations of
supranational banks may be supported by appropriated but unpaid commitments of
their member countries and there is no assurance that these commitments will
be undertaken or met in the future.
When-Issued Purchases and Forward Commitments
The Portfolios may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock-in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. When-issued and forward commitment transactions
involve the risk, however, that the yield obtained in a transaction may be
less favorable than the yield available in the market when the securities
delivery takes place. Each Portfolio's forward commitments and when-issued
purchases are not expected to exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolios do not earn income with
respect to these transactions until the subject securities are delivered to
the Portfolios. The Portfolios do not intend to engage in when-issued
purchases and forward commitments for speculative purposes but only in
furtherance of their investment objectives.
Portfolio Turnover
Generally, the Portfolios will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Portfolio may sell a portfolio investment soon after its
acquisition if the Adviser believes that such a disposition is consistent with
or in furtherance of the Portfolio's investment objective. Portfolio
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, the Portfolios
are likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
(See "Taxes-Federal" in the Prospectus and "Additional Information Concerning
Taxes" in the Statement of Additional Information.) While it is not possible
to accurately predict portfolio turnover rates, the annual turnover rates for
the Intermediate Bond, Bond, and Short Bond Portfolios are not expected to
exceed 300%, 400% and 300%, respectively.
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Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by a
Portfolio, except that up to 25% of the value of the Portfolio's total assets
may be invested without regard to these limitations.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured by such
instruments, (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents, and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding one-third of its total assets.
4. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Portfolio's total assets at the time of such borrowing. No Portfolio will
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Portfolio's
investment practices described in the Statement of Additional Information or
in this Prospectus are not deemed to be pledged for purposes of this
limitation.
In addition, the Intermediate Bond and Bond Portfolios may not invest
more than 10% of their respective total assets in illiquid investments. The
Short Bond Portfolio may not invest more than 15% of its total assets in
illiquid investments. See "Illiquid Securities" above.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Portfolio's portfolio securities will not constitute
a violation of such limitation for purposes of the 1940 Act.
In order to permit the sale of a Portfolio's shares in certain states,
the Portfolios may make commitments more restrictive than the investment
policies and
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limitations described above. Should a Portfolio determine that any such
commitment is no longer in the best interests of the Portfolio, it will revoke
the commitment by terminating sales of its shares in the state involved.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class A shares are sold to the public primarily through financial
institutions such as banks, brokers and dealers. Investors may purchase Class
A shares directly in accordance with the procedures set forth below or through
procedures established by their financial institutions in connection with the
requirements of their accounts.
Financial institutions may impose different minimum investment and
other requirements on their customers and may charge additional fees in
connection with the establishment of accounts with the institutions and
purchase and redemption of Class A shares. Persons wishing to purchase Class A
shares through their accounts at an institution or a Co-Distributor should
contact the institution or Co-Distributor directly for appropriate
instructions and fee information. In addition, certain financial institutions
may enter into shareholder servicing agreements with the Trust whereby they
would perform various administrative support services for their customers who
are the beneficial owners of Class A shares in return for fees from the
Portfolios. See "Shareholder Servicing Plan" under the heading "Management" in
this Prospectus.
All shareholders of record will receive confirmations of share
purchases and redemptions. Class A shares purchased by institutions on behalf
of their customers will normally be held of record by them. Institutions will
record their customers' beneficial ownership of such shares and provide
regular account statements reflecting such beneficial ownership.
Institutions will be responsible for transmitting purchase and
redemption orders to FoM, Essex or NBD acting as transfer agent ("the Transfer
Agent") on a timely basis, in accordance with the procedures stated below.
Purchase Procedures
The minimum initial investment is $1,000, except for purchases through
an institution whose customers have invested an aggregate minimum of $1,000 or
for investments made through a Co-Distributor's or an institution's sweep
privilege, the Trust's Automatic Investment Plan described below, or the
Trust's IRA program described below. The minimum subsequent investment is
$100, except for reinvested dividends or as otherwise described below. The
Trust reserves the right to reject any purchase order.
Orders for Class A shares may be placed by telephone by calling (800)
688-3350 (provided an investor has made the appropriate election in his
account application) or by mail (by completing the account application which
accompanies this Prospectus and mailing the completed form and the payment for
shares to FoM, Essex or the Transfer Agent). All checks must be drawn on a
bank located within the United States and must be payable in U.S. dollars.
Subsequent investments in an existing account in a Portfolio may be made at
any time by sending a check or money order along with either (a) the
detachable form that regularly accompanies the Trust's confirmation of a prior
transaction, (b) a subsequent order form which may be obtained from the Trust,
or (c) a letter stating the
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amount of the investment, the name of the Portfolio and the account number in
which the investment is to be made. If any check used for investment in an
account does not clear, the order will be cancelled and notice thereof will be
given; in such event the account will be responsible for any loss to the Trust
as well as a $15 fee imposed by the Transfer Agent.
With the exception of customers of FoM, Class A shares may also be
paid for by wiring federal funds to the Transfer Agent, NBD Bank, ABA
072000326, for the account of The Woodward Funds, Account Number GL 325612,
and identifying the customer name and account number. Before wiring payment,
customers should notify the Transfer Agent by calling (800) 688-3350.
If customers of FoM wire payment in federal funds, they should direct
payment to NBD Bank, ABA 072000326, for the account of First of Michigan
Corporation re: The Woodward Funds, Account Number 059-41, and should identify
the customer name and account number. Before wiring payment, customers of FoM
should call FoM at (800) 544-8275 (outside Michigan) or (800) 852-7730 (within
Michigan).
Purchase orders which are accompanied by payment (by check or wire
transfer) and received by the Transfer Agent in proper form on a Business Day
(as defined below) prior to the close of the New York Stock Exchange are
priced at the public offering price (i.e. net asset value plus the applicable
sales load set forth below) of the particular portfolio determined on that
Business Day. Purchase orders which are received by the Transfer Agent after
the close of trading on the Exchange on a Business Day or on non-Business Days
will be executed as of the determination of net asset value on the next
Business Day.
The Trust will not accept payment in cash or third party checks for
the purchase of shares. Federal regulations require that each investor provide
a certified taxpayer identification number upon opening or reopening an
account. Applications without a taxpayer identification number will not be
accepted. See the account application for further information about this
requirement.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined as of the close of trading on the floor
of the New York Stock Exchange ("Exchange") (currently 4:00 p.m., New York
Time), on each day the Exchange is open for business ("Business Day") except:
(i) those holidays which the Exchange observes (currently New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day); and (ii) those Business Days on
which the Exchange closes prior to the close of its regular trading
hours ("Early Closing Time"), in which event the net asset value of
each Portfolio will be determined and its shares will be priced
as of such Early Closing Time. Net asset value per Class I share of
a Portfolio is calculated by dividing the value of all securities
and other assets belonging to the Portfolio allocable to that
Class I, less the liabilities charged to that Class I, by the number
of the outstanding shares of such Class I.
Securities held by the Portfolios which are traded on only
over-the-counter markets and securities for which there were no transactions
are valued at the average of the current bid and asked prices. Fixed income
securities held by the Portfolios are valued according to the broadest and
most representative market, which ordinarily will be the over-the-counter
markets, whether in the United States or in foreign countries. Such securities
are valued at the average of the current bid and asked prices. Securities for
which accurate market quotations are not readily available, and other assets
are valued at fair value by the Adviser under the supervision of the Board of
Trustees. Securities may be valued on the basis of prices provided by
independent pricing services when the Adviser
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believes such prices reflect the fair market value of such securities. The
prices provided by pricing services take into account institutional size
trading in similar groups of securities and any developments related to
specific securities. For valuation purposes, the value of assets and
liabilities expressed in foreign currencies will be converted to U.S. dollars
equivalent at the prevailing market rate on the day of valuation. A
Portfolio's open futures contracts will be "marked-to-market."
PUBLIC OFFERING PRICE
The public offering price for Class A shares of the Intermediate Bond
and Bond Portfolios is the sum of the net asset value per share of the Class A
shares being purchased plus a sales load as follows:
<TABLE>
<CAPTION>
Total Sales Load Reallowance to Institutions
------------------------------- ---------------------------
As a % of As a % of As a % of
offering price net asset value offering price
Amount of Transaction per share per share per share
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $49,999.................... 4.75 4.99 4.25
$50,000 to $99,999................... 4.25 4.44 3.75
$100,000 to $249,999................. 3.50 3.63 3.00
$250,000 to $499,999................. 2.50 2.56 2.00
$500,000 to $999,999................. 2.00 2.04 1.75
$1,000,000 and over.................. .00 .00 .00
</TABLE>
The public offering price for Class A shares of the Short Bond
Portfolio is the sum of the net asset value per share of the Class A
shares being purchased plus a sales load as follows:
<TABLE>
<CAPTION>
Total Sales Load Reallowance to Institutions
-------------------------------- ---------------------------
As a % of As a % of As a % of
offering price net asset value offering price
Amount of Transaction per share per share per share
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $99,999.................... 3.00 3.09 2.50
$100,000 to $249,999................. 2.25 2.30 2.00
$250,000 to $499,999................. 1.75 1.78 1.50
$500,000 to $999,999................. 1.25 1.27 1.00
$1,000,000 and over.................. .00 .00 .00
</TABLE>
The sales load described above will not be applicable to purchases of
Class A shares by: (1) any bank, trust company or other institution acting on
behalf of its fiduciary customer accounts or any other account maintained by
its trust department (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended); (2) any individual, trust,
corporation or other person where the shares are acquired in connection with
the distribution of assets held in any account referred to in (l) above with
NBD or its affiliates; (3) individual retirement accounts maintained by the
trust division of NBD or of its affiliates; (4) current and retired directors,
officers and employees of NBD or any of its affiliates; (5) the trustees,
former trustees and officers of the Trust; (6) broker/dealers which have
entered into an agreement with a Co-Distributor or the Trust pursuant to the
Trust's Service and Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (7) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in paragraphs (4), (5) and (6) above. An application to qualify
for such purchases of Class A shares (an "NAV Account Application") may be
obtained from the Transfer Agent by calling (800) 688-3350. In addition, no
sales load is charged on the reinvestment of dividends or distributions, or in
connection with certain share exchanges
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described below under "Shareholder Services -- Exchange Privilege." The Trust
may terminate any exemption from the sales load by providing notice in the
Prospectus, but any such termination would only affect future purchases of
Class A shares. The reallowance to Institutions may be changed from time to
time.
From time to time, the Co-Distributors, at their expense, may offer
additional promotional incentives to dealers.
Quantity Discounts
An investor may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, even if the
investor does not wish to make an investment of a size that would normally
qualify for a quantity discount.
An investor must notify his institution or the Transfer Agent at the time
of purchase whenever a quantity discount applies. Upon such notification, the
investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of
an investor's holdings. For more information about quantity discounts, an
investor should contact his institution or call (800) 688-3350.
Right of Accumulation. A reduced sales load applies to any purchase of
Class A shares of the Portfolios and any other portfolio which is currently
offered or may be offered in the future by the Trust that is sold with a sales
load ("Eligible Portfolios") where an investor's then current aggregate
investment is $50,000 or more in the case of the Intermediate Bond and Bond
Portfolios and $100,000 or more in the case of the Short Bond Portfolio.
"Aggregate investment" means the total of: (a) the dollar amount of the then
current purchase; and (b) the value (based on current net asset value) of
Class A shares of Eligible Portfolios on which a sales load has been paid
(including shares acquired through reinvestment of dividends or distributions
on shares that were subject to a sales load). If, for example, an investor
beneficially owns Class A shares of the Intermediate Bond Portfolio with an
aggregate current value of $49,500 and subsequently purchases additional Class
A shares having a current value of $1,000, the load applicable to the
subsequent purchase would be reduced to 4.25% of the offering price.
Similarly, with respect to each subsequent investment, the current value of
all Class A shares of Eligible Portfolios that are beneficially owned by the
investor at the time of investment may be combined to determine the applicable
sales load.
Letter of Intent. By signing a Letter of Intent form (available from his
institution or the Transfer Agent) an investor becomes eligible for the
reduced sales load applicable to the total number of Eligible Portfolio Class
A shares purchased in a thirteen-month period (net of redemptions) pursuant to
the terms and under the conditions set forth in the Letter of Intent. To
compute the applicable sales load, the offering price of Class A shares an
investor beneficially owns (on the date of submission of the Letter of Intent)
in any Eligible Portfolio that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the
Letter of Intent. However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow Class A shares equal to the amount
indicated in the Letter of Intent for payment of a higher sales load if an
investor does not purchase the full amount specified in the Letter of Intent.
The escrow will be released when an investor fulfills the terms of the Letter
of Intent by purchasing the specified amount. If total purchases within the
thirteen-month period of the Letter of Intent exceed the amount specified, an
adjustment will be made in the form of additional Class A shares credited to
the shareholder's account to reflect further reduced sales charges applicable
to such purchases. If total purchases are less than the amount specified, an
investor will be requested to remit an amount equal to the difference between
the sales
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load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within thirty days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem
an appropriate number of Class A shares held in escrow to realize the
difference. Signing a Letter of Intent does not bind an investor to purchase
the full amount indicated at the sales load in effect at the time of signing,
but an investor must complete the intended purchase to obtain the reduced
sales load.
Qualification for Discounts. For the purpose of applying the Right of
Accumulation and Letter of Intent privileges described above, the scale of
sales loads applies to the combined purchases made by any individual and/or
spouse purchasing securities for his, her or their own account or for the
account of any minor children under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act, or the aggregate investments of a trustee or
custodian of any qualified pension or profit sharing plan or IRA established,
or the aggregate investment of a trustee or other fiduciary, for the benefit
of the persons listed above.
REDEMPTION OF SHARES
In General
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption in
accordance with the procedures set forth below.
Redemption orders must be placed with or through the same financial
institution that placed the original purchase order. It is the responsibility
of the financial institutions to transmit redemption orders to the Transfer
Agent. Redemption proceeds are paid by check or credited to the investor's
account with his financial institution. Investors who purchased shares
directly from the Trust should follow the redemption procedures set forth
below.
Redemption Procedures
Shareholders of record may redeem shares in any amount by calling
(800) 688-3350 (provided they have made the appropriate election on the account
application) or by sending a written request to The Woodward Funds, c/o NBD
Bank, P.O. Box 7058, Troy, Michigan 48007-7058. Written requests to redeem
shares having a net asset value of more than $50,000 must have all signatures
of the registered owner(s) or their authorized legal representative guaranteed
by a commercial bank or trust company which is a member of the Federal Reserve
System or FDIC, a member firm of a national securities exchange or a savings
and loan association. A signature guaranteed by a savings bank or notarized by
a notary public is not acceptable. A signature guarantee will also be required
for a redemption request (in any amount) if the address of record for the
account has been changed within the previous 15 days or which requests that
the proceeds be paid to an account other than the one preauthorized on the
application, a payee or payees other than the registered owners of the
account, or an address other than the address of record. The Trust may require
additional supporting documents for redemptions made by corporations,
fiduciaries, executors, administrators, trustees, guardians and institutional
investors.
Redemption orders for Class A shares may be placed through an
institution or directly by telephone by calling (800) 688-3350. During periods
of unusual economic or market changes, telephone redemptions may be difficult
to implement. In such event, shareholders should mail their redemption
requests to their financial institutions or The Woodward Funds, c/o NBD Bank,
at the address shown above. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered
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<PAGE>
reasonable, including recording those instructions and requesting information
as to account registration (including, but not limited to, the name in which
an account is registered, the account number, or recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions,
they may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions.
Other Redemption Information
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities and Exchange Act
of 1934 after receipt by the Transfer Agent of a request in proper form. If
shares to be redeemed were purchased by check, the Trust will transmit the
redemption proceeds promptly upon clearance of such check, which could take up
to fifteen days from the purchase date. A shareholder having purchased shares
by wire must have filed an account application before any redemption requests
can be honored.
Currently, the Trust imposes no charge when shares are redeemed.
However, institutions may charge a fee for providing services in connection
with investments in Portfolio shares; NBD currently charges $16 for wire
transactions. The Trust reserves the right to redeem accounts involuntarily,
after sixty days' notice, if redemptions cause the account's net asset value
to remain at $1,000 or less. Under certain circumstances, the Trust may make
payment for redemption in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350 or an investor's institution.
SHAREHOLDER SERVICES
The shareholder services and privileges under this heading may not be
available to certain clients of particular financial institutions, and some
may impose conditions on their clients that are different from those described
below. Investors should consult their own financial institutions in this
regard. Other investors should direct any questions to the Transfer Agent. The
Trust may modify or terminate any of the following services and privileges at
any time.
Exchange Privilege
Investors may exchange Class A shares which have been owned for at
least thirty days of the Intermediate Bond, Bond and Short Bond Portfolios, of
the Woodward Municipal Bond, Michigan Municipal Bond, Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Funds and of other investment portfolios of the Trust which may be
offered in the future and sold without a sales charge (each a "load
Portfolio") and Class A shares which have been owned for at least thirty days
of the Woodward Equity Index, Money Market, Government, Treasury Money Market,
Tax-Exempt Money Market and Michigan Tax-Exempt Money Market Funds and of
other investment portfolios of the Trust which may be offered in the future
and sold without a sales charge (each a "no load portfolio"). The cost of the
acquired Class A shares will be their net asset value plus the applicable
sales load, if any.
With respect to exchanges between load portfolios other than exchanges
involving the Short Bond Portfolio, no additional sales load will be payable,
provided that the investor previously paid a sales load upon the acquisition
of Class A shares of a load Portfolio. Investors exchanging Class A shares of
the Short Bond Portfolio will be required to pay the difference between the
sales load previously paid and the sales load applicable on the Class A shares
being acquired in the exchange, unless the investor's holding of Class A
shares of the
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Short Bond Portfolio resulted from a previous exchange of Class A shares with
respect to which the investor had paid a higher sales load.
Exchanges of Class A shares of a load portfolio for Class A shares of
a no load portfolio and exchanges of Class A shares of a no load portfolio for
Class A shares of another no load portfolio will not be subject to the payment
of a sales load.
Any exchange of Class A shares of a no load portfolio for Class A
shares of a load portfolio will be subject to the payment of the applicable
sales load, unless the investor is exchanging shares of a no load portfolio
which were received in a previous exchange transaction involving Class A
shares of a load portfolio. In such case, the investor will receive a credit
for any sales load previously paid and no additional sales load will be
payable, except as noted above with respect to the Short Bond Portfolio.
Shareholders contemplating an exchange should carefully review the
prospectus of the portfolio into which the exchange is being considered. The
Prospectus for any portfolio of the Trust may be obtained from an investor's
financial institution or from the Transfer Agent by calling (800) 688-3350.
Exchanges will be effected by a redemption of Class A shares of the
portfolio held and the purchase of Class A shares of the portfolio acquired.
Investors should make their exchange requests in writing or by telephone to
the financial institutions through which they purchased their original Class A
shares. It is the responsibility of financial institutions to transmit
exchange requests to the Transfer Agent. Other investors should transmit
exchange requests directly to the Transfer Agent. The total value of shares
being exchanged must at least equal the minimum investment requirement of the
portfolio whose shares are being acquired in the exchange. Only one exchange
in any thirty-day period is permitted and only Class A shares that may be
legally sold in the state of the investor's residence may be acquired in an
exchange. The Trust reserves the right to reject any exchange request.
Investors wishing to make an exchange should contact their
institutions or the Transfer Agent (as appropriate). Exchange requests in the
required form which are received by the Transfer Agent prior to 4:00 p.m.,
Eastern time or Early Closing Time, will be effected on the same
Business Day after such request is received. Requests received after
4:00 p.m., Eastern time or Early Closing Time, will be effected on
the next Business Day after such request is received. During periods of
significant economic or market change, telephone exchanges may be difficult to
complete. In such event, an investor should mail the exchange request to his
financial institution or the Transfer Agent. Neither the Trust nor the
Transfer Agent will be responsible for the authenticity of instructions
received by telephone that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, the Trust and
its Transfer Agent will use such procedures as are considered reasonable,
including recording those instructions and requesting information as to
account registration (including, but not limited to, the name in which an
account is registered, the account number, or recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions,
they may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to modify or
terminate its exchange procedures upon sixty days' notice to shareholders.
Reinvestment Privilege
Class A shares of a Portfolio may be purchased at net asset value by
persons who have redeemed within the previous 120 days their Class A shares of
that Portfolio or another investment portfolio of the Trust which were
purchased with a sales load. The amount which may be so reinvested is limited
to an amount
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up to the redemption proceeds. In order to exercise this privilege, a written
order for the purchase of Class A shares of the Portfolio must be received by
the Transfer Agent within 120 days after the redemption. Reinvestment will be
at the next calculated net asset value after receipt.
Option to Make Systematic Withdrawals
The Trust has available to shareholders a Systematic Withdrawal Plan
pursuant to which a shareholder who owns Class A shares of any investment
portfolio having a minimum value of $15,000 at the time he elects under the
Plan may have a fixed sum distributed in redemption at regular intervals. An
application form and additional information regarding this service may be
obtained from an investor's institution or the Transfer Agent by calling
(800) 688-3350.
Automatic Investment
The Trust offers an Automatic Investment Plan (the "Plan") whereby a
shareholder may automatically purchase Class A shares on a regular basis in
accordance with an election in his account application. An application may be
obtained from the Transfer Agent by calling (800) 688-3350. Under the Plan a
shareholder's financial institution debits a pre-authorized amount from his
account and applies the amount to the purchase of Class A shares. The minimum
per transaction is $25. The minimum initial investment in a Portfolio is also
$25 for the following shareholders who elect the Plan: (l) current and retired
directors, officers and employees of NBD or any of its affiliates; (2) the
trustees, former trustees and officers of the Trust; (3) broker/dealers which
have entered into an agreement with a Co-Distributor or the Trust pursuant to
the Trust's Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (4) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in (l), (2) and (3) above. An NAV Account Application may be
obtained from the Transfer Agent by calling (800) 688-3350. The Plan can be
implemented with any financial institution that is a member of the Automated
Clearing House. No service fee is currently charged by the Trust for
participating in the Plan. Death or legal incapacity will terminate a
shareholder's participation in the Plan. Deposits, withdrawals and adjustments
will be made electronically under the rules of the Automated Clearing House
Association.
Cross Reinvestment of Dividend Plan
The Trust makes available to shareholders a Cross Reinvestment of
Dividend Plan (the "Plan") pursuant to which a shareholder who owns Class A
shares of any portfolio with a minimum value of $10,000 at the time he elects
under the Plan may have dividends paid by such portfolio automatically
reinvested into Class A shares of another portfolio in which he has invested a
minimum of $1,000. Shareholders may obtain an application and additional
information from their institutions or the Transfer Agent by calling
(800) 688-3350.
The Woodward Funds Individual Retirement Custodial Account
Class A shares may be purchased in conjunction with the Trust's
Individual Retirement Custodial Account program ("IRA") where NBD acts as
custodian. Investors should consult their institutions or a Co-Distributor for
information as to applications and annual fees. The minimum investment for an
IRA is $250 for investors who are not employees of NBD and $25 for investors
who are employees of NBD. Investors should also consult their tax advisers to
determine whether the benefits of an IRA are available or appropriate.
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Other Retirement Plans
NBD and its affiliates offer a variety of pension and profit sharing
plans including IRAs, defined contribution plans, 401(k) Plans, 403(b)(7)
Plans and 457 Plans through which investors may purchase Class A shares. The
minimum investment for these Plans may differ from the minimum discussed above
in "Purchase of Shares." For details concerning any of the retirement plans,
please call the Transfer Agent or a Co-Distributor.
Direct Deposit Program
If an investor receives federal salary, social security, or certain
veteran's, military or other payments from the federal government or elects to
use his employer's payroll deposit program, he is eligible for the Direct
Deposit Program. With this Program, an Investor may purchase Class A shares
(minimum of $25) by having these deposits automatically deposited into his
Portfolio account. For instructions on how to enroll in the Direct Deposit
Program, an investor should call his institution or the Transfer Agent. Death
or legal incapacity will terminate an investor's participation in the Program.
An investor may elect at any time to terminate his participation by notifying
in writing the appropriate federal agency. Further, the Trust may terminate an
investor's participation upon thirty days' notice to him.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance and yield of each class of shares of the Portfolios may be
compared to the performance of other mutual funds with similar investment
objectives and to bond or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, performance and yield may be
compared to data prepared by Lipper Analytical Services, Inc. In addition,
performance and yield data as reported in national financial publications such
as Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of a Portfolio.
"Yield" refers to the income generated by an investment in a class of
shares of a Portfolio over a thirty-day period identified in the
advertisement. This income is then "annualized," i.e., the income generated by
the investment during the thirty-day period is assumed to be earned and
reinvested at a constant rate and compounded semi-annually. The annualized
income is then shown as a percentage of the investment.
The Portfolios calculate their total returns on an "average annual
total return" basis for various periods from the date they commenced
investment operations and for other periods as permitted under the rules of
the SEC. Average annual total return of a class reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns may also be calculated on an "aggregate total return
basis" for various periods. Aggregate total return reflects the total
percentage change in value over the measuring period. Both methods of
calculating total return also reflect changes in the price of the shares and
assume that any dividends and capital gain distributions made by the class
during the period are reinvested in shares of the class. When considering
average total return figures for periods longer than one year, it is important
to note that a class' annual total return for any one year in the period might
have been greater or less than the average for the entire period.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. The
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investment return and principal value of an investment in a class will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Yield and total return data should also be
considered in light of the risks associated with a Portfolio's portfolio
composition, quality, maturity, operating expenses and market conditions. Any
fees charged by financial institutions directly to their customer accounts in
connection with investments in shares will not be reflected in performance
calculations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid monthly by
the Portfolios. Each Portfolio's net realized capital gains are distributed at
least annually.
Dividends and distributions will reduce a class' net asset value
by the amount of the dividend or distribution. All dividends and distributions
are automatically reinvested (without any sales charge) in additional shares
of the same class at their net asset value per share determined on the payment
date, unless the holder has notified the Transfer Agent in writing that he
elects to have dividends or capital gain distributions (or both) paid in cash.
Shareholders must make such election, or any revocation thereof, in writing to
their financial institutions or Transfer Agent. If an account is established
with telephone privileges, the registered owner or his preauthorized legal
representative may change the election to receive dividends in cash to an
election to receive dividends in shares by telephoning the Transfer Agent
at (800) 688-3350. The election will become effective with respect to
dividends paid after its receipt by the Transfer Agent.
TAXES
Federal
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification will relieve the Portfolios of liability for federal income
taxes to the extent their earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Portfolio distribute to
its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. In general, a Portfolio's investment company taxable income will be its
taxable income, subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Portfolio intends to distribute as
dividends substantially all of its investment company taxable income and any
net tax-exempt interest income each year. Such dividends will be taxable as
ordinary income to the Portfolio's shareholders who are not currently exempt
from federal income taxes regardless of whether a distribution is received in
cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolios will generally have no tax liability with respect to such gains and
the distributions will be taxable to Portfolio shareholders who are not
currently
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exempt from federal income taxes as long-term capital gains, regardless of how
long the shareholders have held the shares and whether such gains are received
in cash or reinvested in additional shares.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed for federal tax purposes to have been paid by the Portfolio and
received by the shareholders on December 31 of such year if such dividends are
paid during January of the following year.
Prior to purchasing shares of a Portfolio, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after the purchase of shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of
the dividend or distribution. All or a portion of such amounts, although in
effect a return of capital, is subject to tax.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of shares of a Portfolio depending upon the
tax basis and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase
of Portfolio shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Portfolio within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included under certain
circumstances in the tax basis of the new shares.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
State and Local
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust
and its shareholders under such laws may differ from treatment under federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth
-31-
<PAGE>
below. Each Trustee has an address at The Woodward Funds, c/o NBD Bank, 611
Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992)
and Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate
of Henry Ford Health System); Trustee, Henry Ford Health Sciences Center
(since 1987); Trustee, Henry Ford Continuing Care Corporation (since 1980);
Trustee, Earhart Foundation (since 1980). He is 77 years old and his
address is 333 West Fort Street, Detroit, Michigan 48226.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989- 1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago; Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
- ---------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
-32-
<PAGE>
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor
of Finance, Indiana University (1970-1991); Vice President, Trust &
Investment Advisers, Inc. (1990-1991); Director, Federal Home Loan Bank
of Indianapolis (1981 to 1985). He is 61 years old, and his address
is 5 Boar's Head Lane, Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser for each Portfolio is NBD, a wholly owned
subsidiary of First Chicago NBD Corporation, a bank holding company. NBD has
offices at 611 Woodward Avenue, Detroit, Michigan 48226. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion. NBD has been in the business
of providing such services since 1933. Included among NBD's accounts are
pension and profit sharing funds for major corporations and state and local
governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
NBD provides investment advisory and certain administrative services
to each Portfolio pursuant to an Advisory Agreement. Subject to the overall
supervision of the Board of Trustees, NBD makes investment decisions for each
of the Portfolios.
- ---------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
-33-
<PAGE>
Douglas S. Swanson, First Vice President, and Ricardo F. Cipicchio,
Vice President, are primarily responsible for the day-to-day management of the
Intermediate Bond and Bond Portfolios. Mr. Swanson joined NBD in 1983 after
receiving an M.S. in Management from the Massachusetts Institute of Technology
(Sloan School). Prior to joining NBD in 1989, Mr. Cipicchio was employed by
CITGO as a petroleum engineer. Mr. Cipicchio received an MBA in Finance from
the University of Michigan.
Mr. Cipicchio and Christopher J. Nauseda, Vice President, are
primarily responsible for the day-to-day portfolio management of the Short
Bond Portfolio. Mr. Nauseda, who received an MBA from Wayne State University
in 1992, joined NBD in 1982.
For its services under the Advisory Agreement, NBD is entitled to
receive an advisory fee, computed daily and payable monthly, at an annual rate
of .65% of the average daily net assets of each of the Portfolios. In
addition, NBD is entitled to 4/10ths of the gross income earned by the
Intermediate Bond, Bond and Short Bond Portfolios on each loan of securities
(excluding capital gains and losses, if any). NBD may voluntarily waive its
fee in whole or in part with respect to any particular Portfolio.
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
a customer. The Adviser and the Trust believe that the Adviser may perform the
advisory, custodial and transfer agency services for the Trust described in
this Prospectus, and that the Adviser, subject to such banking laws and
regulations, may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform investment
advisory, custodial or transfer agency services for the Trust or require the
Adviser to alter or discontinue the services provided by it to shareholders.
If the Adviser were prohibited from performing investment advisory,
custodial or transfer agency services for the Trust, it is expected that the
Board of Trustees of the Trust would recommend that shareholders approve new
agreements with another entity or entities qualified to perform such services
and selected by the Board. If the Adviser or its affiliates were required to
discontinue all or part of its shareholder servicing activities, their
customers would be permitted to remain the beneficial owners of Portfolio
shares and alternative means for continuing the servicing of such customers
would be sought. The Trust does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges, and the National
-34-
<PAGE>
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of each Portfolio: (i) fees payable
to the Co-Distributors pursuant to the Distribution Agreement; (ii) the actual
costs and expenses in connection with advertising and marketing the
Portfolio's shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions and other professionals ("Service Agents") for
administration or servicing of Portfolio shareholders ("Servicing"). Servicing
may include, among other things: answering client inquiries regarding the
Trust and the Portfolios; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing
and maintaining shareholder accounts and records; processing purchase and
redemption transactions; investing client cash account balances automatically
in Portfolio shares; providing periodic statements showing a client's account
balance and integrating such statements with those of other transactions and
balances in the client's other accounts serviced by the Service Agent;
arranging for bank wires; and such other services as the Trust may request, to
the extent the Service Agent is permitted by applicable statute, rule or
regulation. Under the Plan, the Trust also bears the cost of preparing and
printing Prospectuses for use in selling shares of the Trust and costs
associated with implementing and operating the Plan. These costs are included
in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .005% of a Portfolio's average net assets, and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of the Trust's investment portfolios attributable to
investments by clients of Essex. The payments to be made to the
Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust, and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which,
-35-
<PAGE>
if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Shareholder Servicing Plan
Pursuant to a Shareholder Servicing Plan ("Servicing Plan") adopted by
its Board of Trustees, the Trust may enter into agreements ("Servicing
Agreements") with banks and financial institutions, which may include the
Adviser and its affiliates ("Shareholder Servicing Agents"), under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares of the Portfolios. Such services, which
are described more fully in the Statement of Additional Information, may
include processing purchase and redemption requests from customers, placing
net purchase and redemption orders with a Co-Distributor, processing, among
other things, distribution payments from the Trust, providing necessary
personnel and facilities to establish and maintain customer accounts and
records, and providing information periodically to customers showing their
positions in Class A shares of the Portfolio.
For these services, the Trust will pay fees to Shareholder Servicing
Agents at an annual rate of up to .25% of the average daily net asset value of
Class A shares held by such Shareholder Servicing Agents for the benefit of
their customers and, at the Trust's option, it may reimburse the Shareholder
Servicing Agents' out-of-pocket expenses. Shareholder Servicing Agents are
required to provide their customers with a schedule of any credits, fees or
other conditions that may be applicable to the investment of customer assets
in Class A shares. The fees payable under such servicing agreements will be
allocated exclusively to the Class A shares.
Conflict of interest restrictions may apply to the receipt of
compensation paid by the Trust to a Shareholder Servicing Agent in connection
with the investment of fiduciary funds in Portfolio shares. Banks and other
institutions regulated by the Comptroller of the Currency or other federal or
state bank regulatory agencies, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal counsel before
entering into Servicing Agreements.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets such as brokerage fees, commissions and other transaction
charges, the fees and expenses of NBD as the Trust's Custodian and as its
Transfer Agent, the fees payable to the Co-Distributors under the Distribution
Agreement, the fees and expenses of Trustees, expenses associated with the
Trust's Distribution Plan and Shareholder Servicing Plan, outside auditing and
legal expenses, all taxes and corporate fees payable by the Trust, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders,
costs of shareholder reports and shareholder meetings, and any extraordinary
expenses. Each Portfolio also pays for brokerage commissions and transfer
taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular Portfolio of the Trust will
be charged to that Portfolio, and expenses not readily identifiable as
belonging to a particular Portfolio will be allocated by the Board of Trustees
-36-
<PAGE>
among one or more Portfolios in such a manner as it shall deem fair and
equitable. For the fiscal year ended December 31, 1995, the Intermediate Bond,
Bond and Short Bond Portfolios' total expenses were .73%, .74%, and .75%
(after fee waivers, if any) of their average net assets, respectively. The
Statement of Additional Information describes in more detail the fees and
expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Municipal Bond Fund, Michigan Municipal
Bond Fund, Growth/Value Fund, Opportunity Fund, Intrinsic Value Fund, Capital
Growth Fund, Balanced Fund, Intermediate Equity Fund, Equity Index Fund, Money
Market Fund, Government Fund, Treasury Money Market Fund, Tax-Exempt Money
Market Fund and Michigan Tax-Exempt Money Market Fund. The Trust has
established the following two distinct classes of shares within each
Portfolio described herein: Class I shares (Original Class) and Class A
shares (Special Class 1). A sales person and any other person or
institution entitled to receive compensation for selling or servicing
shares may receive different compensation with respect to different
classes of shares in the Series. Each share has $.10 par value,
represents an equal proportionate interest in the related Portfolio
with other shares of the same class outstanding, and is entitled to such
dividends and distributions out of the income earned on the assets belonging
to such Portfolio as are declared in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly, the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 29, 1996, NBD held beneficially or of record
approximately 87.05%, 87.91% and 91.01% of the outstanding shares of the
Intermediate Bond, Bond and Short Bond Portfolios, respectively, and therefore
may be considered to be a controlling person of the Trust for purposes of the
1940 Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
-37-
<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Portfolios'
Statement of Additional Information incorporated herein by reference, in
connection with the offering made by this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust, Adviser or Sponsors and Co-Distributors. This
Prospectus does not constitute an offering by the Portfolios or by their Co-
Distributors, in any jurisdiction in which such offering may not lawfully be
made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY............................. 2
BACKGROUND.................................. 4
FINANCIAL HIGHLIGHTS........................ 5
INTRODUCTION................................ 8
PROPOSED REORGANIZATION..................... 8
INVESTMENT OBJECTIVES, POLICIES AND
RISK FACTORS............................ 8
OTHER INVESTMENT POLICIES................... 11
PURCHASE OF SHARES.......................... 21
PUBLIC OFFERING PRICE....................... 23
REDEMPTION OF SHARES........................ 26
SHAREHOLDER SERVICES........................ 27
PERFORMANCE AND YIELD
INFORMATION......................... 30
DIVIDENDS AND DISTRIBUTIONS................. 30
TAXES .................................... 31
MANAGEMENT.................................. 32
OTHER INFORMATION........................... 37
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania
19107-3496
<PAGE>
[BACK COVER, COLUM 2]
CLASS A SHARES OF THE:
WOODWARD INTERMEDIATE BOND FUND
WOODWARD BOND FUND
WOODWARD SHORT BOND FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
-38-
Exhibit (17)(j)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following two investment portfolios (the "Portfolios"), each having its
own investment objective and policies as described in this Prospectus:
Class A shares of the:
Woodward Municipal Bond Fund
Woodward Michigan Municipal Bond Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing to The Woodward Funds at the address above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into the Prospectus.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Municipal Bond Fund ("Municipal Bond Portfolio") and
Woodward Michigan Municipal Bond Fund ("Michigan Municipal Bond Portfolio").
Class I shares are sold primarily to NBD and its affiliated and correspondent
banks acting on behalf of their respective customers. Class A shares are sold
to the general public primarily through financial institutions such as banks,
brokers and dealers. Class I shares are offered in a separate Prospectus.
Investors should call (800) 688-3350, a Co-Distributor or their financial
institutions if they would like to obtain more information concerning Class I
shares and/or Class A shares of the Portfolios. The following table is
provided to assist investors in understanding the various costs and expenses
that an investor will indirectly incur as a beneficial owner of Class A shares
in each of the Portfolios.
<TABLE>
<CAPTION>
Michigan
Municipal Municipal
Bond Bond
Portfolio(1) Portfolio(1)
------------ ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases............................ 4.75% 4.75%
(as a percentage of offering price)
Sales Load
Imposed on Reinvested
Dividends.............................. None None
Deferred Sales Load..................... None None
Redemption Fee.............................. None None
Exchange Fee................................ None None
ANNUAL OPERATING EXPENSES
(as a percentage of average
net assets)............................
Management Fees............................. .65% .65%
12b-1 Fees(2)............................... .017% .038%
Shareholder Servicing Fees(3)............... .25% .25%
Other Expenses(4)
(before fee waivers and/or
expense reimbursements)................ .263% .352%
(after fee waivers and/or
expense reimbursements)................ .053% .002%
Total Operating Expenses
(before fee waivers and/or
expense reimbursements)................ 1.18% 1.29%
(after fee waivers and/or
expense reimbursements)................ .97% .94%
- ---------
<FN>
1. The expenses for each Portfolio have been restated to reflect
current expenses.
2. As a result of the payment of sales loads and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. (the "NASD"). Rules adopted by the NASD generally limit the
aggregate sales charges and payments under the Trust's Service and
Distribution Plan
-2-
<PAGE>
("Distribution Plan") to a certain percentage of total new gross share sales,
plus interest. The Trust would stop accruing 12b-1 fees if, to the extent,
and for as long as, such limit would otherwise be exceeded.
3. The Trust has adopted a Shareholder Servicing Plan pursuant to
which the Trust may enter into agreements with institutions under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares in return for a fee of up to .25% per
annum of the value of such shares ("Servicing Fees"). For further information,
see "Shareholder Servicing Plan", "Sponsors and Co-Distributors", "Service
and Distribution Plan" and "Investment Adviser, Custodian and Transfer Agent"
under the heading "Management" in this Prospectus.
4. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
</TABLE>
<TABLE>
<CAPTION>
Michigan
Municipal Municipal
Bond Bond
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Example
You would pay the following
expenses on a $1,000
investment, assuming:
(1) a 5% annual return
and (2) redemption at the
end of each time period:
One Year........................... $ 9.94 $ 9.63
Three Years........................ 31.03 30.08
Five Years......................... 53.85 52.22
Ten Years.......................... 119.40 115.87
Example
You would pay the following
expenses on a $1.00
investment, assuming
(1) a 5% annual return,
(2) redemption at the end
of each time period and
(3) the imposition of a
maximum sales load at the
beginning of the period:
One Year:.......................... $56.97 $56.67
Three Years:....................... 77.06 76.15
Five Years:........................ 98.79 97.24
Ten Years:......................... 161.23 157.87
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The examples demonstrate the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class A shares in each of the Portfolios,
based upon payment by the Portfolios of operating expenses at the respective
levels set forth in the expense table. For more complete descriptions of
Portfolio expenses, see "Investment Adviser, Custodian and Transfer Agent",
"Sponsors and Co-Distributors", "Shareholder Servicing Plan", "Service and
Distribution Plan" and "Trust Expenses" under the heading "Management" in this
Prospectus and the
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<PAGE>
financial statements and related notes contained in the Statement of Additional
Information.
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class A
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them. See "Shareholder Servicing
Plan" and "Investment Adviser, Custodian and Transfer Agent" under
"Management," and see "Dividends and Distributions" and "Other Information"
for a description of the impact that this may have on holders of Class A
shares.
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<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of how each Portfolio's
net asset value has changed during the periods presented. The tables have been
derived from the Portfolios' financial statements which have been audited by
Arthur Andersen, LLP, the Trust's independent public accountants, whose report
thereon is contained in the Statement of Additional Information along with the
financial statements. The financial data included in these tables should be
read in conjunction with the financial statements and related notes included
in the Statement of Additional Information. Further information about the
performance of the Portfolios is available in annual reports to shareholders.
The Statement of Additional Information and annual reports to shareholders may
be obtained from the Trust free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Municipal Bond Portfolio
February 1, 1993
(Commencement
Year Ended Year Ended of Operations) to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning
of period...................... $9.59 $10.69 $10.00
Income from investment
operations:
Net investment income.......... 0.48 0.50 0.45
Net realized and unrealized
gains (losses) on
investments.................. 1.08 (1.11) 0.69
Total from investment
operations................... $1.56 $(0.61) $ 1.14
Less distributions:
From net investment
income....................... $(0.47) $(0.49) $(0.44)
From realized
gains........................ 0.00 0.00 ( 0.01)
Total distributions............ $(0.47) $(0.49) $(0.45)
Net asset value, end of
period......................... $10.68 $ 9.59 $10.69
Total return(b).................. 16.54% (5.72%) 12.69%(a)
Ratios/Supplemental Data
Net assets, end of period........ $76,963,564 $61,255,773 $54,703,974
Ratio of expenses to average
net assets..................... 0.79% 0.53% 0.19%(a)
Ratio of net investment income
to average net assets.......... 4.63% 4.94% 5.27%(a)
Ratio of expenses to average
net assets without fee
waivers/reimbursed
expenses....................... 0.93% 0.88% 1.12%(a)
Ratio of net investment income
to average net assets
without fee waivers/reimbursed
expenses....................... 4.49% 4.59% 4.34%(a)
Portfolio turnover rate.......... 20.46% 19.11% 11.12%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Bond Portfolio
February 1, 1993
(Commencement
Year Ended Year Ended of Operations) to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning
of period...................... $9.54 $10.60 $10.00
Income from investment
operations:
Net investment income.......... 0.48 0.50 0.44
Net realized and unrealized
gains (losses) on
investments.................. 1.06 (1.06) 0.59
----------- ----------- -----------
Total from investment
operations................... $1.54 $(0.56) $ 1.03
----------- ----------- -----------
Less distributions:
From net investment
income....................... $(0.48) $(0.50) $(0.43)
From realized
gains........................ 0.00 0.00 ( 0.00)
----------- ----------- -----------
Total distributions............ $(0.48) $(0.50) $(0.43)
----------- ----------- -----------
Net asset value, end of
period......................... $10.60 $ 9.54 $10.60
=========== =========== ===========
Total return(b).................. 16.49% (5.42%) 11.50%(a)
Ratios/Supplemental Data
Net assets, end of period........ $53,453,160 $45,263,059 $42,113,795
Ratio of expenses to average
net assets..................... 0.79% 0.53% 0.19%(a)
Ratio of net investment income
to average net assets.......... 4.71% 5.01% 5.12%(a)
Ratio of expenses to average
net assets without fee
waivers/reimbursed
expenses....................... 1.04% 1.05% 1.21%(a)
Ratio of net investment income
to average net assets
without fee waivers/reimbursed
expenses....................... 4.46% 4.49% 4.10%(a)
Portfolio turnover rate.......... 26.97% 25.93% 41.70%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales
load.
</TABLE>
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<PAGE>
INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objective and
policies. However, only the Class A shares of the Municipal Bond and Michigan
Municipal Bond Portfolios are offered pursuant to this Prospectus. The
Municipal Bond Portfolio is classified as a diversified investment portfolio
and the Michigan Municipal Bond Portfolio is classified as a non-diversified
investment portfolio under the 1940 Act.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
that Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Municipal Bond Portfolio
The investment objective of the Municipal Bond Portfolio is to seek as
high a level of current income exempt from federal income tax as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Portfolio seeks to achieve this objective by investing
primarily in investment grade debt obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their respective political subdivisions, agencies,
instrumentalities and authorities, the interest on which is, in the opinion of
bond counsel for the issuers, exempt from regular federal income tax
("Municipal Securities").
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<PAGE>
Michigan Municipal Bond Portfolio
The investment objective of the Michigan Municipal Bond Portfolio is
to seek as high a level of current income exempt from federal, and to the
extent possible, from State of Michigan income taxes as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Portfolio seeks to achieve this objective by investing primarily in
investment grade debt obligations issued by the State of Michigan, its
political subdivisions, municipalities, corporations and authorities, the
interest on which is, in the opinion of bond counsel to the issuers, exempt
from federal and State of Michigan income taxes ("Michigan Municipal
Securities"). To the extent that acceptable Michigan Municipal Securities are
at any time unavailable for investment by the Portfolio, the Portfolio will
invest primarily in other Municipal Securities the interest on which is, in
the opinion of bond counsel, exempt from federal, but not State of Michigan
income taxes.
Investment Policies Applicable to the Portfolios
At least 80% of each of the Portfolios' total assets will be invested
in Municipal Securities except in extraordinary circumstances, such as when
the Adviser believes that market conditions indicate that a Portfolio should
adopt a temporary defensive position by holding uninvested cash or investing
in taxable short-term securities ("Short-Term Investments"). This policy is
fundamental with respect to each Portfolio and may not be changed without the
approval of the holders of a majority of the Portfolio's outstanding shares.
In addition, with respect to the Michigan Municipal Bond Portfolio, at least
65% of its total assets will be invested under normal market conditions in
Michigan Municipal Securities and the remainder may be invested in securities
that are not Michigan Municipal Securities and therefore may be subject to
Michigan income taxes. (See "Taxes.")
During normal market conditions each Portfolio's average weighted
portfolio maturity is expected to be between 7 and 20 years.
The Adviser manages the Portfolios based on anticipated interest rate
changes and the use of active management strategies such as sector rotation,
intra-sector adjustments and yield curve and convexity considerations. In use
of such active management strategies, the Adviser seeks value in investment
grade fixed income securities. Sector rotation involves the Adviser selecting
among different economic or industry sectors based upon apparent or relative
attractiveness. Thus at times a sector offers yield advantages relative to
other sectors. An intra-sector adjustment occurs when the Adviser determines
to select a particular issue within a sector. Yield curve considerations
involve the Adviser attempting to compare the relationship between time to
maturity and yield to maturity in order to identify the relative value in the
relationship. Convexity considerations consist of the Adviser seeking
securities that rise in price more quickly, or decline in price less quickly,
than the typical security of that price risk level and therefore enable the
Adviser to obtain an additional return when interest rates change
dramatically.
In acquiring particular portfolio securities for a Portfolio, the
Adviser will consider, among other things, historical yield relationships
between private and governmental debt securities, intermarket yield
relationships among various industry sectors, current economic cycles and the
attractiveness and creditworthiness of particular issuers. Depending upon the
Adviser's analysis of these and other factors, a Portfolio's holdings of
issues in particular industry sectors may be overweighted when compared to the
relative industry weightings in related recognized indices. The value of the
Portfolios can be expected to vary inversely with changes in prevailing
interest rates.
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<PAGE>
OTHER INVESTMENT POLICIES
Ratings
Municipal Securities acquired by the Municipal Bond and Michigan
Municipal Bond Portfolios will be investment grade at the time of purchase,
i.e., obligations rated AAA, AA, A or BBB by Standard & Poor's Rating Group,
Division McGraw Hill ("S&P"), Fitch Investors Service ("Fitch"), Duff & Phelps
Credit Co. ("Duff") or IBCA, Inc. ("IBCA") or Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") (each a "Rating Agency") in the case of
bonds, rated SP-2 or higher by S&P, MIG-2 or higher by Moody's or F-2 or
higher by Fitch, in the case of notes, rated A-2 or higher by S&P, Prime-2 or
higher by Moody's, F-2 or higher by Fitch or A2 or higher by IBCA, in the case
of tax-exempt commercial paper or VMIG or higher by Moody's in the case of
variable demand notes, or be unrated but deemed by the Adviser to be
comparable in quality at the time of purchase to instruments that are so
rated. Obligations rated in the lowest of the top four rating categories (Baa
by Moody's, BBB by S&P or Fitch or IBCA) are considered to have less capacity
to pay interest and repay principal and have certain speculative
characteristics. In the event that the rating of a security held by the
Municipal Bond or Michigan Municipal Bond Portfolios is reduced below Baa or
Moody's, BBB by S&P, BBB by Fitch or BBB by IBCA, the security will be
disposed of in an orderly fashion as soon as possible. The debt ratings are
described in the Statement of Additional Information.
Short-Term Investments
Each Portfolio may hold short-term U.S. Government obligations, "high
quality" money market instruments such as certificates of deposit, bankers'
acceptances and time deposits (i.e. those rated at the time of purchase within
the two highest rating categories or which are unrated at such time but are
deemed by the Adviser to be of comparable quality), repurchase agreements,
reverse repurchase agreements, commercial paper, notes, other short-term
obligations, variable rate master demand notes, and cash, pending investment,
to meet anticipated redemption requests or if, in the opinion of the Adviser,
suitable bonds or other fixed-income securities in which the Portfolios invest
are unavailable. Such investments may be in such proportions as, in the
opinion of the Adviser, existing circumstances may warrant, and may include
obligations of foreign banks and foreign branches of U.S banks. The Portfolios
may also invest their cash balances in securities issued by other investment
companies which invest in high-quality, short-term debt securities. These
short-term investments are described in greater detail in the Statement of
Additional Information.
U.S. Government Obligations
Each Portfolio may invest in all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. The Portfolios may also invest in interests in the
foregoing securities, including collateralized mortgage obligations guaranteed
by a U.S. Government agency or instrumentality, and in Government-backed
trusts which hold obligations of foreign governments that are guaranteed or
backed by the full faith and credit of the United States.
Obligations of certain U.S. Government agencies and instrumentalities
such as those of the Government National Mortgage Association, are supported
by the
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<PAGE>
full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not legally obligated to do so.
Municipal and Related Securities
Municipal Securities may include general obligations, revenue
obligations, notes, and moral obligation bonds. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the user of the facility being financed. Private activity bonds
(i.e. bonds issued by industrial development authorities) are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of a private activity bond is usually
directly related to the credit standing of the private user of the facility
involved. Although interest paid on private activity bonds is exempt from
regular federal income tax, it may be treated as a specific tax preference
item under the federal alternative minimum tax. (See "Taxes") Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Moral obligation bonds are normally issued by a
special purpose public authorities. If the issuer of a moral obligation bond
is unable to met its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment but not
a legal obligation of the state or municipality which created the issuer.
Municipal Securities also include municipal lease/purchase agreements which
are similar to installment purchase contracts for property or equipment issued
by municipalities. The Adviser will only invest in rated municipal
lease/purchase agreements.
There are, of course, variations in the quality of Municipal
Securities both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue.
Among other securities, the Portfolios may purchase short-term Tax
Anticipation Notes. Bond Anticipation Notes, Revenue Anticipation Notes, and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax or other funds, the proceeds of
bonds or other revenues. The Portfolios may also acquire zero coupon
obligations, which have greater price volatility than coupon obligations and
which will not result in the payment of interest until maturity.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax (and, with respect to
Michigan Municipal Securities, Michigan income taxes) are rendered by bond
counsel to the respective issues at the time of issuance. Neither the
Portfolios nor the Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
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<PAGE>
Variable and Floating Rate Municipal Securities
Municipal Securities purchased by the Portfolios may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Portfolio will approximate their par
value. Illiquid variable and floating rate instruments (instruments which are
not payable upon seven days' notice and do not have an active trading market)
that are acquired by the Portfolios are considered illiquid investments.
See "Illiquid Securities."
Repurchase and Reverse Repurchase Agreements
To increase its income, each Portfolio may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price ("repurchase
agreements"). No Portfolio will enter into repurchase agreements with the
Adviser, the Co-Distributors, or any of their affiliates. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also obtain funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans could include cash or
securities of the U.S. Government, its agencies or instrumentalities. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Portfolio exceeds one-third of the value of its total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned or possible loss of rights in the
collateral should the borrower of the securities become insolvent. Loans will
be made only to borrowers that provide the requisite collateral comprised of
liquid assets and when, in the Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
Securities of Other Investment Companies
Within the limits prescribed by the 1940 Act, each Portfolio may
invest in securities issued by other investment companies which invest in high
quality, short-term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that each Portfolio bears directly in connection
with its own operations.
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<PAGE>
Custodial Receipts and Certificates of Participation
Securities acquired by the Portfolios may be in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain Municipal Securities. Such securities are
held in custody by a bank on behalf of holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATs") and
"Municipal Zero-Coupon Receipts." The Portfolios may also purchase from time
to time certificates of participation that, in the opinion of counsel to the
issuer, are exempt from federal income tax. A certificate of participation
gives a Portfolio an undivided interest in a pool of Municipal Securities.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, the Adviser will have
determined that the instrument is of comparable quality to those instruments
in which a Portfolio may invest pursuant to guidelines approved by the Board
of Trustees. For certain certificates of participation, a Portfolio will have
the right to demand payment, on not more than 30 days' notice, for all or any
part of such Portfolio's participation interest, plus accrued interest. As to
these instruments, each Portfolio intends to exercise its right to demand
payment as needed to provide liquidity, to maintain or improve the quality of
its investment portfolio or upon a default (if permitted under the terms of
the instrument).
Illiquid Securities
In accordance with their fundamental investment limitation described
below, the Portfolios will not knowingly invest more than 10% of the value of
their respective total assets in securities that are illiquid. Securities
having legal or contractual restrictions on resale or no readily available
market, and instruments (including repurchase agreements, variable and
floating rate instruments and time deposits) that do not provide for payment
to the Portfolios within seven days after notice are subject to this 10%
limit. Securities that have legal or contractual restrictions on resale but
have a readily available market are not deemed to be illiquid for purposes of
this limitation.
The Portfolios may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development, and it is not possible to predict how
this market will develop. The Board of Trustees will carefully monitor any
investments by a Portfolio in these securities.
Borrowings
The Portfolios may borrow money for temporary purposes in accordance
with the investment limitations described below. Borrowings may be effected
through reverse repurchase agreements under which the Portfolios would sell
portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities
it is obligated to repurchase.
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<PAGE>
Options
Each Portfolio may purchase and sell put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation
for hedging purposes. Such transactions may be effected on a principal basis
with primary reporting dealers in U.S. Government securities in an amount not
exceeding 5% of a Portfolio's net assets, as described further in the
Statement of Additional Information. Such options may relate to particular
securities or to various bond indices. Purchasing options is a specialized
investment technique which entails a substantial risk of a complete loss of
the amounts paid as premiums to the writer of the option.
A Portfolio may purchase and sell put options on portfolio securities
at or about the same time that they purchase the underlying security or at a
later time. By buying a put, a Portfolio limits its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Call options may be
purchased by a Portfolio in order to acquire the underlying security at a
later date at a price that avoids any additional cost that would result from
an increase in the market value of the security. A Portfolio may also purchase
call options to increase its return to investors at a time when the call is
expected to increase in value due to anticipated appreciation of the
underlying security. Prior to its expiration, a purchased put or call option
may be sold in a closing sale transaction (a sale by a Portfolio, prior to the
exercise of an option that it has purchased, of an option of the same series),
and profit or loss from the sale will depend on whether the amount received is
more or less than the premium paid for the option plus the related transaction
costs.
In addition, each Portfolio may write covered call and secured put
options. A covered call option means that a Portfolio owns or has the right to
acquire the underlying security subject to call at all times during the option
period. A secured put option means that a Portfolio maintains in a segregated
account with its custodian cash or U.S. Government securities in an amount not
less than the exercise price of the option at all times during the option
period. Such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation and may be effected on a principal
basis with primary reporting dealers in U.S. Government securities. The
aggregate value of the securities subject to options written by a Portfolio
will not exceed 25% of the value of its net assets. In order to close out an
option position prior to maturity, a Portfolio may enter into a "closing
purchase transaction" by purchasing a call or put option (depending upon the
position being closed out) on the same security with the same exercise price
and expiration date as the option which it previously wrote.
By writing a covered call option, a Portfolio forgoes the opportunity
to profit from an increase in the market price of the underlying security
above the exercise price except insofar as the premium represents such a
profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Portfolio effects a closing purchase
transaction by purchasing an option of the same series. If a Portfolio writes
a secured put option, it assumes the risk of loss should the market value of
the underlying security decline below the exercise price of the option. The
use of covered call and secured put options will not be a primary investment
technique of the Portfolios.
For additional information relating to option trading practices,
including particular risks thereof, see the Statement of Additional
Information.
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<PAGE>
When-Issued Purchases and Forward Commitments
The Portfolios may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock-in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. When-issued and forward commitment transactions
involve the risk, however, that the yield obtained in a transaction may be
less favorable than the yield available in the market when the securities
delivery takes place. Each Portfolio's forward commitments and when-issued
purchases are not expected to exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolios do not earn income with
respect to these transactions until the subject securities are delivered to
the Portfolios. The Portfolios do not intend to engage in when-issued
purchases and forward commitments for speculative purposes but only in
furtherance of their investment objectives.
Risk Factors Associated with Derivative Instruments
The Portfolios may purchase certain "derivative" instruments such as
options, and various float rate investments. "Derivative" instruments are
instruments that derive value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include (but are not
limited to) futures contracts, options and structured debt obligations
(including collateralized mortgage obligations and various floating rate
instruments.)
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterpart to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the "derivative"
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a "derivative"
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a "derivative" instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
"derivative" instruments are more complex than others, and for those
instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Adviser will evaluate the risks presented by the "derivative"
instruments purchased by the Portfolios, and will determine, in connection
with its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that the Adviser's evaluations will prove to be inaccurate or incomplete and,
even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in "derivative" instruments.
Special Risk Considerations Applicable to the Michigan Municipal
Bond Portfolio
The Michigan Municipal Bond Portfolio will under normal market
conditions consist of Michigan Municipal Securities to the extent of 65% or
more of its total assets. This concentration in securities issued by
governmental units of only one state exposes the Portfolio to risk of loss
greater than that of a more diversified portfolio holding securities issued by
governmental units of different states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent
upon the automobile manufacturing industry. This industry is highly cyclical.
This
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factor affects the revenue streams of the State of Michigan and its political
subdivisions because it impacts on tax sources, particularly sales taxes,
income taxes and Michigan single business taxes.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
The heavy concentration of the Michigan Municipal Bond Portfolio in
Michigan Municipal Securities and the cyclical nature of the economy of the
State of Michigan may adversely affect the liquidity of the Portfolio.
In 1993 and 1994, Michigan adopted complex statutory and
constitutional changes which, among several other changes in tax methods and
rates, have the effect of imposing limits on annual assessment increases and
of transferring a significant part of the operating cost of public education
from locally based property tax sources to state based sources, including
increased sales tax. These changes will affect state and local revenues of
Michigan governmental units in future years in differing ways, not all of
which can be presently known with certainty.
Portfolio Turnover
Although it may vary from year to year, it is currently estimated that
under normal market conditions the annual portfolio turnover rate for a
Portfolio will not exceed 100%. A Portfolio's annual portfolio turnover rate
will not, however, be a factor preventing a sale or purchase when the Adviser
believes investment considerations warrant such sale or purchase. Portfolio
turnover may vary greatly from year to year as well as within a particular
year. High portfolio turnover rates generally result in higher transaction
costs to a Portfolio.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
investment limitations that cannot be changed without a vote of shareholders
are contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding one-third of its total assets.
2. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Portfolio's total assets at the time of such borrowing. No Portfolio will
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Portfolio's
investment practices described in the Statement of
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Additional Information or in its Prospectus are not deemed to be pledged for
purposes of this limitation.
3. Invest more than 10% of its total assets in illiquid investments.
See "Illiquid Securities" above.
4. Purchase the securities of issuers conducting their principal
business activity in the same industry if immediately after such purchase the
value of a Portfolio's investments in such industry would exceed 25% of the
value of its total assets, provided that (a) utilities will be divided
according to their services, wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of their parents, the personal credit and
business credit businesses will be considered separate industries and (b)
there is no limitation with respect to or arising out of investments in
Municipal Securities (other than private activity bonds), or obligations
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities or repurchase agreements secured by any of the foregoing.
In addition, the Municipal Bond Portfolio may not purchase securities
of any one issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, immediately after such
purchase, more than 5% of the value of a Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by a Portfolio, except that up to
25% of the value of the Portfolio's total assets may be invested without
regard to theses limitations.
In addition, the Michigan Municipal Bond Portfolio may not with
respect to 50% of its total assets, invest more than 5% of its assets in
securities of any one issuer, except U.S. Government obligations or securities
of other regulated investment companies.
For purposes of the Investment Limitation above applicable to the
Municipal and Michigan Municipal Bond Portfolios, (i) a security is considered
to be issued by the governmental entity (or entities) whose assets and
revenues back the security, or with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, a security
is considered to be issued by such non-governmental user; (ii) in certain
circumstances, the guarantor of a guaranteed security may also be considered
to be an issuer in connection with such guarantee; and (iii) U.S. Governmental
obligations (including securities backed by the full faith and credit of the
United States) are deemed to be U.S. Government obligations for purposes of
the 1940 Act.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Portfolio's portfolio securities will not constitute
a violation of such limitation for purposes of the 1940 Act.
In order to permit the sale of a Portfolio's shares in certain states,
the Portfolios may make commitments more restrictive than the investment
policies and limitations described above. Should a Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio, it
will revoke the commitment by terminating sales of its shares in the state
involved.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243.
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Essex is a registered broker/dealer with offices at 215 Gateway Road West,
Napa, California 94558.
Class A shares are sold to the public primarily through financial
institutions such as banks, brokers and dealers. Investors may purchase Class
A shares directly in accordance with the procedures set forth below or through
procedures established by their financial institutions in connection with the
requirements of their accounts.
Financial institutions may impose different minimum investment and
other requirements on their customers and may charge additional fees in
connection with the establishment of accounts with the institutions and
purchase and redemption of Class A shares. Persons wishing to purchase
Class A shares through their accounts at an institution or a Co-Distributor
should contact the institution or Co-Distributor directly for appropriate
instructions and fee information. In addition, certain financial institutions
may enter into shareholder servicing agreements with the Trust whereby they
would perform various administrative support services for their customers who
are the beneficial owners of Class A shares in return for fees from the
Portfolios. See "Shareholder Servicing Plan" under the heading "Management" in
this Prospectus.
All shareholders of record will receive confirmations of share
purchases and redemptions. Class A shares purchased by institutions on behalf
of their customers will normally be held of record by them. Institutions will
record their customers' beneficial ownership of such shares and provide
regular account statements reflecting such beneficial ownership.
Institutions will be responsible for transmitting purchase and
redemption orders to FoM, Essex or NBD acting as transfer agent ("the Transfer
Agent") on a timely basis, in accordance with the procedures stated below.
Purchase Procedures
The minimum initial investment is $1,000, except for purchases through
an institution whose customers have invested an aggregate minimum of $1,000 or
for investments made through a Co-Distributor's or an institution's sweep
privilege and the Trust's Automatic Investment Plan described below. The
minimum subsequent investment is $100, except for reinvested dividends or as
otherwise described below. The Trust reserves the right to reject any purchase
order.
Orders for Class A shares may be placed by telephone by calling (800)
688-3350 (provided an investor has made the appropriate election in his
account application) or by mail (by completing the account application which
accompanies this Prospectus and mailing the completed form and the payment for
shares to FoM, Essex or the Transfer Agent). All checks must be drawn on a
bank located within the United States and must be payable in U.S. dollars.
Subsequent investments in an existing account in a Portfolio may be made at
any time by sending a check or money order along with either (a) the
detachable form that regularly accompanies the Trust's confirmation of a prior
transaction, (b) a subsequent order form which may be obtained from the Trust,
or (c) a letter stating the amount of the investment, the name of the
Portfolio and the account number in which the investment is to be made. If any
check used for investment in an account does not clear, the order will be
cancelled and notice thereof will be given; in such event the account will be
responsible for any loss to the Trust as well as a $15 fee imposed by the
Transfer Agent.
With the exception of customers of FoM, Class A shares may also be
paid for by wiring federal funds to the Transfer Agent, NBD Bank, ABA
072000326, for the account of The Woodward Funds, Account Number GL 325612,
and identifying the customer name and account number. Before wiring payment,
customers should notify the Transfer Agent by calling (800) 688-3350.
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If customers of FoM wire payment in federal funds, they should direct
payment to NBD Bank, ABA 072000326, for the account of First of Michigan
Corporation re: The Woodward Funds, Account Number 059-41, and should identify
the customer name and account number. Before wiring payment, customers of FoM
should call FoM at (800) 544-8275 (outside Michigan) or (800) 852-7730 (within
Michigan).
Purchase orders which are accompanied by payment (by check or wire
transfer) and received by the Transfer Agent in proper form on a Business Day
(as defined below) prior to the close of the New York Stock Exchange are
priced at the public offering price (i.e. net asset value plus the applicable
sales load set forth below) of the particular Portfolio determined on that
Business Day. Purchase orders which are received by the Transfer Agent after
the close of trading on the Exchange on a Business Day or on non-Business Days
will be executed as of the determination of net asset value on the next
Business Day.
The Trust will not accept payment in cash or third party checks for
the purchase of shares. Federal regulations require that each investor provide
a certified taxpayer identification number upon opening or reopening an
account. Applications without a taxpayer identification number will not be
accepted. See the account application for further information about this
requirement.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined as of the close of trading on the floor
of the New York Stock Exchange ("Exchange") (currently 4:00 p.m., New York
Time), on each day the Exchange is open for business ("Business Day") except:
(i) those holidays which the Exchange observes (currently New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day); and (ii) those
Business Days on which the Exchange closes prior to the close of its
regular trading hours ("Early Closing Time"), in which event the
net asset value of each Portfolio will be determined and its shares
will be priced as of such Early Closing Time. Net asset value per
Class I share of a Portfolio is calculated by dividing the value
of all securities and other assets belonging to the Portfolio allocable
to that Class I, less the liabilities charged to that Class I, by the
number of the outstanding shares of such Class I.
Securities held by the Portfolios traded only on over-the-counter
markets and securities for which there were no transactions are valued at the
average of the current bid and asked prices. Securities for which accurate
market quotations are not readily available, and other assets are valued at
fair value by the Adviser under the supervision of the Board of Trustees.
Securities may be valued on the basis of prices provided by independent
pricing services when the Adviser believes such prices reflect the fair market
value of such securities. The prices provided by pricing services take into
account institutional size trading in similar groups of securities and any
developments related to specific securities.
PUBLIC OFFERING PRICE
The public offering price for Class A shares of the Portfolios is the
sum of the net asset value per share of the Class A shares being purchased
plus a sales load as follows:
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<TABLE>
<CAPTION>
Total Sales Load Reallowance to Institutions
-------------------------------- ---------------------------
As a % of As a % of As a % of
offering price net asset value offering price
Amount of Transaction per share per share per share
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $49,999.......................... 4.75 4.99 4.25
$50,000 to $99,999......................... 4.25 4.44 3.75
$100,000 to $249,999....................... 3.50 3.63 3.00
$250,000 to $499,999....................... 2.50 2.56 2.00
$500,000 to $999,999....................... 2.00 2.04 1.75
$1,000,000 and over........................ .00 .00 .00
</TABLE>
The sales load described above will not be applicable to purchases of
Class A shares by: (1) any bank, trust company or other institution acting on
behalf of its fiduciary customer accounts or any other account maintained by
its trust department; (2) any individual, trust, corporation or other person
where the shares are acquired in connection with the distribution of assets
held in any account referred to in (l) above with NBD or its affiliates; (3)
individual retirement accounts maintained by the trust division of NBD or of
its affiliates; (4) current and retired directors, officers and employees of
NBD or any of its affiliates; (5) the trustees, former trustees and officers
of the Trust; (6) broker/dealers which have entered into an agreement with a
Co-Distributor or the Trust pursuant to the Trust's Service and Distribution
Plan or Shareholder Servicing Plan and their representatives purchasing for
their own accounts; and (7) spouses, children, grandchildren, siblings,
parents, grandparents and in-laws of individuals referred to in paragraphs
(4), (5) and (6) above. An application to qualify for such purchases of Class
A shares (an "NAV Account Application") may be obtained from the Transfer
Agent by calling (800) 688-3350. In addition, no sales load is charged on the
reinvestment of dividends or distributions, or in connection with certain
share exchanges described below under "Shareholder Services -- Exchange
Privilege." The Trust may terminate any exemption from the sales load by
providing notice in the Prospectus, but any such termination would only affect
future purchases of Class A shares. The reallowance to institutions may be
changed from time to time.
From time to time, the Co-Distributors, at their expense, may offer
additional promotional incentives to dealers.
Quantity Discounts
An investor may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, even if the
investor does not wish to make an investment of a size that would normally
qualify for a quantity discount.
An investor must notify his institution or the Transfer Agent at the
time of purchase whenever a quantity discount applies. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity
discounts may be modified or terminated at any time and are subject to
confirmation of an investor's holdings. For more information about quantity
discounts, an investor should contact his institution or call (800) 688-3350.
Right of Accumulation. A reduced sales load applies to any purchase of
Class A shares of the Portfolios and any other portfolio which is currently
offered or may be offered in the future by the Trust that is sold with a sales
load ("Eligible Portfolios") where an investor's then current aggregate
investment is $50,000 or more. "Aggregate investment" means the total of: (a)
the dollar amount of the then current purchase; and (b) the value (based on
current net asset value) of Class A shares of Eligible Portfolios on which a
sales load has been paid (including shares acquired through reinvestment of
dividends or distributions on shares that were subject to a sales load). If,
for example, an investor beneficially owns Class A shares of a Portfolio with
an
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aggregate current value of $49,500 and subsequently purchases additional Class
A shares having a current value of $1,000, the load applicable to the
subsequent purchase would be reduced to 4.25% of the offering price.
Similarly, with respect to each subsequent investment, the current value of
all Class A shares of Eligible Portfolios that are beneficially owned by the
investor at the time of investment may be combined to determine the applicable
sales load.
Letter of Intent. By signing a Letter of Intent form (available from
his institution or the Transfer Agent) an investor becomes eligible for the
reduced sales load applicable to the total number of Eligible Portfolio Class
A shares purchased in a thirteen-month period (net of redemptions) pursuant to
the terms and under the conditions set forth in the Letter of Intent. To
compute the applicable sales load, the offering price of Class A shares an
investor beneficially owns (on the date of submission of the Letter of Intent)
in any Eligible Portfolio that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the
Letter of Intent. However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow Class A shares equal to the
amount indicated in the Letter of Intent for payment of a higher sales load if
an investor does not purchase the full amount specified in the Letter of
Intent. The escrow will be released when an investor fulfills the terms of the
Letter of Intent by purchasing the specified amount. If total purchases within
the thirteen-month period of the Letter of Intent exceed the amount specified,
an adjustment will be made in the form of additional Class A shares credited
to the shareholder's account to reflect further reduced sales charges
applicable to such purchases. If total purchases are less than the amount
specified, an investor will be requested to remit an amount equal to the
difference between the sales load actually paid and the sales load applicable
to the total purchases. If such remittance is not received within thirty days,
the Transfer Agent, as attorney-in-fact pursuant to the terms of the Letter
of Intent, will redeem an appropriate number of Class A shares held in escrow
to realize the difference. Signing a Letter of Intent does not bind an
investor to purchase the full amount indicated at the sales load in effect at
the time of signing, but an investor must complete the intended purchase to
obtain the reduced sales load.
Qualification for Discounts. For the purpose of applying the Right of
Accumulation and Letter of Intent privileges described above, the scale of
sales loads applies to the combined purchases made by any individual and/or
spouse purchasing securities for his, her or their own account or for the
account of any minor children under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act, or the aggregate investments of a trustee or
custodian of any qualified pension or profit sharing plan or IRA established,
or the aggregate investment of a trustee or other fiduciary, for the benefit
of the persons listed above.
REDEMPTION OF SHARES
In General
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption in
accordance with the procedures set forth below.
Redemption orders must be placed with or through the same financial
institution that placed the original purchase order. It is the responsibility
of the financial institutions to transmit redemption orders to the Transfer
Agent. Redemption proceeds are paid by check or credited to the investor's
account with his financial institution. Investors who purchased shares
directly from the Trust should follow the redemption procedures set forth
below.
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Redemption Procedures
Shareholders of record may redeem shares in any amount by calling
(800) 688-3350 (provided they have made the appropriate election on the account
application) or by sending a written request to The Woodward Funds, c/o NBD
Bank, P.O. Box 7058, Troy, Michigan 48007-7058. Written requests to redeem
shares having a net asset value of more than $50,000 must have all signatures
of the registered owner(s) or their authorized legal representative guaranteed
by a commercial bank or trust company which is a member of the Federal Reserve
System or FDIC, a member firm of a national securities exchange or a savings
and loan association. A signature guaranteed by a savings bank or notarized by
a notary public is not acceptable. A signature guarantee will also be required
for a redemption request (in any amount) if the address of record for the
account has been changed within the previous 15 days or which requests that
the proceeds be paid to an account other than the one preauthorized on the
application, a payee or payees other than the registered owners of the
account, or an address other than the address of record. The Trust may require
additional supporting documents for redemptions made by corporations,
fiduciaries, executors, administrators, trustees, guardians and institutional
investors.
Redemption orders for Class A shares may be placed through an
institution or directly by telephone by calling (800) 688-3350. During periods
of unusual economic or market changes, telephone redemptions may be difficult
to implement. In such event, shareholders should mail their redemption
requests to their financial institutions or The Woodward Funds, c/o NBD Bank,
at the address shown above. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration (including,
but not limited to, the name in which an account is registered, the account
number, or recent transactions in the account). To the extent that the Trust
and its Transfer Agent fail to use reasonable procedures to verify the
genuineness of telephone instructions, they may be liable for such
instructions that prove to be fraudulent and unauthorized. In all other cases,
shareholders will bear the risk of loss for fraudulent telephone transactions.
Other Redemption Information
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934 after receipt by the Transfer Agent of a request in proper form. If
shares to be redeemed were purchased by check, the Trust will transmit the
redemption proceeds promptly upon clearance of such check, which could take up
to fifteen days from the purchase date. A shareholder having purchased shares
by wire must have filed an account application before any redemption requests
can be honored.
Currently, the Trust imposes no charge when shares are redeemed.
However, institutions may charge a fee for providing services in connection
with investments in Portfolio shares; NBD currently charges $16 for wire
transactions. The Trust reserves the right to redeem accounts involuntarily,
after sixty days' notice, if redemptions cause the account's net asset value
to remain at $1,000 or less. Under certain circumstances, the Trust may make
payment for redemption in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350 or an investor's institution.
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SHAREHOLDER SERVICES
The shareholder services and privileges under this heading may not be
available to certain clients of particular financial institutions, and some
may impose conditions on their clients that are different from those described
below. investors should consult their own financial institutions in this
regard. Other investors should direct any questions to the Transfer Agent. The
Trust may modify or terminate any of the following services and privileges at
any time.
Exchange Privilege
Investors may exchange Class A shares which have been owned for at
least thirty days of the Municipal Bond and Michigan Municipal Bond
Portfolios, of the Woodward Intermediate Bond, Bond, Short Bond, Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Funds and of other investment portfolios of the Trust which may be
offered in the future and sold with a sales charge (each a "load portfolio")
and Class A shares which have been owned for at least thirty days of the
Woodward Equity Index, Money Market, Government, Treasury Money Market,
Tax-Exempt Money Market and Michigan Tax-Exempt Money Market Funds and of
other investment portfolios of the Trust which may be offered in the future
and sold without a sales charge (each a "no load portfolio"). The cost of the
acquired Class A shares will be their net asset value plus the applicable
sales load, if any.
With respect to exchanges between load portfolios other than exchanges
involving the Woodward Short Bond Fund, no additional sales load will be
payable, provided that the investor previously paid a sales load upon the
acquisition of Class A shares of a load Portfolio. Investors exchanging Class
A shares of the Woodward Short Bond Fund will be required to pay the
difference between the sales load previously paid and the sales load
applicable on the Class A shares being acquired in the exchange, unless the
investor's holding of Class A shares of the Woodward Short Bond Fund resulted
from a previous exchange of Class A shares with respect to which the investor
had paid a higher sales load.
Exchanges of Class A shares of a load portfolio for Class A shares of
a no load portfolio and exchanges of Class A shares of a no load portfolio for
Class A shares of another no load portfolio will not be subject to the payment
of a sales load.
Any exchange of Class A shares of a no load portfolio for Class A
shares of a load portfolio will be subject to the payment of the applicable
sales load, unless the investor is exchanging shares of a no load portfolio
which were received in a previous exchange transaction involving Class A
shares of a load portfolio. In such case, the investor will receive a credit
for any sales load previously paid and no additional sales load will be
payable, except as noted above with respect to the Woodward Short Bond Fund.
Shareholders contemplating an exchange should carefully review the
Prospectus of the portfolio into which the exchange is being considered.
The Prospectus for any portfolio of the Trust may be obtained from an
investor's financial institution or from the Transfer Agent by
calling (800) 688-3350.
Exchanges will be effected by a redemption of Class A shares of the
portfolio held and the purchase of Class A shares of the portfolio acquired.
investors should make their exchange requests in writing or by telephone to
the financial institutions through which they purchased their original Class A
shares. It is the responsibility of financial institutions to transmit
exchange requests to the Transfer Agent. Other investors should transmit
exchange requests directly to the Transfer Agent. The total value of shares
being exchanged must at least equal the minimum investment requirement of the
portfolio whose shares are being acquired in the exchange. Only one exchange
in any thirty-day period is permitted and only shares that may be legally sold
in the
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state of the investor's residence may be acquired in an exchange. The Trust
reserves the right to reject any exchange request.
Investors wishing to make an exchange should contact their
institutions or the Transfer Agent (as appropriate). Exchange requests in the
required form which are received by the Transfer Agent prior to 4:00 p.m.,
Eastern time or Early Closing Time, will be effected on the same Business Day
after such request is received. Requests received after 4:00 p.m., Eastern
time or Early Closing Time, will be effected on the next Business Day
after such request is received. During periods of significant economic
or market change, telephone exchanges may be difficult to complete.
In such event, an investor should mail the exchange request to his
financial institution or the Transfer Agent. Neither the Trust nor the
Transfer Agent will be responsible for the authenticity of instructions
received by telephone that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, the Trust and
its Transfer Agent will use such procedures as are considered reasonable,
including recording those instructions and requesting information as to
account registration (including, but not limited to, the name in which an
account is registered, the account number, or recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions,
they may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to modify or
terminate its exchange procedures upon sixty days' notice to shareholders.
Reinvestment Privilege
Class A shares of a Portfolio may be purchased at net asset value by
persons who have redeemed within the previous 120 days their Class A shares of
that Portfolio or another investment portfolio of the Trust which were
purchased with a sales load. The amount which may be so reinvested is limited
to an amount up to the redemption proceeds. In order to exercise this
privilege, a written order for the purchase of Class A shares of the Portfolio
must be received by the Transfer Agent within 120 days after the redemption.
Reinvestment will be at the next calculated net asset value after receipt.
Option to Make Systematic Withdrawals
The Trust has available to shareholders a Systematic Withdrawal Plan
pursuant to which a shareholder who owns Class A shares of any investment
portfolio having a minimum value of $15,000 at the time he elects under the
Plan may have a fixed sum distributed in redemption at regular intervals. An
application form and additional information regarding this service may be
obtained from an investor's financial institution or the Transfer Agent by
calling (800) 688-3350.
Automatic Investment
The Trust offers an Automatic Investment Plan (the "Plan") whereby a
shareholder may automatically purchase Class A shares on a regular basis in
accordance with an election in his account application. An application may be
obtained from the Transfer Agent by calling (800) 688-3350. Under the Plan a
shareholder's financial institution debits a pre-authorized amount from his
account and applies the amount to the purchase of Class A shares. The minimum
per transaction is $25. The minimum initial investment in a Portfolio is also
$25 for the following shareholders who elect the Plan: (1) current and retired
directors, officers and employees of NBD or any of its affiliates; (2) the
trustees, former trustees and officers of the Trust; (3) broker/dealers which
have entered into an agreement with a Co-Distributor or the Trust pursuant to
the Trust's Distribution Plan or Shareholder Servicing Plan and their
representatives purchasing for their own accounts; and (4) spouses, children,
grandchildren, siblings, parents, grandparents and in-laws of individuals
referred to in (1),
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(2) and (3) above. An NAV Account Application may be obtained from the
Transfer Agent by calling (800) 688-3350. The Plan can be implemented with any
financial institution that is a member of the Automated Clearing House. No
service fee is currently charged by the Trust for participating in the Plan.
Death or legal incapacity will terminate a shareholder's participation in the
Plan. Deposits, withdrawals and adjustments will be made electronically under
the rules of the Automated Clearing House Association.
Cross Reinvestment of Dividend Plan
The Trust makes available to shareholders a Cross Reinvestment of
Dividend Plan (the "Plan") pursuant to which a shareholder who owns Class A
shares of any portfolio with a minimum value of $10,000 at the time he elects
under the Plan may have dividends paid by such portfolio automatically
reinvested into Class A shares of another portfolio in which he has invested a
minimum of $1,000. Shareholders may obtain an application and additional
information from their institutions or the Transfer Agent by calling
(800) 688-3350.
Direct Deposit Program
If an investor receives federal salary, social security, or certain
veteran's, military or other payments from the federal government or elects to
use his employer's payroll deposit program, he is eligible for the Direct
Deposit Program. With this Program, an investor may purchase Class A shares
(minimum of $25) by having these deposits automatically deposited into his
Portfolio account. For instructions on how to enroll in the Direct Deposit
Program, an investor should call his institution or the Transfer Agent. Death
or legal incapacity will terminate an investor's participation in the Program.
An investor may elect at any time to terminate his participation by notifying
in writing the appropriate federal agency. Further, the Trust may terminate an
investor's participation upon thirty days' notice to him.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance and yield of each class of shares of the Portfolios may be
compared to the performance of other mutual funds with similar investment
objectives and to bond or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, performance and yield may be
compared to data prepared by Lipper Analytical Services, Inc. Performance and
yield data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in publications of a local or regional nature, may also be used in comparing
the performance of a Portfolio.
"Yield" refers to the income generated by an investment in a class of
shares of a Portfolio over a thirty-day period identified in the
advertisement. This income is then "annualized," i.e., the income generated by
the investment during the thirty-day period is assumed to be earned and
reinvested at a constant rate and compounded semi-annually. The annualized
income is then shown as a percentage of the investment. The Portfolios may
from time to time advertise a "tax-equivalent yield" to demonstrate the level
of taxable yield necessary to produce an after-tax equivalent to that
achieved by the Portfolios. The "tax-equivalent yield" will be computed by
dividing the tax-exempt portion of a Portfolio's yield by a denominator
consisting of one minus a stated federal (and/or Michigan) income tax rate
and adding the product to that portion, if any, of the Portfolio's yield
which is not tax-exempt.
The Portfolios calculate their total returns on an "average annual
total return" basis for various periods from the date they commenced
investment operations and for other periods as permitted under the rules of
the SEC. Average annual total return of a class reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns may also be calculated on an "aggregate total return
basis" for various periods. Aggregate total return reflects the total
percentage change in value over the measuring period. Both methods of
calculating total return also reflect changes in the price of the shares and
assume that any dividends and capital gain
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distributions made by the class during the period are reinvested in shares of
the class. When considering average total return figures for periods longer
than one year, it is important to note that a Class' annual total return for
any one year in the period might have been greater or less than the average
for the entire period.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. The
investment return and principal value of an investment in a class will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Performance data should also be considered
in light of the risks associated with a Portfolio's portfolio composition,
quality, maturity, operating expenses and market conditions. Any fees charged
by financial institutions directly to their customer accounts in connection
with investments in shares will not be reflected in performance calculations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid monthly by
each Portfolio. Each Portfolio's net realized capital gains are distributed at
least annually.
Dividends and distributions will reduce a class' net asset value by
the amount of the dividend or distribution. All dividends and distributions
are automatically reinvested (without any sales charge) in additional Class A
shares of the same Portfolio at their net asset value per share determined on
the payment date, unless the holder has notified the Transfer Agent in writing
that he elects to have dividends or capital gain distributions (or both) paid
in cash. Shareholders must make such election, or any revocation thereof, in
writing to their financial institutions or Transfer Agent. If an account
is established with telephone privileges, the registered owner or his
preauthorized legal representative may change the election to receive
dividends in cash to an election to receive dividends in shares by
telephoning the Transfer Agent at (800) 688-3350. The election will
become effective with respect to dividends paid after its receipt by the
Transfer Agent.
TAXES
Federal
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification will relieve the Portfolios of liability for federal income
taxes to the extent their earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Portfolio distribute to
its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. Dividends derived from tax-exempt interest income ("exempt-interest
dividends") may be treated by shareholders as items of interested excludable
from their gross income under Section 103(a) of the Code unless under the
circumstances applicable to the particular shareholder the exclusion would be
disallowed. (See Statement of Additional Information under "Additional
Information Concerning Taxes.") An exempt-interest dividend is any dividend or
part thereof (other than a capital gain dividend) paid by a Portfolio and
designated as an exempt-interest dividend in a written notice mailed to
shareholders not later than sixty days after the close of the Portfolio's
taxable year which does not exceed in its aggregate the net Municipal
Securities interest received by the Portfolio for the taxable year.
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In general, a Portfolio's investment company taxable income, if any, will be
its taxable income, including taxable interest subject to certain adjustments
and short term capital gains. Dividends derived from such income will
generally be taxable to shareholders. It is anticipated that no part of any
distribution by the Portfolios will be eligible for the dividends received
deduction for corporations.
If a Portfolio should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Portfolio that is attributable to interest on
such bonds in their federal alternative minimum taxable income for purposes of
determining liability (if any) for the alternative minimum tax applicable to
individuals and corporations and the environmental tax applicable to
corporations. Corporate shareholders must also take all exempt-interest
dividends into account in determining certain adjustments for alternative
minimum and environmental tax purposes. Shareholders receiving Social Security
benefits should note that all exempt-interest dividends will be taken into
account in determining the taxability of such benefits.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolios will generally have no tax liability with respect to such gains and
the distributions will be taxable to Portfolio shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the shares and whether such
gains are received in cash or reinvested in additional shares.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed for federal tax purposes to have been paid by the Portfolio and
received by the shareholders on December 31 of such year if such dividends are
paid during January of the following year.
Prior to purchasing shares of a Portfolio, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after the purchase of shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of
the dividend or distribution. All or a portion of such amounts, although in
effect a return of capital, is subject to tax.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of shares of a Portfolio depending upon the
tax basis and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase
of Portfolio shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Portfolio within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included under certain
circumstances in the tax basis of the new shares.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made to them each year.
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The foregoing discussion summarizes some of the important tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
State and Local
Dividends paid by the Michigan Municipal Bond Portfolio that are
derived from interest attributable to tax-exempt Michigan Municipal Securities
will be exempt from Michigan income tax, Michigan intangibles tax and Michigan
single business tax. Conversely, to the extent that the Portfolio's dividends
are derived from interest on obligations other than Michigan Municipal
Securities or certain U.S. Government Obligations (or are derived from short
term or long term gains), such dividends will be subject to Michigan income
tax. Michigan intangible tax and Michigan single business tax, even though the
dividends may be exempt for federal income tax purposes. The Portfolio is
unable to predict in advance the portion of its dividends that will be derived
from interest on Michigan Municipal Securities, but will mail to its
shareholders not later than sixty days after the close of the Portfolio's
taxable year a written notice containing information as to the interest
derived from Michigan Securities and exempt from Michigan income tax, Michigan
intangibles tax and Michigan single business tax.
Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income
under other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
Miscellaneous
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws the treatment of the Trust and
its shareholders under such laws may differ from treatment under federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992)
and Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of
Henry Ford Health System); Trustee, Henry Ford Health Sciences Center
(since 1987); Trustee, Henry Ford Continuing Care Corporation (since 1980);
Trustee, Earhart Foundation (since 1980). He is 77 years old and his
address is 333 West Fort Street, Detroit, Michigan 48226.
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* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996), Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago; Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (since 1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982);
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* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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<PAGE>
Director, Detroit Symphony Orchestra (since 1985); Director, Oakland Commerce
Bank (since 1984) and Michigan Opera Theater (since 1981). He is 65 years old,
and his address is 26957 Northwestern Highway, Suite 288, Southfield, Michigan
48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Senior Professor of
Finance, Indiana University (1970-1991); Vice President, Trust &
Investment Advisers, Inc. (1990-1991); Director, Federal Home Loan Bank
of Indianapolis (1981 to 1985). He is 61 years old, and his address is
5 Boar's Head Lane, Charlottesville, Virginia 22903.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and Officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser for each Portfolio is NBD, a wholly owned
subsidiary of First Chicago NBD Corporation, a bank holding company. NBD has
offices at 611 Woodward Avenue, Detroit, Michigan 48226. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion. NBD has been in the business
of providing such services since 1933. Included among NBD's accounts are
pension and profit sharing funds for major corporations and state and local
governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
NBD provides investment advisory and certain administrative services
to each Portfolio pursuant to an Advisory Agreement. Subject to the overall
supervision of the Board of Trustees, NBD makes investment decisions for each
of the Portfolios.
Robert T. Grabowski, First Vice President and manager of the municipal
desk at NBD, is the person primarily responsible for the day-to-day management
of the Municipal Bond Portfolio. Mr. Grabowski has been the portfolio manager
of the Portfolio since its inception and manager of the municipal desk since
1985. Mr. Grabowski and Rebecca L. Gersonde, Vice President, are primarily
responsible for the day-to-day management of the Michigan Municipal
Bond Portfolio. Ms. Gersonde joined NBD in 1982.
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* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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For its services under the Advisory Agreement, NBD is entitled to
receive advisory fees, computed daily and payable monthly, at an annual rate
of .65% of the average daily net assets of each of the Portfolios. In
addition, NBD is entitled to 4/10ths of the gross income earned by the
Portfolios on each loan of securities (excluding capital gains and losses, if
any). NBD may voluntarily waive its fees in whole or in part with respect to
any particular Portfolio.
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
a customer. The Adviser and the Trust believe that the Adviser may perform the
advisory, custodial and transfer agency services for the Trust described in
this Prospectus, and that the Adviser, subject to such banking laws and
regulations, may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform investment
advisory, custodial or transfer agency services for the Trust or require the
Adviser to alter or discontinue the services provided by it to shareholders.
If the Adviser were prohibited from performing investment advisory,
custodial or transfer agency services for the Trust, it is expected that the
Board of Trustees of the Trust would recommend that shareholders approve new
agreements with another entity or entities qualified to perform such services
and selected by the Board. If the Adviser or its affiliates were required to
discontinue all or part of its shareholder servicing activities, their
customers would be permitted to remain the beneficial owners of Portfolio
shares and alternative means for continuing the servicing of such customers
would be sought. The Trust does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges, and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
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FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of each Portfolio: (i) fees payable
to the Co-Distributors pursuant to the Distribution Agreement; (ii) the actual
costs and expenses in connection with advertising and marketing the
Portfolio's shares; and (iii) fees pursuant to agreements with securities
dealers, financial institutions and other professionals ("Service Agents") for
administration or servicing of Portfolio shareholders ("Servicing"). Servicing
may include, among other things: answering client inquiries regarding the
Trust and the Portfolios; assisting clients in changing dividend options,
account designations and addresses; performing sub-accounting; establishing
and maintaining shareholder accounts and records; processing purchase and
redemption transactions; investing client cash account balances automatically
in Portfolio shares; providing periodic statements showing a client's account
balance and integrating such statements with those of other transactions and
balances in the client's other accounts serviced by the Service Agent;
arranging for bank wires; and such other services as the Trust may request, to
the extent the Service Agent is permitted by applicable statute, rule or
regulation. Under the Plan, the Trust also bears the cost of preparing and
printing Prospectuses for use in selling shares of the Trust and costs
associated with implementing and operating the Plan. These costs are included
in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .005% of a Portfolio's average net assets, and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of the Trust's investment portfolios attributable to
investments by clients of Essex. The payments to be made to the
Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust, and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
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Shareholder Servicing Plan
Pursuant to a Shareholder Servicing Plan ("Servicing Plan") adopted by
its Board of Trustees, the Trust may enter into agreements ("Servicing
Agreements") with banks and financial institutions, which may include the
Adviser and its affiliates ("Shareholder Servicing Agents"), under which they
will render shareholder administrative support services for their customers
who beneficially own Class A shares of the Portfolio. Such services, which are
described more fully in the Statement of Additional Information, may include
processing purchase and redemption requests from customers, placing net
purchase and redemption orders with a Co-Distributor, processing, among other
things, distribution payments from the Trust, providing necessary personnel
and facilities to establish and maintain customer accounts and records, and
providing information periodically to customers showing their positions in
Class A shares.
For these services, the Trust will pay fees to Shareholder Servicing
Agents at an annual rate of up to .25% of the average daily net asset value of
Class A shares held by such Shareholder Servicing Agents for the benefit of
their customers and, at the Trust's option, it may reimburse the Shareholder
Servicing Agents' out-of-pocket expenses. Shareholder Servicing Agents are
required to provide their customers with a schedule of any credits, fees or
other conditions that may be applicable to the investment of customer assets
in Class A shares. The fees payable under such servicing agreements will be
allocated exclusively to the Class A shares in each Portfolio.
Conflict of interest restrictions may apply to the receipt of
compensation paid by the Trust to a Shareholder Servicing Agent in connection
with the investment of fiduciary funds in Portfolio shares. Banks and other
institutions regulated by the Comptroller of the Currency or other federal or
state bank regulatory agencies, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal counsel before
entering into Servicing Agreements.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets such as brokerage fees, commissions and other transaction
charges, the fees and expenses of NBD as the Trust's Custodian and as its
Transfer Agent, the fees payable to the Co-Distributors under the Distribution
Agreement, the fees and expenses of Trustees, expenses associated with the
Trust's Distribution Plan and Shareholder Servicing Plan, outside auditing and
legal expenses, all taxes and corporate fees payable by the Trust, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders,
costs of shareholder reports and shareholder meetings, and any extraordinary
expenses. Each Portfolio also pays for brokerage commissions and transfer
taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular Portfolio of the Trust will
be charged to that Portfolio, and expenses not readily identifiable as
belonging to a particular Portfolio will be allocated by the Board of Trustees
among one or more Portfolios in such a manner as it shall deem fair and
equitable. For the fiscal year ended December 31, 1995, the Municipal Bond
and Michigan Municipal Bond Portfolios' total expenses after fee waivers
and reimbursements were .79% and .79% of their average net assets,
respectively. The Statement of Additional Information describes
in more detail the fees and expenses borne by the Trust.
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OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Intermediate Bond Fund, Bond Fund, Short
Bond Fund, Growth/Value Fund, Opportunity Fund, Intrinsic Value Fund, Capital
Growth Fund, Balanced Fund, International Equity, Equity Index Fund, Money
Market Fund, Government Fund, Treasury Money Market Fund, Tax-Exempt Money
Market Fund and Michigan Tax-Exempt Money Market Fund. The Trust has
established the following two distinct classes of shares within each
Portfolio described herein: Class I shares (Original Class) and Class A
shares (Special Class 1). A sales person and any other person or
institution entitled to receive compensation for selling or servicing
shares may receive different compensation with respect to different
classes of shares in the Series. Each share has $.10 par value,
represents an equal proportionate interest in the related portfolio
with other shares of the same class outstanding, and is entitled to such
dividends and distributions out of the income earned on the assets belonging
to such portfolio as are declared in the discretion of the Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly, the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 29, 1996, NBD held beneficially or of record
approximately 60.26% and 38.84% of the outstanding shares of Municipal Bond
and Michigan Municipal Bond Portfolios, respectively, and therefore may be
considered to be a controlling person of the Trust for purposes of the 1940
Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
-33-
<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Portfolios'
Statement of Additional Information incorporated herein by reference, in
connection with the offering made by this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust, Adviser or Sponsors and Co- Distributors. This
Prospectus does not constitute an offering by the Portfolios or by their Co-
Distributors, in any jurisdiction in which such offering may not lawfully be
made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY............................. 2
BACKGROUND.................................. 4
FINANCIAL HIGHLIGHTS........................ 5
INTRODUCTION................................ 7
PROPOSED REORGANIZATION..................... 7
INVESTMENT OBJECTIVES, POLICIES AND
RISK FACTORS............................ 7
OTHER INVESTMENT POLICIES................... 9
PURCHASE OF SHARES.......................... 16
PUBLIC OFFERING PRICE....................... 18
REDEMPTION OF SHARES........................ 20
SHAREHOLDER SERVICES........................ 22
PERFORMANCE AND YIELD
INFORMATION......................... 24
DIVIDENDS AND DISTRIBUTIONS................. 25
TAXES .................................... 25
MANAGEMENT.................................. 27
OTHER INFORMATION........................... 33
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania
19107-3496
<PAGE>
[ BACK COVER, COLUMN 2 ]
CLASS A SHARES OF THE:
WOODWARD MUNICIPAL BOND FUND
WOODWARD MICHIGAN MUNICIPAL BOND FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
-34-
Exhibit (17)(k)
- ------------------------------------------------------------------------------
PROSPECTUS April 15, 1996
- ------------------------------------------------------------------------------
THE WOODWARD FUNDS
c/o NBD Bank, Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
The Woodward Funds (the "Trust") is offering in this Prospectus shares
in the following five investment portfolios (the "Portfolios"), each having
its own investment objective and policies as described in this Prospectus:
Class I shares of the:
Woodward Intermediate Bond Fund
Woodward Bond Fund
Woodward Short Bond Fund
Woodward Municipal Bond Fund
Woodward Michigan Municipal Bond Fund
Each of the Portfolios is advised by NBD Bank ("NBD" or the "Adviser")
and is sponsored and distributed by First of Michigan Corporation ("FoM" or
"Co-Distributor") and Essex National Securities, Inc. ("Essex" or
"Co-Distributor").
This Prospectus sets forth concisely information that a prospective
investor should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Trust, contained in a Statement of Additional Information, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing to The Woodward Funds at the address above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into the Prospectus.
- ------------------------------------------------------------------------------
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NBD BANK, ITS PARENT COMPANY
OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
INVESTMENT ADVISER:
NBD Bank
<PAGE>
EXPENSE SUMMARY
The Trust currently offers Class I shares (formerly known as
"Institutional Shares") and Class A shares (formerly known as "Retail Shares")
in each of the Woodward Intermediate Bond Fund ("Intermediate Bond
Portfolio"), Woodward Bond Fund ("Bond Portfolio"), Woodward Short Bond Fund
("Short Bond Portfolio") Woodward Municipal Bond Fund ("Municipal Bond
Portfolio") and Woodward Michigan Municipal Bond Fund ("Michigan Municipal
Bond Portfolio"). Class I shares are sold primarily to NBD and its affiliated
and correspondent banks acting on behalf of their respective customers. Class
A shares are sold to the general public primarily through financial
institutions such as banks, brokers and dealers. Class A shares are offered in
a separate Prospectus. Investors should call (800) 688-3350, a Co-Distributor
or their financial institutions if they would like to obtain more information
concerning Class I shares and/or Class A shares of the Portfolios. The
following table is provided to assist investors in understanding the various
costs and expenses that an investor will indirectly incur as a beneficial
owner of Class I shares in each of the Portfolios.
<TABLE>
<CAPTION>
Michigan
Intermediate Short Municipal Municipal
Bond Bond Bond Bond Bond
Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1) Portfolio(1)
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load
Imposed on Purchases....... None None None None None
(as a percentage of
offering price)
Sales Load
Imposed on Reinvested
Dividends................. None None None None None
Deferred Sales Load........... None None None None None
Redemption Fee................ None None None None None
Exchange Fee.................. None None None None None
Annual Operating Expenses
(as a percentage of
average net assets)
Management Fees............... .65% .65% .65% .65% .65%
12b-1 Fees.................... .008% .01% .004% . 017% .038%
Other Expenses(2)
(before no fee waivers
and/or expense
reimbursements)............ .062% .06% .156% .263% .352%
(after fee waivers
and/or expense
reimbursements)............ N/A N/A .126% .153% .132%
Total Operating Expenses
(before fee waivers
and/or expense
reimbursements)............ .72% .72% .81% .93% 1.04%
(after fee waivers
and/or expense
reimbursements)............ N/A N/A .78% .82% .82%
<FN>
- ---------
1. The expenses for each of the Portfolios have been restated to
reflect current expenses.
-2-
<PAGE>
2. Credits or charges not reflected in the expense table may be
incurred directly by customers of financial institutions in connection with an
investment in the Portfolios.
</TABLE>
<TABLE>
<CAPTION>
Michigan
Intermediate Short Municipal Municipal
Bond Bond Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Example
You would pay the following
expenses on a $1,000
investment, assuming:
(1) a 5% annual return
and (2) redemption at the
end of each time period:
One Year:.................. $ 7.38 $ 7.38 $ 7.99 $ 8.41 $ 8.41
Three Years:............... 23.10 23.10 25.00 26.28 26.28
Five Years:................ 40.18 40.18 43.47 45.67 45.67
Ten Years:................. 89.69 89.69 96.88 101.66 101.66
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES OR RATE OF RETURN MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in Class I shares in each of the Portfolios,
based upon payment by the Portfolios of operating expenses at the respective
levels set forth in the expense table. For more complete descriptions of
Portfolio expenses, see "Investment Adviser, Custodian and Transfer Agent,"
"Sponsors and Co-Distributors," "Service and Distribution Plan" and "Trust
Expenses" under the heading "Management" in this Prospectus and the
financial statements and related notes contained in the Statement of
Additional Information.
-3-
<PAGE>
BACKGROUND
Shares of each Portfolio have been classified into two separate
classes of shares -- Class I shares and Class A shares. Only the Class I
shares are offered pursuant to this Prospectus. Until April 15, 1996, Class I
shares and Class A shares represented equal pro rata interests in a Portfolio.
As of such date, the Trust implemented its Shareholder Servicing Plan with
respect to Class A shares only and began to allocate Servicing Fees
attributable to such shares exclusively to them.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide supplementary information to the Portfolios'
financial statements contained in their Statement of Additional Information
and set forth certain information concerning the historic investment results
of Portfolio shares. They present a per share analysis of how each Portfolio's
net asset value has changed during the periods presented. The tables have been
derived from the Portfolios' financial statements which have been audited by
Arthur Andersen LLP, the Trust's independent public accountants, whose report
thereon is contained in the Statement of Additional Information along with the
financial statements. The financial data included in these tables should be
read in conjunction with the financial statements and related notes included
in the Statement of Additional Information. Further information about the
performance of the Portfolios is available in annual reports to shareholders.
The Statement of Additional Information and annual reports to shareholders may
be obtained from the Trust free of charge by calling (800) 688-3350.
<TABLE>
<CAPTION>
Intermediate Bond Portfolio
June 1, 1991
(Commencement)
of Operations)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period..................... $ 9.21 $10.41 $10.28 $10.55 $10.00
Income from investment
operations:
Net investment income......... 0.59 0.56 0.59 0.71 0.40
Net realized and unrealized
gains (losses) on
investments................. 1.16 (1.20) 0.26 (0.10) 0.57
------------ ------------ ------------ ------------ ------------
Total from investment
operations.................. $ 1.75 $(0.64) $ 0.85 $ 0.61 $ 0.97
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment
income...................... $(0.59) $(0.55) $(0.59) $(0.71) $(0.40)
From realized
gains....................... -- (0.01) ( 0.13) ( 0.17) ( 0.02)
------------ ------------ ------------ ------------ ------------
Total distributions........... $(0.59) $(0.56) ($0.72) ($0.88) ($0.42)
------------ ------------ ------------ ------------ ------------
Net asset value, end of
period........................ $10.37 $ 9.21 $10.41 $10.28 $10.55
============ ============ ============ ============ ============
Total return.................... $19.48 (6.31%) 8.41% 6.00% 16.62%(a)
Ratios/Supplemental Data
Net assets, end of period....... $405,309,939 $393,019,168 $429,789,857 $220,432,255 $130,367,032
Ratio of expenses to average
net assets.................... 0.73% 0.74% 0.74% 0.74% 0.75%(a)
Ratio of net investment income
to average net assets......... 5.98% 5.73% 5.44% 6.91% 6.59%(a)
Portfolio turnover rate......... 36.47% 54.60% 92.80% 56.30% 7.38%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Bond Portfolio
June 1, 1991
(Commencement)
of Operations)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period...................... $ 9.01 $10.32 $10.25 $10.55 $10.00
Income from investment
operations:
Net investment income.......... 0.63 0.61 0.76 0.83 0.51
Net realized and unrealized
gains (losses) on
investments.................. 1.45 (1.31) 0.38 ( 0.17) 0.57
------------ ------------ ------------ ------------ ------------
Total from investment
operations................... $ 2.08 $(0.70) $ 1.14 $ 0.66 $ 1.08
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment
income....................... $(0.64) $(0.59) $(0.76) $(0.83) $(0.51)
From realized
gains........................ -- (0.02) (0.31) (0.13) (0.02)
------------ ------------ ------------ ------------ ------------
Total distributions............ $(0.64) $(0.61) $(1.07) $(0.96) $(0.53)
------------ ------------ ------------ ------------ ------------
Net asset value, end of
period......................... $10.45 $ 9.01 $10.32 $10.25 $10.55
============ ============ ============ ============ ============
Total return..................... 23.75% (6.99%) 11.39% 6.56% 18.45%(a)
Ratios/Supplemental Data
Net assets, end of period........ $517,565,579 $427,168,395 $501,196,278 $321,758,333 $237,673,316
Ratio of expenses to average
net assets..................... 0.74% 0.74% 0.73% 0.73% 0.75%(a)
Ratio of net investment income
to average net assets.......... 6.39% 6.36% 7.20% 8.08% 8.44%(a)
Portfolio turnover rate 41.91% 75.67% 111.52% 90.45% 8.19%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Short Bond Portfolio
September 17, 1994
(Commencement
Year-Ended of Operations) to
December 31, December 31,
1995 1994
------------ ------------------
<S> <C> <C>
Net asset value, beginning
of period...................... $ 9.84 $10.00
Income from investment
operations:
Net investment income.......... 0.58 0.17
Net realized and unrealized
gains (losses) on
investments.................. 0.39 (0.16)
------------ -----------
Total from investment
operations................... $ 0.97 $ 0.01
------------ -----------
Less distributions:
From net investment
income....................... $(0.58) $(0.17)
From realized
gains........................ 0.00 0.00
------------ -----------
Total distributions............ $(0.58) $(0.17)
------------ -----------
Net asset value, end of
period......................... $10.23 $ 9.84
============ ===========
Total return..................... 10.07% 0.21%(a)
Ratios/Supplemental Data
Net assets, end of period........ $163,336,855 $64,239,163
Ratio of expenses to average
net assets..................... 0.75% 0.75%(a)
Ratio of net investment income
to average net assets.......... 5.74% 5.92%(a)
Ratio of expenses to average net
assets without fee waivers/
reimbursed expenses............. 0.81% 0.93%(a)
Ratio of net investment income to
average net assets without fee
waivers/reimbursed expenses..... 5.68% 5.74%(a)
Portfolio turnover rate 30.94% 10.20%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Portfolio
February 1, 1993
(Commencement
Year Ended Year Ended of Operations) to
December 31, December 31, December 31
1995 1994 1993
------------ ------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.. $ 9.59 $10.69 $10.00
Income from investment operations:
Net investment income............... 0.48 0.50 0.45
Net realized and unrealized
gains (losses)
on investments.................... 1.08 (1.11) 0.69
----------- ----------- -----------
Total from investment operations.... $ 1.56 $(0.61) $ 1.14
----------- ----------- -----------
Less distributions:
From net investment income.......... (0.47) $(0.49) $(0.44)
----------- ----------- -----------
From realized gains................. 0.00 (0.01)
----------- ----------- -----------
Total distributions................. $(0.47) $(0.49) $(0.45)
----------- ----------- -----------
Net asset value, end of period........ $10.68 $ 9.59 $10.69
=========== =========== ===========
Total return.......................... 16.54% (5.72%) 12.69%(a)
Ratios/Supplemental Data
Net assets, end of period............. $76,963,564 $61,255,733 $54,703,974
Ratio of expenses to average net assets 0.79% 0.53% 0.19%(a)
Ratio of net investment income to
average net assets.................. 4.63% 4.94% 5.27%(a)
Ratio of expenses to average net assets
without fee waivers/reimbursed
expenses............................ 0.93% 0.88% 1.12%(a)
Ratio of net investment income to average
net assets without fee waivers/reimbursed
expenses............................ 4.49% 4.59% 4.34%(a)
Portfolio turnover rate............... 20.46% 19.11% 11.12%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Bond Portfolio
February 1, 1993
(Commencement
Year Ended Year Ended of Operations) to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning
of period...................... $9.54 $10.60 $10.00
Income from investment
operations:
Net investment income.......... 0.48 0.50 0.44
Net realized and unrealized
gains (losses) on
investments.................. 1.06 (1.06) 0.59
----------- ----------- -----------
Total from investment
operations................... $ 1.54 $(0.56) $ 1.03
----------- ----------- -----------
Less distributions:
From net investment
income....................... $(0.48) $(0.50) $(0.43)
From realized
gains........................ -- 0.00 0.00
----------- ----------- -----------
Total distributions............ $(0.48) $(0.50) $(0.43)
----------- ----------- -----------
Net asset value, end of
period......................... $10.60 $ 9.54 $10.60
=========== =========== ===========
Total return..................... 16.49% (5.42)% 11.50%(a)
Ratios/Supplemental Data
Net assets, end of period........ $53,453,160 $45,263,059 $42,113,795
Ratio of expenses to average
net assets..................... 0.79% 0.53% 0.19%(a)
Ratio of net investment income
to average net assets.......... 4.71% 5.01% 5.12%(a)
Ratio of expenses to average
net assets without fee
waivers/reimbursed
expenses....................... 1.04% 1.05% 1.21%(a)
Ratio of net investment income
to average net assets
without fee waivers/reimbursed
expenses....................... 4.46% 4.49% 4.10%(a)
Portfolio turnover rate.......... 26.97% 25.93% 41.70%
<FN>
- ---------
(a) Annualized for periods less than one year for comparability
purposes. Actual annual values may be less than or greater than those shown.
</TABLE>
-9-
<PAGE>
INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the"1940 Act"). The
Trust currently consists of seventeen investment portfolios, each of which
consists of a separate pool of assets with separate investment objectives and
policies. However, only the Class I shares of the Intermediate Bond, Bond,
Short Bond, Municipal Bond and Michigan Municipal Bond Portfolios are offered
pursuant to this Prospectus. The Intermediate Bond, Bond, Short Bond and
Municipal Bond Portfolios are classified as diversified investment portfolios
and the Michigan Municipal Bond Portfolio is classified as a non-diversified
investment portfolio under the 1940 Act.
PROPOSED REORGANIZATION
On December 1, 1995, NBD's parent, NBD Bancorp, Inc., merged with
First Chicago Corporation and the combined company was renamed First Chicago
NBD Corporation ("FCNBD"). An affiliate of FCNBD serves as the investment
adviser to Prairie Funds, Prairie Institutional Funds, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. (collectively, "Prairie").
FCNBD has recommended to both the Board of Trustees of the Trust and the Board
of Trustees/Directors of Prairie that the portfolios of the Trust and Prairie
be reorganized as described below. In light of this recommendation and after
considering various matters, the Trust's Board and Prairie's Board have
authorized certain Agreements and Plans of Reorganization (the
"Reorganization").
A Special Meeting of the Shareholders of each Prairie portfolio is
expected to be held in June 1996 to consider the approval or disapproval of
the Reorganization. The Reorganization generally provides for the transfer of
substantially all of each Prairie portfolio's assets and liabilities to a
corresponding portfolio of the Trust in exchange for such portfolio's shares.
In connection with the proposed Reorganization, a Special Meeting of
the Shareholders of the Trust is expected to be held in June 1996 to consider
proposals relating to investment policies, service agreements, the election of
two new trustees, and other matters. Proxy materials describing these matters
will be mailed to the Trust's shareholders of record for the meeting.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of a Portfolio may not be changed without
approval of the holders of at least a majority of the outstanding shares of
that Portfolio. See "Other Information." Except as noted below under
"Investment Limitations," a Portfolio's investment policies may be changed
without a vote of shareholders. There can be no assurance that a Portfolio
will achieve its objective.
Intermediate Bond Portfolio
The investment objective of the Intermediate Bond Portfolio is to
maximize total rate of return while providing relative stability of principal
by investing predominantly in intermediate-term debt securities. While the
Portfolio may purchase securities with maturities or average lives of up to 15
years, during normal market conditions, its average weighted portfolio
maturity is expected to be between 3 and 6 years.
Bond Portfolio
The investment objective of the Bond Portfolio is to maximize total
rate of return by investing predominantly in intermediate and long-term debt
-10-
<PAGE>
securities. During normal market conditions, the Portfolio's average weighted
portfolio maturity is expected to be between 6 and 12 years.
Short Bond Portfolio
The investment objective of the Short Bond Portfolio is to maximize
total rate of return while providing relative stability of principal. While
the Portfolio may purchase securities with maturities or average lives of up
to 10 years, during normal market conditions, its average weighted portfolio
maturity will be limited to a maximum of 3 years.
Investment Policies Applicable to the Intermediate Bond, Bond and Short Bond
Portfolios
The two components of total rate of return consist of current income
and capital appreciation. The Portfolios are more likely to exceed the
performance level of equity funds in the market with respect to current
income; however, it is more probable that the capital appreciation performance
of equity funds will surpass that of the Portfolios.
In pursuing their respective investment objectives, the Portfolios may
invest in the following debt securities: (i) obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; (ii) corporate,
bank and commercial obligations; (iii) securities issued or guaranteed by
foreign governments, their agencies or instrumentalities; (iv) securities
issued by supranational banks; (v) mortgage backed securities; and (vi)
securities representing interests in pools of assets. Obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities may
include mortgage backed securities, as well as "stripped securities" (both
interest-only and principal-only) and custodial receipts for Treasury
securities. The Portfolios may also invest in options and futures contracts
and related options. In addition, each Portfolio may invest in high quality
short-term obligations. For further information concerning these securities,
see "Other Investment Policies" below.
Each of the Portfolios invests at least 65% of the total value of its
assets in obligations, including mortgage backed securities, which are
investment grade or are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Most obligations acquired by the Portfolios
will be issued by companies or governmental entities located within the United
States. Up to 15% of the total assets of each Portfolio may, however, be
invested in dollar denominated debt obligations of foreign issuers.
The debt securities in which the Portfolios may invest will be rated
investment grade, or if unrated, will be deemed by the Adviser to be
comparable in quality at the time of purchase to instruments that are so
rated. By so restricting their investments, the Portfolios' ability to
maximize total rate of return will be limited.
Municipal Bond Portfolio
The investment objective of the Municipal Bond Portfolio is to seek as
high a level of current income exempt from federal income tax as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Portfolio seeks to achieve this objective by investing
primarily in investment grade debt obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their respective political subdivisions, agencies,
instrumentalities and authorities, the interest on which is, in the opinion of
bond counsel for the issuers, exempt from regular federal income tax
("Municipal Securities").
-11-
<PAGE>
Michigan Municipal Bond Portfolio
The investment objective of the Michigan Municipal Bond Portfolio is
to seek as high a level of current income exempt from federal, and to the
extent possible, from State of Michigan income taxes as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Portfolio seeks to achieve this objective by investing primarily in
investment grade debt obligations issued by the State of Michigan, its
political subdivisions, municipalities, corporations and authorities, the
interest on which is, in the opinion of bond counsel to the issuers, exempt
from federal and State of Michigan income taxes ("Michigan Municipal
Securities"). To the extent that acceptable Michigan Municipal Securities are
at any time unavailable for investment by the Portfolio, the Portfolio will
invest primarily in other Municipal Securities the interest on which is, in
the opinion of bond counsel, exempt from federal, but not State of Michigan
income taxes.
Investment Policies Applicable to the Municipal Bond and Michigan Municipal
Bond Portfolios
At least 80% of each of the Portfolios' total assets will be invested
in Municipal Securities except in extraordinary circumstances, such as when
the Adviser believes that market conditions indicate that a Portfolio should
adopt a temporary defensive position by holding uninvested cash or investing
in taxable short-term securities ("Short-Term Investments"). This policy is
fundamental with respect to each Portfolio and may not be changed without the
approval of the holders of a majority of the Portfolio's outstanding shares.
In addition, with respect to the Michigan Municipal Bond Portfolio, at least
65% of its total assets will be invested under normal market conditions in
Michigan Municipal Securities and the remainder may be invested in securities
that are not Michigan Municipal Securities and therefore may be subject to
Michigan income taxes. (See "Taxes.")
During normal market conditions each Portfolio's average weighted
portfolio maturity is expected to be between 7 and 20 years.
Investment Policies Applicable to All Portfolios
Although fixed income securities acquired by the Intermediate Bond and
Bond Portfolios will normally have intermediate or long-term maturities,
during temporary defensive periods the Portfolios may invest without
limitation in high quality short-term investments.
The Adviser manages the Portfolios based on anticipated interest rate
changes and the use of active management strategies such as sector rotation,
intra-sector adjustments and yield curve and convexity considerations. In use
of such active management strategies, the Adviser seeks value in investment
grade fixed income securities. Sector rotation involves the Adviser selecting
among different economic or industry sectors based upon apparent or relative
attractiveness. Thus at times a sector offers yield advantages relative to
other sectors. An intra-sector adjustment occurs when the Adviser determines
to select a particular issue within a sector. Yield curve considerations
involve the Adviser attempting to compare the relationship between time to
maturity and yield to maturity in order to identify the relative value in the
relationship. Convexity considerations consist of the Adviser seeking
securities that rise in price more quickly, or decline in price less quickly,
than the typical security of that price risk level and therefore enable the
Adviser to obtain an additional return when interest rates change
dramatically.
In acquiring particular portfolio securities for a Portfolio, the
Adviser will consider, among other things, historical yield relationships
between private and governmental debt securities, intermarket yield
relationships among various
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industry sectors, current economic cycles and the attractiveness and
creditworthiness of particular issuers. Depending upon the Adviser's analysis
of these and other factors, a Portfolio's holdings of issues in particular
industry sectors may be overweighted when compared to the relative industry
weightings in related recognized indices. The value of the Portfolios can be
expected to vary inversely with changes in prevailing interest rates.
OTHER INVESTMENT POLICIES
Ratings
If not rated as commercial paper, debt obligations acquired by the
Portfolios and Municipal Securities acquired by the Municipal Bond and
Michigan Municipal Bond Portfolios will be investment grade at the time of
purchase, i.e., obligations rated AAA, AA, A or BBB by Standard & Poor's
Ratings Group, Division of McGraw Hill ("S&P"), Fitch Investors Service
("Fitch"), Duff & Phelps Credit Co. ("Duff") or IBCA, Inc. ("IBCA") or Aaa,
Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") (each a "Rating
Agency") in the case of bonds, rated SP-2 or higher by S&P, MIG-2 or higher by
Moody's or F-2 or higher by Fitch, in the case of notes, rated A-2 or higher
by S&P, Prime-2 or higher by Moody's, F-2 or higher by Fitch or A2 or higher
by IBCA, in the case of tax-exempt commercial paper or VMIG or higher by
Moody's in the case of variable demand notes, or be unrated but deemed by the
Adviser to be comparable in quality at the time of purchase to instruments
that are so rated. Obligations rated in the lowest of the top four rating
categories (Baa by Moody's, BBB by S&P or Fitch or IBCA) are considered to
have less capacity to pay interest and repay principal and have certain
speculative characteristics. In the event that the rating of a security held
by the Municipal Bond or Michigan Municipal Bond Portfolios is reduced below
Baa by Moody's, BBB by S&P, BBB by Fitch or BBB by IBCA, the security will be
disposed of in an orderly fashion as soon as possible. The debt ratings are
described in the Statement of Additional Information.
Short-Term Investments
Each Portfolio may hold short-term U.S. Government obligations, "high
quality" money market instruments such as certificates of deposit, bankers'
acceptances and time deposits (i.e. those rated at the time of purchase within
the two highest rating categories or which are unrated at such time but are
deemed by the Adviser to be of comparable quality), repurchase agreements,
reverse repurchase agreements, short-term obligations issued by state and
local governmental issuers which carry yields that are competitive with those
of other types of high quality money market instruments, commercial paper,
notes, other short-term obligations, variable rate master demand notes, and
cash, pending investment, to meet anticipated redemption requests or if, in
the opinion of the Adviser, suitable bonds or other fixed income securities in
which the Portfolios invest are unavailable. Such investments may be in such
proportions as, in the opinion of the Adviser, existing circumstances may
warrant, and may include obligations of foreign banks and foreign branches of
U.S. banks. The Portfolios may also invest their cash balances in securities
issued by other investment companies which invest in high-quality, short-term
debt securities. These short-term investments are described in greater detail
in the Statement of Additional Information.
U.S. Government Obligations
The Portfolios may invest in all types of U.S. Government securities,
including U.S. Treasury bonds, notes and bills, and obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student
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Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration. The
Portfolios may also invest in interests in the foregoing securities, including
collateralized mortgage obligations guaranteed by a U.S. Government agency or
instrumentality, and in Government-backed trusts which hold obligations of
foreign governments that are guaranteed or backed by the full faith and credit
of the United States.
Obligations of certain U.S. Government agencies and instrumentalities
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not legally obligated to do so.
Stripped Government Obligations
The Intermediate Bond, Bond and Short Bond Portfolios may purchase
Treasury receipts and other "stripped" securities that evidence ownership in
either the future interest payments or the future principal payments on U.S.
Government obligations. These participations, which may be issued by the U.S.
Government (or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions, are issued at a discount to
their "face value," and may include stripped mortgage backed securities
("SMBS"), which are derivative multi-class mortgage securities. Stripped
securities, particularly SMBS, may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. With respect to investments
in interest only securities, should the underlying obligations experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments may be more volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest are generally higher than prevailing
market yields on other mortgage backed obligations because their cash flow
patterns are more volatile. For interest only securities, there is a greater
risk that the initial investment will not be fully recouped.
Custodial Receipts and Certificates of Participation
The Intermediate Bond, Bond and Short Bond Portfolios may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATs) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. These participations are normally issued at a discount to their
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"face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Securities acquired by the Municipal Bond and Michigan Municipal Bond
Portfolios may be in the form of custodial receipts evidencing rights to
receive a specific future interest payment, principal payment or both on
certain Municipal Securities. Such securities are held in custody by a bank on
behalf of holders of the receipts. These custodial receipts are known by
various names, including "Municipal Receipts," "Municipal Certificates of
Accrual on Tax-Exempt Securities" ("M-CATs") and "Municipal Zero-Coupon
Receipts." The Portfolios may also purchase from time to time certificates of
participation that, in the opinion of counsel to the issuer, are exempt from
federal income tax. A certificate of participation gives a Portfolio an
undivided interest in a pool of Municipal Securities. Certificates of
participation may have fixed, floating or variable rates of interest. If a
certificate of participation is unrated, the Adviser will have determined that
the instrument is of comparable quality to those instruments in which a
Portfolio may invest pursuant to guidelines approved by the Board of Trustees.
For certain certificates of participation, a Portfolio will have the right to
demand payment, on not more than 30 days' notice, for all or any part of such
Portfolio's participation interest, plus accrued interest. As to these
instruments, each Portfolio intends to exercise its right to demand payment as
needed to provide liquidity, to maintain or improve the quality of its
investment portfolio or upon a default (if permitted under the terms of the
instrument).
Repurchase and Reverse Repurchase Agreements
To increase its income, each Portfolio may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price ("repurchase
agreements"). No Portfolio will enter into repurchase agreements with the
Adviser, the Co-Distributors, or any of their affiliates. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, marked to
market daily. Default by the seller would, however, expose a Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Portfolio may also obtain funds for temporary purposes by
entering into reverse repurchase agreements. Pursuant to such agreements the
Portfolios will sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at a particular date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the price of the
securities it is obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Portfolio may lend its
portfolio securities to financial institutions such as banks and
broker-dealers in accordance with the investment limitations described below.
Agreements would require that the loans be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned plus accrued interest. Collateral for such loans could include cash or
securities of the U.S. Government, its agencies or instrumentalities. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of a particular Portfolio exceeds one-third of the value of its total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned or possible loss of rights in the
collateral should the borrower of the securities become insolvent. Loans will
be made only to borrowers that provide
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the requisite collateral comprised of liquid assets and when, in the Adviser's
judgment, the income to be earned from the loan justifies the attendant risks.
Illiquid Securities
In accordance with their fundamental investment limitation described
below, the Intermediate Bond, Bond, Municipal Bond and Michigan Municipal Bond
Portfolios will not knowingly invest more than 10% and the Short Bond
Portfolio will not knowingly invest more than 15% of the value of their
respective total assets in securities that are illiquid. Securities having
legal or contractual restrictions on resale or no readily available market,
and instruments (including repurchase agreements, variable and floating rate
instruments and time deposits) that do not provide for payment to the
Portfolios within seven days after notice are subject to this limitation.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed to be illiquid for purposes of this
limitation.
The Portfolios may purchase securities which are not registered under
the Securities Act of 1933, as amended (the "1933 Act"), but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered to be illiquid so long as
it is determined by the Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading
market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in a Portfolio during any period
that qualified institutional buyers become uninterested in purchasing these
restricted securities. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development, and it is not possible to predict how
this market will develop. The Board of Trustees will carefully monitor any
investments by a Portfolio in these securities.
Borrowings
The Portfolios may borrow money for temporary purposes in accordance
with the investment limitations described below. Borrowings may be effected
through reverse repurchase agreements under which the Portfolios would sell
portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities
it is obligated to repurchase.
Asset Backed Securities
Asset backed securities held by the Intermediate Bond, Bond and Short
Bond Portfolios arise through the grouping by governmental, government-related
and private organizations of loans, receivables and other assets originated by
various lenders ("Asset Backed Securities"), as described below.
The yield characteristics of Asset Backed Securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an Asset
Backed Security is purchased at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an Asset Backed Security is purchased at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the Portfolios, the maturity of Asset Backed Securities
will be based on estimates of average life.
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Prepayments on Asset Backed Securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayment rates are
also influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage backed securities is of shorter maturity
than mortgage loans and is less likely to experience substantial prepayments.
Like other fixed income securities, when interest rates rise the value of an
Asset Backed Security generally will decline; however, when interest rates
decline, the value of an Asset Backed Security with prepayment features may
not increase as much as that of other fixed income securities, and, as noted
above, changes in market rates of interest may accelerate or retard
prepayments and thus affect maturities.
These characteristics may result in a higher level of price volatility
for these assets under certain market conditions. In addition, while the
trading market for short-term mortgages and Asset Backed Securities is
ordinarily quite liquid, in times of financial stress the trading market for
these securities sometimes becomes restricted.
Mortgage Backed Securities. Asset Backed Securities acquired by the
Intermediate Bond, Bond and Short Bond Portfolios consist of both mortgage and
non-mortgage backed securities. Mortgage backed securities represent an
ownership interest in a pool of mortgages, the interest on which is in most
cases issued and guaranteed by an agency or instrumentality of the U.S.
Government, although not necessarily by the U.S. Government itself. Mortgage
backed securities include collateralized mortgage obligations and mortgage
pass-through certificates.
Collateralized mortgage obligations ("CMOs") provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways.
These multiple class securities may be issued or guaranteed by U.S. Government
agencies or instrumentalities, including the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by trusts formed
by private originators of, or investors in, mortgage loans. Classes in CMOs
which the Portfolios may hold are known as "regular" interests. CMOs also
issue "residual" interests, which in general are junior to and more volatile
than regular interests. The Portfolios do not intend to purchase residual
interests.
Mortgage pass-through certificates provide the holder with a pro rata
interest in the underlying mortgages. One type of such certificate in which
the Portfolios may invest is a GNMA Certificate which is backed as to the
timely payment of principal and interest by the full faith and credit of the
U.S. Government. Another type is a FNMA Certificate, the principal and
interest of which are guaranteed only by FNMA itself, not by the full faith
and credit of the U.S. Government. Another type is a FHLMC Participation
Certificate which is guaranteed by FHLMC as to timely payment of principal and
interest. However, like a FNMA security, it is not guaranteed by the full
faith and credit of the U.S. Government. Privately issued mortgage backed
securities will carry a rating at the time of purchase of at least A by S&P or
by Moody's or, if unrated, will be in the Adviser's opinion equivalent in
credit quality to such rating. Mortgage backed securities issued by private
issuers, whether or not such obligations are subject to guarantees by the
private issuer, may entail greater risk than obligations directly or
indirectly guaranteed by the U.S. Government.
Non-Mortgage Backed Securities. The Intermediate Bond, Bond and Short
Bond Portfolios may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations
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and credit card receivables. Such securities are generally issued as pass-
through certificates, which represent undivided fractional ownership interests
in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
Non-mortgage backed securities involve certain risks that are not
presented by mortgage backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the motor vehicle receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
Variable and Floating Rate Instruments
The Intermediate Bond, Bond and Short Bond Portfolios may invest in
inverse floating rate debt instruments ("inverse floaters") some of which may
be leveraged. The interest rate of an inverse floater resets in the opposite
direction from the market rate of interest to which it is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index
rate of interest. The higher degree of leverage inherent in inverse floaters
is associated with greater volatility in their market values.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of the instruments if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise
demand rights, and the Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments. Variable and floating rate instruments
(including inverse floaters) will be subject to a Portfolio's limitation on
illiquid investments. See "Illiquid Securities."
Zero Coupon Obligations
Each Portfolio may invest in zero coupon obligations which are
discount debt obligations that do not make periodic interest payments although
income is generally imputed to the holder on a current basis. Such obligations
may have higher price volatility than those which require the payment of
interest periodically. The Adviser will consider the liquidity needs of the
Portfolios when any investment in zero coupon obligations is made.
Municipal and Related Securities
Municipal Securities acquired by the Municipal Bond and Michigan
Municipal Bond Portfolios may include general obligations, revenue
obligations, notes, and moral obligation bonds. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue obligations are payable only
from the revenues derived from a particular facility, class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source such as the user of the
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facility being financed. Private activity bonds (i.e. bonds issued by
industrial development authorities) are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently,
the credit quality of a private activity bond is usually directly related to
the credit standing of the private user of the facility involved. Although
interest paid on private activity bonds is exempt from regular federal income
tax, it may be treated as a specific tax preference item under the federal
alternative minimum tax. (See "Taxes") Notes are short-term instruments which
are obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Moral obligation bonds are normally issued by a special purpose public
authorities. If the issuer of a moral obligation bond is unable to met its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of
the state or municipality which created the issuer. Municipal Securities also
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. The
Adviser will only invest in rated municipal lease/purchase agreements.
There are, of course, variations in the quality of Municipal
Securities both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue.
Among other securities, the Municipal Bond and Michigan Municipal Bond
Portfolios may purchase short-term Tax Anticipation Notes. Bond Anticipation
Notes, Revenue Anticipation Notes and other forms of short-term loans. Such
notes are issued with a short-term maturity in anticipation of the receipt of
tax or other funds, the proceeds of bonds or other revenues. The Portfolios
may also acquire zero coupon obligations, which have greater price volatility
than coupon obligations and which will not result in the payment of interest
until maturity.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax (and, with respect to
Michigan Municipal Securities, Michigan income taxes) are rendered by bond
counsel to the respective issues at the time of issuance. Neither the
Portfolios nor the Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal Securities purchased by the Municipal Bond and Michigan Bond
Portfolios may include rated and unrated variable and floating rate tax-exempt
instruments. There may be no active secondary market with respect to a
particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a
Portfolio will approximate their par value. Illiquid variable and floating
rate instruments (instruments which are not payable upon seven days' notice
and do not have an active trading market) that are acquired by the Portfolios
are subject to Portfolios' limitation on illiquid instruments. See "Illiquid
Securities."
Futures Contracts and Related Options
The Intermediate Bond, Bond and Short Bond Portfolios may trade
futures contracts and options on futures contracts in U.S. domestic markets,
such as the Chicago Board of Trade and the International Monetary Market of
the Chicago Mercantile Exchange. They may purchase and sell futures contracts
which obligate a Portfolio to take or make delivery of fixed income securities
at maturity commonly known as interest rate futures contracts.
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A Portfolio may sell a futures contract in order to offset an expected
decrease in the value of its portfolio that might otherwise result from a
market decline. A Portfolio may do so either to hedge the value of its
securities portfolio as a whole, or to protect against declines occurring
prior to sales of securities in the value of the securities to be sold. In
addition, a Portfolio may utilize futures contracts in anticipation of changes
in the composition of its holdings.
The Portfolios may also purchase options on futures contracts and may
purchase and write put and call options on bond indices listed on U.S.
exchanges or traded in the over-the-counter market. A futures option gives the
holder, in return for the premium paid, the right to buy (call) from or sell
(put) to the writer of the option a futures contract at a specified price at
any time during the period of the option.
When a Portfolio sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised.
In anticipation of a market advance, a Portfolio may purchase call options on
futures contracts as a substitute for the purchase of futures contracts to
hedge against a possible increase in the price of securities which the
Portfolio intends to purchase. Similarly, if the value of a Portfolio's
portfolio securities is expected to decline, the Portfolio might purchase put
options or sell call options on futures contracts rather than sell futures
contracts.
The Portfolios' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated
by the Commodities and Futures Trading Commission ("CFTC"). In addition, a
Portfolio may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of its assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the
percentage limitation. Pursuant to SEC requirements, the Portfolios may be
required to segregate cash or high quality money market instruments in
connection with their commodities transactions in an amount generally equal to
the value of the underlying commodity. The Trust intends to comply with the
regulations of the CFTC exempting the Portfolios from registration as a
"commodity pool operator".
For a more detailed description of futures contracts and related
options, see Appendix B to the Statement of Additional Information.
Options
Each Portfolio may purchase and sell put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation
for hedging purposes. Such transactions may be effected on a principal basis
with primary reporting dealers in U.S. Government securities in an amount not
exceeding 5% of a Portfolio's net assets, as described further in the
Statement of Additional Information. Such options may relate to particular
securities or to various bond indices. Purchasing options is a specialized
investment technique which entails a substantial risk of a complete loss of
the amounts paid as premiums to the writer of the option.
A Portfolio may purchase and sell put options on portfolio securities
at or about the same time that they purchase the underlying security or at a
later time. By buying a put, a Portfolio limits its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Call options may be
purchased by a Portfolio in
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order to acquire the underlying security at a later date at a price that
avoids any additional cost that would result from an increase in the market
value of the security. A Portfolio may also purchase call options to increase
its return to investors at a time when the call is expected to increase in
value due to anticipated appreciation of the underlying security. Prior to its
expiration, a purchased put or call option may be sold in a closing sale
transaction (a sale by a Portfolio, prior to the exercise of an option that it
has purchased, of an option of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the
premium paid for the option plus the related transaction costs.
In addition, each Portfolio may write covered call and secured put
options. A covered call option means that a Portfolio owns or has the right to
acquire the underlying security subject to call at all times during the option
period. A secured put option means that a Portfolio maintains in a segregated
account with its custodian cash or U.S. Government securities in an amount not
less than the exercise price of the option at all times during the option
period. Such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation and may be effected on a principal
basis with primary reporting dealers in U.S. Government securities. The
aggregate value of the securities subject to options written by a Portfolio
will not exceed 25% of the value of its net assets. In order to close out an
option position prior to maturity, a Portfolio may enter into a "closing
purchase transaction" by purchasing a call or put option (depending upon the
position being closed out) on the same security with the same exercise price
and expiration date as the option which it previously wrote.
By writing a covered call option, a Portfolio forgoes the opportunity
to profit from an increase in the market price of the underlying security
above the exercise price except insofar as the premium represents such a
profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Portfolio effects a closing purchase
transaction by purchasing an option of the same series. If a Portfolio writes
a secured put option, it assumes the risk of loss should the market value of
the underlying security decline below the exercise price of the option. The
use of covered call and secured put options will not be a primary investment
technique of the Portfolios.
For additional information relating to option trading practices,
including particular risks thereof, see the Statement of Additional
Information.
Risk Factors Associated with Futures and Related Options
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, due to the risk of an imperfect correlation between securities
in its portfolio that are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge will not be
fully effective. For example, losses on the portfolio securities may be in
excess of gains on the futures contract or losses on the futures contract may
be in excess of gains on the portfolio securities that were the subject of the
hedge. In futures contracts based on indices, the risk of imperfect
correlation increases as the composition of the Portfolio varies from the
composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
contract has been less or greater than that of the securities. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net
investment results if market movements are not as anticipated when the hedge
is established.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of
securities prices,
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interest rates and other economic factors. For example, if the Portfolio has
hedged against the possibility of a decline in the market adversely affecting
the value of securities held in its portfolio and prices increase instead, the
Portfolio will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will not necessarily,
be at increased prices which reflect the rising market. The Portfolio may have
to sell securities at a time when it may be disadvantageous to do so.
Although a Portfolio intends to enter into futures contracts and
options transactions only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. See "Illiquid Securities" above. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contracts prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. If it is not possible, or the Portfolio
determines not, to close a futures position in anticipation of adverse price
movements, it will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses on
the futures contract.
Risk Factors Associated with Derivative Instruments
The Portfolios may purchase certain "derivative instruments."
Derivative instruments are instruments that derive value from the performance
of underlying assets, interest or currency exchange rates, or indices, and
include (but are not limited to) futures contracts, options and structured
debt obligations (including collateralized mortgage obligations and various
floating rate instruments, including inverse floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option)
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative instruments are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
The Adviser will evaluate the risks presented by the derivative
instruments purchased by the Portfolios, and will determine, in connection
with its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that the Adviser's evaluations will prove to be inaccurate or incomplete and,
even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in derivative instruments.
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Foreign Securities
The Intermediate Bond, Bond and Short Bond Portfolios may invest in
dollar-denominated obligations of foreign issuers. Such investments may
include both obligations of foreign corporations and banks, as well as
obligations of foreign governments and their political subdivisions.
Investments in foreign securities, whether made directly or indirectly,
involve certain inherent risks, such as political or economic instability of
the issuer or the country of issue, the difficulty of predicting international
trade patterns, changes in exchange rates of foreign currencies and the
possibility of adverse changes in investment or exchange control regulations.
There may be less publicly available information about a foreign company than
about a U.S. company. Listed foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. Further, foreign stock markets are
generally not as developed or efficient as those in the U.S. and in most
foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation limitations
on the removal of funds or other assets or diplomatic developments that could
affect investment within those countries. Because of these and other factors,
securities of foreign companies acquired by a Portfolio may be subject to
greater fluctuation in price than securities of domestic companies.
Furthermore, some securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the costs of such
investments and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the Portfolios from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Portfolio will reduce its net income available for distribution to
investors.
Supranational Bank Obligations
The Intermediate Bond, Bond and Short Bond Portfolios may invest in
obligations of supranational banks. Supranational banks are international
banking institutions designed or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the World
Bank). Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance that
these commitments will be undertaken or met in the future.
When-Issued Purchases and Forward Commitments
The Portfolios may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock-in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. When-issued and forward commitment transactions
involve the risk, however, that the yield obtained in a transaction may be
less favorable than the yield available in the market when the securities
delivery takes place. Each Portfolio's forward commitments and when-issued
purchases are not expected to exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolios do not earn income with
respect to these transactions until the subject securities are delivered to
the Portfolios. The Portfolios do not intend
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to engage in when-issued purchases and forward commitments for speculative
purposes but only in furtherance of their investment objectives.
Special Risk Considerations Applicable to the Michigan Municipal Bond
Portfolio
The Michigan Municipal Bond Portfolio will under normal market
conditions consist of Michigan Municipal Securities to the extent of 65% or
more of its total assets. This concentration in securities issued by
governmental units of only one state exposes the Portfolio to risk of loss
greater than that of a more diversified portfolio holding securities issued by
governmental units of different states and different regions of the country.
Moreover, the economy of the State of Michigan is heavily dependent
upon the automobile manufacturing industry. This industry is highly cyclical.
This factor affects the revenue streams of the State of Michigan and its
political subdivisions because it impacts on tax sources, particularly sales
taxes, income taxes and Michigan single business taxes.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
The heavy concentration of the Michigan Municipal Bond Portfolio in
Michigan Municipal Securities and the cyclical nature of the economy of the
State of Michigan may adversely affect the liquidity of the Portfolio.
In 1993 and 1994, Michigan adopted complex statutory and
constitutional changes which, among several other changes in tax methods and
rates, have the effect of imposing limits on annual assessment increases and
of transferring a significant part of the operating cost of public education
from locally based property tax sources to state based sources, including
increased sales tax. These changes will affect state and local revenues of
Michigan governmental units in future years in differing ways, not all of
which can be presently known with certainty.
Portfolio Turnover
Generally, the Portfolios will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Portfolio may sell a portfolio investment soon after its
acquisition if the Adviser believes that such a disposition is consistent with
or in furtherance of the Portfolio's investment objective. Portfolio
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, the Portfolios
are likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Portfolio
turnover may also result in the realization of substantial net capital gains.
(See "Taxes-Federal" in the Prospectus and "Additional Information Concerning
Taxes" in the Statement of Additional Information.) While it is not possible
to accurately predict portfolio turnover rates, the annual turnover rates for
the Intermediate Bond, Bond, Short Bond, Municipal Bond and Michigan Municipal
Bond Portfolios are not expected to exceed 300%, 400%, 300%, 100% and 100%,
respectively.
Investment Limitations
Each Portfolio is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to a particular Portfolio without the affirmative vote
of the holders of a majority of the Portfolio's outstanding shares. Other
investment limitations that cannot be changed without a vote of shareholders
are
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contained in the Statement of Additional Information under "Investment
Objectives, Policies and Risk Factors."
No Portfolio may:
1. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured by such
instruments, (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents, (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry, (d)
personal credit and business credit businesses will be considered separate
industries, and (e) there is no limitation with respect to or arising out of
investments in Municipal Securities (other than private activity bonds).
2. Make loans, except that each Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding one-third of its total assets.
3. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Portfolio's total assets at the time of such borrowing. No Portfolio will
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Portfolio's
investment practices described in the Statement of Additional Information or
in this Prospectus are not deemed to be pledged for purposes of this
limitation.
The Intermediate Bond, Bond, Municipal Bond and Michigan Municipal
Bond Portfolios may not invest more than 10% of their respective total assets
in illiquid investments. The Short Bond Portfolio may not invest more than 15%
of its total assets in illiquid investments. See "Illiquid Securities" above.
The Intermediate Bond, Bond, Short Bond and Municipal Bond Portfolios
may not purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by a
Portfolio, except that up to 25% of the value of the Portfolio's total assets
may be invested without regard to these limitations.
The Michigan Municipal Bond Portfolio may not with respect to 50% of
its total assets, invest more than 5% of its assets in securities of any one
issuer, except U.S. Government obligations or securities of other regulated
investment companies.
For purposes of the Investment Limitations above, (i) a security is
considered to be issued by the governmental entity (or entities) whose assets
and revenues back the security, or with respect to a private activity bond
that is backed only by the assets and revenues of a non-governmental user, a
security is considered to be issued by such non-governmental user; (ii) in
certain
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circumstances, the guarantor of a guaranteed security may also be considered
to be an issuer in connection with such guarantee; and (iii) U.S. Government
obligations (including securities backed by the full faith and credit of the
United States) are deemed to be U.S. Government obligations for purposes of
the 1940 Act.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Portfolio's portfolio securities will not constitute
a violation of such limitation for purposes of the 1940 Act.
In order to permit the sale of a Portfolio's shares in certain states,
the Portfolios may make commitments more restrictive than the investment
policies and limitations described above. Should a Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio, it
will revoke the commitment by terminating sales of its shares in the state
involved.
PURCHASE OF SHARES
In General
Each Portfolio's shares are offered and sold on a continuous basis by
FoM and Essex, as the Trust's Co-Distributors. FoM is a registered
broker/dealer with offices at 100 Renaissance Center, 26th Floor, Detroit,
Michigan 48243. Essex is a registered broker/dealer with offices at 215
Gateway Road West, Napa, California 94558.
Class I shares are sold primarily to NBD and its affiliated and
correspondent banks (the "Banks") acting on behalf of their respective
customers. The Banks may impose different minimum investment and other
requirements, as well as account charges, on their customers and may establish
separate operational arrangements by which shares may be purchased and
redeemed. Customers should contact their Banks for further information.
It is the responsibility of the Banks to transmit their customers'
purchase orders to NBD acting as transfer agent (the "Transfer Agent") and to
deliver required funds on a timely basis. Class I shares will normally be held
of record by the Banks. Confirmations of share purchases and redemptions will
be sent to the Banks. Beneficial ownership of Class I shares will be recorded
by the Banks and reflected in the account statements provided by them to their
customers.
Purchase orders which are accompanied by payment (by check or wire
transfer) and received by the Transfer Agent in proper form on a Business Day
(as defined below) prior to the close of the New York Stock Exchange
("Exchange") are priced at net asset value of the particular Portfolio
determined on that Business Day. Purchase orders which are received by the
Transfer Agent after the close of trading on the Exchange on a Business Day or
on non-Business Days will be executed as of the determination of net asset
value on the next Business Day.
Questions concerning the purchase of shares should be directed to
the Transfer Agent at (800) 688-3350.
Net Asset Value and Pricing of Shares
The net asset value of each Portfolio for purposes of pricing purchase
and redemption orders is determined as of the close of trading on the floor
of the New York Stock Exchange ("Exchange") (currently 4:00 p.m., New York
Time), on each day the Exchange is open for business ("Business Day") except:
(i) those holidays which the Exchange observes (currently New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day); and (ii) those Business Days on
which the
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Exchange closes prior to the close of its regular trading hours ("Early
Closing Time"), in which event the net asset value of each Portfolio
will be determined and its shares will be priced as of such Early
Closing Time. Net asset value per Class I share of a Portfolio is calculated
by dividing the value of all securities and other assets belonging to the
Portfolio allocable to that Class I, less the liabilities charged to that
Class I, by the number of the outstanding shares of such Class I.
Securities held by the Portfolios which are traded on only
over-the-counter markets and securities for which there were no transactions
are valued at the average of the current bid and asked prices. Fixed income
securities held by the Portfolios are valued according to the broadest and
most representative market, which ordinarily will be the over-the-counter
markets, whether in the United States or in foreign countries. Such securities
are valued at the average of the current bid and asked prices. Securities for
which accurate market quotations are not readily available, and other assets
are valued at fair value by the Adviser under the supervision of the Board of
Trustees. Securities may be valued on the basis of prices provided by
independent pricing services when the Adviser believes such prices reflect the
fair market value of such securities. The prices provided by pricing services
take into account institutional size trading in similar groups of securities
and any developments related to specific securities. For valuation purposes,
the value of assets and liabilities expressed in foreign currencies will be
converted to U.S. dollars equivalent at the prevailing market rate on the day
of valuation. A Portfolio's open futures contracts will be "marked-to-market."
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value next determined
after receipt by the Transfer Agent of a proper notice of redemption. It is
the responsibility of the Banks to transmit redemption orders to the Transfer
Agent and credit their customers' accounts with the redemption proceeds on a
timely basis.
The Trust will make payment for redeemed shares within the time period
prescribed by the settlement requirements of the Securities and Exchange Act
of 1934 after receipt by the Transfer Agent of a request in proper form. If
shares to be redeemed were purchased by check, the Trust will transmit the
redemption proceeds promptly upon clearance of such check, which could take up
to fifteen days from the purchase date. A shareholder of record having
purchased shares by wire must have filed an account application before any
redemption requests can be honored.
Written requests to redeem shares having a net asset value of more
than $50,000 must have all signatures of the registered owner(s) or their
authorized legal representative guaranteed by a commercial bank or trust
company which is a member of the Federal Reserve System or FDIC, a member firm
of a national securities exchange or a savings and loan association. A
signature guaranteed by a savings bank or notarized by a notary public is not
acceptable. A signature guarantee will also be required for a redemption
request (in any amount) if the address of record for the account has been
changed within the previous 15 days or which requests that the proceeds be
paid to an account other than the one preauthorized on the application, a
payee or payees other than the registered owners of the account, or an address
other than the address of record. The Trust may require additional supporting
documents for redemptions made by corporations, fiduciaries, executors,
administrators, trustees, guardians and institutional investors.
Currently, the Trust imposes no charge when shares are redeemed.
However, Banks may charge a fee for providing services in connection with
investments in
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Portfolio shares. The Trust reserves the right to redeem shares involuntarily,
after sixty days notice, if redemptions cause an account's value to remain
at $1,000 or less. Under certain circumstances, the Trust may make payment
for redemptions in securities or other property.
Questions concerning the proper form for redemption requests should be
directed to the Transfer Agent at (800) 688-3350.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance and yield of each class of shares of the Portfolios may be
compared to the performance of other mutual funds with similar investment
objectives and to bond or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, performance and yield may be
compared to data prepared by Lipper Analytical Services, Inc. In addition,
performance and yield data as reported in national financial publications such
as Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of a Portfolio.
"Yield" refers to the income generated by an investment in a class of
shares of a Portfolio over a thirty-day period identified in the
advertisement. This income is then "annualized," i.e., the income generated by
the investment during the thirty-day period is assumed to be earned and
reinvested at a constant rate and compounded semi-annually. The annualized
income is then shown as a percentage of the investment. The Municipal Bond and
Michigan Municipal Bond Portfolios may from time to time advertise a
"tax-equivalent yield" to demonstrate the level of taxable yield necessary to
produce an after-tax yield equivalent to that achieved by the Portfolios. The
"tax-equivalent yield" will be computed by dividing the tax-exempt portion of
a Portfolio's yield by a denominator consisting of one minus a stated federal
(and/or Michigan) income tax rate and adding the product to that portion, if
any, of the Portfolio's yield which is not tax-exempt.
The Portfolios calculate their total returns on an "average annual
total return" basis for various periods from the date they commenced
investment operations and for other periods as permitted under the rules of
the SEC. Average annual total return of a class reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns may also be calculated on an "aggregate total return
basis" for various periods. Aggregate total return reflects the total
percentage change in value over the measuring period. Both methods of
calculating total return also reflect changes in the price of the shares and
assume that any dividends and capital gain distributions made by the class
during the period are reinvested in shares of the class. When considering
average total return figures for periods longer than one year, it is important
to note that a class' annual total return for any one year in the period might
have been greater or less than the average for the entire period.
Performance of each class of shares is based on historical earnings
and will fluctuate and is not intended to indicate future performance. The
investment return and principal value of an investment in a class will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Yield and total return data should also be
considered in light of the risks associated with a Portfolio's portfolio
composition, quality, maturity, operating expenses and market conditions. Any
fees charged by
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financial institutions directly to their customer accounts in connection with
investments in shares will not be reflected in performance calculations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid monthly by
the Portfolios. Each Portfolio's net realized capital gains are distributed at
least annually.
Dividends and distributions will reduce a class' net asset value by
the amount of the dividend or distribution. All dividends and distributions
are automatically reinvested in additional Class I shares of the same
Portfolio at their net asset value per share determined on the payment date,
unless the holder has notified the Bank in writing that he elects to have
dividends or capital gain distributions (or both) paid in cash. Shareholders
must make such election, or any revocation thereof, in writing to their
financial institutions. If an account is established with telephone
privileges, the registered owner or his preauthorized legal representative
may change the election to receive dividends in cash to an election to
receive dividends in shares by telephoning the Transfer Agent at
(800) 688-3350. The election will become effective with respect to
dividends paid after its receipt by the Transfer Agent.
TAXES
Federal
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification will relieve the Portfolios of liability for federal income
taxes to the extent their earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Portfolio distribute to
its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. In general, a Portfolio's investment company taxable income will be its
taxable income, subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Portfolio intends to distribute as
dividends substantially all of its investment company taxable income and any
net tax-exempt interest income each year. Such dividends will be taxable as
ordinary income to the Intermediate Bond, Bond and Short Bond Portfolios'
shareholders who are not currently exempt from federal income taxes regardless
of whether a distribution is received in cash or reinvested in additional
shares. (Federal income taxes for distributions to an IRA are deferred under
the Code.) Such ordinary income distributions will qualify for the dividends
received deduction for corporations to the extent of the total qualifying
dividends received by the distributing Portfolio from domestic corporations
for the taxable year. Dividends derived from tax-exempt interest income
("exempt-interest dividends") paid by the Municipal Bond and Michigan
Municipal Bond Portfolios may be treated by their shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. (See Statement of Additional Information under
"Additional Information Concerning Taxes.") An exempt-interest dividend is any
dividend or part thereof (other than a capital gain dividend) paid by the
Municipal Bond and Michigan Bond Portfolios and designated as an
exempt-interest dividend in a written notice mailed to their shareholders not
later than sixty days after the close of such Portfolios' taxable year which
does not exceed in its aggregate the net Municipal Securities interest
received such the Portfolios for the taxable year.
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Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolios will generally have no tax liability with respect to such gains and
the distributions will be taxable to Portfolio shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the shares and whether such
gains are received in cash or reinvested in additional shares.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months will be
deemed for federal tax purposes to have been paid by the Portfolio and
received by the shareholders on December 31 of such year if such dividends are
paid during January of the following year.
Prior to purchasing shares of a Portfolio, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after the purchase of shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of
the dividend or distribution. All or a portion of such amounts, although in
effect a return of capital, is subject to tax.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of shares of a Portfolio depending upon the
tax basis and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase
of Portfolio shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Portfolio within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included under certain
circumstances in the tax basis of the new shares.
Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
State and Local
Dividends paid by the Michigan Municipal Bond Portfolio that are
derived from interest attributable to tax-exempt Michigan Municipal Securities
will be exempt from Michigan income tax, Michigan intangibles tax and Michigan
single business tax. Conversely, to the extent that the Portfolio's dividends
are derived from interest on obligations other than Michigan Municipal
Securities or certain U.S. Government Obligations (or are derived from short
term or long term gains), such dividends will be subject to Michigan income
tax. Michigan intangibles tax and Michigan single business tax, even though
the dividends may be exempt for federal income tax purposes. The Portfolio is
unable to predict in advance the portion of its dividends that will be derived
from interest on Michigan Municipal Securities, but will mail to its
shareholders not later than sixty days after the close of the Portfolio's
taxable year a written notice
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<PAGE>
containing information as to the interest derived from Michigan Securities and
exempt from Michigan income tax, Michigan intangibles tax and Michigan single
business tax.
Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income
under other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
Miscellaneous
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws the treatment of the Trust and
its shareholders under such laws may differ from treatment under federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, which may have different
consequences from those of the federal income tax law described above.
MANAGEMENT
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1995), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992)
and Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of
Henry Ford Health System); Trustee, Henry Ford Health Sciences Center
(since 1987); Trustee, Henry Ford Continuing Care Corporation (since 1980);
Trustee, Earhart Foundation (since 1980). He is 77 years old and his
address is 333 West Fort Street, Detroit, Michigan 48226.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation. He is 75 years old and his
address is 4501 Linden Drive, Midland, Michigan 48640.
Will M. Caldwell, Trustee
Retired; Executive Vice President, Chief Financial Officer and
Director, Ford Motor Company (1979-1985); Director, First Nationwide Bank
(1986-1991); Director, Air Products & Chemicals, Inc. (since 1985); Director,
Zurich Holding Company of America (since 1990); Director, The Batts Group,
Ltd. (since 1986); Trustee and Vice Chairman, Detroit Medical Center
(1986-1991); Trustee Emeritus and Chairman of the Pension Investment
Sub-Committee, Detroit Medical Center (since 1991). He is 70 years old and his
address is 2733 Glenbrook Court, Bloomfield Hills, Michigan 48302.
[FN]
- ---------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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<PAGE>
Nicholas J. De Grazia, Trustee
Consultant, Lionel L.L.C. (since 1995); President, Chief Operating
Officer and Director, Lionel Trains, Inc. (1990-1995); Vice President-Finance
and Treasurer, University of Detroit (1981-1990); President (1986-1990) and
Director (1986-1995), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director
(1992-1995), Central Macomb County Chamber of Commerce; Vice Chairman, Michigan
Higher Education Facilities Authority (since 1991). He is 53 years old and his
address is 3650 Shorewood Drive, North Lakeport, Michigan 48059.
John P. Gould, Trustee
Steven G. Rothmeier Professor (since January, 1996); Distinguished
Service Professor of Economics of the University of Chicago Graduate School
of Business (since 1984); Dean of the University of Chicago Graduate School
of Business (1983-1993); Member of Economic Club of Chicago and Commercial
Club of Chicago, Director of Harbor Capital Advisors and Dimensional Fund
Advisors; Trustee, Prairie Family of Funds. He is 57 years old and his address
is University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, Illinois 60637.
Marilyn McCoy, Trustee
Vice President of Administration and Planning of Northwestern
University (1984-1985); Director of Planning and Policy Development for the
University of Colorado (1981-1985); Member of the Board of Directors of
Evanston Hospital, Chicago Metropolitan YMCA, Chicago Network and United
Charities; Member of the Chicago Economics Club; Trustee, Prairie Family of
Funds. She is 48 years old and her address is 1100 North Lake Shore Drive,
Chicago, Illinois 60611.
Julius L. Pallone, Trustee
President, J.L. Pallone Associates, Consultants (since 1994); Chairman
of the Board (1974-1993), Maccabees Life Insurance Company; President and
Chief Executive Officer, Royal Financial Services (1991-1993); Director,
American Council of Life Insurance of Washington, D.C. (life insurance
industry association) (1988-1993); Director, Crowley, Milner and Company
(department store) (since 1988); Trustee, Lawrence Institute of Technology
(since 1982); Director, Detroit Symphony Orchestra (since 1985); Director,
Oakland Commerce Bank (since 1984) and Michigan Opera Theater (since 1981). He
is 65 years old, and his address is 26957 Northwestern Highway, Suite 288,
Southfield, Michigan 48034.
*Donald G. Sutherland, Trustee
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana. He is 67 years old, and his address is One American Square, 34th
Floor, Indianapolis, Indiana 46204.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992-1995),
Association for Investment Management and Research; Professor of Finance,
Indiana University (1970-1991); Vice President, Trust & Investment Advisers,
Inc. (1990-1991); Director, Federal Home Loan Bank of Indianapolis
(1981 to 1985). He is 61 years old, and his address is 5 Boar's Head Lane,
Charlottesville, Virginia 22903.
[FN]
- ---------
* Trustees who are "interested persons" of the Trust, as defined in the 1940
Act.
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<PAGE>
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information on the compensation paid by the Trust to its Trustees and officers
is included in the Statement of Additional Information.
Investment Adviser, Custodian and Transfer Agent
The investment adviser for each Portfolio is NBD, a wholly owned
subsidiary of First Chicago NBD Corporation, a bank holding company. NBD has
offices at 611 Woodward Avenue, Detroit, Michigan 48226. As of December 31,
1995, NBD was providing investment management and advisory services for
accounts aggregating approximately $37.9 billion. NBD has been in the business
of providing such services since 1933. Included among NBD's accounts are
pension and profit sharing funds for major corporations and state and local
governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
NBD provides investment advisory and certain administrative services
to each Portfolio pursuant to an Advisory Agreement. Subject to the overall
supervision of the Board of Trustees, NBD makes investment decisions for each
of the Portfolios.
Douglas S. Swanson, First Vice President, and Ricardo F. Cipicchio,
Vice President, are primarily responsible for the day-to-day management of the
Intermediate Bond and Bond Portfolios. Mr. Swanson joined NBD in 1983 after
receiving an M.S. in Management from the Massachusetts Institute of Technology
(Sloan School). Prior to joining NBD in 1989, Mr. Cipicchio was employed by
CITGO as a petroleum engineer. Mr. Cipicchio received an MBA in Finance from
the University of Michigan.
Mr. Cipicchio and Christopher J. Nauseda, Vice President, are
primarily responsible for the day-to-day portfolio management of the Short
Bond Portfolio. Mr. Nauseda, who received an MBA from Wayne State University
in 1992, joined NBD in 1982.
Robert T. Grabowski, First Vice President and manager of the municipal
desk at NBD, is the person primarily responsible for the day-to-day management
of the Municipal Bond and Michigan Municipal Bond Portfolios. Mr. Grabowski
has been the portfolio manager of the Portfolio since its inception and
manager of the municipal desk since 1985. Rebecca L. Gersonde, Vice President,
is the associate manager for both portfolios. Ms. Gersonde joined NBD in 1982.
For its services under the Advisory Agreement, NBD is entitled to
receive an advisory fee, computed daily and payable monthly, at an annual rate
of .65% of the average daily net assets of each of the Portfolios. In
addition, NBD is entitled to 4/10ths of the gross income earned by the
Intermediate Bond, Bond, Municipal Bond and Michigan Municipal Bond Portfolios
on each loan of securities (excluding capital gains and losses, if any). NBD
may voluntarily waive its fee in whole or in part with respect to any
particular Portfolio.
NBD also receives compensation as the Trust's Custodian and Transfer
Agent under separate agreements. The fees payable by the Portfolios for these
services are described in the Statement of Additional Information.
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<PAGE>
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956 or any affiliate thereof
from sponsoring, organizing, controlling, or distributing the shares of a
registered open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from underwriting securities, but do
not prohibit such a bank holding company or affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
a customer. The Adviser and the Trust believe that the Adviser may perform the
advisory, custodial and transfer agency services for the Trust described in
this Prospectus, and that the Adviser, subject to such banking laws and
regulations, may perform the shareholder services contemplated by this
Prospectus, without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform investment
advisory, custodial or transfer agency services for the Trust or require the
Adviser to alter or discontinue the services provided by it to shareholders.
If the Adviser were prohibited from performing investment advisory,
custodial or transfer agency services for the Trust, it is expected that the
Board of Trustees would recommend that shareholders approve new agreements
with another entity or entities qualified to perform such services and
selected by the Board. If the Adviser or its affiliates were required to
discontinue all or part of its shareholder servicing activities, their
customers would be permitted to remain the beneficial owners of Portfolio
shares and alternative means for continuing the servicing of such customers
would be sought. The Trust does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
Sponsors and Co-Distributors
FoM, a Delaware corporation and a wholly owned subsidiary of First of
Michigan Capital Corporation, is a sponsor and Co-Distributor of the Trust's
shares. It is engaged in the securities underwriting and securities and
commodities brokerage business and is a member of the New York Stock Exchange,
Inc., other major securities and commodities exchanges, and the National
Association of Securities Dealers, Inc. FoM participates as a member of
various selling groups or as agent of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of their
securities and sells securities to such companies as a broker or dealer in
securities. On December 31, 1995, FoM had a net worth of $37,231,000.
Essex, a New York corporation, is a wholly owned subsidiary of CUC
International, Inc. Essex is engaged in the business of securities brokerage
through financial institutions and is a member of the National Association of
Securities Dealers, Inc. Essex has entered into dealer agreements with the
distributors of various investment companies and executes orders on behalf of
such companies for the purchase and sale of their securities. As of December
31, 1995, Essex had a net worth of $1,945,000.
FoM and Essex act as sponsors and Co-Distributors of the Trust's
shares pursuant to the Distribution Agreement with the Trust which has been
entered into pursuant to the Distribution Plan described below.
Service and Distribution Plan
The Trust has adopted its Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Trust incurs expenses
primarily intended to result in the sale of the Trust's shares in an amount
not to exceed .35 of 1% of the value of each portfolio's average daily net
assets calculated as follows in the case of each Portfolio: (i) fees payable
to the Co-Distributors
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<PAGE>
pursuant to the Distribution Agreement; (ii) the actual costs and expenses in
connection with advertising and marketing the Portfolio's shares; and (iii)
fees pursuant to agreements with securities dealers, financial institutions
and other professionals ("Service Agents") for administration or servicing of
Portfolio shareholders ("Servicing"). Servicing may include, among other
things: answering client inquiries regarding the Trust and the Portfolios;
assisting clients in changing dividend options, account designations and
addresses; performing sub-accounting; establishing and maintaining
shareholder accounts and records; processing purchase and redemption
transactions; investing client cash account balances automatically in
Portfolio shares; providing periodic statements showing a client's account
balance and integrating such statements with those of other transactions and
balances in the client's other accounts serviced by the Service Agent;
arranging for bank wires; and such other services as the Trust may request, to
the extent the Service Agent is permitted by applicable statute, rule or
regulation. Under the Plan, the Trust also bears the cost of preparing and
printing Prospectuses for use in selling shares of the Trust and costs
associated with implementing and operating the Plan. These costs are included
in computing the .35 of 1% limitation set forth above.
Pursuant to the Distribution Agreement, FoM is entitled to receive a
fee at the annual rate of .005% of a Portfolio's average net assets, and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of the Trust's investment portfolios attributable to
investments by clients of Essex. The payments to be made to the
Co-Distributors which are based on a percentage of the net assets of the
Portfolios are designed to compensate the Co-Distributors for their
participation in the distribution of the Portfolios' shares and to reimburse
the Co-Distributors for certain distribution costs. Nonreimbursable expenses
of the Co-Distributors include salaries of executives, sales and clerical
personnel performing services for the Trust, and overhead expenses. Such costs
are by their nature not subject to precise quantification and the Trustees
have determined that the fees to be paid to the Co-Distributors are reasonable
under the circumstances.
If current restrictions under the Glass-Steagall Act were relaxed, the
Trust expects that NBD would consider the possibility of offering to perform
some or all of the services now provided by the Co-Distributors. Legislation
modifying such restrictions has been proposed in past Sessions of Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. If such legislation were enacted, the Trust expects
that NBD's parent bank holding company would consider the possibility of one
of its non-bank subsidiaries offering to perform some or all of the services
now provided by the Co-Distributors. It is not possible, of course, to predict
whether or in what form legislation might be enacted or the terms upon which
NBD or such a non-bank affiliate might offer to provide such services.
Trust Expenses
The Trust is responsible for the payment of its expenses. These
include, for example, fees payable to NBD as Adviser, or expenses otherwise
incurred by the Trust in connection with the management of the investment of
the Trust's assets such as brokerage fees, commissions and other transaction
charges, the fees and expenses of NBD as the Trust's Custodian and as its
Transfer Agent, the fees payable to the Co-Distributors under the Distribution
Agreement, the fees and expenses of Trustees, expenses associated with the
Trust's Distribution Plan and Shareholder Servicing Plan, outside auditing and
legal expenses, all taxes and corporate fees payable by the Trust, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders,
costs of shareholder reports and shareholder meetings, and any extraordinary
expenses. Each Portfolio also pays for brokerage commissions and transfer
taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular Portfolio of the
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<PAGE>
Trust will be charged to that Portfolio and expenses not readily identifiable
as belonging to a particular Portfolio will be allocated by the Board of
Trustees among one or more Portfolios in such a manner as it shall deem fair
and equitable. For the fiscal year ended December 31, 1995, the Intermediate
Bond, Bond, Short Bond, Municipal Bond and Michigan Municipal Bond Portfolios'
total expenses were .73%, .74%, .75%, .79% and .79% (after fee waivers, if
any) of their average net assets, respectively. The Statement of Additional
Information describes in more detail the fees and expenses borne by the Trust.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on April 21,
1987 under a Declaration of Trust which was amended and restated as of May 1,
1992. The Trust is a series fund having seventeen series of shares of
beneficial interest, each of which evidences an interest in a separate
investment portfolio. The Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares and to create an
unlimited number of series of shares ("Series") representing interests in a
portfolio and an unlimited number of classes of shares within a Series. In
addition to the Portfolios described herein, the Trust offers the following
investment portfolios: the Woodward Growth/Value Fund, Opportunity Fund,
Intrinsic Value Fund, Capital Growth Fund, Balanced Fund, Equity Index Fund,
International Equity Fund, Money Market Fund, Government Fund, Treasury Money
Market Fund, Tax-Exempt Money Market Fund and Michigan Tax-Exempt Money Market
Fund. The Trust has established the following two distinct classes of shares
within each Portfolio described herein: Class I shares (Original Class)
and Class A shares (Special Class 1). A sales person and any other
person or institution entitled to receive compensation for selling or
servicing shares may receive different compensation with respect to
different classes of shares in the Series. Each share has $.10 par
value, represents an equal proportionate interest in the related
portfolio with other shares of the same class outstanding, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such portfolio as are declared in the discretion of the
Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly, the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of March 29, 1996, NBD held beneficially or of record
approximately 87.05%, 87.91%, 91.01%, 60.26% and 38.84% of the outstanding
shares of the Intermediate Bond, Bond, Short Bond, Municipal Bond and Michigan
Municipal Bond Portfolios, respectively, and therefore may be considered to be
a controlling person of the Trust for purposes of the 1940 Act.
Because NBD serves the Trust as both Custodian and as Adviser, the
Trustees have established a procedure requiring three annual verifications,
two of which are unannounced, of all investments held pursuant to the
Custodian Agreement, to be conducted by the Trust's independent accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to
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<PAGE>
assist shareholder communications in connection with any meeting of
shareholders as prescribed in Section 16(c) of the 1940 Act.
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<PAGE>
[ BACK COVER, COLUMN 1 ]
No person has been authorized to give
any information or to make any
representations not contained in this
Prospectus, or in the Portfolios'
Statement of Additional Information
incorporated herein by reference, in
connection with the offering made by
this Prospectus and, if given or
made, such information or
representations must not be relied
upon as having been authorized by the
Trust, Adviser or Sponsors and Co-
Distributors. This Prospectus does
not constitute an offering by the
Portfolios or by their Co-
Distributors, in any jurisdiction in
which such offering may not lawfully
be made.
TABLE OF CONTENTS Page
EXPENSE SUMMARY............................. 2
BACKGROUND.................................. 4
FINANCIAL HIGHLIGHTS........................ 5
INTRODUCTION................................ 10
PROPOSED REORGANIZATION..................... 10
INVESTMENT OBJECTIVES, POLICIES AND
RISK FACTORS................................ 10
OTHER INVESTMENT POLICIES................... 13
PURCHASE OF SHARES.......................... 26
REDEMPTION OF SHARES........................ 27
PERFORMANCE AND YIELD
INFORMATION............................... 28
DIVIDENDS AND DISTRIBUTIONS................. 29
TAXES .................................... 29
MANAGEMENT.................................. 31
OTHER INFORMATION........................... 36
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania
19107-3496
<PAGE>
[ BACK COVER, COLUMN 2 ]
CLASS I SHARES OF THE:
WOODWARD INTERMEDIATE BOND FUND
WOODWARD BOND FUND
WOODWARD SHORT BOND FUND
WOODWARD MUNICIPAL BOND FUND
WOODWARD MICHIGAN MUNICIPAL BOND FUND
THE WOODWARD FUNDS(R)
Prospectus
April 15, 1996
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Exhibit (17)(l)
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1996
for
CLASS I AND CLASS A SHARES OF THE:
WOODWARD MONEY MARKET FUND
WOODWARD GOVERNMENT FUND
WOODWARD TREASURY MONEY MARKET FUND
WOODWARD TAX-EXEMPT MONEY MARKET FUND
WOODWARD MICHIGAN TAX-EXEMPT MONEY MARKET FUND
of
THE WOODWARD FUNDS
c/o NBD Bank
Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Statement of Additional Information (the "Additional
Statement") is meant to be read in conjunction with The Woodward Funds'
Prospectuses dated April 15, 1996 pertaining to all classes of shares of the
Woodward Money Market Fund (the "Money Market Portfolio"), Woodward Government
Fund (the "Government Portfolio"), Woodward Treasury Money Market Fund (the
"Treasury Portfolio"), Woodward Tax-Exempt Money Market Fund (the "Tax-Exempt
Portfolio") and Woodward Michigan Tax-Exempt Money Market Fund (the "Michigan
Portfolio") (each, a "Portfolio" and collectively, the "Portfolios"), and is
incorporated by reference in its entirety into the Prospectuses. Because this
Additional Statement is not itself a prospectus, no investment in shares of
the Portfolios should be made solely upon the information contained herein.
Copies of the Portfolios' Prospectuses may be obtained from any office of the
Co-Distributors by writing or calling the Co-Distributors or the Trust.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives, Policies and Risk Factors............... 1
Net Asset Value................................................ 9
Additional Purchase and Redemption Information................. 11
Description of Shares.......................................... 11
Additional Information Concerning Taxes........................ 14
Management..................................................... 18
Independent Public Accountants................................. 24
Counsel........................................................ 24
Additional Information on Performance.......................... 24
Appendix A..................................................... A-1
Report of Independent Public Accountants
and Financial Statements..................................... FS-1
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Portfolios' respective
investment objectives and policies as set forth in their Prospectuses.
Additional Information on Portfolio Instruments
Attached to this Additional Statement is Appendix A which
contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Portfolios may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio securities for each
Portfolio.
The annualized portfolio turnover rate for each Portfolio is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less.
Purchases of money market instruments by the Portfolios are
made from dealers, underwriters and issuers. The Portfolios currently do not
expect to incur any brokerage commission expense on such transactions because
money market instruments are generally traded on a "net" basis acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid.
For the fiscal years ended December 31, 1995, 1994, and 1993,
the Portfolios incurred no brokerage commissions.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. A Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interests.
<PAGE>
The Advisory Agreement for the Portfolios provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available for each Portfolio. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Agreement authorizes the Adviser to cause a Portfolio
to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer
for effecting the same transaction, provided that the Adviser determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either the particular transaction or the overall responsibilities of
the Adviser to the Portfolios. Such brokerage and research services might
consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolios. The Trustees will
periodically review any commissions paid by the Portfolios to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolios. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised by the Adviser.
Conversely, a Portfolio may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such
other account or investment company.
The Trust will not execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Adviser, the
Co-Distributors or an affiliated person of any of them (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted
by the SEC or its staff. In addition, a Portfolio will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which a Co-Distributor or the Adviser, or an affiliated person of either of
them, is a member, except to the extent permitted by the SEC or its staff.
Under certain circumstances, the Portfolios may be at a disadvantage because
of
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<PAGE>
these limitations in comparison with other investment companies which have
similar investment objectives but are not subject to such limitations.
Investment decisions for each Portfolio are made independently
from those for the other Portfolios and for any other investment companies and
accounts advised or managed by the Adviser. Such other investment companies
and accounts may also invest in the same securities as the Portfolios. To the
extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for the Portfolios with those to be sold or purchased for other
investment companies or accounts in executing transactions. When a purchase or
sale of the same security is made at substantially the same time on behalf of
one or more of the Portfolios and another investment company or account, the
transaction will be averaged as to price and available investments allocated
as to amount, in a manner which the Adviser believes to be equitable to each
Portfolio and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or sold by the Portfolio.
Eligible Securities
Each Portfolio may purchase "eligible securities" that present
minimal credit risks as determined by the Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities generally
include: (1) securities that are rated by two or more Rating Agencies (or the
only Rating Agency which has issued a rating) in one of the two highest rating
categories for short term debt securities; (2) securities that have no short
term rating, if the issuer has other outstanding short term obligations that
are comparable in priority and security as determined by the Adviser
("Comparable Obligations") and that have been rated in accordance with (1)
above; (3) securities that have no short term rating, but are determined to be
of comparable quality to a security satisfying (1) or (2) above, and the
issuer does not have Comparable Obligations rated by a Rating Agency; and (4)
obligations that carry a demand feature that complies with (1), (2) or (3)
above, and are unconditional (i.e., readily exercisable in the event of
default) or, if conditional, either they or the long term obligations of the
issuer of the demand obligation are (a) rated by two or more Rating Agencies
(or the only Rating Agency which has issued a rating) in one of the two
highest categories for long term debt obligations, or (b) determined by the
Adviser to be of comparable quality to securities which are so rated. The
Board of Trustees will approve or ratify any purchases by each Portfolio of
securities that are rated by only one Rating Agency or that qualify under (3)
above.
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<PAGE>
Government Obligations
As stated in the Prospectuses, pursuant to their
respective investment objectives, the Portfolios may invest in
U.S. Government Obligations.
Bank Obligations
In accordance with their respective investment objectives, the
Portfolios may purchase bank obligations, which include bankers' acceptances,
negotiable certificates of deposit and non-negotiable time deposits, including
U.S. dollar-denominated instruments issued or supported by the credit of U.S.
or foreign banks or savings institutions. Although the Portfolios invest in
obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser deems the instrument to present minimal credit risks, such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, must have
been independently determined by the Adviser to be of comparable quality.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by the Portfolios, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, each Portfolio may invest from time to time in securities issued
by other investment companies which
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invest in high quality, short term debt securities. Each Portfolio intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of the Portfolio's total
assets will be invested in the securities of any one investment company; (b)
not more than 10% of the value of the Portfolio's total assets will be
invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or the Trust as a whole.
Lending Securities
When a Portfolio lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the investment of the cash collateral. Although voting rights, or
rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described
in the Prospectuses generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the
Trust's Custodian, in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings
by the Portfolios under the 1940 Act. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Portfolio may
decline below the price of the securities it is obligated to repurchase.
When-Issued Purchases and Forward Commitments
A Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
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<PAGE>
Portfolio may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities
are delivered to the Portfolio on the settlement date. In these cases the
Portfolio may realize a capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
Municipal Securities
As stated in their Prospectuses, the Michigan and Tax- Exempt
Portfolios may invest in Municipal Securities including general obligation
securities, revenue securities, notes, and moral obligation bonds, which are
normally issued by special purpose authorities. There are, of course,
variations in the quality of Municipal Securities, both within a particular
classification and between classifications, and the yields on Municipal
Securities depend in part on a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Municipal Securities by
Rating Agencies represent their opinions as to the quality of Municipal
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Securities with the same
maturity, interest rate and rating may have different yields while Municipal
Securities with the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by a Portfolio, a Municipal
Security may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Portfolio. The Adviser will consider such
an event in determining whether the Portfolio should continue to hold the
obligation.
The payment of principal and interest on most Municipal
Securities purchased by the Portfolios will depend upon the ability of the
issuers to meet their obligations. The District of Columbia, each state, each
possession and territory of the United States, each of their political
subdivisions, agencies, instrumentalities and authorities and each state
agency of which a state is a member is a separate "issuer" as that term is
used in this Additional Statement and in the Prospectuses. The
non-governmental user of facilities financed by a private activity bond is
also considered to be an "issuer". An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights or remedies of creditors, such as the Federal
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<PAGE>
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest or principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Securities held by the Portfolios may
be insured at the time of issuance as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of the
Municipal Securities at the time of original issuance. In the event that the
issuer defaults with respect to interest or principal payments, the insurer
will be notified and will be required to make payment to the bondholders.
There is, however, no guarantee that the insurer will meet its obligations. In
addition, such insurance will not protect against market fluctuations caused
by changes in interest rates and other factors.
From time to time proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Securities. For example, pursuant to
federal tax legislation passed in 1986 interest on certain private activity
bonds must be included in an investor's federal alternative minimum taxable
income, and corporate investors must include all tax-exempt interest in their
federal alternative minimum taxable income. The Trust cannot predict what
legislation, if any, may be proposed in Congress in the future as regards the
federal income tax status of interest on Municipal Securities in general, or
which proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of Municipal Securities for
investments by the Tax-Exempt and Michigan Portfolios and their liquidity and
value. In such event the Board of Trustees would reevaluate the Portfolios'
investment objectives and policies and consider changes in their structure or
possible dissolution.
Stand-By Commitments
The Tax-Exempt and Michigan Portfolios may acquire "stand-by
commitments" with respect to Municipal Securities they hold. Under a stand-by
commitment, a dealer agrees to purchase at the Portfolio's option specified
Municipal Securities at a specified price. Stand-by commitments may be
exercisable by the Portfolios at any time before the maturity of the
underlying Municipal Securities and may be sold, transferred or assigned only
with the instruments involved.
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<PAGE>
The Portfolios expect that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolios may pay for a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). Neither the
Tax-Exempt Portfolio nor the Michigan Portfolio will acquire a stand-by
commitment unless immediately after the acquisition, with respect to 75% of
its assets not more than 5% of its total assets will be invested in
instruments subject to a demand feature, including stand-by commitments, with
the same institution.
The Portfolios intend to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the Adviser's opinion,
present minimal credit risks. The Portfolios' reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Portfolios in connection with a "stand-by commitment" will
not be qualitatively different from the risk of loss faced by a person that is
holding securities pending settlement after having agreed to sell the
securities in the ordinary course of business.
The Portfolios will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Securities which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Where a Portfolio pays directly or indirectly for
a stand-by commitment, its cost will be reflected as an unrealized loss for
the period during which the commitment is held by the Portfolio and will be
reflected in realized gain or loss when the commitment is exercised or
expires.
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectuses, the Portfolios are subject to the following investment
limitations which may not be changed without approval of the holders of the
majority of the outstanding shares of the affected Portfolio (as defined under
"Description of Shares" below).
None of the Portfolios may:
1. Purchase or sell real estate, although they may
invest in securities which are secured by real estate and of
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issuers which invest or deal in real estate; purchase or sell securities
issued by real estate investment trusts; purchase or sell commodities,
commodity contracts or oil and gas interests; acquire securities of other
investment companies, except in connection with a merger, consolidation,
reorganization, or acquisition of assets, or where otherwise permitted by the
1940 Act; or invest in companies for the purpose of exercising control or
management.
2. Act as an underwriter of securities (except insofar as it
might be deemed to be an underwriter within the meaning of the Securities Act
of 1933 upon the acquisition or disposition of portfolio securities), purchase
securities on margin, make short sales with securities or maintain a short
position in any security.
3. Issue senior securities as defined in the 1940 Act except to
the extent that such issuance might be involved with respect to borrowings
pursuant to reverse repurchase transactions or as set forth in Investment
Limitation No. 2 in the Prospectuses.
In order to permit the sale of a Portfolio's shares in certain
states, the Trust may make commitments with respect to a Portfolio more
restrictive than the investment policies and limitations described above and
in its Prospectuses. As of the date of this Additional Statement, the Trust
has made commitments that the Money Market, Government and Tax-Exempt
Portfolios will not invest in oil, gas or other mineral leases, or in real
estate limited partnership interests that are not readily marketable. Should
the Trust determine that any such commitment is no longer in the best
interests of a particular Portfolio, it will revoke the commitment by
terminating sales of the Portfolio's shares in the state involved and, in the
case of investors in Texas, give notice of such action.
NET ASSET VALUE
Each of the Portfolios intends to value its portfolio
securities based upon their amortized cost in accordance with Rule 2a-7 under
the 1940 Act. Where it is not appropriate to value a security by the amortized
cost method, the security will be valued either by market quotations, or by
fair value as determined by the Board of Trustees. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the securities. The value of portfolio securities
held by the Portfolios will vary inversely to changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less
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than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price
greater than its purchase cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
Pursuant to Rule 2a-7, each Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to purchase
securities having remaining maturities of 13 months or less only, and to
invest only in securities determined by the Board of Trustees to be of high
quality with minimal credit risks. The Board of Trustees has established
procedures designed to stabilize, to the extent reasonably possible, each
Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include review of the investment
holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether a Portfolio's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
Trustees. If the deviation exceeds 1/2 of 1%, the Board of Trustees will
promptly consider what action, if any, will be initiated. In the event the
Board of Trustees determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing
shareholders, it has agreed to take such corrective actions as it deems
necessary and appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These actions may include
selling portfolio securities prior to maturity to realize capital gains or
losses or to shorten a Portfolio's average maturity, withholding or reducing
dividends, redeeming shares in kind, splitting, combining or otherwise
recapitalizing outstanding shares or establishing a net asset value per share
by using available market quotations.
The Portfolios calculate their dividends based on daily net
investment income. Daily net investment income consists of (1) accrued
interest and other income plus or minus amortized purchase discount or
premium, (2) plus or minus all realized gains and losses on portfolio
securities and (3) minus accrued expenses allocated to that Portfolio.
Expenses of each Portfolio are accrued daily. As each Portfolio's portfolio
securities are normally valued at amortized cost, unrealized gains or losses
on such securities based on their market values will not normally be
recognized. However, should the net asset value deviate significantly from
market value, the Trustees could decide to value the securities at market
value and then unrealized gains and losses would be included in net investment
income.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are offered and sold on a continuous
basis by the Trust's sponsors and Co-Distributors, FoM and Essex, acting as
agent. As described in their Prospectuses, Class I shares of the Portfolios
are sold primarily to NBD and its affiliated and correspondent banks acting on
behalf of their respective customers. Class A shares of the Portfolios are
sold to the public ("Investors") primarily through financial institutions such
as banks, brokers and dealers.
Under the 1940 Act, the Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when
(a) trading on the New York Stock Exchange is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. (The
Trust may also suspend or postpone the recordation of the transfer of shares
upon the occurrence of any of the foregoing conditions).
In addition to the situations described in the Prospectuses
under "Redemption of Shares," the Trust may redeem shares involuntarily to
reimburse the Portfolios for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
Prospectuses from time to time.
The Trust normally redeems shares for cash. However, the
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Trust has elected to be covered by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of net asset value during any 90-day
period for any one shareholder.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust, which
was amended and restated as of May 1, 1992, authorizes the Board of Trustees
to divide shares into two or more series, each series relating to a separate
portfolio of investments, and divide the shares of any series into two or more
classes. The number of shares of each series and/or of a class
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within each series shall be unlimited. The Trust does not intend to issue
share certificates. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares of beneficial
interest in the Trust representing interests in the Portfolios. The shares of
each Portfolio are offered in two separate classes: Class I and Class A.
In the event of a liquidation or dissolution of the Trust or an
individual Portfolio, shareholders of a particular Portfolio would be entitled
to receive the assets available for distribution belonging to such Portfolio.
If there are any assets, income, earnings, proceeds, funds or payments, which
are not readily identifiable as belonging to any particular Portfolio, the
Trustees shall allocate them among any one or more of the Portfolios as they,
in their sole discretion, deem fair and equitable.
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the matter. A Portfolio is
affected by a matter unless it is clear that the interests of each Portfolio
in the matter are substantially identical or that the matter does not affect
any interest of the Portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of such Portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together in
the aggregate without regard to particular Portfolios.
When used in the Prospectuses or in this Additional Statement,
a "majority" of shareholders means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (1) 67% of the shares
of the Trust or the applicable Portfolio present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy,
or (2) more than 50% of the outstanding shares of the Trust or the applicable
portfolio.
As of March 29, 1996, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
58.32%, 58.10%, 79.85%, 77.83% and 31.52%, respectively, of the outstanding
shares of the Money Market Government, Treasury, Tax-Exempt and Michigan
Portfolios. As of the same date, First of Michigan Corporation, 100
Renaissance
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Center, 26th Floor, Detroit, Michigan 48243, held of record, but not
beneficially, 35.95% of the outstanding shares of the Michigan Portfolio. As
of the same date, Automated Cash Management Systems ("ACMS"), 900 Tower Drive,
10th Floor, Troy, Michigan 48098, held of record, but not beneficially,
16.54%, 7.86%, 14.92%, 11.96% and 6.42%, respectively, of the outstanding
shares of the Money Market, Government, Treasury, Tax-Exempt and Michigan
Portfolios. The Trustees and officers of the Trust, as a group, owned less
than 1% of the outstanding shares of each of these Portfolios. Furthermore, as
of March 29, 1996, with respect to the Government, Treasury, Tax-Exempt and
Michigan Portfolios, the following persons may have beneficially owned 5% or
more of the outstanding shares of such Portfolios:
<TABLE>
<CAPTION>
Percent of
Outstanding
Number of Shares Shares
---------------- -----------
<S> <C> <C>
Treasury Portfolio
Confederation Life-General 459,780,801 38.41%
260 Interstate North
Atlanta, GA 30339
Tax-Exempt Portfolio
Mrs. John E. Giles 30,564,579 5.05%
28 Doublet Hill Road
Weston, Massachusetts 02193
Michigan Portfolio
MI School Asbestos Trust 8,517,848 6.09%
Humphrey, Farmington, McClain PC
c/o Scott Manuel
221 W. Lexington, Suite 400
P.O. Box 900
Independence, Missouri 64051
</TABLE>
To the Trust's knowledge, there were no persons who
beneficially owned 5% or more of the outstanding shares of the Money Market
and Government Portfolios as of March 29, 1996.
When issued for payment as described in the Portfolio's
Prospectuses and this Additional Statement, shares of the Portfolios will be
fully paid and non-assessable by the Trust.
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The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of duties. It also provides that all third parties shall
look solely to the Trust property for satisfaction of claims arising in
connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the
affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses is not intended as a substitute
for careful tax planning and is based on tax laws and regulations which are in
effect on the date hereof; such laws and regulations may be changed by
legislative or administrative action. Investors are advised to consult their
tax advisers with specific reference to their own tax situations.
Each Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, each Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain requirements with respect
to the source of its income for a taxable year. At least 90% of the gross
income of each Portfolio must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Portfolio's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the
Portfolio's principal business of investing in stock or securities, or options
and futures with respect to stock or securities. Any income derived by a
Portfolio from a partnership or trust is treated as derived with respect to
the Portfolio's business of investing in stock, securities or currencies only
to the extent that such income is attributable to items of income which would
have been qualifying
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income if realized by the Portfolio in the same manner as by the
partnership or trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Portfolio's gross income for
a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by a Portfolio upon maturity or
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Each Portfolio will designate any distribution of long term
capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Portfolio's taxable year.
Shareholders should note that, upon the sale or exchange of Portfolio shares,
if the shareholder has not held such shares for at least six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%, however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum nominal rate of 35% (or at a maximum effective marginal
rate of 39% in the case of corporations having taxable income between $100,000
and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Portfolio intends
to make sufficient distributions or deemed distributions of its ordinary
taxable income and any
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capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions (whether or not derived from interest on
Municipal Securities) would be taxable as ordinary income to shareholders to
the extent of the Portfolio's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
Each Portfolio may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure properly to include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Depending upon the extent of the Portfolios' activities in
states and localities in which their offices are maintained, in which their
agents or independent contractors are located or in which they are otherwise
deemed to be conducting business, the Portfolios may be subject to the tax
laws of such states or localities. In addition, in those states and localities
which have income tax laws, the treatment of the Portfolios and their
shareholders under such laws may differ from their treatment under federal
income tax laws.
Tax-Exempt and Michigan Portfolios
As described above and in the Prospectuses, the Tax- Exempt and
Michigan Portfolios are designed to provide investors with current tax-exempt
interest income. The Portfolios are not intended to constitute a balanced
investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Portfolios would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not only fail to gain any
additional benefit from the Portfolios' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Portfolios may not be appropriate investments for
entities which are "substantial
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<PAGE>
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses a part of such facilities in
his trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
Each Portfolio's policy is to pay each year as federal
exempt-interest dividends substantially all of its Municipal Securities
interest income net of certain deductions. In order for a Portfolio to pay
exempt-interest dividends with respect to any taxable year, at the close of
each quarter of its taxable year at least 50% of the aggregate value of the
Portfolio's assets must consist of exempt-interest obligations. After the
close of its taxable year, each Portfolio will notify its shareholders of the
portion of the dividends paid by it which constitutes an exempt-interest
dividend with respect to such taxable year. However, the aggregate amount of
dividends so designated by a Portfolio cannot exceed the excess of the amount
of interest exempt from tax under Section 103 of the Code received by the
Portfolio during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by a Portfolio with respect to any taxable year which qualify
as federal exempt-interest dividends will be the same for all shareholders
receiving dividends for such year.
A percentage of the interest on indebtedness incurred by a
shareholder to purchase or carry the Portfolios' shares, equal to the
percentage of the total non-capital gain dividends distributed during the
shareholder's taxable year that are exempt-interest dividends, is not
deductible for federal income tax purposes.
Michigan Taxes
As stated in the Tax-Exempt and Michigan Portfolios'
Prospectuses, dividends paid by a Portfolio that are derived from interest
attributable to tax-exempt Michigan Municipal Securities will be exempt from
Michigan income tax, Michigan intangibles tax and Michigan single business
tax. Conversely, to the extent that a Portfolio's dividends are derived from
interest on obligations other than Michigan Municipal Securities or certain
U.S. Government obligations (or are derived from short-term or long-term
gains), such dividends will be subject to Michigan income tax, Michigan
intangibles tax and Michigan single business tax,
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<PAGE>
even though the dividends may be exempt for federal income tax
purposes.
In particular, gross interest income and dividends derived from
obligations or securities of the State of Michigan and its political
subdivisions, exempt from federal income tax, are exempt from Michigan income
tax under Act No. 281, Public Acts of Michigan, 1967, as amended ("Michigan
Income Tax Act"), from Michigan intangibles tax under Act No. 301, Public Acts
of Michigan, 1939, as amended ("Michigan Intangibles Tax Act") and from
Michigan single business tax under Act. No. 228, Public Acts of Michigan,
1975, as amended ("Michigan Single Business Tax Act"). The Michigan Income Tax
Act levies a flat rate income tax on individuals, estates and trusts. The
Michigan Intangibles Tax Act levies a tax on the ownership of intangible
personal property of individuals, estates, trusts and certain corporations.
The Single Business Tax Act levies a tax of 2.30% upon the "adjusted tax base"
of most individuals, financial institutions, partnerships, joint ventures,
corporations, estates and trusts engaged in "business activity" as defined in
the Act.
The transfer of Portfolio shares by a shareholder is subject to
Michigan taxes measured by gain on the sale, payment or other disposition
thereof. In addition, the transfer of Portfolio shares by a shareholder may be
subject to Michigan estate or inheritance tax under Act No. 188, Public Acts
of Michigan, 1899, as amended ("Michigan Estate Tax").
The foregoing is only a summary of some of the important
Michigan state tax considerations generally affecting the Tax-Exempt and
Michigan Portfolios and their shareholders. No attempt has been made to
present a detailed explanation of the Michigan state tax treatment of the
Portfolios or their shareholders, and this discussion is not intended as a
substitute for careful planning. Accordingly, potential investors in the
Portfolios should consult their tax advisers with respect to the application
of such taxes to the receipt of Portfolio dividends and as to their own
Michigan state tax situation, in general.
MANAGEMENT
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth in the
Prospectuses. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226. Each Trustee also serves as a
trustee of The Woodward Variable Annuity Fund, a registered investment Company
advised by NBD Bank.
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<PAGE>
Effective May 1, 1995, each Trustee receives from the Trust and
The Woodward Variable Annuity Fund a total annual fee of $17,000 and a fee of
$2,000 for each Board of Trustees meeting attended. The Chairman is entitled
to additional compensation of $4,250 per year for his services to the Trusts
in that capacity. These fees are allocated among the investment portfolios of
the Trust and The Woodward Variable Annuity Fund based on their relative net
assets. All Trustees are reimbursed for out of pocket expenses incorrect in
connection with attendance at meetings. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trusts.
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<PAGE>
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Fund and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Fund* Member
-------------------- ------------ --------------
<S> <C> <C>
Will M. Caldwell, Trustee $21,250 $21,250(2)+
Nicholas J. DeGrazia, Trustee $21,250 $21,250(2)+
John P. Gould, Trustee *** $30,000(4)+
Earl I. Heenan, Jr., $24,437.50 $24,437.50(2)+
Chairman and President++
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee++ $21,250 $21,250(2)+
Donald G. Sutherland, Trustee++ $21,250 $21,250(2)+
Donald L. Tuttle, Trustee++ $21,250 $21,250(2)+
Eugene C. Yehle, Trustee $21,250 $21,250(2)+
and Treasurer
<FN>
- ---------
* Amount does not include reimbursed expenses for attending Board meeting,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Woodward Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Mrs. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of other investment companies within the Fund Complex from
which the Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,500, $21,500,
and $21,500 accrued during The Woodward Funds' fiscal year ended December 31,
1995 for Earl I. Heenan, Jr., Julius L. Pallone, Donald G. Sutherland and
Donald L. Tuttle, respectively.
</TABLE>
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<PAGE>
Investment Adviser
Information about NBD and its duties and compensation as
Adviser is contained in the Prospectuses. For the fiscal years ended December
31, 1995, 1994, and 1993, the Trust paid NBD fees for advisory services as
follows: (i) $7,225,557, $5,926,507, and $6,731,880 with respect to the Money
Market Portfolio, (ii) $1,987,590, $1,882,124, and $1,697,363 with respect to
the Government Portfolio, (iii) $3,248,535, $2,576,661 and $2,995,099 with
respect to the Treasury Portfolio, (iv) $2,458,246, $2,391,633, and $2,373,107
with respect to the Tax-Exempt Portfolio and (v) $496,026, $344,733, and
$274,780, with respect to the Michigan Portfolio. For the fiscal year ended
December 31, 1995, NBD voluntarily waived its fees in the amount of $61,221
with respect to the Michigan Portfolio.
NBD's own investment portfolio may include bank certificates of
deposit, bankers' acceptances, and corporate debt obligations, any of which
may also be purchased by the Trust. Joint purchase of investments for the
Trust and for NBD's own investment portfolio will not be made. NBD's
Commercial Banking Department may have deposit, loan and other commercial
banking relationships with issuers of securities purchased by the Trust,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities purchased by the Trust.
Investment decisions for the Trust and other fiduciary accounts
are made by NBD's Trust Investment Division solely from the standpoint of the
independent interest of the Trust and such other fiduciary accounts. NBD's
Trust Investment Division performs independent analyses of publicly available
information, the results of which are not made publicly available. In making
investment decisions for the Trust, personnel of NBD's Trust Investment
Division do not obtain information from any other division or department of
NBD or otherwise, which is not publicly available. NBD's Trust Investment
Division executes transactions for the Trust only with unaffiliated dealers
but such dealers may be customers of other divisions of NBD. NBD may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a
pro rata share of the transaction costs incurred in making the bulk purchase.
See "Investment Objectives, Policies and Risk Factors - Portfolio
Transactions" above.
NBD has agreed as Adviser that it will reimburse the Trust such
portions of its fees as may be required to satisfy any expense limitations
imposed by state securities laws or other applicable laws. Restrictive
limitations may be imposed on the
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<PAGE>
Trust as a result of changes in current state laws and regulations in those
states where the Trust has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. To the Trust's knowledge, of the expense limitations in effect on
the date of this Additional Statement none is more restrictive than two and
one-half percent (2-1/2%) of the first $30 million of a Portfolio's average
annual net assets, two percent (2%) of the next $70 million of the average
annual net assets and one and one-half percent (1-1/2%) of the remaining
average annual net assets.
Under the terms of the Advisory Agreement, NBD is obligated to
manage the investment of each Portfolio's assets in accordance with applicable
laws and regulations, including, to the extent applicable, the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers
of national banks. These regulations provide, in general, that assets managed
by a national bank as fiduciary may not be invested in stock or obligations
of, or property acquired from, the bank, its affiliates or their directors,
officers or employees, and further provide that fiduciary assets may not be
sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above.
NBD will not accept Trust shares as collateral for a loan which
is for the purpose of purchasing Trust shares, and will not make loans to the
Trust. Inadvertent overdrafts of the Trust's account with the Custodian
occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed
to be the making of a loan to the Trust by NBD.
Under the Advisory Agreement, NBD is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of NBD in the performance of its duties or from its
reckless disregard of its duties and obligations under the Agreement.
Shareholder Servicing Plan
As stated in the Prospectuses for the Class A shares of the
Portfolios, the Trust may enter into Servicing Agreements with Shareholder
Servicing Agents which may include NBD and its affiliates. The Servicing
Agreements provide that the Shareholder Servicing Agents will render
shareholder administrative support services to their customers who are the
beneficial owners of Class A shares in consideration for the
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<PAGE>
Portfolios' payment of up to .25% (on an annualized basis) of the average
daily net asset value of the Class A shares beneficially owned by such
customers and held by the Shareholder Servicing Agents and, at the Trust's
option, it may reimburse the Shareholder Servicing Agents' out-of-pocket
expenses. Such services may include: (i) processing dividend and distribution
payments from a Portfolio; (ii) providing information periodically to
customers showing their share positions; (iii) arranging for bank wires; (iv)
responding to customer inquiries; (v) providing subaccounting with respect to
shares beneficially owned by customers or the information necessary for such
subaccounting; (vi) forwarding shareholder communications; (vii) processing
share exchange and redemption requests from customers; (viii) assisting
customers in changing dividend options, account designations and addresses;
and (ix) other similar services requested by the Trust. Banks acting as
Shareholder Servicing Agents are prohibited from engaging in any activity
primarily intended to result in the sale of Portfolio shares. However,
Shareholder Servicing Agents other than banks may be requested to provide
marketing assistance (e.g., forwarding sales literature and advertising to
their customers) in connection with the distribution of Class A shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended in connection with the Trust's arrangements
with Shareholder Servicing Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with
Shareholder Servicing Agents under the Shareholder Servicing Agreements must
be approved by a majority of the Board of Trustees (including a majority of
the Disinterested Trustees).
Custodian and Transfer Agent
As Custodian and as Transfer Agent for the Trust, NBD (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
collects and makes disbursements of money on behalf of each Portfolio, (iii)
issues and redeems shares of each Portfolio, (iv) collects and receives all
income and other payments and distributions on account of the portfolio
securities of each Portfolio, (v) addresses and mails all communications by
the Trust to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy materials for any meeting of shareholders, (vi)
maintains shareholder accounts, (vii) makes periodic reports to the Trust's
Board of Trustees concerning the Trust's operations, and (viii) maintains
on-line
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<PAGE>
computer capability for determining the status of shareholder
accounts.
For its services as Custodian, NBD is entitled to receive from
the Portfolios $11.00 for each clearing and settlement transaction and $23.00
for each accounting and safekeeping service with respect to investments, in
addition to activity charges for master control and master settlement
accounts.
For its services as Transfer Agent, NBD is entitled to receive
a minimum annual fee from each Portfolio of $11,000, $15 annually per account
in the Portfolios for the preparation of statements of account, and $1.00 for
each confirmation of purchase and redemption transactions. Charges for
providing computer equipment and maintaining a computerized investment system
are expected to approximate $350 per month for each Portfolio.
Sponsors and Co-Distributors
The Trust's shares are offered on a continuous basis through
FoM and Essex, which act under the Distribution Agreement as sponsors and
Co-Distributors for the Trust. For the fiscal year ended December 31, 1995,
the Money Market, Government, Treasury, Tax-Exempt and Michigan Portfolios
paid FoM for its services a fee of $119,933, $32,310, $52,950, $40,084 and
$7,261, respectively. For the fiscal year ended December 31, 1994, the Money
Market, Government, Treasury, Tax-Exempt, and Michigan Portfolios paid FoM for
its services a fee of $90,197, $25,425, $39,127, $32,631 and $4,129,
respectively. For the fiscal year ended December 31, 1993, the Money Market,
Government, Treasury, Tax-Exempt and Michigan Portfolios paid FoM for its
services a fee of $230,601, $57,017, $100,651, $79,747 and $8,312,
respectively. For the fiscal years ended December 31, 1995, 1994, and 1993,
FoM incurred expenses of $0 with respect to each Portfolio for the printing
and mailing of prospectuses to other than current shareholders. For the fiscal
year ended December 31, 1995, the Money Market, Government, Treasury,
Tax-Exempt and Michigan Portfolios paid Essex for its services a fee of
$32,940, $2,609, $805, $4,142 and $3,205, respectively. For the fiscal period
from April 20, 1994 through December 31, 1994, the Money Market, Government,
Treasury, Tax-Exempt and Michigan Portfolios paid Essex for its services a fee
of $25,515, $7,167, $7,935, $7,950 and $1,656, respectively. For the fiscal
year ended December 31, 1995, Essex incurred expenses of $0 with respect to
each Portfolio for the printing and mailing of prospectuses to other than
current shareholders. Additional information concerning fees for services
performed by FoM and Essex, the review of such fees under the Trust's plan for
the payment of distribution expenses and the services provided by FoM and
Essex are described in the Prospectuses.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 500
Woodward Avenue, Detroit, Michigan 48226-3424, serve as auditors for the
Trust. The financial statements included in this Statement of Additional
Information and the financial highlights included in the Prospectuses have
been audited by Arthur Andersen LLP, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, are counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, yield and total return of each class of
shares of each Portfolio for various periods may be quoted in advertisements,
shareholder reports or other communications to shareholders. Performance
information is generally available by calling (800)688-3350.
The "yield" and "effective yield" of each class, as described
in the Portfolios' Prospectuses, are calculated according to formulas
prescribed by the SEC. The standardized seven-day yield is computed separately
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in a class having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7). The net
change in the value of an account includes the value of additional shares
purchased with dividends from the original share, and dividends declared on
both the original share and any such additional shares and all fees, other
than nonrecurring account sales charges, that are charged to all shareholder
accounts in proportion to the length of the base period and the Portfolio's
average account size. The capital changes to be excluded from the calculation
of the net change in account value are realized gains and losses from the sale
of securities and unrealized appreciation and depreciation. The effective
annualized yield for a class is computed by compounding the unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting one from
the result. The fees which may be imposed by financial intermediaries on their
customers for cash management and other services are not reflected in the
Portfolios' calculations of
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<PAGE>
yields. In addition, the Tax-Exempt and Michigan Portfolios may advertise
their standardized "tax-equivalent yields," which are computed by: (a)
dividing the portion of the yield (as calculated above) that is exempt from
income tax by one minus a stated income tax rate; and (b) adding the figure
resulting from (a) above to that portion, if any, of the yield that is not
tax-exempt.
Because each Portfolio values its portfolio on an amortized
cost basis, it does not believe that there is likely to be any material
difference between net income for dividend and standardized yield quotation
purposes.
For the seven day period ended December 31, 1995, the
annualized yields and effective yields for the shares of the Money Market,
Government, Treasury, Tax-Exempt and Michigan Portfolios were 5.37% and 5.48%,
5.32% and 5.41%, 5.23% and 5.42%, 3.90% and 4.10%, and 3.81% and 3.97%,
respectively. The tax-equivalent yields of the shares of the Tax-Exempt and
Michigan Portfolios (assuming a 39.6% federal income tax rate for both
Portfolios and a 4.4% Michigan income tax rate for the Michigan Portfolio) for
the seven-day period ended December 31, 1995 were 6.46% (annualized yield) and
6.79% (effective yield), and 6.85% (annualized yield) and 7.14% (effective
yield), respectively.
The Portfolios may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials ("Literature") total return figures that are not calculated
according to the formulas set forth above in order to compare more accurately
a Portfolio's performance with other measures of investment return. For
example, in comparing the Portfolios' total returns with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of an index,
the Portfolios may calculate their returns for the period of time specified in
the advertisement or communication by assuming the investment of $10,000 in
shares and assuming the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value and
by dividing the remainder by the beginning value. The Portfolios do not, for
these purposes, deduct from the initial value invested any amount representing
sales charges. If applicable, the Portfolios will, however, disclose the
maximum sales charge (currently there is no sales charge) and will also
disclose that the performance data does not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted.
The Portfolios may also from time to time include
discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if
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<PAGE>
dividends or other distributions on a Portfolio investment are reinvested by
being paid in additional Portfolio shares, any future income or capital
appreciation of a Portfolio would increase the value, not only of the original
Portfolio investment, but also of the additional Portfolio shares received
through reinvestment. As a result, the value of the Portfolio investment would
increase more quickly than if dividends or other distributions had been paid
in cash.
The Portfolios may also include discussions or illustrations of
the potential investment goals of a prospective investor, investment
management strategies, techniques, policies or investment suitability of a
Portfolio (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer, automatic accounting rebalancing,
the advantages and disadvantages of investing in tax-deferred and taxable
instruments), economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance
of information contained in shareholder reports (including the investment
composition of a Portfolio), as well as the view of the Trust as to current
market, economy, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to
be of relevance to a Portfolio. The Portfolios may also include in
advertisements charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Portfolio and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of a Portfolio. In
addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
a Portfolio and/or other mutual funds, shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such advertisements or communicators may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
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APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term
in the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely
payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and
other protection factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings
to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to
adverse developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity
for timely repayment.
"A1" - Obligations are supported by the highest
capacity for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned
by Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB" indicates
the lowest degree of speculation and "C" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and
A-5
<PAGE>
principal repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal. The
"B" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain swaps and
options; and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality.
They carry the smallest degree of investment risk and are
A-6
<PAGE>
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
(P)... - When applied to forward delivery bonds,
indicates that the rating is provisional pending delivery of the
bonds. The rating may be revised prior to delivery if changes
A-7
<PAGE>
ooccur in the legal documents or the underlying credit quality of
the bonds.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic
cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred
dividends. Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by Fitch
for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future
A-8
<PAGE>
developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A-9
<PAGE>
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's
lowest investment grade category and indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB"
A-10
<PAGE>
are, however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
A-11
<PAGE>
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
ASSETS:
Investment in securities:
At cost $1,619,765,599
==============
At amortized cost (Note 2) $1,624,604,821
Cash 109
Interest receivable 16,341,428
Deferred organization costs, net (Note 2) --
Prepaids and other 298,771
--------------
TOTAL ASSETS 1,641,245,129
--------------
LIABILITIES:
Payable for securities purchased --
Accrued investment advisory fee 743,967
Accrued distribution fees 16,841
Accrued custodial fee 2,795
Dividends payable 738,061
Accounts payable and accrued expenses 48,651
--------------
TOTAL LIABILITIES 1,550,315
--------------
NET ASSETS $1,639,694,814
==============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 163,969,481
Additional paid-in capital 1,475,725,333
--------------
TOTAL NET ASSETS $1,639,694,814
==============
Net asset value and redemption price per share $ 1.00
==============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $469,488,613 $921,604,627 $566,354,408 $126,549,715
============ ============ ============ ============
At amortized cost (Note 2) $469,643,055 $921,643,450 $564,592,007 $126,237,472
Cash 320 104 52,509 1,897
Interest receivable 5,112,013 6,544,562 5,203,797 1,139,798
Deferred organization costs, net (Note 2) -- 6,063 -- --
Prepaids and other 41,286 295,486 13,394 61,485
------------ ------------ ------------ ------------
TOTAL ASSETS 474,796,674 928,489,665 569,861,707 127,440,652
------------ ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased -- -- 5,000,000 5,273,510
Accrued investment advisory fee 195,644 340,328 225,584 51,173
Accrued distribution fees 3,417 5,377 3,880 1,222
Accrued custodial fee 685 869 3,312 690
Dividends payable 210,856 413,557 190,363 39,832
Accounts payable and accrued expenses 9,217 34,032 25,092 17,283
------------ ------------ ------------ ------------
TOTAL LIABILITIES 419,819 794,163 5,448,231 5,383,710
------------ ------------ ------------ ------------
NET ASSETS $474,376,855 $927,695,502 $564,413,476 $122,056,942
============ ============ ============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 47,437,686 $ 92,769,550 $ 56,441,348 $ 12,205,694
426,939,169 834,925,952 507,972,128 109,851,248
Additional paid-in capital ------------ ------------ ------------ ------------
$474,376,855 $927,695,502 $564,413,476 $122,056,942
TOTAL NET ASSETS ============ ============ ============ ============
Net asset value and redemption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
INVESTMENT INCOME (Note 2): $98,415,963
-----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 7,225,557
Distribution fees 152,873
Professional fees 48,970
Custodial fee 60,686
Shareholder servicing agent fees 450,637
Marketing expenses 102,871
Amortization of deferred organization expenses --
Registration, filing fees and other expenses 398,210
Less:
Waived investment advisory fee --
-----------
NET EXPENSES 8,439,804
-----------
NET INVESTMENT INCOME $89,976,159
===========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6%
===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (Note 2): $26,262,034 $42,755,302 $21,196,396 $3,921,289
----------- ----------- ----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 1,987,590 3,248,535 2,458,246 496,026
Distribution fees 34,919 53,755 44,226 10,466
Professional fees 48,970 48,970 48,970 48,970
Custodial fee 8,370 12,919 41,886 11,132
Shareholder servicing agent fees 60,644 298,599 86,193 82,305
Marketing expenses 36,670 41,925 42,552 34,396
Amortization of deferred organization expenses -- 8,021 -- 8,277
Registration, filing fees and other expenses 82,327 128,542 173,183 54,166
Less:
Waived investment advisory fee -- -- -- (61,221)
----------- ----------- ----------- ----------
NET EXPENSES 2,259,490 3,841,266 2,895,256 684,517
----------- ----------- ----------- ----------
NET INVESTMENT INCOME $24,002,544 $38,914,036 $18,301,140 $3,236,772
=========== =========== =========== ==========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6% 9.0% 13.7% 17.5%
=========== =========== =========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET FUND GOVERNMENT FUND
----------------- ---------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 89,976,159 $ 54,437,913 $ 24,002,544 $ 15,570,185
Distributions to shareholders from net investment
income (89,976,159) (54,437,913) (24,002,544) (15,570,185)
---------------- ---------------- --------------- ---------------
Net increase in net assets from operations -- -- -- --
---------------- ---------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (at $1.00 per share):
Proceeds from shares sold 15,430,620,141 11,950,595,231 7,866,220,550 4,177,408,097
Net asset value of shares issued in reinvestment of
distributions to shareholders 20,938,255 15,065,218 5,511,007 3,599,166
---------------- ---------------- --------------- ---------------
15,451,558,396 11,965,660,449 7,871,731,557 4,181,007,263
Less: payments for shares redeemed (15,134,903,898) (11,969,313,007) (7,818,562,738) (4,106,464,145)
---------------- ---------------- --------------- ---------------
Net increase (decrease) in net assets from capital
share transactions 316,654,498 (3,652,558) 53,168,819 74,543,118
---------------- ---------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 316,654,498 (3,652,558) 53,168,819 74,543,118
NET ASSETS:
Beginning of year 1,323,040,316 1,326,692,874 421,208,036 346,664,918
---------------- ---------------- --------------- ---------------
End of year $ 1,639,694,814 $ 1,323,040,316 $ 474,376,855 $ 421,208,036
================ ================ =============== ===============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
TREASURY TAX-EXEMPT MICHIGAN TAX-EXEMPT
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
----------------- ----------------- -----------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- ------------- -------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 38,914,036 $ 23,209,709 $ 18,301,140 $ 12,879,849 $ 3,236,772 $ 1,621,567
Distributions to
shareholders from net
investment income (38,914,036) (23,209,709) (18,301,140) (12,879,849) (3,236,772) (1,621,567)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets from operations -- -- -- -- -- --
--------------- --------------- --------------- --------------- ------------- -------------
FROM CAPITAL SHARE
TRANSACTIONS
(at $1.00 per share):
Proceeds from
shares sold 6,284,582,300 3,163,540,997 2,777,275,094 3,097,740,398 293,836,102 229,739,020
Net asset value of
shares issued in
reinvestment of
distributions to
shareholders 5,449,979 6,513,927 2,421,757 2,353,656 2,029,545 1,022,699
--------------- --------------- --------------- --------------- ------------- -------------
6,290,032,279 3,170,054,924 2,779,696,851 3,100,094,054 295,865,647 230,761,719
Less: payments for
shares redeemed (6,148,030,955) (3,239,233,694) (2,766,019,376) (3,048,064,052) (252,448,579) (204,679,038)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
--------------- --------------- --------------- --------------- ------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
NET ASSETS:
Beginning of year 785,694,178 854,872,948 550,736,001 498,705,999 78,639,874 52,557,193
--------------- --------------- --------------- --------------- ------------- -------------
End of year $ 927,695,502 $ 785,694,178 $ 564,413,476 $ 550,736,001 $ 122,056,942 $ 78,639,874
=============== =============== =============== =============== ============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Cost
Description Face Amount (Note 2)
----------- ----------- --------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 16.98%
Allstate Life Insurance Co. Master Note, 5.93%,
1/2/96 $ 5,000,000 $ 5,000,000
American General Finance, Inc. Master Note, 5.85%,
1/2/96 15,000,000 15,000,000
Commonwealth Life Insurance Co. Master Note, 6.03%,
1/2/96 5,000,000 5,000,000
Peoples Security Life Insurance Co. Master Note,
6.03%, 1/2/96 5,000,000 5,000,000
Sun Life Insurance Co. of America Master Note,
6.13%, 1/2/96 10,000,000 10,000,000
Transamerica Finance Group, Inc. Master Note,
5.85%, 1/2/96 25,000,000 25,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 56,503,093 56,503,093
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 77,000,000 77,000,000
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) 73,407,000 73,407,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 4,000,000 4,000,000
--------------
275,910,093
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.52%
Federal Farm Credit Bank, 5.60%, 7/1/96 13,950,000 13,930,941
Federal Home Loan Bank:
5.63%, 6/26/96 12,000,000 11,992,746
5.98%, 8/14/96 5,000,000 5,000,000
Federal National Mortgage Assn. Deb., 8.75%,
6/10/96 2,000,000 2,025,084
Federal National Mortgage Assn. Medium Term Note:
5.97%, 5/16/96 4,000,000 4,002,877
5.71%, 6/10/96 9,000,000 8,994,375
Student Loan Marketing Assn., 6.05%, 6/30/96 27,500,000 27,528,471
--------------
73,474,494
--------------
COMMERCIAL PAPER -- 44.37%
Abbey National North America, 5.64%, 3/6/96 29,980,000 29,677,951
Accor, 5.74%, 2/15/96 8,000,000 7,943,000
AESOP Funding Corp., 5.82%, 1/22/96 15,000,000 14,949,250
Allomon Funding Corp.:
5.78%, 1/12/96 10,000,000 9,982,369
5.77%, 1/25/96 10,135,000 10,096,149
Alpine Securitization Corp., 5.76%, 2/13/96 8,000,000 7,945,342
American Express Credit Corp., 5.69%, 2/27/96 20,000,000 19,821,400
Avnet, Inc., 5.72%, 2/16/96 7,500,000 7,445,567
B.A.T. Capital Corp., 5.77%, 1/23/96 10,000,000 9,964,861
Barton Capital Corp., 5.80%, 1/26/96 17,000,000 16,931,764
Bass Finance (C.I.) Ltd., 5.71%, 2/14/96 10,815,000 10,740,052
BCI Funding Corp., 5.74%, 2/9/96 19,980,000 19,856,623
BEAL Cayman Ltd., 5.73%, 2/23/96 19,980,000 19,812,923
Clipper Receivables Corp., 5.76%, 1/17/96 20,000,000 19,948,889
Corporate Receivables Corp., 5.81%, 1/5/96 17,000,000 16,989,026
Echlin, Inc., 5.76%, 1/18/96 15,000,000 14,959,342
Eksportfinans A/S, 5.54%, 1/8/96 6,060,000 6,053,484
Electronic Data Systems Corp., 5.56%, 3/21/96 5,000,000 4,939,000
Engelhard Corp., 5.75%, 1/19/96 10,970,000 10,938,571
English China Clays PLC:
5.78%, 1/22/96 10,000,000 9,966,400
5.73%, 2/20/96 10,000,000 9,921,111
5.70%, 3/1/96 10,254,000 10,157,442
Enterprise Funding Corp.:
5.76%, 1/12/96 6,451,000 6,439,666
5.76%, 1/16/96 13,072,000 13,040,652
5.76%, 2/9/96 9,000,000 8,944,230
Explorer Pipeline Co.:
5.76%, 1/24/96 7,775,000 7,746,487
5.78%, 1/30/96 10,500,000 10,451,365
5.72%, 2/16/96 10,000,000 9,927,422
Franklin Resources, Inc., 5.73%, 2/20/96 8,000,000 7,936,889
Greenwich Funding Corp.:
5.76%, 1/8/96 10,000,000 9,988,819
5.78%, 1/11/96 10,000,000 9,983,972
Halifax Building Society, 5.77%, 1/3/96 10,000,000 9,996,794
Hercules, Inc., 5.60%, 6/21/96 10,000,000 9,739,611
International Lease Finance Corp., 5.76%, 1/9/96 12,730,000 12,713,734
International Securitization Corp.:
5.78%, 2/2/96 17,000,000 16,913,111
5.52%, 6/10/96 9,530,000 9,300,277
New Center Asset Trust, 5.78%, 1/31/96 20,000,000 19,904,167
Pacific Dunlop Holdings, Inc., 5.75%, 2/21/96 10,000,000 9,919,250
Pacific Dunlop Ltd., 5.67%, 1/23/96 5,000,000 4,982,736
Pooled Accounts Receivable Capital Corp.:
5.83%, 1/9/96 11,000,000 10,985,773
6.02%, 1/25/96 10,160,000 10,119,360
Preferred Receivables Funding Corp.:
5.73%, 2/2/96 15,975,000 15,894,060
5.75%, 2/21/96 8,050,000 7,984,996
Premium Funding, Inc.:
5.78%, 2/7/96 10,113,000 10,053,235
5.79%, 2/14/96 11,162,000 11,083,556
Ranger Funding Corp., 5.75%, 1/12/96 13,000,000 12,977,199
San Paolo U.S. Financial Co., 5.68%, 3/15/96 10,970,000 10,843,498
Sheffield Receivables Corp., 5.73%, 2/1/96 12,980,000 12,916,290
St. Michael Finance Ltd.:
5.75%, 2/20/96 9,272,000 9,198,597
5.64%, 3/5/96 5,694,000 5,637,516
5.64%, 3/8/96 10,000,000 9,896,150
Sunbelt-Dix, Inc.:
5.76%, 1/30/96 4,000,000 3,981,537
5.79%, 2/13/96 11,980,000 11,897,721
5.71%, 3/5/96 12,000,000 11,879,467
5.67%, 3/25/96 5,250,000 5,181,400
Sweden (Kingdom of):
5.71%, 2/16/96 15,000,000 14,891,325
5.72%, 3/1/96 6,980,000 6,914,039
5.73%, 3/12/96 10,000,000 9,888,175
TI Group, Inc., 5.70%, 3/4/96 17,000,000 16,832,210
U.S. Borax & Chemical Corp., 5.73%, 2/1/96 5,000,000 4,975,458
Windmill Funding Corp.:
6.02%, 1/16/96 10,000,000 9,975,000
5.82%, 1/24/96 15,000,000 14,944,417
WMX Technologies, Inc., 5.50%, 9/9/96 15,480,000 14,905,692
--------------
720,826,369
--------------
NOTES -- 17.27%
American Express Centurion Bank, 5.82%, A/R,
1/17/96 15,000,000 15,000,652
Associates Corp. of North America Debenture, 7.50%,
10/15/96 28,850,000 29,222,978
Associates Corp. of North America Euro Dollar
Debenture, 10.50%, 3/12/96 7,378,000 7,424,686
Boatmens National Bank of St. Louis, 6.00%, A/R,
6/12/96 20,000,000 20,000,000
Comerica Bank, 5.70%, 9/3/96 13,000,000 12,991,077
First Bank, NA, 5.96%, 3/4/96 27,500,000 27,499,558
First Union National Bank N. C., 5.76%, 2/2/96 5,000,000 5,000,000
Ford Motor Credit Co. Medium Term Notes:
6.25%, A/R, 5/10/96 12,000,000 12,013,087
14.00%, 7/5/96 5,000,000 5,198,163
9.10%, 7/18/96 5,000,000 5,083,739
Huntington National Bank, 5.67%, A/R, 8/29/96 30,000,000 29,988,082
J.P. Morgan, 5.75%, 8/7/96 29,980,000 29,986,992
PNC Bank, 5.65%, 9/18/96 20,000,000 19,996,215
Seattle First National Bank, 5.51%, 6/14/96 10,000,000 10,000,000
Smithkline Beecham Corp., 5.25%, 1/16/96 2,425,000 2,423,784
Society National Bank Cleveland Ohio Medium Term
Note, 6.875%, 10/15/96 23,500,000 23,683,821
Trust Company Bank, 6.50%, 3/21/96 25,000,000 24,994,577
-----------
280,507,411
-----------
CERTIFICATES OF DEPOSIT -- 15.44%
Bayerische Landesbank Girozentrale, 6.00%, 9/12/96 10,000,000 10,000,000
Bayerische Vereinsbank AG, 5.95%, 7/22/96 29,980,000 29,980,000
Canadian Imperial Bank of Commerce, 5.95%, 10/23/96 24,980,000 24,980,000
Dresdner Bank AG, 7.00%, 2/5/96 15,000,000 15,000,000
Harris Trust & Savings Bank, 5.72%, 2/29/96 14,975,000 14,975,000
National Westminster Bank PLC, 5.83%, 1/12/96 15,000,000 15,000,045
PNC Bank Corp., 5.74%, 9/30/96 20,000,000 19,985,384
Royal Bank of Canada:
6.60%, 4/3/96 2,980,000 2,980,399
6.55%, 4/9/96 8,000,000 8,000,000
Societe Generale:
7.05%, 2/14/96 20,000,000 20,000,000
6.80%, 3/1/96 5,000,000 5,000,000
Toronto-Dominion Bank, Euro:
6.80%, 3/11/96 24,980,000 24,987,939
5.84%, 11/7/96 30,000,000 30,000,000
Wachovia Bank of Georgia, NA, 5.85%, 1/10/96 10,000,000 10,000,000
Wachovia Bank of North Carolina, 7.13%, 1/26/96 20,000,000 19,997,687
--------------
250,886,454
--------------
TIME DEPOSIT -- 1.42%
Mitsubishi Bank, 12.00%, 1/2/96 23,000,000 23,000,000
--------------
23,000,000
--------------
TOTAL INVESTMENTS $1,624,604,821
==============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 45.05%
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) $73,569,000 $ 73,569,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00% 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 23,000,000 23,000,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 115,000,000 115,000,000
------------
211,569,000
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 54.95%
U.S. Treasury Securities -- 4.28%
U.S. Treasury Notes:
4.375%, 8/15/96 5,000,000 4,957,174
7.000%, 9/30/96 15,000,000 15,150,150
------------
20,107,324
------------
Agency Obligations -- 50.67%
Federal Farm Credit Bank:
5.78%, A/R, 2/9/96 25,000,000 24,998,664
6.61%, 4/12/96 4,000,000 4,006,934
6.39%, 4/17/96 10,000,000 10,022,719
5.59%, A/R, 6/7/96 10,000,000 9,998,338
5.60%, 11/1/96 10,000,000 10,002,747
Federal Home Loan Bank:
6.85%, 2/28/96 24,000,000 24,012,415
6.30%, 3/1/96 2,500,000 2,474,042
5.05%, 6/7/96 6,000,000 5,983,328
5.90%, 7/25/96 5,000,000 5,000,000
5.98%, 8/14/96 19,000,000 19,000,000
6.00%, 8/16/96 2,000,000 2,000,411
4.84%, 8/26/96 5,000,000 4,976,737
5.77%, 11/20/96 10,000,000 9,998,229
Federal Home Loan Mortgage Corp., 6.79%, 2/20/96 15,000,000 14,999,678
Federal National Mortgage Assn., 5.58% 2/21/96 8,400,000 8,334,074
Federal National Mortgage Assn. Medium Term Note:
5.50%, A/R, 1/26/96 25,000,000 24,998,973
5.71%, 6/10/96 5,000,000 4,998,939
5.50%, 6/12/96 18,000,000 17,969,843
Student Loan Marketing Assn.:
6.13%, A/R, 6/30/96 12,500,000 12,490,660
6.06%, A/R, 7/1/96 11,700,000 11,700,000
6.05%, A/R, 10/4/96 10,000,000 10,000,000
------------
237,966,731
------------
TOTAL INVESTMENTS $469,643,055
============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- -------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 82.74%
Aubrey Langston, Revolving Repurchase Agreement,
5.92%, 1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 8/31/97
through 11/15/05 at various interest rates
ranging from 4.75% to 13.75%, all held at
Chemical Bank) $43,000,000 $ 43,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 5.82%, 1/2/96 (secured by various U.S.
Treasury obligations with maturities ranging from
5/15/96 through 8/15/23 at various interest rates
ranging from 0.00% to 8.875%, all held at the
Custodial Trust Co.) 215,000,000 215,000,000
Daiwa Securities America, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 4/30/96 through 11/15/01 at various
interest rates ranging from 0.00% to 15.75%, all
held at the Bank of New York) 43,000,000 43,000,000
First Boston, Inc., Revolving Repurchase Agreement,
5.85%, 1/2/96 (secured by various U.S. Treasury
Notes with maturities ranging from 11/15/96
through 2/15/03 at various interest rates ranging
from 4.375% to 6.25%, all held at Chemical Bank) 36,000,000 36,000,000
Lehman Brothers, Inc., Revolving Repurchase
Agreement, 5.92%, 1/2/96 (secured by U.S.
Treasury Note, 5.875%, 7/31/97, held at Chemical
Bank) 43,000,000 43,000,000
Morgan Stanley & Co., Inc., Revolving Repurchase
Agreement, 5.87%, 1/2/96 (secured by U.S.
Treasury Note, 6.125%, 5/31/97, held at the Bank
of New York) 43,000,000 43,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 216,533,000 216,533,000
Nikko Securities Co. International, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 7/31/96 through 8/15/00 at various
interest rates ranging from 0.00% to 8.75%, all
held at the Bank of New York) 40,000,000 40,000,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 5.96%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 8/31/97 through 5/15/01 at various
interest rates ranging from 0.00% to 6.00%, all
held at the Bank of New York) 40,000,000 40,000,000
Sanwa BGK Securities Co., L.P., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
U.S. Treasury Note, 5.50%, 11/15/98, held at the
Bank of New York) 43,000,000 43,000,000
------------
762,533,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 17.26%
U.S. Treasury Securities -- 17.26%
Principal Strip from U.S. Treasury Bond due
5/15/96 5,000,000 4,897,685
U.S. Treasury Bill, 6.26%, 3/7/96 3,000,000 2,965,955
U.S. Treasury Notes:
4.000%, 1/31/96 8,000,000 7,988,924
4.625%, 2/15/96 10,000,000 9,976,935
7.875%, 2/15/96 35,000,000 35,049,857
7.500%, 2/29/96 15,000,000 15,016,012
5.500%, 4/30/96 20,000,000 19,970,088
5.875%, 5/31/96 10,000,000 10,001,983
7.875%, 7/15/96 2,000,000 2,021,778
6.125%, 7/31/96 7,000,000 7,013,918
7.875%, 7/31/96 4,000,000 4,046,593
4.375%, 8/15/96 14,000,000 13,873,585
8.000%, 10/15/96 15,000,000 15,256,312
4.375%, 11/15/96 5,000,000 4,943,974
7.250%, 11/15/96 6,000,000 6,086,851
------------
159,110,450
------------
TOTAL INVESTMENTS $921,643,450
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Alabama -- 1.05%
Alabama HFA Mulit-Family CP:
12/1/13 VMIG 1 3.50% $ 3,200,000 $ 3,200,000
12/1/13 VMIG 1 3.60% 2,700,000 2,700,000
Alaska -- 7.97%
Anchorage Electric Utilities (MBIA Insured)
12/1/15 Aaa 7.63% 11,100,000 11,423,545
Valdez Marine Terminal--Arco Transportation:
CP, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
CP, 5/1/31 VMIG 1 3.55% 3,900,000 3,900,000
CP, 5/1/31 VMIG 1 3.75% 1,700,000 1,700,000
VRDB, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
Valdez Marine Terminal--Exxon Pipeline Co. VRDB,
10/1/25 P 1 5.95% 12,000,000 12,000,000
Arizona -- 1.00%
Chandler IDR VRDB--Parsons Municipal Services,
12/15/09 A 1+ 4.25% 3,600,000 3,600,000
Maricopa Co. School District GO Unlimited Tax Series
A, 7/1/96 Aa 3.75% 2,000,000 2,000,952
Colorado -- 2.87%
Adams Co. IDR VRDB--City View Park, 12/1/15 A 1+ 5.20% 3,000,000 3,000,000
Englewood HFA Multi-Family VRDN--Mark Project,
12/15/97 A 1+ 5.25% 2,000,000 2,000,000
Lakewood Multi-Family Housing (FGIC Insured)
VRDB--St. Moritz & Diamond Head, 10/1/07 VMIG 1 4.00% 8,250,000 8,250,000
Moffat Co. PCR VRDB, 7/1/10 VMIG 1 4.65% 3,000,000 3,000,000
Delaware -- 1.35%
Delaware EDC VRDB--Hospital Billing Series B, 12/1/15 VMIG 1 5.25% 7,600,000 7,600,000
Florida -- 1.58%
Florida GO Unlimited Tax, 7/1/08 Aaa 7.20% 3,270,000 3,355,215
Florida HFA Multi-Family (MBIA Insured) VRDB--Lake
Northdale, 6/1/07 Aaa 3.75% 5,595,000 5,595,000
Georgia -- 2.56%
Cobb Co. Housing Multi-Family VRDB--Pittco Frey
Associates Project, 6/1/23 VMIG 1 5.20% 5,900,000 5,900,000
College Park IDR VRDB-- Marriott Corp., 8/1/15 Aa 3 6.10% 1,200,000 1,200,000
Fulton Co. Development IDR VRDN--Palisades West Ltd.,
9/1/96 Aaa 5.15% 2,235,000 2,235,000
Georgia Municipal Gas Authority--Southern Portfolio I
Project, 4/1/96 VMIG 1 3.75% 5,100,000 5,100,000
Hawaii -- 2.41%
Hawaii Dept. of Budget & Finance Mortgage:
VRDN--Kuakini Medical Center, 7/1/04 VMIG 1 3.75% 4,000,000 4,000,000
VRDB--Wilcox Memorial Hospital, 7/1/18 VMIG 1 5.95% 2,100,000 2,100,000
Hawaii State Housing Finance & Development Corp.
VRDB--Rental Housing Systems, 7/1/24 VMIG 1 5.15% 7,500,000 7,500,000
Illinois -- 8.50%
Chicago GO Tender Notes, 10/31/96 VMIG 1 3.75% 6,100,000 6,100,000
Chicago O'Hare International Airport--American
Airlines VRDB:
Series C, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Series D, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Illinois GO, 4/1/06 AA- 7.13% 1,000,000 1,022,317
Illinois State Sales Tax, 6/15/15 Aaa 7.63% 6,950,000 7,132,216
Illinois State Toll Highway Authority, VRDB 1/1/10 VMIG 1 5.05% 300,000 300,000
Northwest Suburban Municipal Joint Account (MBIA
Insured)--Water Agency Supply System, 5/1/03 Aaa 7.20% 3,440,000 3,490,557
Indiana -- 3.40%
Jasper Co. PCR CP--Northern Indiana Public Services,
11/1/16 VMIG 1 3.70% 2,000,000 2,000,000
Mt. Vernon PCR CP--General Electric Project,
12/1/04 P 1 3.50% 6,900,000 6,900,000
12/1/04 P 1 3.70% 2,790,000 2,790,000
Rockport Pollution Control (AMBAC Insured)
VRDB--AEP Generating Co., 7/1/25 Aaa 5.95% 5,500,000 5,500,000
VRDB--Indiana Michigan Power Co., 6/1/25 Aaa 5.00% 2,000,000 2,000,000
Kansas -- 1.18%
Olathe GO Unlimited Tax, 5/1/96 MIG 1 4.50% 6,700,000 6,700,000
<PAGE>
Kentucky -- 0.53%
Mason Co. PCR E. Kentucky Power VRDB--CFC Power
National Rural Utilities B-1, 10/15/14 P 1 4.65% 3,000,000 3,000,000
Maryland -- 1.06%
Baltimore PCR VRDN-- SCM Plants, 2/1/00 A 1+ 5.10% 6,000,000 6,000,000
Michigan -- 12.87%
Clinton Township EDC (MBIA Insured) VRDB Sisters of
Charity St. Joseph, 5/1/13 VMIG 1 5.00% 300,000 300,000
Dearborn EDC VRDB--Oakbrook Common:
3/1/23 A 1 5.10% 2,300,000 2,300,000
3/1/25 A 1 5.10% 200,000 200,000
Delta Co. EDC--Mead Escanaba Paper:
Series D, 12/1/23 P 1 6.00% 4,200,000 4,200,000
Series F, 12/1/23 P 1 6.10% 4,300,000 4,300,000
Farmington Hills EDR VRDB--Brookfield Building
Associates, 11/1/10 A 1 5.20% 2,000,000 2,000,000
Grand Rapids EDC VRDB--Amway, 12/1/06 A 1 5.10% 3,600,000 3,600,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 5,870,000 5,870,000
Kent Hospital VRDB--Butterworth Hospital, 1/15/20 VMIG 1 5.40% 2,600,000 2,600,000
Meridian Limited Obligation EDC VRDN--Service
Merchandise Co., 12/15/99 A 1+ 4.00% 500,000 500,000
Michigan State Building Authority, 10/1/96 AA- 3.75% 5,000,000 5,005,297
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 8,900,000 8,900,000
Michigan State Hospital VRDB--Mt. Clemens Hospital,
8/15/15 VMIG 1 5.00% 4,600,000 4,600,000
Michigan State HDA VRDB:
Laurel Valley, 12/1/07 VMIG 1 5.10% 400,000 400,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 2,800,000 2,800,000
Michigan State Job Development Authority
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 5,800,000 5,800,000
PCR VRDB--Mazda Motor Corp., 10/1/08 VMIG 1 5.25% 4,500,000 4,500,000
Michigan State Strategic Fund VRDB--Allen Group, Inc.
11/1/25 VMIG 1 5.00% 400,000 400,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 1,200,000 1,200,000
12/1/27 VMIG 1 5.90% 11,610,000 11,610,000
Minnesota -- 1.60%
Hennepin Co. GO, 12/1/06 VMIG 1 5.15% 5,000,000 5,000,000
Rochester GO Various Sales Tax, 11/1/99 **N/R 5.00% 100,000 100,000
St. Paul Housing & Redevelopment Authority VRDB,
12/1/12 A 1+ 3.80% 3,900,000 3,900,000
Mississippi -- 1.45%
Perry Co. PCR VRDB--Leaf River Forest, 10/1/12 P 1 5.30% 8,200,000 8,200,000
Missouri -- 1.44%
Independence Water Utility Improvements CP 11/1/16 VMIG 1 3.40% 2,400,000 2,400,000
Missouri State Environmental Improvement Energy
Research PCR--Union Electric Co.:
Series A, 6/1/14 P 1 4.00% 1,000,000 1,000,000
Series B, 6/1/14 P 1 4.00% 4,750,000 4,750,217
Nevada -- 2.64%
Clark Co. Airport Improvement (MBIA Insured) VRDB,
7/1/12 VMIG 1 5.15% 8,600,000 8,600,000
Clark Co. PCR VRDB--Nevada Power Co. 10/1/23 A 1+ 5.00% 6,300,000 6,300,000
New Hampshire -- 0.32%
New Hampshire IDR VRDB--Oerlikon-Burlhe USA, 7/1/13 A 1+ 3.75% 1,800,000 1,800,000
New Jersey -- 0.22%
Rutgers State University, 5/1/96 AA 4.25% 1,220,000 1,221,741
New York -- 1.95%
New York City GO (MBIA Insured) VRDB 8/15/22 VMIG 1 5.90% 11,000,000 11,000,000
North Carolina -- 2.67%
North Carolina Eastern Municipal Power Agency--Power
System, 1/1/15 Aaa 7.75% 15,000,000 15,000,000
Ohio -- 2.40%
Cincinnati/Hamilton Co. EDR, 8/1/15 **N/R 3.90% 3,150,000 3,150,000
Columbus Electric System VRDB, 9/1/09 A 1 3.90% 1,400,000 1,400,000
Franklin Co. IDR VRDN--Capital South Community
Redevelopment, 12/1/05 **N/R 4.10% 700,000 700,000
Ohio Environmental Improvements CP, U.S. Steel Corp.,
5/1/11 P 1 5.50% 8,300,000 8,300,000
Oregon -- 2.41%
Medford Hospital VRDB--Rogue Valley Manor, 12/1/15 VMIG 1 5.20% 4,000,000 4,000,000
Port Morrow VRDB--General Elecitric, 10/1/13 P 1 6.00% 5,700,000 5,700,000
Tualatin Hills Parks & Recreation TRAN, 6/28/96 SP 1+ 4.25% 3,875,000 3,882,320
Pennsylvania -- 5.01%
Allegheny Co. Industrial Development VRDB--United
Jewish Federation:
Series B, 10/1/25 VMIG 1 5.25% 10,000,000 10,000,000
Series C, 10/1/15 VMIG 1 5.25% 1,100,000 1,100,000
Delaware Co. IDR (FGIC Insured) CP--Philadelphia
Electric, 12/1/12 VMIG 1 3.40% 2,400,000 2,400,000
Montgomery Co. Higher Education Health Authority
VRDB--Philadelphia Presbytery 7/1/25 VMIG 1 5.25% 5,000,000 5,000,000
Schuylkill Co. IDR VRDB--Westwood Energy 11/1/09 P 1 6.25% 6,800,000 6,800,000
Upper Allegheny Joint Sanitary Authority, 9/1/26 MIG 1 4.50% 3,000,000 3,001,004
South Carolina -- 2.57%
Richland Co. Schoold District TAN GO Unlimited Tax,
4/15/96 MIG 1 4.00% 8,300,000 8,305,660
South Carolina GO State Capital Improvement, 2/1/96 Aaa 7.30% 3,500,000 3,509,443
South Dakota -- 0.48%
South Dakota HDA, 5/1/96 Aa 1 3.90% 2,715,000 2,715,000
Tennessee -- 2.13%
Knox Co. Board IDR VRDB--Service Merchandise Co.,
Inc., 12/15/08 A 1+ 4.00% 800,000 800,000
Metropolitan Government Nashville & Davidson Co.,
6/15/06 AA 6.50% 6,000,000 6,142,843
Metropolitan Government Nashville & Davidson Co.,
VRDB--Nashville Apartments 9/1/15 Aa 3 5.15% 5,100,000 5,100,000
Texas -- 10.02%
Austin Utilities System CP, 4/9/96 P 1 3.65% 5,400,000 5,400,000
Houston Water & Sewer System (MBIA Insured) 12/1/16 Aaa 7.13% 3,000,000 3,150,445
North Central HCFA VRDB--YMCA Dallas 6/1/21 VMIG 1 5.65% 5,600,000 5,600,000
Texas Hospital Equipment Finance Council (MBIA
Insured) VRDN, 4/7/05 VMIG 1 5.45% 8,045,000 8,045,000
Texas Small Business IDR VRDB--Texas Public
Facilities Capital Access, 7/1/26 VMIG 1 5.20% 2,300,000 2,300,000
Texas State Higher Education Authority (FGIC Insured)
VRDB--Educational Equipment & Improvements, 12/1/25 VMIG 1 5.15% 2,510,000 2,510,000
Texas State Public Finance Authority:
10/1/96 Aa 6.40% 3,000,000 3,061,190
CP, 8/20/96 P 1 3.75% 5,000,000 5,000,000
Texas TRAN, 8/30/96 MIG 1 4.75% 12,750,000 12,812,314
Texas Transportation CP, 8/20/96 P 1 3.65% 5,000,000 5,000,000
Tyler Health Facilities Development Corp. CP--East
Texas Medical Center Regional Health, 11/1/25 VMIG 1 3.65% 3,700,000 3,700,000
Utah -- 3.01%
Intermountain Power Agency, 7/1/17 Aaa 7.75% 4,700,000 4,889,980
Salt Lake Co. PCR--VRDB--Pacific Corp. 2/1/08 P 1 5.95% 12,100,000 12,100,000
Vermont -- 1.87%
Vermont Educational Health Agency, 11/1/27 A 1+ 3.80% 5,975,000 5,975,000
Vermont Student Assistance Corp. VRDN, 1/1/04 VMIG 1 3.75% 4,600,000 4,600,000
Virginia -- 0.48%
Loudoun Co. IDR VRDB, 11/1/24 A 1 6.45% 2,700,000 2,700,000
Washington -- 1.88%
Port Townsend IDR VRDB--Townsend Paper Corp., 3/1/09 VMIG 1 5.15% 5,100,000 5,100,000
Seattle Municipal Light & Power Co., 11/1/15 VMIG 1 3.50% 5,500,000 5,500,000
West Virginia -- 0.48%
Raleigh Co. Health Care System VRDB, 9/1/06 VMIG 1 5.25% 2,700,000 2,700,000
Wisconsin -- 5.70%
Milwaukee School Order Notes Series B, 8/22/96 MIG 1 4.50% 15,000,000 15,046,050
Waukesha School District TRAN, 8/23/96 SP 1 4.25% 14,000,000 14,020,236
Wisconsin State Transportation Transit Improvements,
7/1/02 AAA 7.90% 3,000,000 3,123,465
Wyoming -- 1.42%
Lincoln Co. PCR VRDB--Pacificorp Project, 1/1/16 VMIG 1 3.40% 8,000,000 8,000,000
------------
TOTAL INVESTMENTS $564,592,007
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
Individual Development & Export
IDA -- Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
Unit Priced Daily Adjustable Tax
UPDATE -- Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
<PAGE>
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MICHIGAN TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Michigan -- 99.24%
Ann Arbor EDC Ltd. Obligation VRDN--Webers
Industries, 5/1/00 **N/R 5.20% $ 930,000 $ 930,000
Bruce Township Hospital (MBIA Insured) VRDB--Sisters
of Charity St. Joseph:
Series A, 5/1/18 VMIG 1 3.70% 3,000,000 3,000,000
Series B, 5/1/18 VMIG 1 5.00% 800,000 800,000
Dearborn EDC Ltd. Obligation VRDB--Oakbrook Common,
3/1/25 A 1 5.10% 800,000 800,000
Delta Co. EDC--Mead Escanaba Paper Co.:
Series B, 12/1/23 P 1 3.60% 1,600,000 1,600,000
Series E, 12/1/23 P 1 6.10% 3,600,000 3,600,000
Detroit Downtown Development Authority
VRDB--Millender Center Project, 12/1/10 VMIG 1 5.30% 4,500,000 4,500,000
Detroit Sewage Disposal (MBIA Insured) Series B,
7/1/96 Aaa 5.00% 4,750,000 4,781,575
Detroit Tax Increment Revenue VRDB, 10/1/10 A 1 5.25% 4,200,000 4,200,000
Eaton Inter School District TAN, 4/4/96 **N/R 3.95% 1,245,000 1,245,299
Farmington Hills EDC Ltd. Obligation VRDB--Brookfield
Building Assn., L P, 11/1/10 A 1 5.20% 1,135,000 1,135,000
Ferndale Schools GO Unlimited Tax, 5/1/06 Aaa 7.00% 1,075,000 1,087,371
Flint Hospital Building Authority VRDB--Hurley
Medical Center, Series B, 7/1/15 VMIG 1 5.60% 5,000,000 5,000,000
Grand Traverse Hospital VRDB--Munson Medical Center
Series A, 12/1/15 Aaa 7.63% 1,000,000 1,050,748
Grosse Point Public Library TAN, 4/3/96 **N/R 3.60% 990,000 990,291
Holland EDC VRDB--Thrifty Holland, Inc., 3/1/13 A 1 3.90% 1,300,000 1,300,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 500,000 500,000
Kalamazoo Co. EDC VRDB--Industrial & Economic
Development WBC Properties Ltd., 9/1/15 **N/R 5.60% 1,000,000 1,000,000
Kalamazoo Public Library TAN, 4/1/96 **N/R 3.60% 2,190,000 2,190,358
Kent Hospital VRDB--Butterworth Hospital Series A,
1/15/20 VMIG 1 5.40% 300,000 300,000
L'Anse Creuse Public Schools GO Unlimited Tax, 5/1/96 AA 5.75% 1,000,000 1,004,629
Leelanau Co. EDC Ltd. Obligation--American Community
Mutual Insurance Co., 6/15/06 **N/R 3.90% 1,060,000 1,060,000
Livonia EDC AMT VRDB--Foodland Distributors, 12/1/11 VMIG 1 5.20% 1,000,000 1,000,000
Macomb Township EDC Ltd. Obligation AMT VRDN--ACR
Industries, 1/1/03 VMIG 1 5.10% 1,050,000 1,050,000
Meridian EDC Ltd. Obligation VRDB--Hannah
Technologies, 11/15/14 A 1+ 4.25% 2,500,000 2,500,000
Michigan Municipal Bond Authority:
Series A, 5/3/96 SP 1+ 5.00% 2,000,000 2,004,832
Series B, 7/3/96 SP 1+ 4.50% 4,000,000 4,014,133
Michigan Public Power Agency (AMBAC Insured)--Belle
River Project, 1/1/96 Aaa 7.00% 3,000,000 3,000,000
Michigan State Building Authority:
Series I, 10/1/96 AA- 3.75% 2,000,000 2,000,000
University & College Improvements, 10/1/96 AA- 4.30% 5,235,000 5,253,942
University of Michigan Hospital, 12/1/96 Aaa 7.88% 665,000 702,565
Michigan State Comprehensive Transportation, 8/1/05 AA- 7.63% 1,940,000 1,951,707
Michigan State Hospital Henry Ford Health Series A,
11/15/96 Aa 4.00% 1,070,000 1,073,510
5/1/00 Aaa 7.35% 2,055,000 2,095,912
5/1/08 Aaa 8.00% 1,310,000 1,344,864
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 400,000 400,000
Michigan State HDA VRDB, 4/1/19 A+ 1 5.00% 1,000,000 1,000,000
Michigan State HDA Ltd. Obligation VRDB--
Laurel Valley, 12/1/07 VMIG 1 5.10% 800,000 800,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 200,000 200,000
Michigan State Job Development Authority IDR:
VRDN--Sugar Sebewa, 9/1/00 Aa 3 5.15% 2,600,000 2,600,000
VRDN--Hitachi Metals, 1/1/04 Aa 3 4.00% 1,800,000 1,800,000
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 2,200,000 2,200,000
Michigan State Job Development Authority PCR
VRDB--Mazda Motors Mfg. USA Corp., 10/1/08 VMIG 1 5.25% 1,500,000 1,500,000
Michigan State Strategic Fund IDR VRDB--Allen Group,
Inc., 11/1/25 VMIG 1 5.00% 600,000 600,000
Michigan State Strategic Fund PCR VRDN--Consumers
Power Co., 9/1/00 A 1+ 5.15% 3,000,000 3,000,000
Michigan State Strategic Fund Ltd. Obligation--
Environmental Research, Series B, 6/1/11 VMIG 1 4.35% 1,280,000 1,280,000
Michigan State Strategic Fund Ltd. Obligation AMT:
VRDN--Alpha Tech, Inc., 10/1/97 P 1 5.50% 6,000,000 6,000,000
VRDN--Michigan & Wayne Disposal Inc., 4/1/99 A 1 5.35% 1,500,000 1,500,000
VRDB--West Riverbank, 11/1/06 A 1 5.20% 1,100,000 1,100,000
VRDB--Dennenlease L C, 4/1/10 **N/R 5.15% 2,395,000 2,395,000
VRDB--Ironwood Plastics, Inc., 11/1/11 **N/R 5.15% 1,275,000 1,275,000
VRDB--Molmec Inc., 12/1/14 **N/R 5.35% 1,500,000 1,500,000
VRDB--CEC Products Co., 6/1/15 **N/R 5.35% 3,300,000 3,300,000
VRDB--Detroit Edison Co., 9/1/30 P 1 6.00% 5,000,000 5,000,000
Michigan State Strategic Fund Ltd. Obligation
VRDN--Freezer Services, 10/1/97 **N/R 5.30% 760,000 760,000
Michigan State Trunk Line Highway & Transit
Improvements:
7/1/96 AA- 7.00% 500,000 508,041
11/15/96 AA- 5.25% 500,000 506,136
Michigan State Underground Storage Tank VRDN, 12/1/04 VMIG 1 5.15% 2,900,000 2,900,000
Oakland Co. EDC--Corners Shopping Center, 8/1/15 A 1+ 4.10% 530,000 530,000
Oakland Co. EDC Ltd. Obligation AMT--Orchard Maple
Project, 11/15/16 **N/R 4.00% 615,000 615,000
Plymouth Township EDC VRDN--Key International
Manufacturing, Inc., 7/1/04 **N/R 4.00% 3,750,000 3,750,000
Van Buren Township EDC AMT VRDN--Daikin Clutch USA
Inc., 3/1/97 Aa 3 5.50% 3,000,000 3,000,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 2,800,000 2,800,000
12/1/27 VMIG 1 5.90% 790,000 790,000
------------
125,275,913
------------
PUERTO RICO -- 0.76%
Commonwealth of Puerto Rico (FGIC Insured) GO
Unlimited Tax, 7/1/96 Aaa 7.80% 500,000 521,705
Puerto Rico Public Buildings Authority--Public
Education & Health Facilities, 7/1/12 Aaa 8.00% 425,000 439,854
961,559
------------
TOTAL INVESTMENTS $126,237,472
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987 and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995
Woodward consisted of seventeen separate series of which there were five money
market funds (Money Market Funds), as described below.
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
The Money Market Funds commenced operations on January 4, 1988, except
for the Michigan Tax-Exempt Money Market Fund and the Treasury Money Market
Fund, which commenced operations on January 23, 1991 and January 1, 1993,
respectively.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed
by the Money Market Funds in preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. Following generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Investments
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, the Money
Market Funds utilize the amortized cost method to determine the carrying value
of investment securities. Under this method, investment securities are valued
for both financial reporting and federal tax purposes at amortized cost and
any discount or premium is amortized from the date of acquisition to maturity.
The use of this method results in a carrying value which approximates market
value. Market value is determined based upon quoted market prices or dealer
quotes.
Investment security purchases and sales are accounted for on the trade
date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD Bank (NBD), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Woodward's investments in securities subject to
repurchase agreements: 1) the value of the underlying collateral is required
to equal or exceed 102% of the funds advanced under the repurchase agreement
including accrued interest; 2) collateral is marked to market daily by NBD to
assure its value remains at least equal to 102% of the repurchase agreement
amount; and 3) funds are not disbursed by Woodward or its agent unless
collateral is presented or acknowledged by the collateral custodian.
The Tax-Exempt and Michigan Tax-Exempt Funds invest in a majority of
instruments whose stated maturity is greater than one year, but whose rate of
interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying Financial Statements.
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), NBD or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of
record at such close. Such dividends are paid monthly.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. Woodward monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of the funds or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .025% of the aggregate average net assets invested in
the Money Market Funds' first $400 million and .005% of such assets in excess
of $400 million. Fees of FoM under the Distribution Agreement are allocated
among the Funds based on the relative net asset values. Essex is entitled to
receive a fee at the annual rate of .10% of the aggregate average net assets
of Woodward's investment portfolios, attributable to investments by clients of
Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD waived $61,221 of the
advisory fee for the Michigan Tax-Exempt Money Market Fund.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions is as follows:
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Fund Fund Fund Fund Fund
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases $58,940,462,599 $5,440,529,005 $7,317,697,881 $2,744,829,205 $388,242,330
Sales & Maturities $58,634,036,261 $5,389,053,887 $7,177,784,932 $2,723,533,379 $337,049,476
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee rates
payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each Fund's average net assets.
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Effective Date Fund Fund Fund Fund Fund
-------------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Expense Rates:
January 1 0.50% 0.51% 0.53% 0.53% 0.69%
May 11 0.52% 0.51% 0.53% 0.53% 0.69%
November 9 0.52% 0.52% 0.53% 0.53% 0.69%
December 1 0.52% 0.52% 0.55% 0.53% 0.69%
NBD Advisory Fee:
Net Assets--
Up to $1.0 billion 0.45% 0.45% 0.45% 0.45% 0.50%
$1.0 to $2.0 billion 0.425% 0.425% 0.425% 0.425% 0.50%
Over $2.0 billion 0.40% 0.40% 0.40% 0.40% 0.50%
Amounts Paid:
Advisory Fee to NBD $7,225,557 $1,987,590 $3,248,535 $2,458,246 $496,026
Distribution Fee to FoM and Essex $ 152,873 $ 34,919 $ 53,755 $ 44,226 $ 10,466
Other Fees & Out of Pocket Expenses to NBD $ 341,111 $ 55,012 $ 150,481 $ 92,713 $ 30,134
Expenses Waived:
Advisory Fee to NBD -- -- -- -- $(61,221)
</TABLE>
(6) Portfolio Composition
Although the Tax-Exempt Money Market Fund has a diversified investment
portfolio, the Fund has investments in excess of 10% of its total investments
in the states of Michigan and Texas. The Michigan Tax-Exempt Money Market Fund
does not have a diversified portfolio since 99% of its investments are within
the state of Michigan. Such concentrations within particular states may subject
the funds more significantly to economic changes occurring within those states.
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment
income and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579
Distributions From Net Investment Income $ (0.0549) $ (0.0378) $ (0.0281) $ (0.0347) $(0.0579)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.63% 3.86% 2.85% 3.58% 5.95%
Ratios to Average Net Assets:
Expenses 0.51% 0.47% 0.49% 0.52% 0.50%
Net Investment Income 5.49% 3.78% 2.81% 3.47% 5.79%
Net Assets, End of Year
(in 000's) $1,639,695 $1,323,040 $1,326,693 $1,095,354 $775,521
<CAPTION>
Government Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564
Distributions From Net Investment Income $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.57% 3.77% 2.81% 3.63% 5.79%
Ratios to Average Net Assets:
Expenses 0.51% 0.51% 0.51% 0.51% 0.50%
Net Investment Income 5.44% 3.72% 2.77% 3.57% 5.64%
Net Assets, End of Year
(in 000's) $474,377 $421,208 $346,665 $261,614 $288,369
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury
Money Market Fund
---------------------------------------------
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net Investment Income $ 0.0539 $ 0.0370 $ 0.0273
Distributions From Net Investment Income $(0.0539) $(0.0370) $(0.0273)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00
Total Return 5.53% 3.77% 2.77%
Ratios to Average Net Assets:
Expenses 0.53% 0.50% 0.50%
Net Investment Income 5.39% 3.70% 2.73%
Net Assets, End of Year
(in 000's) $927,696 $785,694 $854,873
<CAPTION>
Tax-Exempt Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422
Distributions From Net Investment Income $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.41% 2.45% 1.98% 2.70% 4.30%
Ratios to Average Net Assets:
Expenses 0.53% 0.51% 0.51% 0.53% 0.52%
Net Investment Income 3.35% 2.42% 1.96% 2.64% 4.22%
Net Assets, End of Year
(in 000's) $564,413 $550,736 $498,706 $379,431 $227,808
<CAPTION>
Michigan Tax-Exempt
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
Distributions From Net Investment Income $(0.0329) $(0.0235) $(0.0181) $(0.0237) $(0.0353)
Net Asset Value at Beginning and End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.32% 2.38% 1.83% 2.40% 3.83%(a)
Ratios to Average Net Assets:
Expenses 0.69% 0.67% 0.65% 0.64% 0.65%(a)
Net Investment Income 3.30% 2.35% 1.81% 2.37% 3.77%(a)
Expenses without fee waiver 0.76% 0.75% -- -- --
Net Investment Income without fee waiver 3.23% 2.28% -- -- --
Net Assets, End of Period
(in 000's) $122,057 $ 78,640 $ 52,557 $ 52,960 $ 38,885
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Money Market Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Money Market Funds of THE
WOODWARD FUNDS (comprising, as indicated in Note 1, the Money Market,
Government, Treasury Money Market, Tax-Exempt Money Market and Michigan
Tax-Exempt Money Market Funds) as of December 31, 1995, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended or
from inception (as indicated in Note 1) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1995, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Money Market Funds of
The Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the five
years in the period then ended or from inception (as indicated in Note 1)
through December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
Exhibit (17)(m)
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1996
for
CLASS I AND CLASS A SHARES OF THE:
WOODWARD GROWTH/VALUE FUND
WOODWARD OPPORTUNITY FUND
WOODWARD INTRINSIC VALUE FUND
WOODWARD CAPITAL GROWTH FUND
WOODWARD BALANCED FUND
WOODWARD INTERNATIONAL EQUITY FUND
of
THE WOODWARD FUNDS
c/o NBD Bank
Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Statement of Additional Information (the "Additional
Statement") is meant to be read in conjunction with The Woodward Funds'
Prospectuses dated April 15, 1996 pertaining to Class I and Class A classes of
shares of the Woodward Growth/Value Fund (the "Growth/Value Portfolio"),
Woodward Opportunity Fund (the "Opportunity Portfolio"), Woodward Intrinsic
Value Fund (the "Intrinsic Value Portfolio"), Woodward Capital Growth Fund
(the "Capital Growth Portfolio"), Woodward Balanced Fund (the "Balanced
Portfolio"), and Woodward International Equity Fund (the "International Equity
Portfolio") (each, a "Portfolio" and collectively, the "Portfolios"). Because
this Additional Statement is not itself a prospectus, no investment in shares
of the Portfolios should be made solely upon the information contained herein.
Copies of the Portfolios' Prospectuses may be obtained from any office of the
Co- Distributors by writing or calling the Co-Distributors or the Trust.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives, Policies and Risk Factors................. 1
Additional Purchase and Redemption Information................... 16
Description of Shares............................................ 18
Additional Information Concerning Taxes.......................... 21
Management....................................................... 23
Independent Public Accountants................................... 29
Counsel.......................................................... 29
Additional Information on Performance............................ 29
Appendix A....................................................... A-1
Appendix B....................................................... B-1
Financial Statements............................................. FS-1
-i-
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Portfolios' respective
investment objectives and policies as set forth in their Prospectuses.
Additional Information on Portfolio Instruments
Attached to this Additional Statement is Appendix A which
contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Portfolios may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio securities for each
Portfolio.
The annualized portfolio turnover rate for each Portfolio is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover of
the Portfolios may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Portfolios to receive favorable
tax treatment. Portfolio turnover will not be a limiting factor in making
portfolio decisions, and the Portfolios may engage in short term trading to
achieve their respective investment objectives.
Purchases of money market instruments by the Portfolios are
made from dealers, underwriters and issuers. The Portfolios currently do not
expect to incur any brokerage commission expense on such transactions because
money market instruments are generally traded on a "net" basis acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-
<PAGE>
counter market are generally on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument.
For the fiscal year ended December 31, 1995, the Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International Equity
Portfolios paid brokerage commissions of $504,214, $866,286, $209,816,
$120,761, $81,178 and $72,856, respectively. For the fiscal years ended
December 31, 1994 and 1993, the Trust paid brokerage commissions of: (i)
$519,412 and $423,124 with respect to the Growth/Value Portfolio; (ii)
$683,613 and $330,962 with respect to the Opportunity Fund; and (iii) $325,912
and $320,121 with respect to the Intrinsic Value Portfolio. For the period
from the Capital Growth Portfolio's commencement of investment operations on
July 2, 1994 through December 31, 1994, the Capital Growth Portfolio paid
brokerage commissions of $27,188. For the period from the Balanced Portfolio's
commencement of investment operations on January 1, 1994 through December 31,
1994, the Balanced Portfolio paid brokerage commissions of $123,890. For the
period from the International Equity Portfolio's commencement of investment
operations on December 3, 1994 through December 31, 1994, the International
Equity Portfolio paid brokerage commissions of $4,492.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. A Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interests.
The Advisory Agreement for the Portfolios provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available for each Portfolio. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Agreement authorizes the Adviser to cause a Portfolio
to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer
for effecting the same transaction, provided that the Adviser determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either the particular transaction or the overall responsibilities of
the Adviser to the Portfolios. Such brokerage and research
-2-
<PAGE>
services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond
and government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolios. The Trustees will
periodically review any commissions paid by the Portfolios to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolios. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised by the Adviser.
Conversely, a Portfolio may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such
other account or investment company.
The Trust will not execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Adviser, the
Co-Distributors or an affiliated person of any of them (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted
by the SEC or its staff. In addition, a Portfolio will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which a Co-Distributor or the Adviser, or an affiliated person of either of
them, is a member, except to the extent permitted by the SEC or its staff.
Under certain circumstances, the Portfolios may be at a disadvantage because
of these limitations in comparison with other investment companies which have
similar investment objectives but are not subject to such limitations.
Investment decisions for each Portfolio are made independently
from those for the other Portfolios and for any other investment companies and
accounts advised or managed by the Adviser. Such other investment companies
and accounts may also invest in the same securities as the Portfolios. To the
extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for the Portfolios with those to be sold or purchased for other
investment companies or accounts in executing transactions. When a purchase or
sale of the same security is made at substantially the same time on behalf of
one or more of the Portfolios and another investment company or account, the
transaction will be averaged as to price and available investments allocated
as to amount, in a manner which the Adviser believes to be equitable to each
Portfolio and such other investment company or account. In some instances,
this
-3-
<PAGE>
investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or sold by the Portfolio.
Government Obligations
As stated in the Prospectuses, pursuant to their respective
investment objectives, the Portfolios may invest in U.S. Government
Obligations.
Stripped U.S. Government Obligations
Within the past several years, the Treasury Department has
facilitated transfers of ownership of zero coupon securities by accounting
separately for the beneficial ownership of particular interest coupon and
principal payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program as established
by the Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." To the extent consistent
with their respective investment objectives, the Balanced and International
Equity Portfolios may purchase securities registered in the STRIPS program.
Under the STRIPS program, the Balanced and International Equity Portfolios
will be able to have their beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
In addition, the Balanced and International Portfolios may
acquire U.S. Government obligations and their unmatured interest coupons that
have been separated ("stripped") by their holder, typically a custodian bank
or investment brokerage firm. Having separated the interest coupons from the
underlying principal of the U.S. Government obligations, the holder will
resell the stripped securities in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRs") and
"Certificate of Accrual on Treasury Securities" ("CATS"). The stripped coupons
are sold separately from the underlying principal, which is usually sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are ostensibly
owned by the bearer or holder), in trust on behalf of the owners. Counsel to
the underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax purposes. The Trust is
-4-
<PAGE>
not aware of any binding legislative, judicial or administrative
authority on this issue.
As described in their Prospectuses, the Portfolios may also
purchase stripped mortgage-backed securities ("SMBS"). SMBS that are interest
only or principal only and not issued by the U.S. Government may be considered
illiquid securities if they can not be disposed of promptly in the ordinary
course of business at a value reasonably close to that used in the calculation
of net asset value per share.
Bank Obligations
In accordance with their respective investment objectives, the
Portfolios may purchase bank obligations, which include bankers' acceptances,
negotiable certificates of deposit and non-negotiable time deposits, including
U.S. dollar-denominated instruments issued or supported by the credit of U.S.
or foreign banks or savings institutions. Although the Portfolios invest in
obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser deems the instrument to present minimal credit risks, such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, have been
issued by a corporation having an outstanding bond issue rated A or higher by
a Rating Agency. Bonds and other short term obligations (if not rated as
commercial paper) purchased by the Portfolios must be rated BBB or Baa, or
higher, by a Rating Agency, respectively, or if unrated, be of comparable
investment quality in the judgment of the Adviser.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by the Portfolios, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of instruments if the issuer defaulted
-5-
<PAGE>
on its payment obligation or during periods that the Portfolio is not entitled
to exercise its demand rights, and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Portfolios may invest from time to time in securities issued
by other investment companies which invest in high quality, short term debt
securities. Each of the Portfolios intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of the Portfolio's total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value
of the Portfolio's total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio or the Trust as a whole.
Lending Securities
When a Portfolio lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the investment of the cash collateral. Although voting rights, or
rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described
in the Prospectuses generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the
Trust's Custodian, in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings
by the Portfolios under the 1940 Act. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of
-6-
<PAGE>
the securities sold by the Portfolio may decline below the price
of the securities it is obligated to repurchase.
American Depository Receipts ("ADRs")
The Portfolios may invest in ADRs, which are receipts issued by
an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs may be listed on a national
securities exchange or may trade in the over-the-counter market. Although ADR
prices are denominated in U.S. dollars, the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
When-Issued Purchases and Forward Commitments
A Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities
are delivered to the Portfolio on the settlement date. In these cases the
Portfolio may realize a capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
Mortgage Backed Securities
Mortgage Backed Securities Generally. Mortgage backed
securities held by the Balanced and International Equity Portfolios represent
an ownership interest in a pool of residential mortgage loans. These
securities are designed to provide monthly payments of interest and principal
to the investor. The mortgagor's monthly payments to his lending institution
are "passed-through" to an investor such as the Portfolios. Most issuers or
poolers provide guarantees of payments, regardless of whether or not the
mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance
purchased by the issuers or poolers so that they can meet their obligations
under the policies. Mortgage backed securities issued by private issuers or
poolers, whether or not such securities are subject to guarantees, may entail
greater
-7-
<PAGE>
risk than securities directly or indirectly guaranteed by the
U.S. Government.
Interests in pools of mortgage backed securities differ from
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. Instead, these securities provide a monthly payment which consists
of both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their residential mortgage loans, net of any fees paid. Additional payments
are caused by repayments resulting from the sale of the underlying residential
property, refinancing or foreclosure net of fees or costs which may be
incurred. Some mortgage backed securities are described as "modified
pass-through". These securities entitle the holders to receive all interest
and principal payments owed on the mortgages in the pool, net of certain fees,
regardless of whether or not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the
U.S. Government and was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues
Participation Certificates ("PC's"), which represent interests in mortgages
from FHLMC's national portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal.
The Federal National Mortgage Association ("FNMA") is a U.S.
Government sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban
Development. FNMA purchases residential mortgages from a list of approved
seller/servicers which include state and federally-chartered savings and loan
credit unions and mortgage bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA.
The principal guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S
Government, the timely payment of principal and interest on securities issued
by approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of
-8-
<PAGE>
conventional residential mortgage loans. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or
indirect government guarantees of payments in the former pools. However,
timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance purchased by the issuer. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
The Trust expects that governmental or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payment may vary or whose terms to maturity may be
shorter than previously customary. As new types of mortgage backed securities
are developed and offered in the market, the Trust may consider making
investments in such new types of securities.
Underlying Mortgages. Pools consist of whole mortgage loans or
participations in loans. The majority of these loans are made to purchasers of
one to four family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Balanced and
International Equity Portfolios may purchase pools of variable rate mortgages
("VRM"), growing equity mortgages ("GEM"), graduated payment mortgages ("GPM")
and other types where the principal and interest payment procedures vary.
VRM's are mortgages which reset the mortgage's interest rate periodically with
changes in open market interest rates. To the extent that a Portfolio is
actually invested in VRM's, its interest income will vary with changes in the
applicable interest rate on pools of VRM's. GPM and GEM pools maintain
constant interest rates, with varying levels of principal repayment over the
life of the mortgage. These different interest and principal payment
procedures should not impact the Portfolios' net asset value since the prices
at which these securities are valued will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included
in the pools. In addition, some mortgages included in pools are insured
through private mortgage insurance companies.
-9-
<PAGE>
Average Life. The average life of pass-through pools varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. The occurrence of mortgage prepayments
is affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions.
Returns on Mortgage Backed Securities. Yields on mortgage
backed pass-through securities are typically quoted based on the maturity of
the underlying instruments and the associated average life assumption.
Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yields of the
Balanced and International Equity Portfolios. The compounding effect from
reinvestments of monthly payments received by the Portfolios will increase
their respective yields to shareholders, compared to bonds that pay interest
semi-annually.
Foreign Currency Transactions
At or before the maturity of a forward contract, the
International Equity Portfolio either may sell a security and make delivery of
the currency, or retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to which the
Portfolio will obtain, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If the Portfolio retains the
security and engages in an offsetting transaction, at the time of execution of
the offsetting transaction, the Portfolio will incur a gain or loss to the
extent movement has occurred in forward contract prices. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, it will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase, the
Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost of currency transactions varies with factors such as
the currency involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency exchange usually
are conducted on a principal basis, no fees or commissions are involved. The
use of forward currency exchange contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. If a devaluation
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<PAGE>
generally is anticipated, the International Equity Portfolio may
not be able to contract to sell the currency at a price above the
devaluation level it anticipates. The requirements for
qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), may cause
the Portfolio to restrict the degree to which it engages in
currency transactions. See "Additional Information Concerning
Taxes."
Futures Contracts and Related Options
See Appendix B to this Additional Statement for a discussion of
futures contracts and related options.
Options Trading
As stated in the Prospectuses, the Capital Growth, Balanced and
International Equity Portfolios may purchase and sell put and call options
listed on a national securities exchange and issued by the Options Clearing
Corporation. Such transactions may be effected on a principal basis with
primary reporting dealers in U.S. Government securities in an amount not
exceeding 5% of a Portfolio's net assets. This is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of
how much the market price of the underlying security increases or decreases,
the option buyer's risk is limited to the amount of the original investment
for the purchase of the option. However, options may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities. A listed call option gives the purchaser of the option
the right to buy from a clearing corporation, and a writer has the obligation
to sell to the clearing corporation, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless
of the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by a Portfolio will be valued at
the last sale price or, in the absence of such a price, at the mean between
bid and asked prices.
A Portfolio's obligation to sell a security subject to a
covered call option written by it, or to purchase a security subject to a
secured put option written by it, may be terminated prior to the expiration
date of the option by the Portfolio executing a closing purchase transaction,
which is effected by purchasing on an exchange an option of the same series
(i.e.,
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<PAGE>
same underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Portfolio will have incurred a loss in the transaction. An option position
may be closed out only on an exchange which provides a secondary market for an
option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be
able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise with the result that the writer
in such circumstances will be subject to the risk of market decline in the
underlying security during such period. A Portfolio will write an option on a
particular security only if the Adviser believes that a liquid secondary
market will exist on an exchange for options of the same series which will
permit the Portfolio to make a closing purchase transaction in order to close
out its position.
When a Portfolio writes a covered call option, an amount equal
to the net premium (the premium less the commission) received by the Portfolio
is included in the liability section of the Portfolio's statement of assets
and liabilities as a deferred credit. The amount of the deferred credit will
be subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date or if the Portfolio enters
into a closing purchase transaction, it will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. Any gain on a covered call option may be offset by a decline in
the market price of the underlying security during the option period. If a
covered call option is exercised, the Portfolio may deliver the underlying
security held by it or purchase the underlying security in the open market. In
either event, the proceeds of the sale will be increased by the net premium
originally received and the Portfolio will realize a gain or loss. If a
secured put option is exercised, the amount paid by the Portfolio involved for
the underlying security will be partially offset by the amount of the premium
previously paid to the Portfolio. Premiums from expired options written by a
Portfolio and net gains from closing purchase transactions are treated as
short-term capital gains for
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<PAGE>
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses.
Stock Index Options
The Capital Growth, Balanced and International Equity
Portfolios may purchase and write put and call options on stock indexes listed
on U.S. securities exchanges or traded in the over-the-counter market. The
International Equity Portfolio may also purchase and write put and call
options on stock indexes list on foreign securities exchange. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indexes are similar to options on stock except
that (a) the expiration cycles of stock index options are generally monthly,
while those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make
delivery of a stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (i)
the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of exercise, multiplied by (ii) a
fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or it may
let the option expire unexercised.
Municipal Securities
To the extent consistent with its investment objective, the
Balanced Portfolio may invest in municipal securities including general
obligation securities, revenue securities, notes, and moral obligation bonds,
which are normally issued by special purpose authorities ("Municipal
Securities"). There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend in part on a
variety of factors, including general market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating
of the
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<PAGE>
issue. The ratings of Municipal Securities by Rating Agencies represent their
opinions as to the quality of Municipal Securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality,
and Municipal Securities with the same maturity, interest rate and rating may
have different yields while Municipal Securities with the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
its purchase by the Balanced Portfolio, a Municipal Security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Portfolio. The Adviser will consider such an event in
determining whether the Balanced Portfolio should continue to hold the
obligation.
The payment of principal and interest on most Municipal
Securities purchased by the Balanced Portfolio will depend upon the ability of
the issuers to meet their obligations. The District of Columbia, each state,
each possession and territory of the United States, each of their political
subdivisions, agencies, instrumentalities and authorities and each state
agency of which a state is a member is a separate "issuer" as that term is
used in this Additional Statement and in the Prospectuses. The
non-governmental user of facilities financed by a private activity bond is
also considered to be an "issuer". An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights or remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest or principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Securities held by the Balanced
Portfolio may be insured at the time of issuance as to the timely payment of
principal and interest. The insurance policies will usually be obtained by the
issuer of the Municipal Securities at the time of original issuance. In the
event that the issuer defaults with respect to interest or principal payments,
the insurer will be notified and will be required to make payment to the
bondholders. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance will not protect against market
fluctuations caused by changes in interest rates and other factors.
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<PAGE>
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectuses, the Portfolios are subject to the following investment
limitations which may not be changed without approval of the holders of the
majority of the outstanding shares of the affected Portfolio (as defined under
"Miscellaneous" below).
None of the Portfolios may:
1. Purchase or sell real estate, except that each Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as a Portfolio might be deemed to be
an underwriter upon the disposition of portfolio securities acquired within
the limitation on purchases of restricted securities and except to the extent
that the purchase of obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except for, with respect to all Portfolios,
transactions in options on securities, indices of securities, futures
contracts and options on futures contracts, and with respect to the Capital
Growth, Balanced and International Equity Portfolios, foreign currencies or
indices, forward foreign currency exchange contracts, other contracts for the
future delivery of foreign currency, and similar instruments.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to the Growth/Value, Opportunity and Intrinsic
Value Portfolios' transactions in futures contracts and related options, (b)
this investment limitation shall not apply to the Capital Growth, Balanced and
International Equity Portfolios' transactions in options on securities,
foreign currencies or indices, indices of securities, futures contracts,
options on futures contracts, forward foreign currency exchange contracts,
other contracts for the future delivery of foreign currency and similar
instruments, and (c) the Portfolios may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
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<PAGE>
6. Purchase securities of companies for the purpose
of exercising control.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that (a) the
Growth/Value, Opportunity and Intrinsic Value Portfolios may, to the extent
appropriate to their respective investment objectives, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into futures contracts and related options, and (b) the Capital
Growth, Balanced and International Equity Portfolios may, to the extent
appropriate to their respective investment objectives, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into transactions in options on securities, foreign currencies
or indices, indices of securities, futures contracts, options on futures
contracts, forward foreign currency exchange contracts, other contracts for
the future delivery of foreign currency and similar instruments.
In order to permit the sale of a Portfolio's shares in certain
states, the Trust may make commitments with respect to a Portfolio more
restrictive than the investment policies and limitations described above and
in its Prospectuses. Should the Trust determine that any such commitment is no
longer in the best interests of a particular Portfolio, it will revoke the
commitment by terminating sales of the Portfolio's shares in the state
involved and, in the case of investors in Texas, give notice of such action.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are offered and sold on a continuous
basis by the Trust's sponsors and Co-Distributors, FoM and Essex, acting as
agent. As described in their respective Prospectuses, Class I shares of the
Portfolios are sold primarily to NBD and its affiliated and correspondent
banks acting on behalf of their respective customers. Class A shares of the
Portfolios are sold to the public ("Investors") primarily through financial
institutions such as banks, brokers and dealers. The Co-Distributors may be
entitled to a sales charge on the sale of Class A shares of the Portfolios as
described in the Prospectuses.
An illustration of the computation of the public offering price
per Class A share of the Growth/Value, Opportunity, Intrinsic Value, Capital
Growth, Balanced and International Equity Portfolios, based on the value of
each Portfolio's total net assets and total number of shares outstanding on
March 15, 1996, is as follows:
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<TABLE>
<CAPTION>
TABLE
Intrinsic Capital International
Growth/Value Opportunity Value Growth Balanced Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets.................... $755,773,349 $673,796,161 $263,483,860 $218,424,035 $102,628,589 $131,098,847
------------ ------------ ------------ ------------ ------------ ------------
Number of Shares Outstanding.. 54,835,428 42,359,638 21,290,453 15,486,301 8,884,575 11,862,721
============ ============ ============ ============ ============ ============
Net Asset Value Per Share..... $ 13.78 $ 15.91 $ 12.38 $ 14.10 $ 11.55 $ 11.05
------------ ----------- ------------ ------------ ------------ ------------
Sales Charge, 5.00 percent
of offering price (5.26
percent of net asset value
per share)................... $ .73 $ .84 $ .65 $ .74 $ .60 $ .58
------------ ------------ ------------ ------------ ------------- -------------
Offering Price to Public...... $ 14.51 $ 16.75 $ 13.03 $ 14.84 $ 12.16 $ 11.63
============ ============ ============ ============ ============== ==============
</TABLE>
Under the 1940 Act, the Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when:
(a) trading on the New York Stock Exchange is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. (The
Trust may also suspend or postpone the recordation of the transfer of shares
upon the occurrence of any of the foregoing conditions).
In addition to the situations described in the Prospectuses
under "Redemption of Shares," the Trust may redeem shares involuntarily to
reimburse the Portfolios for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
Prospectuses from time to time.
The Trust normally redeems shares for cash. However, the
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Trust has elected to be covered by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of net asset value during any 90-day
period for any one shareholder.
Total sales charges paid by shareholders of the Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Portfolios for the fiscal year ended December 31, 1995, were $92,788,
$122,061, $17,964,
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<PAGE>
$55,755, $37,984 and $13,659, respectively. Total sales charges paid by
shareholders of the International Equity Portfolio for the period from January
1, 1995 through June 30, 1995 were $0. Total sales charges paid by
shareholders of the Growth/Value, Opportunity, Intrinsic Value, Capital
Growth, Balanced and International Equity Portfolios for the fiscal year or
period ended December 31, 1994 were $431,841, $544,053, $87,757, $38,718,
$286,056, and $0, respectively. For the fiscal year ended December 31, 1993,
the sales charges for the Growth/Value, Opportunity and Intrinsic Value
Portfolios were $735,713, $1,266,118, and $249,653, respectively.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust, which
was amended and restated as of May 1, 1992, authorizes the Board of Trustees
to divide shares into two or more series, each series relating to a separate
portfolio of investments, and divide the shares of any series into two or more
classes. The number of shares of each series and/or of a class within each
series shall be unlimited. The Trust does not intend to issue share
certificates.
In the event of a liquidation or dissolution of the Trust or an
individual Portfolio, shareholders of a particular Portfolio would be entitled
to receive the assets available for distribution belonging to such Portfolio.
If there are any assets, income, earnings, proceeds, funds or payments, which
are not readily identifiable as belonging to any particular Portfolio, the
Trustees shall allocate them among any one or more of the Portfolios as they,
in their sole discretion, deem fair and equitable.
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the matter. A Portfolio is
affected by a matter unless it is clear that the interests of each Portfolio
in the matter are substantially identical or that the matter does not affect
any interest of the Portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of such Portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together in
the aggregate without regard to particular Portfolios.
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When used in the Prospectuses or in this Additional Statement,
a "majority" of shareholders means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (1) 67% of the shares
of the Trust, or the applicable Portfolio, present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy,
or (2) more than 50% of the outstanding shares of the Trust or the applicable
portfolio.
As of March 29, 1996, Trussal & Co., a nominee of NBD's
Trust Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of
record 92.83%, 88.86%, 92.68%, 97.42%, 90.05% and 98.82%, of the outstanding
shares of the Growth/Value, Opportunity, Intrinsic Value, Capital Growth,
Balanced and International Equity Portfolios, respectively. The Trustees and
officers of the Trust, as a group, owned less than 1% of the outstanding
shares of each Portfolios. Furthermore, as of March 29, 1996, with respect
to the Growth/Value, Opportunity, Intrinsic Value, Balanced and International
Equity Portfolios, the following persons may have beneficially owned 5% or
more of the outstanding shares of such Portfolios:
Growth/Value Portfolio
<TABLE>
<CAPTION>
Percent of
Outstanding
Number of Shares Shares
---------------- -----------
<S> <C> <C>
Growth/Value Portfolio
NBD Bancorp, Inc. Employees' 4,256,469 7.80%
Savings and Investment Plan
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Opportunity Portfolio
Employees Retirement Plan of 4,399,872 10.49%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
NBD Bancorp, Inc. Employees' 3,923,604 9.35%
Savings & Investment Plan
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
</TABLE>
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<TABLE>
<CAPTION>
Percent of
Outstanding
Number of Shares Shares
---------------- -----------
<S> <C> <C>
Intrinsic Value Portfolio
Employees Retirement Plan of 3,334,458 15.60%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Capital Growth Portfolio
Employees Retirement Plan of 2,957,605 18.97%
of NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Balanced Portfolio
NBD Bancorp., Inc. Employees 1,938,845 21.30%
Savings and Investment Plan
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Dickinson, Wright, Moon, Van Dusen 1,072,198 11.78%
& Freeman
1 Detroit Center
500 Woodward Avenue, Suite 4000
Detroit, MI 48226-3425
International Equity Portfolio
Employees Retirement Plan of 4,269,535 35.22%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
</TABLE>
When issued for payment as described in the Portfolios'
Prospectuses and this Additional Statement, shares of the Portfolios will be
fully paid and non-assessable by the Trust.
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of duties. It also provides that all third parties shall
look solely to the Trust property for satisfaction of claims arising in
connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust provides that a Trustee,
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officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses is not intended as a substitute
for careful tax planning and is based on tax laws and regulations which are in
effect on the date hereof; such laws and regulations may be changed by
legislative or administrative action. Investors are advised to consult their
tax advisers with specific reference to their own tax situations.
Each Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, each Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain requirements with respect
to the source of its income for a taxable year. At least 90% of the gross
income of each Portfolio must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Portfolio's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the
Portfolio's principal business of investing in stock or securities, or options
and futures with respect to stock or securities. Any income derived by a
Portfolio from a partnership or trust is treated as derived with respect to
the Portfolio's business of investing in stock, securities or currencies only
to the extent that such income is attributable to items of income which would
have been qualifying income if realized by the Portfolio in the same manner as
by the partnership or trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Portfolio's gross income for
a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not
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directly related to a Portfolio's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities).
Interest (including original issue discount and accrued market discount)
received by a Portfolio upon maturity or disposition of a security held for
less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
Each Portfolio will designate any distribution of long term
capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Portfolio's taxable year.
Shareholders should note that, upon the sale or exchange of Portfolio shares,
if the shareholder has not held such shares for at least six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%; however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum nominal rate of 35% (or at a maximum effective marginal
rate of 39% in the case of corporations having taxable income between $100,000
and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Portfolio intends
to make sufficient distributions or deemed distributions of its ordinary
taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions (whether or not derived from interest on
Municipal Securities) would be taxable as ordinary income to shareholders to
the extent of the Portfolio's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
-22-
<PAGE>
Each Portfolio may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure properly to include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Depending upon the extent of the Portfolios' activities in
states and localities in which their offices are maintained, in which their
agents or independent contractors are located or in which they are otherwise
deemed to be conducting business, the Portfolios may be subject to the tax
laws of such states or localities. In addition, in those states and localities
which have income tax laws, the treatment of the Portfolios and their
shareholders under such laws may differ from their treatment under federal
income tax laws.
MANAGEMENT
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth in the
Prospectuses. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226. Each Trustee also serves as a
trustee of The Woodward Variable Annuity Fund, a registered investment Company
advised by NBD Bank.
Effective May 1, 1995, each Trustee receives from the Trust and
The Woodward Variable Annuity Fund a total annual fee of $17,000 and a fee of
$2,000 for each Board of Trustees meeting attended. The Chairman is entitled
to additional compensation of $4,250 per year for his services to the Trusts
in that capacity. These fees are allocated among the investment portfolios of
the Trust and The Woodward Variable Annuity Fund based on their relative net
assets. All Trustees are reimbursed for out of pocket expenses incorrect in
connection with attendance at meetings. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trusts.
-23-
<PAGE>
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Fund and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Fund* Member
-------------------- ------------- --------------
<S> <C> <C>
Will M. Caldwell, Trustee $21,250 $21,250(2)+
Nicholas J. DeGrazia, Trustee $21,250 $21,250(2)+
John P. Gould, Trustee *** $30,000(4)+
Earl I. Heenan, Jr., $24,437.50 $24,437.50(2)+
Chairman and President++
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee++ $21,250 $21,250(2)+
Donald G. Sutherland, Trustee++ $21,250 $21,250(2)+
Donald L. Tuttle, Trustee++ $21,250 $21,250(2)+
Eugene C. Yehle, Trustee $21,250 $21,250(2)+
and Treasurer
<FN>
- ---------
* Amount does not include reimbursed expenses for attending Board meeting,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Woodward Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Mrs. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of other investment companies within the Fund Complex from
which the Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,500, $21,500, and
$21,500 accrued during The Woodward Funds' fiscal year ended December 31,
1995 for Earl I. Heenan, Jr., Julius L. Pallone, Donald G. Sutherland and
Donald L. Tuttle, respectively.
</TABLE>
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<PAGE>
Investment Adviser
Information about NBD and its duties and compensation as
Adviser is contained in the Prospectuses. For the fiscal years ended December
31, 1995, 1994 and 1993, the Trust paid NBD fees for advisory services as
follows: (i) $4,951,664, $4,032,266 and $2,624,744 with respect to the
Growth/Value Portfolio; (ii) $4,490,930, $3,670,337 and $1,926,219 with
respect to the Opportunity Portfolio; and (iii) $1,817,833, $1,615,375 and
$1,119,400 with respect to the Intrinsic Value Portfolio. For the fiscal year
ended December 31, 1995 and the fiscal period from July 2, 1994 (commencement
of operations) through December 31, 1994, the Trust paid NBD fees for advisory
services aggregating $1,064,273 and $247,589, respectively on behalf of the
Capital Growth Portfolio. For the fiscal years ended December 31, 1995
and 1994, the Trust paid NBD $570,525 and $260,903, respectively on
behalf of the Balanced Portfolio. For the fiscal year ended December 31,
1995 and the fiscal period from December 3, 1994 (commencement of
operations) through December 31, 1994, the Trust paid NBD fees for
advisory services aggregating $529,312 and $20,568, respectively on
behalf of the International Equity Portfolio. For the fiscal year
ended December 31, 1995, NBD reimbursed the Capital Growth, Balanced and
International Equity Portfolios in the amounts of $58,424, $136,954 and
$51,707, respectively, for certain other expenses.
NBD's own investment portfolio may include bank certificates of
deposit, bankers' acceptances, corporate debt obligations, equity securities
and other investments any of which may also be purchased by the Trust. Joint
purchase of investments for the Trust and for NBD's own investment portfolio
will not be made. NBD's Commercial Banking Department may have deposit, loan
and other commercial banking relationships with issuers of securities
purchased by the Trust, including outstanding loans to such issuers which may
be repaid in whole or in part with the proceeds of securities purchased by the
Trust.
Investment decisions for the Trust and other fiduciary accounts
are made by NBD's Trust Investment Division solely from the standpoint of the
independent interest of the Trust and such other fiduciary accounts. NBD's
Trust Investment Division performs independent analyses of publicly available
information, the results of which are not made publicly available. In making
investment decisions for the Trust, personnel of NBD's Trust Investment
Division do not obtain information from any other division or department of
NBD or otherwise, which is not publicly available. NBD's Trust Investment
Division executes transactions for the Trust only with unaffiliated dealers
but such dealers may be customers of other divisions of NBD. NBD may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment
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<PAGE>
portfolio), in which case the Trust will be charged a pro rata share of the
transaction costs incurred in making the bulk purchase. See "Investment
Objectives, Policies and Risk Factors - Portfolio Transactions" above.
NBD has agreed as Adviser that it will reimburse the Trust such
portions of its fees as may be required to satisfy any expense limitations
imposed by state securities laws or other applicable laws. Restrictive
limitations may be imposed on the Trust as a result of changes in current
state laws and regulations in those states where the Trust has qualified its
shares, or by a decision of the Trustees to qualify the shares in other states
having restrictive expense limitations. To the Trust's knowledge, of the
expense limitations in effect on the date of this Additional Statement none is
more restrictive than two and one-half percent (2-1/2%) of the first $30
million of a Portfolio's average annual net assets, two percent (2%) of the
next $70 million of the average annual net assets and one and one-half percent
(1-1/2%) of the remaining average annual net assets.
Under the terms of the Advisory Agreement, NBD is obligated to
manage the investment of each Portfolio's assets in accordance with applicable
laws and regulations, including, to the extent applicable, the regulations and
rulings of the various regulatory governmental bank agencies.
NBD will not accept Trust shares as collateral for a loan which
is for the purpose of purchasing Trust shares, and will not make loans to the
Trust. Inadvertent overdrafts of the Trust's account with the Custodian
occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed
to be the making of a loan to the Trust by NBD.
Under the Advisory Agreement, NBD is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of NBD in the performance of its duties or from its
reckless disregard of its duties and obligations under the Agreement.
Shareholder Servicing Plan
As stated in the Prospectuses for Class A shares of the
Portfolio, the Trust may enter into Servicing Agreements with Shareholder
Servicing Agents which may include NBD and its affiliates. The Servicing
Agreements provide that the Shareholder Servicing Agents will render
shareholder
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<PAGE>
administrative support services to their customers who are the beneficial
owners of Class A shares in consideration for the Portfolios' payment of up to
.25% (on an annualized basis) of the average daily net asset value of Class A
shares beneficially owned by such customers and held by the Shareholder
Servicing Agents and, at the Trust's option, it may reimburse the Shareholder
Servicing Agents' out-of-pocket expenses. Such services may include: (i)
processing dividend and distribution payments from a Portfolio; (ii) providing
information periodically to customers showing their share positions; (iii)
arranging for bank wires; (iv) responding to customer inquiries; (v) providing
subaccounting with respect to shares beneficially owned by customers or the
information necessary for such subaccounting; (vi) forwarding shareholder
communications; (vii) processing share exchange and redemption requests from
customers; (viii) assisting customers in changing dividend options, account
designations and addresses; and (ix) other similar services requested by the
Trust. Banks acting as Shareholder Servicing Agents are prohibited from
engaging in any activity primarily intended to result in the sale of Portfolio
shares. However, Shareholder Servicing Agents other than banks may be
requested to provide marketing assistance (e.g., forwarding sales literature
and advertising to their customers) in connection with the distribution of
Portfolio shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended in connection with the Trust's arrangements
with Shareholder Servicing Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with
Shareholder Servicing Agents under the Shareholder Servicing Agreements must
be approved by a majority of the Board of Trustees (including a majority of
the Disinterested Trustees).
Custodian and Transfer Agent
As Custodian and as Transfer Agent for the Trust, NBD (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
collects and makes disbursements of money on behalf of each Portfolio, (iii)
issues and redeems shares of each Portfolio, (iv) collects and receives all
income and other payments and distributions on account of the portfolio
securities of each Portfolio, (v) addresses and mails all communications by
the Trust to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy materials for any meeting of shareholders, (vi)
maintains
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<PAGE>
shareholder accounts, (vii) makes periodic reports to the Trust's Board of
Trustees concerning the Trust's operations, and (viii) maintains on-line
computer capability for determining the status of shareholder accounts.
For its services as Custodian, NBD is entitled to receive from
the Growth/Value, Opportunity, Intrinsic Value, Capital Growth, Balanced and
International Equity Portfolios at the following annual rates based on the
aggregate market value of such Portfolios' portfolio securities, held as
Custodian: .03% of the first $20 million; .025% of the next $20 million; .02%
of the next $20 million; .015% of the next $40 million; .0125% of the next
$200 million; and .01% of the balance over $300,000,000. NBD will receive an
annual account fee of $1,000 and $1.54 per month per asset held in each of
these Portfolios. In addition, NBD, as Custodian, is entitled to receive $50
for each cash statement and inventory statement and $13 for each pass-through
certificate payment, $30 for each option transaction requiring escrow receipts
and $20 for all other security transactions.
For its services as Transfer Agent, NBD is entitled to receive
a minimum annual fee from each Portfolio of $11,000, $12 annually per account
in each such Portfolio for the preparation of statements of account, and $1.00
for each confirmation of purchase and redemption transactions. Charges for
providing computer equipment and maintaining a computerized investment system
are expected to approximate $350 per month for each Portfolio.
Sponsors and Co-Distributors
The Trust's shares are offered on a continuous basis through
FoM and Essex, which act under the Distribution Agreement as sponsors and
Co-Distributors for the Trust. For the fiscal year ended December 31, 1995,
the Growth/Value, Opportunity, Intrinsic Value, Capital Growth, Balanced and
International Equity Portfolios paid FoM for its services a fee of $33,011,
$29,940, $12,119, $7,095, $3,804 and $3,676, respectively. For the fiscal year
ended December 31, 1994, the Growth/Value, Opportunity, Intrinsic Value and
Balanced Portfolios paid FoM for its services a fee of $21,826, $19,861,
$8,798 and $1,284. For the fiscal year ended December 31, 1993, the
Growth/Value, Opportunity and Intrinsic Value Portfolios paid FoM for its
services a fee of $34,731, $25,518 and $14,822, respectively. For the fiscal
year ended December 31, 1995, such Portfolios paid Essex for its services a
fee of $34,229, $50,523, $12,521, $2,360, $7,344 and $387, respectively. For
the fiscal period from April 20, 1994 (date of original Distribution Agreement
with Essex) to December 31, 1994, the Growth/Value, Opportunity, Intrinsic
Value and Balanced Portfolios paid Essex for its services a fee of $27,976,
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<PAGE>
$40,223, $10,418 and $5,646, respectively. For the fiscal period from July 2,
1994 (commencement of operations through December 31, 1994, the Capital Growth
Portfolio paid FoM and Essex for their respective services a fee of $1,004 and
$953. For the fiscal period from December 3, 1994 (commencement of operations)
to December 31, 1994, the International Equity Portfolio paid FoM and Essex
for their respective services a fee of $147 and $0. For the fiscal years ended
December 31, 1995, 1994 and 1993, FoM incurred expenses of $0 with respect to
each of the Growth/Value, Opportunity, Intrinsic Value, Capital Growth,
Balanced and International Equity Portfolios for the printing and mailing of
prospectuses to other than current shareholders. For the fiscal year ended
December 31, 1995 and for the fiscal period from April 20, 1994 through
December 31, 1994, Essex incurred expenses of $0 with respect to each of the
Portfolios. Additional information concerning fees for services performed by
FoM and Essex, the review of such fees under the Trust's plan for the payment
of distribution expenses and the services provided by FoM and Essex are
described in the Prospectuses.
As stated in the Prospectus, the Trust's Board of Trustees is
permitted, among other things, to allocate distribution fees which are
attributable to the Class A Shares in a Portfolio exclusively to such shares.
As of the date hereof, the Board of Trustees has not exercised its discretion
to make any such allocations for the current fiscal year.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 500
Woodward Avenue, Detroit, Michigan 48226-3424, serves as auditors for the
Trust. The financial statements included in this Statement of Additional
Information and the financial highlights included in the Prospectuses have
been audited by Arthur Andersen LLP, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, are counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of shares of
each Portfolio and the yield of the Balanced Portfolio for various periods may
be quoted in advertisements, shareholder
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<PAGE>
reports or other communications to shareholders. Performance information is
generally available by calling (800)688-3350.
Total Return Calculations. Each Portfolio computes its "average
annual total return" for a class by determining the average annual compounded
rates of return during specified periods that equate the initial amount
invested to the ending redeemable value of such investment. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the
number of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of
the period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, ex-
pressed in terms of years.
The Portfolios compute their aggregate total returns for each
class by determining the aggregate rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable
value of such investment. The formula for calculating aggregate total return
is as follows:
ERV
T = (------) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period, and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean (or median) account size for any fees that vary
with the size of the account. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the
end of the period covered by the computation. Each Portfolio's average annual
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<PAGE>
total return may reflect the deduction of the maximum sales load
imposed on purchases.
The average annual total returns for the Growth/Value,
Opportunity, Intrinsic Value, Capital Growth, Balanced and International
Equity Portfolios for the one year period ended December 31, 1995 (if
applicable) and the period since
commencement of operations are shown below:
<TABLE>
<CAPTION>
Average Annual Average Annual Average Annual Average Annual
Total Return Total Return Total Return Total Return
For One Year For One Year From Inception From Inception
Ended 12/31/95 Ended 12/31/95 Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc- (with Deduction (without Deduc-
of Maximum tion for Any of Maximum tion for Any
Sales Charge) Sales Charge) Sales Charge) Sales Charge)
--------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Growth/Value Portfolio 21.62% 28.02% 9.71% 10.94%
- ------------------------
Inception: June 1, 1991
Opportunity Portfolio 13.90% 19.90% 13.51% 14.79%
- ------------------------
Inception: June 1, 1991
Intrinsic Value Portfolio 18.16% 24.38% 10.28% 11.52%
- -------------------------
Inception: June 1, 1991
Capital Growth Portfolio 22.46% 28.90% 18.09% 22.19%
- -------------------------
Inception: July 2, 1994
Balanced Portfolio 17.01% 23.16% 7.08% 9.86%
- ---------------------------
Inception: January 1, 1994
International Equity Portfolio 5.90% 11.47% 5.50% 10.66%
- ------------------------------
Inception: December 3, 1994
</TABLE>
The aggregate annual total returns for the Portfolios for the one
year period ended December 31, 1995 (if applicable) and the period since
commencement of operations are shown below:
<TABLE>
<CAPTION>
Aggregate Total Aggregate Total
Return From Return From
Inception Inception
Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc-
of Maximum tion for Any
Sales Charge) Sales Charge)
---------------- ----------------
<S> <C> <C>
Growth/Value Portfolio 53.01% 61.05%
- ------------------------
Inception: June 1, 1991
Opportunity Portfolio 78.89% 88.30%
- ------------------------
Inception: June 1, 1991
Intrinsic Value Portfolio 56.68% 64.92%
- -------------------------
Inception: June 1, 1991
Capital Growth Portfolio 28.36% 35.11%
- -------------------------
Inception: July 2, 1994
Balanced Portfolio 14.67% 20.70%
- ---------------------------
Inception: January 1, 1994
International Equity Portfolio 5.95% 11.53%
- ------------------------------
Inception: December 3, 1994
</TABLE>
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<PAGE>
The Portfolios may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials ("Literature") total return figures that are not calculated
according to the formulas set forth above in order to compare more accurately
a Portfolio's performance with other measures of investment return. For
example, in comparing the Portfolios' total returns with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of an index,
the Portfolios may calculate their returns for the period of time specified in
the advertisement or communication by assuming the investment of $10,000 in
shares and assuming the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value and
by dividing the remainder by the beginning value. The Portfolios do not, for
these purposes, deduct from the initial value invested any amount representing
sales charges. The Portfolios will, however, disclose the maximum sales charge
and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance
quoted.
The Portfolios may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Portfolio
investment are reinvested by being paid in additional Portfolio shares, any
future income or capital appreciation of a Portfolio would increase the value,
not only of the original Portfolio investment, but also of the additional
Portfolio shares received through reinvestment. As a result, the value of the
Portfolio investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Portfolios may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of a Portfolio
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
instruments), economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance
of information contained in shareholder reports (including the investment
composition of a Portfolio), as well as the view of the Trust as to current
market, economy, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to
be of relevance to a Portfolio. The Portfolios may also include in
advertisements charts, graphs or drawings which compare the investment
objective, return potential, relative
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<PAGE>
stability and/or growth possibilities of the Portfolio and/or other mutual
funds, or illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds, treasury
bills and shares of a Portfolio. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to
be derived by an investment in a Portfolio and/or other mutual funds,
shareholder profiles and hypothetical investor scenarios, timely information
on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
advertisements or communicators may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
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<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by
A-1
<PAGE>
many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
A-2
<PAGE>
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
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"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
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"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
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"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium-grade
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obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes ooccur in the legal documents or the underlying
credit quality of the bonds.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for
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prudent investment. Considerable variability in risk is present during
economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation
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for bond issues not in default. For defaulted bonds, the rating "DDD" to "D"
is an assessment of the ultimate recovery value through reorganization or
liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to
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<PAGE>
maturity of long term debt and preferred stock which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the rating categories used by
Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned
by Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
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<PAGE>
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality
and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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<PAGE>
APPENDIX B
As stated in their Prospectuses, each of the Portfolios may enter
into futures contracts for hedging purposes. The International Equity,
Balanced and Capital Growth Portfolios may enter into related options for
hedging purposes.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Balanced Portfolio may use
interest rate futures as a defense, or hedge, against anticipated interest
rate changes and not for speculation. As described below, this would include
the use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of interest
rate declines.
The Balanced Portfolio presently could accomplish a similar result
to that which they hope to achieve through the use of futures contracts by
selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase, or conversely,
selling short-term bonds and investing in long-term bonds when interest rates
are expected to decline. However, because of the liquidity that is often
available in the futures market the protection is more likely to be achieved,
perhaps at a lower cost and without changing the rate of interest being earned
by the Portfolio, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by the Balanced Portfolio, as
seller, to deliver the specific type of financial instrument called for in the
contract at a specific future time for a specified price. A futures contract
purchase would create an obligation by the Portfolio, as purchaser, to take
delivery of the specific type of financial instrument at a specific future
time at a specific price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until at or near
that date. The determination would be in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the
Portfolio's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery
date. If the price in the sale exceeds the price in the offsetting purchase,
the Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Portfolio's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
Portfolio realizes a gain, and if the purchase price exceeds the offsetting
sale price, the Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board
of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange.
The Portfolio would deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the
exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; three-month United States Treasury Bills; and ninety-day commercial
paper. The Balanced Portfolio may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Balanced Portfolio would
engage in an interest rate futures contract sale to maintain the income
advantage from continued holding of a long-term bond while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices. Assume that the market value of a
certain security in the Portfolio tends to move in concert with the futures
market prices of long-term United States Treasury bonds ("Treasury bonds").
The Adviser wishes to fix the current market value of this portfolio security
until some point in the future. Assume the portfolio security has a market
value of 100, and the Adviser believes that, because of an anticipated rise in
interest rates, the value will decline to 95. The Portfolio might enter into
futures contract sales of Treasury bonds for an equivalent of 98. If the
market value of the portfolio security does indeed decline from 100 to 95, the
equivalent futures market price for the Treasury bonds might also decline from
98 to 93.
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<PAGE>
In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
Examples of Futures Contract Purchase. The Balanced Portfolio would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, e.g., shorter-term securities whose yields are greater than those
available on long-term bonds. The Portfolio's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Portfolio would be endeavoring at the same time to eliminate
the effect of all or part of an expected increase in market price of the
long-term bonds that the Portfolio may purchase.
For example, assume that the market price of a long-term bond that
the Portfolio may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The Adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the Adviser believes that,
because of an anticipated fall in interest rates, the price will have risen to
105 (and the yield will have dropped to about 9 1/2%) in four months. The
Portfolio might enter into futures contracts purchases of Treasury bonds for
an equivalent price of 98. At the same time, the Portfolio would assign a pool
of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term
bond at an assumed market price of 100. Assume these short-term securities are
yielding 15%. If the market price of the long-term bond does indeed rise from
100 to 105, the equivalent futures market price for Treasury bonds might also
rise from 98 to 103. In that case, the 5-point increase in the price that the
Portfolio pays for the long-term
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bond would be offset by the 5-point gain realized by closing out the futures
contract purchase.
The Adviser could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that the Portfolio would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Portfolio would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The
benefit of this continued incremental income will be reduced by the loss
realized on closing out the futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts
A stock or bond index assigns relative values to the stocks or
bonds included in the index and the index fluctuates with changes in the
market values of the stocks or bonds included. Some stock index futures
contracts are based on broad market indexes, such as the Standard & Poor's 500
or the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures contracts on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of
the parties to each contract.
The Portfolios may sell index futures contracts in order to offset
a decrease in market value of its portfolio securities that might otherwise
result from a market decline. A Portfolio may do so either to hedge the value
of its portfolio as a whole, or to protect against declines, occurring prior
to sales of securities, in the value of the securities to be sold. Conversely,
the Portfolios may purchase index futures contracts in anticipation of
purchases of securities. In a substantial majority of these transactions, the
Portfolios may purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a
corresponding purchase of securities.
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In addition, the Portfolios may utilize index futures contracts in
anticipation of changes in the composition of their portfolio holdings. For
example, in the event that a Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more
restricted index, such as an index comprised of securities of a particular
industry group. The Portfolio may also sell futures contracts in connection
with this strategy, in order to protect against the possibility that the value
of the securities to be sold as part of the restructuring of the portfolio
will decline prior to the time of sale.
The following are examples of transactions in stock index futures
(net of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Equity Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
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If, however, the market moved in the opposite direction, that is,
market value decreased and the Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Portfolio had hedged its
stock portfolio, the results of the Portfolio's transactions in stock index
futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
III. Margin Payments
Unlike when a Portfolio purchases or sells a security, no price is
paid or received by the Portfolio upon the purchase or sale of a futures
contract. Initially, the Portfolio will be required to deposit with the broker
or in a segregated account with the Portfolio's Custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures
B-6
<PAGE>
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract assuming
all contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures
contract, the Adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Portfolio involved will experience either a loss or gain on
the future which will not be completely offset by movements in the price of
the securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged and
movements in the price of futures contracts, a Portfolio may buy or sell
futures contracts in a greater dollar amount than the
B-7
<PAGE>
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, of if otherwise deemed to be
appropriate by the Adviser. Conversely, a Portfolio may buy or sell fewer
futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser. It is also possible that, where a Portfolio has
sold futures to hedge its portfolio against a decline in the market, the
market may advance and the value of securities held by the Portfolio may
decline. If this occurred, the Portfolio would lose money on the future and
also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Portfolio then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Portfolio will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value
of the futures contracts (or options), will be deposited in a segregated
account with the Portfolio's Custodian and/or in a margin account with a
broker to collateralize the position and thereby insure that the use of such
futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the securities being hedged, the price of futures may not correlate perfectly
with movement in the cash market due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close
futures contracts through off-setting transactions which could distort the
normal relationship between the cash and futures markets. Second, with respect
to financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the
B-8
<PAGE>
cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures. Although a
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may
not be possible to close a futures investment position, and in the event of
adverse price movements, a Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions.
Successful use of futures by a Portfolio is also subject to the
Adviser's ability to predict correctly movements in the direction of the
market. For example, if a Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
B-9
<PAGE>
V. Options on Futures Contracts
The Balanced, Capital Growth and International Equity Portfolios
may purchase options on the futures contracts described above. A futures
option gives the holder, in return for the premium paid, the right to buy
(call) from or sell (put) to the writer of the option a futures contract at a
specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of
the securities being hedged, an option may or may not be less risky than
ownership of the futures contract or such securities. In general, the market
prices of options can be expected to be more volatile than the market prices
on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Portfolio because
the maximum amount at risk is the premium paid for the options (plus
transaction costs). Although permitted by their fundamental investment
policies, the Balanced, Capital Growth and International Equity Portfolios do
not currently intend to write futures options, and will not do so in the
future absent any necessary regulatory approvals.
VI. Accounting and Tax Treatment
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts held by a Portfolio at the close of
the Portfolio's taxable year will be treated for federal income tax purposes
as sold for their fair market value on the last business day of such year, a
process known as "marking-to- market." Forty percent of any gain or loss
resulting from such constructive sale will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Portfolio holds the
futures contract ("the 40%-60% rule"). The
B-10
<PAGE>
amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital gain or loss taken into account by the
Portfolio in a prior year as a result of the constructive sale of the
contracts. With respect to futures contracts to sell, which will be regarded
as parts of a "mixed straddle" because their values fluctuate inversely to the
values of specific securities held by the Portfolio, losses as to such
contracts to sell will be subject to certain loss deferral rules which limit
the amount of loss currently deductible on either part of the straddle to the
amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which will also be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for
the long-term holding period) be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts, deductions for
interest and carrying charges will not be allowed. Notwithstanding the rules
described above, with respect to futures contracts to sell which are properly
identified as such, a Portfolio may make an election which will exempt (in
whole or in part) those identified futures contracts from being treated for
federal income tax purposes as sold on the last business day of the
Portfolio's taxable year, but gains and losses will be subject to such short
sales, wash sales, loss deferral rules and the requirement to capitalize
interest and carrying charges. Under temporary regulations, a Portfolio would
be allowed (in lieu of the foregoing) to elect either (1) to offset gains or
losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under
either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as
long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by a Portfolio may
be subject to the "marking-to-market" process and the 40%-60% rule in a manner
similar to that described in the preceding paragraph for futures contracts. To
receive such federal income tax treatment, a foreign currency contract must
meet the following conditions: (1) the contract must require delivery of a
foreign currency of a type in which regulated futures contracts are traded or
upon which the settlement value of the contract depends; (2) the contract must
be entered into at arm's length at a price determined by reference to the
price in the interbank market; and (3) the contract must be traded in the
interbank market. The Treasury Department has broad authority to
B-11
<PAGE>
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Additional Statement, the Treasury Department has not
issued any such regulations. Other foreign currency contracts entered into by
a Portfolio may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and
wash sales rules and the requirement to capitalize interest and carrying
charges may apply.
Some of the Portfolios' investments may be subject to special rules
which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar.
The types of transactions covered by the special rules include the following:
(1) the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations,
preferred stock); (2) the accruing of certain trade receivables and payables;
and (3) the entering into or acquisition of any forward contract, futures
contract, option or similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the
marking-to-market rules, unless an election is made to have such currency
rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss
on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not a part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "section 988 hedging transaction" (as
defined in the Code and the Treasury regulations) may be integrated and
treated as a single transaction or otherwise treated consistently for purposes
of the Code. "Section 988 hedging transactions" are not subject to the
mark-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Portfolio which are not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks) will be treated as
capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
As described more fully in "Additional Information Concerning
Taxes", a regulated investment company must derive less than 30% of its gross
income from gains realized on the sale or other disposition of securities and
certain other investments
B-12
<PAGE>
held for less than three months. With respect to futures contracts and other
financial instruments subject to the marking-to-market rules, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contract or financial instrument will be treated as being
derived from a security held for three months or more (regardless of the
actual period for which the contract or instrument is held) if the gain arises
as a result of a constructive sale under the marking-to-market rules, and will
be treated as being derived from a security held for less than three months
only if the contract or instrument is terminated (or transferred) during the
taxable year (other than by reason of marking-to-market) and less than three
months have elapsed between the date the contract or instrument is acquired
and the termination date. In determining whether the 30% test is met for a
taxable year, increases and decreases in the value of each Portfolio's futures
contracts and other investments that qualify as part of a "designated hedge,"
as defined in the Code, may be netted.
B-13
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
GROWTH/VALUE
FUND
------------
<S> <C>
ASSETS:
Investment in securities:
At cost $598,057,275
============
At value (Note 2) $738,017,171
Cash --
Receivable for shares purchased 10,466
Receivable for securities sold --
Income receivable 1,492,249
Deferred organization costs, net (Note 2) 7,429
Prepaids and other assets 5,141
------------
TOTAL ASSETS 739,532,456
------------
LIABILITIES:
Payable for securities purchased 1,109,508
Payable for shares redeemed 56,779
Accrued investment advisory fee 463,866
Accrued distribution fees 3,092
Accrued custodial fee 8,632
Dividends payable 612,601
Other payables and accrued expenses 110,911
------------
TOTAL LIABILITIES 2,365,389
------------
NET ASSETS $737,167,067
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 5,599,664
Additional paid-in capital 585,240,911
Accumulated undistributed net investment income 40,678
Accumulated undistributed net realized gains 6,325,918
Net unrealized appreciation on investments 139,959,896
------------
TOTAL NET ASSETS $737,167,067
============
Shares of capital stock outstanding 55,996,649
============
Net asset value and redemption price per share $ 13.16
============
Maximum offering price per share $ 13.85
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPPORTUNITY INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND FUND
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $544,177,289 $231,447,596 $164,013,755 $ 83,617,256
============ ============ ============ ============
At value (Note 2) $643,022,640 $258,251,034 $196,462,000 $ 93,092,772
Cash 17,377 -- -- 79,791
Receivable for shares purchased 24,818 1,900 22,908 10,020
Receivable for securities sold 8,064,596 -- -- 126,207
Income receivable 630,474 841,061 179,422 487,653
Deferred organization costs, net (Note 2) 3,243 2,323 28,388 28,315
Prepaids and other assets 5,141 5,945 43,804 35,774
------------ ------------ ------------ ------------
TOTAL ASSETS 651,768,289 259,102,263 196,736,522 93,860,532
------------ ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased -- 2,638,759 459,114 115,985
Payable for shared redeemed -- 10,509 218,571 9,057
Accrued investment advisory fee 404,734 159,538 123,751 59,011
Accrued distribution fees 2,698 1,064 825 393
Accrued custodial fee 8,431 3,766 2,805 6,415
Dividends payable 122,691 301,351 56,269 38,528
Other payables and accrued expenses 277,467 102,417 14,009 7,342
------------ ------------ ------------ ------------
TOTAL LIABILITIES 816,021 3,217,404 875,344 236,731
------------ ------------ ------------ ------------
NET ASSETS $650,952,268 $255,884,859 $195,861,178 $ 93,623,801
============ ============ ============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 4,296,018 $ 2,152,537 $ 1,476,584 $ 832,868
Additional paid-in capital 546,076,193 224,411,095 161,372,369 83,021,763
Accumulated undistributed net investment income 977 110,249 11,301 28,937
Accumulated undistributed net realized gains 1,733,729 2,407,540 552,679 264,717
Net unrealized appreciation on investments 98,845,351 26,803,438 32,448,245 9,475,516
------------ ------------ ------------ ------------
TOTAL NET ASSETS $650,952,268 $255,884,859 $195,861,178 $ 93,623,801
============ ============ ============ ============
Shares of capital stock outstanding 42,960,183 21,525,367 14,765,837 8,328,682
============ ============ ============ ============
Net asset value and redemption price per share $ 15.15 $ 11.89 $ 13.26 $ 11.24
============ ============ ============ ============
Maximum offering price per share $ 15.95 $ 12.52 $ 13.96 $ 11.83
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
GROWTH/VALUE
FUND
------------
<S> <C>
INVESTMENT INCOME (Note 2)
Interest $ 2,809,867
Dividends 14,058,482
------------
TOTAL INVESTMENT INCOME 16,868,349
------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 4,951,664
Distribution fees 67,240
Professional fees 53,872
Custodial fee 96,218
Transfer and dividend disbursing agent fees 78,475
Amortization of deferred organization costs 17,828
Marketing expenses 40,193
Registration, filing fees and other expenses 207,105
Less:
Expense reimbursement --
------------
NET EXPENSES 5,512,595
------------
NET INVESTMENT INCOME 11,355,754
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains 21,032,338
Net change in unrealized appreciation on
investments 130,722,828
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 151,755,166
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $163,110,920
============
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPPORTUNITY INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND FUND
----------- --------------- -------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME (Note 2)
Interest $ 1,558,492 $ 2,056,046 $ 436,419 $ 2,380,276
Dividends 5,940,727 6,149,838 1,676,890 806,598
------------- ------------ ------------ ------------
TOTAL INVESTMENT INCOME 7,499,219 8,205,884 2,113,309 3,186,874
------------ ------------ ------------ ------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 4,490,930 1,817,833 1,064,273 570,525
Distribution fees 80,463 24,640 9,455 11,148
Professional fees 53,872 53,872 56,031 59,307
Custodial fee 97,189 46,198 30,473 73,464
Transfer and dividend disbursing agent fees 134,736 35,266 12,933 18,045
Amortization of deferred organization costs 7,783 5,575 8,111 9,434
Marketing expenses 45,500 34,242 32,082 31,058
Registration, filing fees and other expenses 403,502 176,642 51,617 35,253
Less:
Expense reimbursement -- -- (58,424) (136,954)
------------ ------------ ------------ ------------
NET EXPENSES 5,313,975 2,194,268 1,206,551 671,280
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 2,185,244 6,011,616 906,758 2,515,594
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains 33,998,949 18,391,186 2,343,100 1,548,275
Net change in unrealized appreciation on
investments 70,828,164 28,180,120 30,092,839 11,071,176
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 104,827,113 46,571,306 32,435,939 12,619,451
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $107,012,357 $ 52,582,922 $ 33,342,697 $ 15,135,045
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH/VALUE OPPORTUNITY
FUND FUND
-------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 11,355,754 $ 10,988,308 $ 2,185,244 $ 2,549,199
Net realized gains (losses) 21,032,338 12,792,234 33,998,949 16,116,289
Net change in unrealized appreciation
(depreciation) on investments 130,722,828 (21,338,549) 70,828,164 (35,552,031)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
operations 163,110,920 2,441,993 107,012,357 (16,886,543)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (11,928,616) (10,560,126) (2,383,890) (2,336,343)
From realized gains (14,216,458) (15,490,059) (31,302,346) (18,160,909)
In excess of realized gains -- (489,962) -- (962,874)
Tax return of capital -- (1,387,986) -- (3,857,441)
------------- ------------- ------------- -------------
Total distributions (26,145,074) (27,928,133) (33,686,236) (25,317,567)
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 129,170,938 236,571,313 138,422,625 239,540,057
Net asset value of shares issued in reinvestment of
distributions to shareholders 22,736,385 25,441,184 32,652,833 24,557,678
------------- ------------- ------------- -------------
151,907,323 262,012,497 171,075,458 264,097,735
Less: payments for shares redeemed (123,076,813) (94,790,691) (118,448,431) (62,559,018)
------------- ------------- ------------- -------------
Net increase in net assets from capital share
transactions 28,830,510 167,221,806 52,627,027 201,538,717
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS 165,796,356 141,735,666 125,953,148 159,334,607
NET ASSETS:
Beginning of period 571,370,711 429,635,045 524,999,120 365,664,513
------------- ------------- ------------- -------------
End of period $ 737,167,067 $ 571,370,711 $ 650,952,268 $ 524,999,120
============= ============= ============= =============
CAPITAL SHARE TRANSACTIONS:
Shares sold 10,922,667 21,126,574 9,374,983 16,685,198
Shares issued in reinvestment of distributions to
shareholders 1,788,703 2,363,365 2,199,921 1,834,826
------------- ------------- ------------- -------------
12,711,370 23,489,939 11,574,904 18,520,024
Less: shares redeemed (10,251,504) (8,442,703) (7,969,587) (4,398,758)
------------- ------------- ------------- -------------
NET INCREASE IN SHARES OUTSTANDING 2,459,866 15,047,236 3,605,317 14,121,266
CAPITAL SHARES:
Beginning of period 53,536,783 38,489,547 39,354,866 25,233,600
------------- ------------- ------------- -------------
End of period 55,996,649 53,536,783 42,960,183 39,354,866
============= ============= ============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND
----------------------------- ---------------------------- -----------------------------
Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 6,011,616 $ 6,245,776 $ 906,758 $ 418,787 $ 2,515,594 $ 1,181,465
Net realized gains (losses) 18,391,186 4,420,719 2,343,100 (174,336) 1,548,275 (295,624)
Net change in unrealized
appreciation (depreciation)
on investments 28,180,120 (11,608,354) 30,092,839 2,355,406 11,071,176 (1,595,660)
------------- ------------ ------------ ----------- ------------ ------------
Net increase (decrease) in net
assets from operations 52,582,922 (941,859) 33,342,697 2,599,857 15,135,045 (709,819)
------------- ------------ ------------ ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
(Note 2):
From net investment income (6,247,197) (6,000,928) (933,730) (380,514) (2,524,322) (1,143,800)
From realized gains (16,471,970) (4,141,890) (1,616,085) -- (987,934) --
In excess of realized gains -- -- -- -- -- --
Tax return of capital -- -- -- -- -- --
------------- ------------ ------------ ----------- ------------ ------------
Total distributions (22,719,167) (10,142,818) (2,549,815) (380,514) (3,512,256) (1,143,800)
------------- ------------ ------------ ----------- ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 39,975,498 66,411,165 116,265,186 89,598,698 47,232,261 61,358,453
Net asset value of shares issued
in reinvestment of distributions
to shareholders 21,049,306 8,927,141 2,306,069 262,019 3,343,276 1,087,022
------------- ------------ ------------ ----------- ------------ ------------
61,024,804 75,338,306 118,571,255 89,860,717 50,575,537 62,445,475
Less: payments for shares redeemed (55,031,796) (36,780,716) (34,772,563) (10,810,456) (22,741,717) (6,424,664)
------------- ------------ ------------ ----------- ------------ ------------
Net increase in net assets from
capital share transactions 5,993,008 38,557,590 83,798,692 79,050,261 27,833,820 56,020,811
------------- ------------ ------------ ----------- ------------ ------------
NET INCREASE IN NET ASSETS 35,856,763 27,472,913 114,591,574 81,269,604 39,456,609 54,167,192
NET ASSETS:
Beginning of period 220,028,096 192,555,183 81,269,604 -- 54,167,192 --
------------- ------------ ------------ ----------- ------------ ------------
End of period $ 255,884,859 $220,028,096 $195,861,178 $81,269,604 $ 93,623,801 $ 54,167,192
============= ============ ============ =========== ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 3,432,079 6,127,697 9,733,178 8,792,790 4,495,916 6,238,090
Shares issued in reinvestment
of distributions to shareholders 1,777,948 845,552 177,953 25,058 306,837 113,081
------------- ------------ ------------ ----------- ------------ ------------
5,210,027 6,973,249 9,911,131 8,817,848 4,802,753 6,351,171
Less: shares redeemed (4,687,782) (3,402,089) (2,927,524) (1,035,618) (2,160,736) (664,506)
------------- ------------ ------------ ----------- ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 522,245 3,571,160 6,983,607 7,782,230 2,642,017 5,686,665
CAPITAL SHARES:
Beginning of period 21,003,122 17,431,962 7,782,230 -- 5,686,665 --
------------- ------------ ------------ ----------- ------------ ------------
End of period 21,525,367 21,003,122 14,765,837 7,782,230 8,328,682 5,686,665
============= ============ ============ =========== ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.30%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S.
Treasury Strips with maturities ranging from
2/15/96 through 11/15/05 and U.S. Treasury
Notes, 5.50%, 11/15/98, all held at Chemical
Bank) $ 24,354,633 $ 24,354,633
------------
(Cost $24,354,633)
Shares
------------
COMMON STOCKS -- 96.70%
Aerospace -- 3.13%
Boeing Co. 295,000 23,120,625
------------
Apparel -- 1.76%
Russell Corp. 467,000 12,959,250
------------
Banks -- 4.73%
Barnett Banks, Inc. 254,000 14,986,000
Fleet Financial Group, Inc. 489,000 19,926,750
------------
34,912,750
------------
Business Machines -- 0.71%
Autodesk, Inc. 153,900 5,271,075
------------
Business Services -- 7.14%
Deluxe Corp. 454,000 13,166,000
Dun & Bradstreet Corp. 240,000 15,540,000
Interpublic Group of Companies, Inc. 227,100 9,850,463
WMX Technologies, Inc. 473,000 14,130,875
------------
52,687,338
------------
Chemicals -- 6.31%
Dow Chemical Co. 199,000 14,004,625
Great Lakes Chemical Corp. 274,000 19,728,000
Sigma-Aldrich Corp. 259,000 12,820,500
------------
46,553,125
------------
Construction -- 7.30%
Masco Corp. 489,000 15,342,375
Stanley Works 315,000 16,222,500
York International Corp. 474,000 22,278,000
------------
53,842,875
------------
Consumer Durables -- 2.21%
Rubbermaid, Inc. 640,000 16,320,000
------------
Containers -- 1.07%
Crown Cork & Seal Co., Inc. * 189,000 7,890,750
------------
Drugs and Medicine -- 12.07%
Abbott Laboratories Corp. 337,000 14,069,750
Bristol-Myers Squibb Co. 218,000 18,720,750
Merck & Co., Inc. 227,000 14,925,250
Schering-Plough Corp. 405,000 22,173,750
U.S. HealthCare, Inc. 412,000 19,158,000
------------
89,047,500
------------
Electronics -- 2.95%
General Motors Corp. Class E 419,000 21,788,000
------------
Energy and Utilities -- 3.55%
Entergy Corp. 237,000 6,932,250
MCN Corp. 830,000 19,297,500
------------
26,229,750
------------
Energy Raw Materials -- 4.88%
Burlington Resources, Inc. 310,000 12,167,500
Schlumberger Ltd. 344,000 23,822,000
------------
35,989,500
------------
Food and Agriculture -- 4.00%
ConAgra, Inc. 265,000 10,931,250
Sysco Corp. 573,000 18,622,500
------------
29,553,750
------------
Insurance -- 7.85%
American International Group, Inc. 185,000 17,112,500
Chubb Corp. 237,000 22,929,750
First Colony Corp. 706,000 17,914,750
------------
57,957,000
------------
International Oil -- 1.53%
Royal Dutch Petroleum Co., N.Y. Registry 80,000 11,290,000
------------
Liquor -- 2.31%
Anheuser-Busch Companies, Inc. 255,000 17,053,125
------------
Media -- 4.99%
Gannett Co., Inc. 310,000 19,026,250
Washington Post Co. Class B 63,000 17,766,000
------------
36,792,250
------------
Motor Vehicles -- 1.96%
General Motors Corp. 273,000 14,434,875
------------
Non-Durables and Entertainment -- 1.38%
Cracker Barrel Old Country Store, Inc. 592,000 10,212,000
------------
Producer Goods -- 4.25%
General Electric Co. 221,000 15,912,000
Stewart & Stevenson Services, Inc. 612,000 15,453,000
------------
31,365,000
------------
Retail -- 1.52%
Toys R Us * 517,000 11,244,750
------------
Telephone -- 7.04%
AT&T Corp. 211,000 13,662,250
Century Telephone Enterprises, Inc. 486,000 15,430,500
MCI Communications Corp. 874,000 22,833,250
------------
51,926,000
------------
Trucking and Freight -- 2.06%
Ryder System, Inc. 615,000 15,221,250
------------
TOTAL COMMON STOCKS 713,662,538
------------
(Cost $573,702,642)
TOTAL INVESTMENTS $738,017,171
============
(Cost $598,057,275)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.37%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2//96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $8,833,683 $ 8,833,683
-------------
(Cost $8,833,683)
Shares
------
COMMON STOCKS -- 98.63%
Air Transport -- 1.57%
Air Express International Corp. 438,500 10,085,500
-------------
Apparel -- 1.24%
Nine West Group, Inc. * 212,850 7,981,875
-------------
Banks -- 4.66%
Charter One Financial, Inc. 385,000 11,790,625
Commerce Bancshares, Inc. 139,255 5,326,511
TCF Financial Corp. 387,600 12,839,250
-------------
29,956,386
-------------
Business Machines -- 5.88%
Autodesk, Inc. 221,330 7,580,552
Diebold, Inc. 182,250 10,092,094
InterVoice, Inc. * 175,000 3,325,000
Komag, Inc. * 185,200 8,542,350
Xilinx, Inc. * 271,200 8,271,600
-------------
37,811,596
-------------
Business Services -- 8.37%
American Management Systems, Inc. * 316,700 9,501,000
CDI Corp. * 207,300 3,731,400
DST Systems, Inc. * 120,100 3,422,850
G & K Services, Inc. Class A 248,700 6,341,850
Omnicom Group, Inc. 239,220 8,910,945
SunGard Data Systems, Inc. * 335,300 9,556,050
Zilog, Inc. * 337,900 12,375,587
-------------
53,839,682
-------------
Chemicals -- 1.50%
RPM, Inc. 584,673 9,647,096
-------------
Construction -- 2.37%
Crane Co. 413,146 15,234,759
-------------
Consumer Durables -- 2.12%
Durakon Industries, Inc. * 314,892 3,936,150
Invacare Corp. 122,600 3,095,650
Leggett & Platt, Inc. 270,910 6,569,567
-------------
13,601,367
-------------
Containers -- 1.88%
AptarGroup, Inc. 323,200 12,079,600
-------------
Drugs and Medicine -- 5.90%
Community Health System, Inc. * 186,600 6,647,625
Health Care & Retirement Corp. * 189,556 6,634,460
Scherer (R.P.) Corp. * 149,464 7,342,419
Sybron International Corp. * 383,000 9,096,250
Vivra, Inc. * 326,400 8,200,800
-------------
37,921,554
-------------
Electronics -- 9.59%
Allen Group, Inc. 373,947 8,367,064
Belden, Inc. 530,000 13,647,500
Dynatech Corp. * 601,200 10,220,400
Holophane Corp. * 412,000 8,961,000
MEMC Electronic Materials * 182,600 5,957,325
Molex, Inc. Class A Non-Voting 246,607 7,552,339
3COM Corp. * 66,748 3,112,126
Vishay Intertechnology, Inc. * 121,900 3,839,850
-------------
61,657,604
-------------
Energy Raw Materials -- 2.93%
Apache Corp. 382,374 11,280,033
Southwestern Energy Co. 593,074 7,561,694
-------------
18,841,727
-------------
Food and Agriculture -- 1.19%
Universal Foods Corp. 191,001 7,663,915
-------------
Insurance -- 3.24%
Citizens Corp. 498,502 9,284,600
Transatlantic Holdings, Inc. 157,746 11,574,613
-------------
20,859,213
-------------
Media -- 1.59%
Banta Corp. 232,510 10,230,440
-------------
Miscellaneous and Conglomerates -- 11.78%
Arctco, Inc. 351,316 4,567,108
Culligan Water Technologies, Inc. * 280,000 6,790,000
DENTSPLY International, Inc. 274,200 10,968,000
Department 56, Inc. * 96,800 3,714,700
Greenfield Industries, Inc. 404,900 12,653,125
Health Management Associates, Inc. Class A * 343,075 8,962,834
Littlefuse, Inc. * 247,500 9,095,625
Minerals Technologies, Inc. 215,665 7,871,773
Wolverine Tube, Inc. * 297,000 11,137,500
-------------
75,760,665
-------------
Miscellaneous Finance -- 12.53%
A.G. Edwards, Inc. 401,580 9,587,723
CMAC Investment Corp. 186,000 8,184,000
Executive Risk, Inc. 368,300 10,680,700
FINOVA Group, Inc. 384,165 18,535,961
Idex Corp. 171,329 7,024,468
PMI Group, Inc. 235,300 10,647,325
Prudential Reinsurance Holdings 422,700 9,880,613
Scotsman Industries, Inc. 342,000 6,027,750
-------------
80,568,540
-------------
Motor Vehicles -- 5.11%
Excel Industries, Inc. 496,065 6,944,910
Harley-Davidson, Inc. 483,474 13,899,878
Myers Industries, Inc. 358,120 5,864,215
Superior Industries International 232,444 6,130,71
-------------
32,839,714
-------------
Non-Durables and Entertainment -- 1.53%
Lancaster Colony Corp. 263,796 9,826,401
-------------
Non-Ferrous Metals -- 0.86%
DT Industries, Inc. 408,500 5,514,750
-------------
Producer Goods -- 8.55%
Hubbell, Inc. Class B 234,413 15,412,655
Juno Lighting, Inc. 505,611 8,089,776
Stewart & Stevenson Services, Inc. 267,000 6,741,750
Teleflex, Inc. 108,760 4,459,160
Trimas Corp. 439,465 8,294,902
Watts Industries, Inc. Class A 515,002 11,973,796
-------------
54,972,039
-------------
Retail -- 2.80%
Cato Corp. Class A 1,019,082 7,897,885
Kohls Corp. * 122,118 6,411,195
Talbots, Inc. 128,701 3,700,154
-------------
18,009,234
-------------
Travel and Recreation -- 1.44%
Callaway Golf Co. 410,400 9,285,300
-------------
TOTAL COMMON STOCKS 634,188,957
-------------
(Cost $535,343,601)
TOTAL INVESTMENTS $643,022,640
============
(Cost $544,177,289)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTRINSIC VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 6.44%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $16,639,265 $ 16,639,265
------------
(Cost $16,639,265)
CONVERTIBLE BONDS -- 9.26%
Chubb Capital Corp., 6.00%, 5/15/98 5,650,000 6,384,500
Consolidated Natural Gas Co., 7.25%, 12/15/15 5,218,500 5,414,194
Price Co., 6.75%, 3/1/01 5,400,000 5,487,750
Unifi, Inc., 6.00%, 3/15/02 6,566,000 6,615,245
------------
(Cost $23,403,674) 23,901,689
------------
Shares
------
COMMON STOCKS -- 84.30%
Apparel -- 3.13%
Reebok International Ltd. 128,530 3,630,972
Unifi Inc. 82,900 1,834,163
V. F. Corp. 49,600 2,616,400
------------
8,081,535
------------
Banks -- 4.36%
Bancorp Hawaii, Inc. 156,400 5,610,850
First Union Corp. 101,500 5,645,938
------------
11,256,788
------------
Business Services -- 5.34%
Angelica Corp. 120,200 2,464,100
Harland (John H.) Co. 247,500 5,166,562
National Service Industries, Inc. 190,200 6,157,725
------------
13,788,387
------------
Chemicals -- 2.21%
NCH Corp. 98,800 5,705,700
------------
Consumer Durables -- 4.29%
Hillenbrand Industries, Inc. 90,800 3,075,850
National Presto Industries, Inc. 78,800 3,132,300
Thiokol Corp. 143,700 4,867,838
------------
11,075,988
------------
Domestic Oil -- 4.61%
Atlantic Richfield Co. 37,200 4,119,900
MAPCO, Inc. 142,700 7,794,988
------------
11,914,888
------------
Drugs and Medicine -- 2.84%
Block Drug, Inc. Class A 45,700 1,588,075
Bristol-Myers Squibb Co. 66,800 5,736,450
------------
7,324,525
------------
Energy and Utilities -- 5.34%
American Water Works Co., Inc. 76,435 2,971,411
Equitable Resources, Inc. 128,200 4,006,250
Sierra Pacific Resources 291,900 6,823,162
------------
13,800,823
------------
Energy Raw Materials -- 1.09%
Ashland Coal, Inc. 131,300 2,806,537
------------
Insurance -- 13.18%
Allmerica Property & Casualty Co. 129,500 3,496,500
AMBAC, Inc. 94,600 4,434,375
Financial Security Assurance Holdings 126,500 3,146,688
Home Beneficial Corp. Class B 246,900 5,925,600
Marsh & McLennan Companies, Inc. 34,200 3,035,250
Mid Ocean Ltd. 76,100 2,825,213
Old Republic International Corp. 223,900 7,948,450
SAFECO Corp. 93,600 3,229,200
------------
34,041,276
------------
International Oil -- 3.62%
Amoco Corp. 61,900 4,449,062
Texaco, Inc. 62,500 4,906,250
------------
9,355,312
------------
Liquor -- 1.44%
Anheuser-Busch Companies, Inc. 55,800 3,731,625
------------
Media -- 1.64%
Gannett Co., Inc. 69,000 4,234,875
------------
Miscellaneous Finance -- 7.91%
Federal National Mortgage Association 75,800 9,408,675
Fund American Enterprises Holdings, Inc. 112,365 8,371,192
Salomon, Inc. 74,300 2,637,650
------------
20,417,517
------------
Motor Vehicles -- 1.01%
Ford Motor Co. 89,798 2,604,142
------------
Non-Durables and Entertainment -- 3.53%
Hasbro, Inc. 181,000 5,611,000
Luby's Cafeterias, Inc. 37,800 841,050
Sbarro, Inc. 123,700 2,659,550
------------
9,111,600
------------
Railroads and Shipping -- 3.23%
Alexander & Baldwin, Inc. 252,600 5,809,800
Norfolk Southern Corp. 31,900 2,532,062
------------
8,341,862
------------
Retail -- 7.89%
May Department Stores Co. 155,900 6,586,775
Melville Corp. 201,500 6,196,125
Mercantile Stores, Inc. 62,000 2,867,500
Stanhome, Inc. Voting 162,200 4,724,075
------------
20,374,475
------------
Soaps and Cosmetics -- 2.33%
Unilever N. V. 42,800 6,024,100
------------
Tires and Rubber Goods -- 1.13%
Bandag, Inc. Class A 54,900 2,909,700
------------
Tobacco -- 4.18%
Loews Corp. 77,400 6,066,225
Philip Morris Companies, Inc. 52,400 4,742,200
------------
10,808,425
------------
TOTAL COMMON STOCKS 217,710,080
------------
(Cost $191,404,657)
TOTAL INVESTMENTS $258,251,034
============
(Cost $231,447,596)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.52%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96, (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $4,958,619 $ 4,958,619
------------
(Cost $4,958,619)
Shares
COMMON STOCKS -- 97.48%
Banks -- 3.67%
Banc One Corp. 80,000 3,020,000
Norwest Corp. 127,000 4,191,000
------------
7,211,000
------------
Business Machines -- 4.03%
Autodesk, Inc. 90,400 3,096,200
Microsoft Corp. * 55,000 4,826,250
------------
7,922,450
------------
Business Services -- 6.26%
Automatic Data Processing, Inc. 58,000 4,306,500
Interpublic Group of Companies, Inc. 105,000 4,554,375
WMX Technologies, Inc. 115,000 3,435,625
------------
12,296,500
------------
Chemicals -- 3.56%
Great Lakes Chemical Corp. 58,000 4,176,000
Sigma-Aldrich Corp. 57,000 2,821,500
------------
6,997,500
------------
Construction -- 4.84%
Fluor Corp. 73,000 4,818,000
York International Corp. 100,000 4,700,000
------------
9,518,000
------------
Consumer Durables -- 2.88%
Newell Co. 140,000 3,622,500
Rubbermaid, Inc. 80,000 2,040,000
------------
5,662,500
------------
Containers -- 2.13%
Crown Cork & Seal Co., Inc. * 100,000 4,175,000
------------
Drugs and Medicine -- 12.79%
Johnson & Johnson 70,000 5,993,750
Medtronic, Inc. 67,000 3,743,625
Pall Corp. 225,000 6,046,875
Stryker Corp. 83,000 4,357,500
United Healthcare Corp. 76,000 4,978,000
------------
25,119,750
------------
Electronics -- 6.26%
General Motors Corp., Class E 95,000 4,940,000
Hewlett-Packard Co. 37,000 3,098,750
Intel Corp. 75,000 4,256,250
------------
12,295,000
------------
Energy and Utilities -- 1.94%
Enron Corp. 100,000 3,812,500
------------
Energy Raw Materials -- 4.15%
Schlumberger Ltd. 52,000 3,601,000
Western Atlas, Inc. * 90,000 4,545,000
------------
8,146,000
------------
Food and Agriculture -- 3.86%
CPC International, Inc. 57,000 3,911,625
Sysco Corp. 113,000 3,672,500
------------
7,584,125
------------
Insurance -- 4.84%
AFLAC, Inc. 100,000 4,337,500
American International Group, Inc. 56,000 5,180,000
------------
9,517,500
------------
Media -- 2.20%
Donnelley (R.R.) & Sons Co. 110,000 4,331,250
------------
Miscellaneous and Conglomerates -- 2.37%
Duracell International, Inc. 90,000 4,657,500
------------
Non-Durables and Entertainment -- 6.05%
Cracker Barrel Old Country Store, Inc. 250,000 4,312,500
CUC International, Inc *. 73,650 2,513,306
Service Corp. International 115,000 5,060,000
------------
11,885,806
------------
Producer Goods -- 3.57%
Illinois Tool Works, Inc. 76,000 4,484,000
Stewart & Stevenson Services, Inc. 100,000 2,525,000
------------
7,009,000
------------
Retail -- 8.95%
Albertsons, Inc. 132,000 4,339,500
Home Depot, Inc. 135,000 6,463,125
Toys R Us * 130,000 2,827,500
Walgreen Co. 132,000 3,943,500
------------
17,573,625
------------
Telephone -- 4.77%
AirTouch Communications, Inc. * 170,000 4,802,500
MCI Communications Corp. 175,000 4,571,875
------------
9,374,375
------------
Tobacco -- 1.87%
UST, Inc. 110,000 3,671,250
------------
Travel and Recreation -- 6.49%
Carnival Corp. Class A 180,000 4,387,500
Disney (Walt) Co. 80,000 4,720,000
Gaylord Entertainment Co. Class A 131,000 3,635,250
------------
12,742,750
------------
TOTAL COMMON STOCKS 191,503,381
------------
(Cost $159,055,136)
TOTAL INVESTMENTS $196,462,000
============
(Cost $164,013,755)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 11.13%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $10,363,688 $10,363,688
-----------
(Cost $10,363,688)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 33.62%
U.S. Treasury Securities -- 15.64%
Principal Strips from U.S. Treasury Securities
due:
8/15/98 500,000 436,475
5/15/18 600,000 149,664
11/15/18 600,000 145,734
8/15/20 4,765,000 1,037,245
Strips from U.S. Treasury Securities due:
5/15/98 200,000 176,984
2/15/99 100,000 84,995
2/15/11 600,000 242,940
5/15/11 1,083,000 431,077
2/15/12 280,000 105,795
8/15/12 750,000 273,848
5/15/13 760,000 264,290
2/15/14 200,000 66,210
U.S. Treasury Bonds:
12.750%, 11/15/10 395,000 601,632
10.375%, 11/15/12 495,000 684,338
U.S. Treasury Notes:
7.375%, 5/15/96 350,000 352,681
7.250%, 11/15/96 200,000 203,312
8.500%, 4/15/97 165,000 171,626
8.625%, 8/15/97 850,000 894,625
8.750%, 10/15/97 200,000 211,968
8.875%, 11/15/97 800,000 851,496
7.875%, 1/15/98 2,400,000 2,521,872
7.875%, 4/15/98 3,870,000 4,086,488
5.375%, 5/31/98 350,000 351,148
6.875%, 7/31/99 200,000 210,000
-----------
(Cost $13,572,976) 14,556,443
-----------
Agency Obligations -- 17.98%
Federal Home Loan Mortgage Corp. Participation
Ctf.
#555238, 12.000%, 7/1/19 177,465 198,989
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 22 Class C, 9.500%, 4/15/20 138,110 156,469
Series 11 Class D, 9.500%,7/15/19 200,000 222,572
Series 99 Class Z, 9.500%, 1/15/21 109,086 117,377
Series 1051 Class D, 7.000%, 11/15/19 194,946 197,330
Series 1065 Class J, 9.000%, 4/15/21 100,000 108,781
Series 1084 Class F, AR, 5/15/21 250,000 254,990
Series 1084 Class S, IF, 5/15/21 175,000 227,500
Series 1144 Class KB, 8.500%, 9/15/21 250,000 264,635
Series 1295 Class JB, 4.500%, 3/15/07 300,000 271,701
Series 1297 Class H, 7.500%, 1/15/20 130,723 133,925
Series 1360 Class PK, 10.000%, 12/15/20 150,000 172,192
Series 1370 Class F, 6.750%, 3/15/19 260,000 262,743
Series 1378 Class H, 10.000%, 1/15/21 100,000 115,208
Series 1378 Class JZ, 7.500%, 11/15/21 253,428 257,659
Series 1456 Class G, 6.500%,12/15/18 300,000 300,315
Series 1465 Class SA, IF, 2/15/08 1,584,527 78,228
Series 1483 Class E, 6.500%, 2/15/20 367,500 367,283
Series 1489 Class L, 5.500%, 4/15/08 208,713 203,631
Series 1491 Class F, 5.000%, 8/15/19 400,000 375,472
Series 1508 Class KB, IO, IF, 5/15/23 709,793 45,689
Series 1531 Class K, 6.000%, 4/15/08 346,816 336,404
Series 1554 Class KA, PO, 8/15/08 84,308 66,971
Series 1583 Class NS, IF, 9/15/23 115,888 85,757
Series 1585 Class NB, IF, 9/15/23 144,996 117,446
Series 1586 Class A, 6.000%, 9/15/08 167,962 161,611
Series 1595 Class S, IO, IF, 10/15/13 1,582,125 64,266
Series 1604 Class SE, IF, 11/15/08 187,033 149,626
Series 1606 Class LD, IF, 5/15/08 393,649 295,358
Series 1681 Class K, 7.000%, 8/15/23 446,020 436,243
Series 1686 Class A, 5.000%, 2/15/24 92,449 82,440
Series 1689 Class SD, IF, 10/15/23 100,000 89,000
Series 1706 Class LA, 7.000%, 3/15/24 425,008 416,402
Series 1757-A, Class A, 9.500%, 5/15/23 176,610 187,868
Series 1796-A, Class S, IF, 2/15/09 100,000 75,500
Federal Housing Administration Merrill Lynch
Project Pool 170 Pass thru Ctf., 7.430%, 8/1/20 228,368 235,931
Federal National Mortgage Assn. Pass Thru
Securities Pool #116612, AR, 3/1/19 120,860 125,058
Federal National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
1989 Class 34-D, 9.850%, 7/25/13 100,480 101,805
1989 Class 69-G, 7.600%, 10/25/19 800,000 825,385
1989 Class 78-H, 9.400%, 11/25/19 250,000 278,605
1990 Class 1-D, 8.800%, 1/25/20 150,000 159,384
1990 Class 140-K, HB, 652.1454%, 12/25/20 1,859 34,111
1990 Class 143-J, 8.750%, 12/25/20 125,000 134,010
1991 Class 144-PZ, 8.500%, 6/25/21 213,482 225,832
1991 Class 161-H, 7.500%, 2/25/21 195,157 198,564
1992 Class 204-B, 6.000%, 10/25/20 250,000 241,885
1993 Class 13-G, 6.000%, 6/25/20 200,000 196,274
1993 Class 15-K, 7.000%, 02/25/08 198,103 197,104
1993 Class 19-G, 5.000%, 5/25/19 250,000 237,095
1993 Class 32-K, 6.000%, 3/25/23 398,757 383,429
1993 Class 38-S, IO, IF, 11/25/22 1,167,204 32,098
1993 Class 44-S, IO, IF, 4/25/23 440,206 19,395
1993 Class 58-J, 5.500%, 4/25/23 172,150 160,876
1993 Class 94-K, 6.750%, 5/25/23 129,919 127,147
1993 Class 139-SG, IF, 8/25/23 242,431 187,959
1993 Class 155-LA, 6.500%, 5/25/23 347,178 342,498
1993 Class 155-SB, IO, IF, 9/25/23 855,151 46,495
1993 Class 190-SE, IF, 10/25/08 49,847 38,740
1993 Class 207-SC, IF, 11/25/23 286,295 208,995
1993 Class 209-KB, 5.659%, 8/25/08 186,995 178,470
1993 Class 214-L, 6.000%, 12/25/08 167,752 165,801
1993 Class 220-SD, IF, 11/25/13 49,707 38,631
1993 Class 223-FB, AR, 12/25/23 371,360 365,790
1993 Class 223-SB, IF, 12/25/23 165,265 132,212
1994 Class 8-G, PO, 11/25/23 259,594 188,206
1994 Class 19-C, 5.000%, 1/25/24 341,483 315,697
1994 Class 30-LA, 6.500%, 2/25/09 84,934 83,897
1994 Class 36-SE, IF, 11/25/23 136,624 109,299
1994 Class 39-F, AR, 3/25/24 226,630 225,071
1994 Class 39-S, IF, 3/25/24 87,166 77,413
1994 Class 53-CA, PO, 11/25/23 460,000 318,550
1994 Class 59-PK, 6.000%, 3/25/24 176,633 171,714
1994 Class 82-SA, IO, 5/25/23 1,931,538 51,900
1995 Class 13-B, 6.500%, 3/25/09 576,322 563,533
1992-G Class 15-Z, 7.000%, 1/25/22 196,015 190,649
1992-G Class 42-Z, 7.000%, 7/25/22 633,918 624,341
1992-G Class 59-C, 6.000%, 12/25/21 200,000 194,128
1993-G Class 19-K, 6.500%, 6/25/19 254,799 250,365
1994-G Class 13-ZB, 7.000%, 11/17/24 107,229 102,640
Government National Mortgage Assn. Pass Thru
Securities
Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22 600,000 38,250
Government National Mortgage Assn. Pass Thru:
Pool #297628, 8.000%, 9/15/22 190,467 198,974
Pool #313110, 7.500%, 11/15/22 499,859 515,218
-----------
(Cost $15,517,459) 16,737,005
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 31,293,448
-----------
(Cost $29,090,435)
CORPORATE BONDS AND NOTES -- 1.95%
Finance -- 1.12%
Associates Corp. of North America:
9.125%, 4/1/00 85,000 95,937
8.150%, 8/1/09 200,000 227,996
Ford Credit Grantor Trust Asset Backed Ctf.
Series 1994-A, Class A, 6.350%, 5/15/99 272,012 274,846
Merrill Lynch Trust 43 E CMO, Series 43-E,
6.500%, 8/27/15 200,000 198,998
Nationsbank Auto Grantor Trust Asset Backed Ctf.
Series 1995-A, Class A, 5.850%, 6/15/02 96,427 96,983
Standard Credit Card Master Trust Asset Backed
Ctf. Series 1995-5, Class A, AR, 5/8/00 150,000 150,046
-----------
(Cost $1,000,850) 1,044,806
-----------
Industrial -- 0.42%
Boeing Co., 7.950%, 8/15/24 110,000 129,493
Proctor & Gamble Co., 8.000%, 10/26/96 220,000 262,544
-----------
(Cost $360,295) 392,037
-----------
Public Utility -- 0.41%
New England Telephone & Telegraph Co., 7.875%,
11/15/29 250,000 294,213
Nippon Telegraph & Telephone Corp., 9.500%,
7/27/98 80,000 87,370
-----------
(Cost $351,127) 381,583
-----------
TOTAL CORPORATE BONDS AND NOTES 1,818,426
-----------
(Cost $1,712,272)
CONVERTIBLE BONDS -- 0.52%
Chubb Capital Corp., 6.00%, 5/15/98 121,000 136,730
Consolidated Natural Gas Co., 7.25%, 12/15/15 98,100 101,779
Price Co., 6.75%, 3/1/01 112,000 113,820
Unifi, Inc., 6.00%, 3/15/02 130,000 130,975
-----------
(Cost $473,776) 483,304
-----------
Shares
------
COMMON STOCKS -- 52.78%
Aerospace -- 1.06%
Boeing Co. 12,600 987,525
-----------
Air Transport -- 0.15%
Air Express International Corp. 6,225 143,175
-----------
Apparel -- .90%
Nine West Group, Inc. * 2,950 110,625
Reebok International Ltd. 2,780 78,535
Russell Corp. 20,000 555,000
Unifi Inc. 1,640 36,285
V.F. Corp. 1,050 55,388
-----------
835,833
-----------
Banks -- 2.58%
Banc One Corp. 3,100 117,025
Bancorp Hawaii, Inc. 3,390 121,616
Barnett Banks, Inc. 10,800 637,200
Charter One Financial Inc. 5,200 159,250
Commerce Bancshares, Inc. 1,975 75,530
First Union Corp. 2,200 122,375
Fleet Financial Group, Inc. 20,900 851,675
Norwest Corp. 4,000 132,000
TCF Financial Corp. 5,600 185,500
-----------
2,402,171
-----------
Business Machines -- 1.01%
Autodesk, Inc. 12,370 423,673
Diebold, Inc. 2,613 144,695
InterVoice, Inc. * 2,500 47,500
Komag, Inc. * 2,700 124,538
Microsoft Corp. * 1,100 96,525
Xilinx, Inc. * 3,350 102,174
-----------
939,105
-----------
Business Services -- 3.94%
American Management System, Inc. * 4,500 135,000
Angelica Corp. 2,600 53,300
Automatic Data Processing, Inc. 1,800 133,650
CDI Corp. * 2,900 52,200
Deluxe Corp. 19,400 562,600
DST Systems, Inc. * 1,600 45,600
Dun & Bradstreet Corp. 10,300 666,925
G & K Services, Inc. Class A 3,400 86,700
Harland (John H.) Co. 5,360 111,890
Interpublic Group of Companies, Inc. 12,600 546,525
National Service Industries, Inc. 4,120 133,385
Omnicom Group, Inc. 3,380 125,905
SunGard Data Systems, Inc. * 4,500 128,250
WMX Technologies, Inc. 23,500 702,063
Zilog, Inc. * 5,000 183,125
-----------
3,667,118
-----------
Chemicals -- 2.64%
Dow Chemical Co. 8,500 598,188
Great Lakes Chemical Corp. 13,600 979,200
NCH Corp. 2,140 123,585
RPM, Inc. 8,265 136,372
Sigma-Aldrich Corp. 12,500 618,750
-----------
2,456,095
-----------
Construction -- 3.00%
Crane Co. 5,604 206,648
Fluor Corp. 2,100 138,600
Masco Corp. 20,900 655,737
Stanley Works 13,500 695,250
York International Corp. 23,300 1,095,100
-----------
2,791,335
-----------
Consumer Durables -- 1.43%
Durakon Industries, Inc. * 4,508 56,350
Hillenbrand Industries, Inc. 1,970 66,734
Invacare Corp. 1,700 42,925
Leggett & Platt, Inc. 3,840 93,120
National Presto Industries, Inc. 1,710 67,973
Newell Co. 4,300 111,263
Rubbermaid, Inc. 30,700 782,850
Thiokol Corp. 3,110 105,350
-----------
1,326,565
-----------
Containers -- 0.65%
AptarGroup, Inc. 4,600 171,925
Crown Cork & Seal Co., Inc. * 10,400 434,200
-----------
606,125
-----------
Domestic Oil -- 0.27%
Atlantic Richfield Co. 810 89,708
MAPCO, Inc. 2,940 160,597
-----------
250,305
-----------
Drugs and Medicine -- 5.52%
Abbott Laboratories 14,400 601,200
Block Drug, Inc. Class A 1,000 34,750
Bristol-Myers Squibb Co. 10,790 926,591
Community Health System 2,600 92,625
Health Care & Retirement Corp. * 2,594 90,790
Johnson & Johnson 1,700 145,563
Medtronic, Inc. 2,400 134,100
Merck & Co., Inc. 9,700 637,775
Pall Corp. 5,800 155,875
Scherer (R.P.) Corp. * 2,286 112,300
Schering-Plough Corp. 17,300 947,175
Stryker Corp. 900 47,250
Sybron International Corp. * 5,400 128,250
United Healthcare Corp. 2,400 157,200
U.S. HealthCare, Inc. 17,600 818,400
Vivra, Inc. * 4,500 113,062
-----------
5,142,906
-----------
Electronics -- 2.28%
Allen Group, Inc. 5,393 120,668
Belden, Inc. 7,500 193,125
Dynatech Corp. * 8,000 136,000
General Motors Corp. Class E 20,400 1,060,800
Hewlett Packard Co. 1,500 125,625
Holophane Corp. * 5,100 110,925
Intel Corp. 1,600 90,800
MEMC Electronic Materials * 2,500 81,563
Molex, Inc. Class A Non-Voting 3,550 108,719
3COM Corp. * 952 44,387
Vishay Intertechnology, Inc. * 1,700 53,550
-----------
2,126,162
-----------
Energy and Utilities -- 1.62%
American Water Works Co., Inc. 1,800 69,975
Enron Corp. 1,500 57,188
Entergy Corp. 10,200 298,350
Equitable Resources, Inc. 2,770 86,563
MCN Corp. 36,300 843,974
Sierra Pacific Resources 6,320 147,730
-----------
1,503,780
-----------
Energy Raw Materials -- 2.27%
Apache Corp. 5,076 149,742
Ashland Coal, Inc. 2,810 60,064
Burlington Resources, Inc. 13,300 522,025
Schlumberger Ltd. 16,500 1,142,625
Southwestern Energy Co. 8,476 108,069
Western Atlas, Inc. * 2,500 126,250
-----------
2,108,775
-----------
Food and Agriculture -- 1.71%
ConAgra, Inc. 11,300 466,125
CPC International, Inc. 1,500 102,938
Sysco Corp. 28,300 919,750
Universal Foods Corp. 2,549 102,278
-----------
1,591,091
-----------
Insurance -- 3.97%
AFLAC, Inc. 1,400 60,725
Allmerica Property & Casualty Co. 2,800 75,600
AMBAC, Inc. 2,050 96,094
American International Group, Inc. 9,400 869,500
Chubb Corp. 10,200 986,850
Citizens Corp. 6,548 121,957
Financial Security Assurance Holdings 2,440 60,695
First Colony Corp. 30,200 766,325
Home Beneficial Corp. Class B 5,350 128,400
Marsh & McLennan Companies, Inc. 740 65,675
Mid Ocean Ltd. 1,570 58,286
Old Republic International Corp. 4,880 173,240
SAFECO Corp. 2,020 69,690
Transatlantic Holdings, Inc. 2,254 165,387
-----------
3,698,424
-----------
International Oil -- 0.73%
Amoco Corp. 1,340 96,313
Royal Dutch Petroleum Co., N.Y. Registry 3,400 479,825
Texaco, Inc. 1,350 105,975
-----------
682,113
-----------
Liquor -- 0.87%
Anheuser Busch Companies, Inc. 12,120 810,525
-----------
Media -- 2.04%
Banta Corp. 3,290 144,760
Donnelley (R.R.) & Sons Co. 2,200 86,625
Gannett Co., Inc. 14,790 907,736
Washington Post Co. Class B 2,700 761,400
-----------
1,900,521
-----------
Miscellaneous and Conglomerates -- 1.24%
Arctco, Inc. 4,983 64,779
Culligan Water Technologies, Inc. * 3,700 89,725
DENTSPLY International, Inc. 3,700 148,000
Department 56, Inc. * 1,200 46,050
Duracell International, Inc. 2,200 113,850
Greenfield Industries, Inc. 5,700 178,125
Health Management Associates, Inc. Class A * 4,862 127,020
Littlefuse, Inc. * 3,500 128,625
Minerals Technologies, Inc. 3,085 112,602
Wolverine Tube, Inc. * 4,000 150,000
-----------
1,158,776
-----------
Miscellaneous Finance -- 1.68%
A.G. Edwards, Inc. 5,755 137,401
CMAC Investment Corp. 2,300 101,200
Executive Risk, Inc. 5,200 150,800
Federal National Mortgage Association 1,640 203,565
FINOVA Group, Inc. 5,535 267,064
Fund American Enterprises Holdings, Inc. 2,310 172,095
Idex Corp. 2,472 101,332
PMI Group, Inc. 3,200 144,800
Prudential Reinsurance Holding 6,000 140,250
Salomon, Inc. 1,610 57,154
Scotsman Industries, Inc. 4,900 86,362
-----------
1,562,023
-----------
Motor Vehicles -- 1.22%
Excel Industries, Inc. 7,035 98,490
Ford Motor Co. 1,861 53,969
General Motors Corp. 11,700 618,638
Harley-Davidson, Inc. 6,926 199,123
Myers Industries, Inc. 4,520 74,014
Superior Industries International 3,338 88,040
-----------
1,132,274
-----------
Non-Durables and Entertainment -- 1.12%
Cracker Barrel Old Country Store, Inc. 32,000 552,000
CUC International, Inc. 2,250 76,781
Hasbro, Inc. 3,920 121,520
Lancaster Colony Corp. 3,764 140,209
Luby's Cafeterias, Inc. 820 18,245
Sbarro, Inc. 2,280 49,020
Service Corp. International 2,000 88,000
-----------
1,045,775
-----------
Non-Ferrous Metals -- 0.08%
DT Industries, Inc. 5,200 70,200
-----------
Producer Goods -- 2.52%
General Electric Co. 9,500 684,000
Hubbell, Inc. Class B 3,351 220,328
Illinois Tool Works, Inc. 2,100 123,900
Juno Lighting, Inc. 7,239 115,824
Stewart & Stevenson Services, Inc. 33,400 843,350
Teleflex, Inc. 1,590 65,190
Trimas Corp. 6,235 117,686
Watts Industries, Inc. Class A 7,398 172,003
-----------
2,342,281
-----------
Railroads and Shipping -- 0.19%
Alexander & Baldwin, Inc. 5,470 125,810
Norfolk Southern Corp. 690 54,769
-----------
180,579
-----------
Retail -- 1.70%
Albertsons, Inc. 3,200 105,200
Cato Corp. Class A 14,518 112,515
Home Depot, Inc. 2,500 119,688
Kohls Corp. * 1,732 90,930
May Department Stores Co. 3,380 142,805
Melville Corp. 4,360 134,070
Mercantile Stores Inc. 1,200 55,500
Stanhome, Inc. Voting 3,510 102,229
Talbots, Inc. 1,949 56,034
Toys R Us * 24,900 541,575
Walgreen Co. 4,200 125,474
-----------
1,586,020
-----------
Soaps and Cosmetics -- 0.12%
Unilever N. V. 810 114,007
-----------
Telephone -- 2.64%
AT&T Corp. 9,000 582,750
AirTouch Communications, Inc. * 3,300 93,225
Century Telephone Enterprises, Inc. 21,500 682,625
MCI Communications Corp. 42,000 1,097,250
-----------
2,455,850
-----------
Tires and Rubber Goods -- 0.06%
Bandag, Inc. Class A 1,050 55,650
-----------
Tobacco -- 0.38%
Loews Corp. 1,700 133,238
Philip Morris Companies, Inc. 1,130 102,265
UST, Inc. 3,500 116,812
-----------
352,315
-----------
Travel and Recreation -- 0.49%
Callaway Golf Co. 5,600 126,700
Carnival Corp. Class A 5,000 121,875
Disney (Walt) Co. 1,600 94,400
Gaylord Entertainment Co. Class A 4,130 114,608
-----------
457,583
-----------
Trucking and Freight -- 0.70%
Ryder System, Inc. 26,300 650,924
-----------
TOTAL COMMON STOCKS 49,133,906
-----------
(Cost $41,977,085)
TOTAL INVESTMENTS $93,092,772
===========
(Cost $83,617,256)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BALANCED FUND
PORTFOLIO OF INVESTMENTS (Continued)
Notes to Portfolio of Investments
The Fund invests in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Some of these securities are collateralized
mortgage obligations (CMOs). CMOs are debt securities issued by U.S.
government agencies or by financial institutions and other mortgage lenders
which are collateralized by a pool of mortgages held under an indenture.
Descriptions of certain collateralized mortgage obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. These securities are subject to accelerated principal paydowns as a
result of prepayments or refinancing of the underlying pool of mortgage
instruments. As a result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right
to receive a very small portion of principal. The high interest rate results
from taking interest payments from other classes in the REMIC Trust and
allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the
yield on these securities increases.
<PAGE>
THE WOODWARD FUNDS
EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series. The five Equity Funds (Equity
Funds) included in these financial statements are described below.
Woodward Growth/Value Fund
Woodward Opportunity Fund
Woodward Intrinsic Value Fund
Woodward Capital Growth Fund
Woodward Balanced Fund
The Growth/Value, Opportunity and Intrinsic Value Funds commenced
operations on June 1, 1991, the Balanced Fund commenced operations on
January 1, 1994, and the Capital Growth Fund commenced operations on
July 2, 1994.
The remaining two Woodward Equity Funds, the Equity Index and
International Equity Funds, are each included on separate stand alone
financial statements.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Equity Funds in preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Equity Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by Woodward or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life. Dividends
are recorded on the ex-dividend date.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to
its shareholders. Therefore, no federal income tax provision is required in
the accompanying financial statements.
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions and
post-October 31 capital losses. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were recorded by the Fund.
Certain book-to-tax timing differences for the funds are reflected as excess
distributions in the Statements of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by
the Equity Funds. Net realized capital gains are distributed annually.
Distributions from net investment income and net realized gains are made
during each year to avoid the 4% excise tax imposed on regulated investment
companies by the Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. Woodward monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of Woodward or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Equity Funds' average net assets and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the period ended December 31, 1995, NBD reimbursed the
Capital Growth Fund and Balanced Fund for certain expenses in the amounts of
$58,424 and $136,954, respectively.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
<PAGE>
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
Growth/Value Opportunity Intrinsic Value
Fund Fund Fund
------------ ------------ ---------------
<S> <C> <C> <C>
Gross Unrealized Gains $151,285,779 $121,714,875 $ 32,487,357
Gross Unrealized Losses (11,595,221) (23,828,874) (5,683,919)
------------ ------------ ------------
$139,690,558 $ 97,886,001 $ 26,803,438
============ ============ ============
Federal Income Tax Cost $598,326,613 $545,136,639 $231,447,596
Purchases $226,974,931 $334,152,727 $100,553,869
Sales, at value $164,369,937 $305,957,872 $104,699,734
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Balanced
Fund Fund
------------- --------
<S> <C> <C>
Gross Unrealized Gains $ 36,159,065 $10,960,819
Gross Unrealized Losses (3,710,820) (1,616,652)
------------ -----------
$ 32,448,245 $ 9,344,167
============ ===========
Federal Income Tax Cost $164,013,755 $83,748,605
Purchases $ 94,109,852 $38,447,984
Sales, at value $ 9,347,828 $20,747,860
</TABLE>
<PAGE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
Growth/Value Opportunity Intrinsic Value
Effective Date Fund Fund Fund
-------------- ------------ ----------- --------------
<S> <C> <C> <C>
Expense Rates:
January 1 0.84% 0.90% 0.91%
August 9 0.83% 0.88% 0.90%
November 9 0.83% 0.86% 0.90%
NBD Advisory Fee:
January 1 0.75% 0.75% 0.75%
Amounts Paid:
Advisory Fee to NBD $4,951,664 $4,490,930 $1,817,833
Distribution Fees to FoM & Essex $ 67,240 $ 80,463 $ 24,640
Other Fees & Out of Pocket Expenses to NBD $ 183,590 $ 247,535 $ 85,169
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Balanced
Effective Date Fund Fund
-------------- -------------- --------
<S> <C> <C>
Expense Rates:
January 1 0.85% 0.87%
March 21 0.85% 0.90%
August 9 0.85% 0.90%
November 9 0.87% 0.92%
NBD Advisory Fee:
January 1 0.75% 0.75%
Amounts Paid:
Advisory Fee to NBD $1,064,273 $ 570,525
Distribution Fees to FoM & Essex $ 9,455 $ 11,148
Other Fees & Out of Pocket
Expenses to NBD $ 44,622 $ 93,196
Expense Reimbursements by NBD $ (58,424) $(136,954)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
EQUITY FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Equity
Funds' net asset values have changed during the periods presented. Additional
quantitative measures expressed in ratio form analyze important relationships
between certain items presented in the financial statements. These financial
highlights have been derived from the financial statements of the Equity Funds
and other information for the periods presented.
<TABLE>
<CAPTION>
Growth/Value Fund
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.67 $ 11.16 $ 10.51 $ 9.86 $ 10.00
Income from investment operations:
Net investment income 0.21 0.23 0.20 0.22 0.14
Net realized and unrealized
gains (losses) on investments 2.76 (0.17) 1.24 0.75 (0.14)
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.97 0.06 1.44 0.97 --
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.22) (0.21) (0.20) (0.22) (0.14)
From realized gains (0.26) (0.30) (0.59) (0.10) --
In excess of realized gains -- (0.01) -- -- --
Tax return of capital -- (0.03) -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.48) (0.55) (0.79) (0.32) (0.14)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 13.16 $ 10.67 $ 11.16 $ 10.51 $ 9.86
============ ============ ============ ============ ============
Total Return (b) 28.04% 0.55% 13.79% 9.87% 0.17%(a)
Ratios/Supplemental Data
Net assets, end of period $737,167,067 $571,370,711 $429,635,045 $287,344,809 $238,085,630
Ratio of expenses to average net assets 0.84% 0.84% 0.83% 0.83% 0.85%(a)
Ratio of net investment income to
average net assets 1.73% 2.07% 1.84% 2.20% 2.56%(a)
Portfolio turnover rate 26.80% 28.04% 42.31% 16.28% 0.94%
<FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Opportunity Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.34 $ 14.49 $ 12.37 $ 10.40 $ 10.00
Income from investment operations:
Net investment income 0.06 0.07 0.10 0.11 0.09
Net realized and unrealized gains
losses) on investments 2.57 (0.54) 2.87 2.43 0.43
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.63 (0.47) 2.97 2.54 0.52
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.06) (0.07) (0.10) (0.11) (0.09)
From realized gains (0.76) (0.49) (0.75) (0.46) (0.03)
In excess of realized gains -- (0.02) -- -- --
Tax return of capital -- (0.10) -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.82) (0.68) (0.85) (0.57) (0.12)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 15.15 $ 13.34 $ 14.49 $ 12.37 $ 10.40
============ ============ ============ ============ ============
Total Return (b) 19.88% (3.27%) 24.01% 24.56% 8.92%(a)
Ratios/Supplemental Data
Net assets, end of period $650,952,268 $524,999,120 $365,664,513 $166,423,073 $108,046,450
Ratio of expenses to average net assets 0.89% 0.90% 0.86% 0.84% 0.84%(a)
Ratio of net investment income
to average net assets 0.37% 0.53% 0.71% 1.09% 1.56(a)
Portfolio turnover rate 53.55% 37.51% 33.99% 34.44% 2.92%
Average commission rate $ 0.04
</TABLE>
<TABLE>
<CAPTION>
Intrinsic Value Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.48 $ 11.05 $ 10.40 $ 9.89 $ 10.00
Income from investment operations:
Net investment income 0.29 0.31 0.29 0.29 0.17
Net realized and unrealized gains
(losses) on investments 2.24 (0.38) 1.23 1.14 (0.02)
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.53 (0.07) 1.52 1.43 0.15
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.30) (0.30) (0.28) (0.28) (0.17)
From realized gains (0.82) (0.20) (0.59) (0.64) (0.09)
------------ ------------ ------------ ------------ ------------
Total distributions (1.12) (0.50) (0.87) (0.92) (0.26)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 11.89 $ 10.48 $ 11.05 $ 10.40 $ 9.89
============ ============ ============ ============ ===========
Total Return (b) 24.38% (0.60%) 14.71% 2.70%(a)
Ratios/Supplemental Data
Net assets, end of period $255,884,859 $220,028,096 $192,555,183 $107,260,873 $77,450,163
Ratio of expenses to average net assets 0.91% 0.91% 0.86% 0.84 0.84%(a)
Ratio of net investment income
to average net assets 2.49% 2.92% 2.67% 2.78% 3.03%(a)
Portfolio turnover rate 45.55% 58.62% 63.90% 48.52% 1.80%
Average commission rate $ 0.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Growth Fund Balanced Fund
----------------------------- -----------------------------
Year Ended Period Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.44 $ 10.00 $ 9.53 $ 10.00
Income from investment operations:
Net investment income 0.08 0.05 0.35 0.28
Net realized and unrealized gains
(losses) on investments 2.93 0.43 1.83 (0.48)
------------ ----------- ----------- -----------
Total from investment operations 3.01 0.48 2.18 (0.20)
------------ ----------- ----------- -----------
Less distributions:
From net investment income (0.08) (0.04) (0.35) (0.27)
From realized gains (0.11) -- (0.12) --
------------ ----------- ----------- -----------
Total distributions (0.19) (0.04) (0.47) (0.27)
------------ ----------- ----------- -----------
Net asset value, end of period $ 13.26 $ 10.44 $ 11.24 $ 9.53
============ =========== =========== ===========
Total Return (b) 28.90% 9.62%(a) 23.18% (1.95)%
Ratios/Supplemental Data
Net assets, end of period $195,861,178 $81,269,604 $93,623,801 $54,167,192
Ratio of expenses to average net assets 0.86% 0.85%(a) 0.91% 0.85%
Ratio of net investment income to
average net assets 0.65% 1.25%(a) 3.40% 3.41%
Ratio of expenses to average net assets
without fee waivers/ reimbursed expenses 0.90% 0.95%(a) 1.09% 1.56%
Ratio of net investment income to
average net assets without fee waivers/
reimbursed expenses 0.61% 1.15%(a) 3.22% 2.70%
Portfolio turnover rate 6.97% 3.29% 31.76% 37.49%
Average commission rate $ 0.04 $ 0.05
<FN>
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Equity Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Equity Funds of THE WOODWARD
FUNDS (comprising, as indicated in Note 1, the Growth/Value, Opportunity,
Intrinsic Value, Capital Growth and Balanced Funds) as of December 31, 1995,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Equity Funds of The
Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
from inception (as indicated in Note 1) through December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment in securities:
At cost $100,165,227
============
At value (Note 2) $107,690,899
Cash 364,232
Receivable for securities sold 8,253
Unrealized appreciation on foreign exchange contracts 52
Withholding tax receivable 140,894
Income receivable 178,985
Deferred organization costs, net (Note 2) 49,159
Prepaids and other assets 27,321
------------
TOTAL ASSETS 108,459,795
------------
LIABILITIES:
Payable for securities purchased 770,234
Unrealized depreciation on foreign exchange contracts 267
Accrued investment advisory fee 67,327
Accrued distribution fees 516
Accrued custodial fee 14,528
Dividends payable 306,527
Other payables and accrued expenses 12,095
------------
TOTAL LIABILITIES 1,171,494
------------
NET ASSETS $107,288,301
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 971,289
Additional paid-in capital 98,938,436
Accumulated undistributed net investment income 803
Accumulated undistributed net realized losses from
investments and foreign currency transactions (154,256)
Net unrealized appreciation on investments and
foreign currency translation 7,532,029
------------
TOTAL NET ASSETS $107,288,301
============
Shares of capital stock outstanding 9,712,891
============
Net asset value and redemption price per share $ 11.05
============
Maximum offering price per share $ 11.63
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C> <C>
INVESTMENT INCOME (Note 2)
Interest $ 538,478
Dividends (net of foreign taxes withheld of $98,515) 1,279,198
----------
TOTAL INVESTMENT INCOME 1,817,676
----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 529,312
Distribution fees 4,063
Professional fees 66,313
Custodial fee 133,650
Amortization of deferred organization costs 10,714
Marketing expenses 46,449
Registration, filing fees and other expenses 77,246
Less: Expense reimbursement (51,707)
----------
NET EXPENSES 816,040
----------
NET INVESTMENT INCOME 1,001,636
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized loss on:
Investment securities (147,589)
Foreign currency transactions (475) (148,064)
---------
Net change in unrealized appreciation on:
Investment securities 7,523,087
Assets and liabilities denominated in foreign
currencies 6,376 7,529,463
--------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
AND FOREIGN CURRENCY 7,381,399
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $8,383,035
==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,001,636 $ 32,338
Net realized losses on investments and foreign
currency transactions (148,064) (2,937)
Net change in unrealized appreciation on
investments and foreign currency translation 7,529,463 2,566
------------ -----------
Net increase in net assets from operations 8,383,035 31,967
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,033,171) --
In excess of realized gains (3,255) --
------------ -----------
Total distributions (1,036,426) --
------------ -----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 74,411,073 36,626,877
Net asset value of shares issued in reinvestment of
distributions to shareholders 720,012 --
------------ -----------
75,131,085 36,626,877
Less: payments for shares redeemed (11,734,863) (113,374)
------------ -----------
Net increase in net assets from capital share
transactions 63,396,222 36,513,503
------------ -----------
NET INCREASE IN NET ASSETS 70,742,831 36,545,470
NET ASSETS:
Beginning of period 36,545,470 --
------------ -----------
End of period $107,288,301 $36,545,470
============ ===========
CAPITAL SHARE TRANSACTIONS:
Shares sold 7,102,657 3,664,087
Shares issued in reinvestment of distributions to
shareholders 65,214 --
------------ -----------
7,167,871 3,664,087
Less: shares redeemed (1,107,679) (11,388)
------------ -----------
NET INCREASE IN SHARES OUTSTANDING 6,060,192 3,652,699
------------ -----------
CAPITAL SHARES:
Beginning of period 3,652,699 --
------------ -----------
End of period 9,712,891 3,652,699
============ ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 4.48%
Salomon Brothers, Revolving Repurchase Agreement,
5.875%, 1/3/95 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/95
through 5/15/99, all held at Chemical Bank) $4,819,555 $4,819,555
---------- ----------
(Cost $4,819,555)
Shares
------
<S> <C> <C>
COMMON STOCKS -- 95.52%
AUSTRALIA -- 2.42%
BANKS
National Australia Bank 38,710 348,421
Westpac Bank Corp 55,410 245,657
CHEMICALS
Ici Australia 11,453 87,751
CONSTRUCTION
Boral Limited 17,000 42,996
Csr Limited 27,466 89,488
Pioneer International 13,882 35,832
ENERGY & RAW MATERIALS
Broken Hill Pty 28,140 397,716
Santos Limited 33,203 97,066
FOOD & AGRICULTURE
Amcor Limited 9,799 69,247
Goodman Fielder Limited 23,031 23,128
LIQUOR & TOBACCO
Coca-Cola Amatil 14,487 115,631
Fosters Brewing Gp 22,347 36,737
MEDIA
News Corporation (Aust Listing) 37,765 201,702
News Corporation Preferred Limited Voting
Shares 30,504 142,726
MISCELLANEOUS
Pacific Dunlop Limited 44,367 103,960
NON-FERROUS METALS
Cra Limited 10,619 155,938
Mim Holding Limited 23,841 32,986
Western Mining Corp 36,388 233,866
RAILROAD & SHIPPING
Brambles Inds Ltd. 8,027 89,565
RETAIL
Coles Myer Ltd. 18,791 58,568
----------
2,608,981
----------
BELGIUM -- 4.30%
BANKS
Generale De Banque 1,300 460,514
Kredietbank 1,550 423,985
CHEMICALS
Solvay 850 459,240
ENERGY & UTILITIES
Electrabel 4,250 1,010,905
Tractebel Inv Cap 1,300 536,714
INSURANCE
Fortis Ag 3,700 450,099
Fortis Ag(VVPR) 80 9,745
INTERNATIONAL OIL
Petrofina Sa 2,160 661,305
NON-FERROUS METALS
Union Miniere * 1,804 120,761
OTHER ENERGY SOURCES
Gpe Bruxelles Lam 2,300 319,259
PRODUCER GOODS
Bekaert Sa 220 181,282
----------
4,633,809
----------
DENMARK -- 2.11%
BANKS
Den Danske Bank 3,641 251,634
Unidanmark 'A' (Reg'd) 3,535 175,417
BUSINESS MACHINE
Iss International Series 'B' 2,800 63,156
Sophus Berendsen 'B' 1,175 132,516
DRUGS & MEDICINE
Novo-Nordisk As 'B' 2,449 335,855
FOOD & AGRICULTURE
Danisco 3,695 178,689
LIQUOR & TOBACCO
Carlsberg 'A' 275 15,383
Carlsberg 'B' 2,018 112,884
RAILROAD & SHIPPING
D/S 1912 'B' 15 286,910
D/S Svendborg 'B' 9 248,475
TELEPHONE
Tele Danmark 'B' 8,786 480,378
----------
2,281,297
----------
FINLAND -- 3.55%
BANKS
Unitas Ser 'A' * 119,766 303,414
CONSTRUCTION
Metro AB 'A' 2,000 82,450
ELECTRONICS
Nokia (AB) Oy Series 'K' 18,600 736,802
Nokia (AB) Oy Series 'A' 24,500 964,876
FOOD & AGRICULTURE
Cultor Oy Series '2' 500 20,728
Cultor Oy Series '1' 2,500 103,639
INSURANCE
Pohjola Series 'B' 3,800 49,010
Sampo 'A' 2,200 118,056
NON-FERROUS METALS
Outokumpo Oy 'A' 19,500 309,880
PAPER & FOREST PRODUCTS
Kymmene Corp 12,500 331,068
Repola 23,400 441,915
PRODUCER GOODS
Kone Corp 'B' 700 58,521
RETAIL
Kesko 12,000 149,516
Stockmann Oy 'A' 1,600 91,386
TRAVEL & RECREATION
Amer Group 'A' 3,800 59,424
----------
3,820,685
----------
FRANCE -- 4.91%
BANKS
Banque National Paris 3,615 163,291
Cie De Suez 1,251 51,673
Cie Fin Paribas 'A' 2,318 127,267
Society Generale 1,829 226,270
CHEMICALS
Air Liquide ('L') 996 165,173
Rhone Poulenc Sa 'A' 5,686 121,966
CONSTRUCTION
Cie De St Gobain 1,834 203,262
Lafarge Coppee Sa (Br) 1,800 116,126
CONSUMER DURABLES
Printemps (Av) 600 119,868
DRUGS & MEDICINE
L'Oreal 985 264,056
Sanofi 2,339 150,134
ELECTRONICS
Alcatel Alsthom (Cge) 2,544 219,631
Csf (Thomson) 3,520 78,528
Legrand 500 77,295
Schneider Sa (Ex-Sp) 3,630 124,257
ENERGY & UTILITIES
Eaux (Cie Generale) 2,307 230,635
Lyonnaise Des Eaux 1,753 169,013
FOOD & AGRICULTURE
Danone (Ex Bsn) 1,520 251,138
Eridania Beghin Sa 861 147,890
Saint Louis 350 93,040
INSURANCE
Axa 1,981 133,677
INTERNATIONAL OIL
Elf Auqitaine (Soc Nat) 5,566 410,646
Total B 4,716 318,715
LIQUOR & TOBACCO
Lvmh Moet-Hennessy 2,000 417,146
Pernod-Ricard 1,114 63,395
MOTOR VEHICLES
Peugeot Sa 793 104,752
PRODUCER GOODS
Carnaud Metal Box 766 35,086
Michelin (Cgde) Class 'B' (Brwn Bds)(Reg'd) 2,150 85,861
REAL PROPERTY
Sefimeg (Reg'd) 986 65,527
RETAIL
Carrefour 586 356,006
Promodes 433 101,912
TRAVEL & RECREATION
Accor 757 98,139
----------
5,291,375
----------
GERMANY -- 4.93%
AIR TRANSPORT
Lufthansa Ag 1,707 236,739
BANKS
Bayer Vereinsbank (Var) 5,140 154,422
Deutsche Bank (Var) 10,440 496,734
Dresdner Bank (Var) 7,140 191,810
CHEMICALS
Basf (Var) 1,026 231,540
Bayer (Var) 1,100 292,662
Schering 1,350 89,888
CONSTRUCTION
Hochtief 357 152,899
ELECTRONICS
Siemens (Var) 704 387,592
SAP N/V Pref 600 91,303
ENERGY & UTILITIES
Rwe (Var) 516 188,010
Veba (Var) 10,150 435,422
INSURANCE
Munchener Ruckvers Reg Vink * 145 313,042
Allianz (Regd) 250 491,869
MOTOR VEHICLES
Daimler-Benz (Var) 384 194,243
Volkswagen (Var) 506 170,048
PRODUCER GOODS
Linde 156 92,645
Mannesmann (Var) 1,146 365,512
RETAIL
Kaufhof Holding 402 122,739
STEEL
Preussag Br (Var) 1,074 303,153
Thyssen * 716 130,917
Viag (Var) 419 173,014
----------
5,306,203
----------
HONG KONG -- 2.40%
AIR TRANSPORT
Cathay Pacific Airways 37,000 56,467
BANKS
Hang Seng Bank 39,400 352,881
ENERGY & UTILITIES
China Light & Power 34,700 159,769
Hong Kong Electric 20,000 65,572
Hong Kong & China Gas 34,800 56,035
MISCELLANEOUS
Hutchinson Whampoa 56,000 341,131
MISCELLANEOUS FINANCE
Swire Pacific 'A' 23,500 182,361
Wharf (Holding) 30,000 99,910
Wing Lung Bank 16,848 94,351
REAL PROPERTY
Cheung Kong (Holdings) 40,000 243,665
Hopewell Holdings 50,000 28,777
Hysan Development 10,000 26,449
New World Infrastr * 52 100
New World Development Co 31,366 136,710
Sun Hung Kai Properties 45,700 373,842
TELEPHONE
Hong Kong Telecomm 203,600 363,386
----------
2,581,406
----------
IRELAND -- 1.95%
BANKS
Allied Irish Banks 82,680 447,907
Bank of Ireland (Dublin Listing) 26,825 193,904
CONSTRUCTION
Crh 48,929 367,014
FOOD & AGRICULTURE
Greencore 24,349 209,568
Kerry Group 'A' 28,760 218,954
INSURANCE
Irish Life 56,656 215,211
MEDIA
Independent News 18,405 117,406
PAPER & FOREST PRODUCTS
Smurfit(Jefferson) (Dublin Listing) 139,859 329,517
----------
2,099,481
----------
JAPAN -- 30.54%
AIR TRANSPORT
Japan Airlines Co * 46,000 305,472
BANK
Asahi Bank 34,000 428,495
Bank of Tokyo 28,000 491,315
Dai-Ichi Kangyo Bank 40,000 787,190
Fuji Bank 43,000 950,445
Industrial Bank of Japan 23,000 697,904
Joyo Bank 36,000 289,671
Sakura Bank 19,000 241,295
Sumitomo Bank 37,000 785,542
Tokai Bank 25,000 349,001
BUSINESS MACHINE
Canon Inc 21,000 380,702
Fujitsu 10,000 111,486
Ricoh Co. 55,000 602,511
CHEMICALS
Asahi Chemical Industries 63,000 482,493
Dainippon Ink & Chemical 19,000 88,598
Mitsubishi Gas Chemical 19,000 85,651
Sekisui Chemical 15,000 221,034
Shin-Etsu Chemical Co. 13,000 269,700
Showa Denko Kk * 102,000 320,383
Sumitomo Chemical 92,000 459,324
Toray Industries Inc 20,000 131,845
CONSTRUCTION
Chichibu Onoda Cement 6,000 32,050
Fujita Corp 6,000 27,106
Haseko Corp 57,000 230,428
Kajima Corp 11,000 108,772
Nihon Cement Co 30,000 200,675
Obayashi Corp 8,000 63,596
Sato Kogyo Co 12,000 73,872
Sekisui House 43,000 550,258
Shimizu Corp 25,000 254,480
Taisei Corp 47,000 313,936
Toto 15,000 209,400
CONSUMER DURABLES
Matsushita Electric Industries 56,000 912,055
Sanyo Electric Co 34,000 196,119
Sharp Corp 24,000 383,901
DRUGS & MEDICINE
Daiichi Pharmacy Co 33,000 470,278
Sankyo Co 15,000 337,367
Takeda Chemical Industries 24,000 395,534
ELECTRONICS
Hitachi * 78,000 786,415
Kyocera 11,000 817,922
Mitsubishi Electric Corp 48,000 345,743
Omron Corp 17,000 392,238
ENERGY & UTILITIES
Kansai Electric Power 13,900 336,883
Osaka Gas Co 124,000 429,154
Tokyo Electric Power 36,600 979,296
Tokyo Gas Co 15,000 52,932
FOOD & AGRICULTURE
Ajinomoto Co., Inc. 36,000 401,351
Yamazaki Baking Co 14,000 260,587
INTERNATIONAL OIL
Japan Energy Corp 19,000 63,731
Nippon Oil Co 86,000 540,253
MEDIA
Dai Nippon Printing 33,000 559,855
MULTI-INDUSTRY
Itochu Corp 38,000 256,031
Marubeni Corp 68,000 368,506
Mitsubishi 26,000 320,111
Sumitomo Corp 34,000 346,092
MISCELLANEOUS FINANCE
Daiwa Securities 34,000 520,786
Mitsubishi Trust & Banking 11,000 183,419
Nomura Securities 44,000 959,752
Yamaichi Securities Co. 34,000 264,678
MOTOR VEHICLES
Honda Motor Co 27,000 557,528
Nissan Motor Co 53,000 407,449
Toyota Motor Corp 56,000 1,188,929
NON-FERROUS METALS
Mitsubishi Steel * 17,000 88,995
Tostem Corp 5,000 166,260
PAPER & FOREST PRODUCTS
Daishowa Paper Manufacturing * 13,000 100,822
Honshu Paper Co 48,000 294,091
PRODUCER GOODS
Bridgestone Corp 31,000 492,866
Komatsu 33,000 271,930
Kubota Corp 60,000 386,809
Mitsubishi Heavy Industries 79,000 630,305
Nippondenso Co 25,000 467,758
Sumitomo Heavy Industries * 83,000 298,522
Toyo Seikan Kaisha 12,000 359,471
Toyoda Auto Loom 12,000 215,217
RAILROAD & SHIPPING
Hankyu Corp * 65,000 356,029
Mitsui Osk Lines * 63,000 202,159
Nagoya Railroad Co 61,000 307,508
Tokyu Corp 47,000 332,161
REAL PROPERTY
Mitsubishi Estate 49,000 612,787
RETAIL
Ito-Yokado Co 6,000 369,941
Nichii Co 47,000 624,226
Seven-Elevan Japan Npv 7,000 494,030
STEEL
Kawasaki Steel Corp 47,000 164,030
Kobe Steel * 34,000 105,146
Nippon Steel Corp 108,000 370,638
Nkk Corp * 48,000 129,362
Sumitomo Metal Industries * 156,000 473,360
----------
32,893,948
----------
MALAYSIA -- 2.03%
AIR TRANSPORT
Malaysian Airline Systems 8,000 25,995
BANKS
Ammb Holdings Berhad 6,000 68,534
Commerce Asset Holding 5,000 25,208
Dcb Holdings Berhad 17,000 49,549
Malayan Bkg Berhad 32,000 269,723
Public Bank Berhad 14,000 19,631
Public Bank Berhad (Alien Market) 51,000 97,625
CONSTRUCTION
Hume Inds (M) Berhad 16,000 76,884
United Engineers Berhad 8,000 51,046
CONSUMER DURABLES
Tech Res Inds Berhad * 21,000 62,035
ENERGY & UTILITIES
Tenaga Nasional 74,000 291,465
FOOD & AGRICULTURE
Golden Hope Plants 31,000 51,770
Nestle Malay Berhad 2,000 14,652
LIQUOR & TOBACCO
Rothmans Pall Mall 10,000 82,319
MISCELLANEOUS
Malayan Utd Inds 28,000 22,718
MOTOR VEHICLES
Edaran Otomobil 17,000 127,890
MULTI-INDUSTRY
Sime Darby Berhad 52,200 138,780
PRODUCER GOODS
Leader Univ Holdings 41,333 94,423
RAILROAD & SHIPPING
Malaysian Int Ship (Alien Market) 22,000 57,623
REAL PROPERTY
Hong Leong Properties 7,000 7,279
TELEPHONE
Telekom Malaysia 41,000 319,744
TRAVEL & RECREATION
Landmarks Berhad 6,000 7,988
Magnum Corp Berhad 61,500 116,271
Resorts World Berhad 19,000 101,775
----------
2,180,927
----------
MEXICO -- 1.03%
BANKS
Gpo Financiero Banamex-Ac Series 'B' 13,700 22,831
Gpo Financiero Banamex-Ac Series 'L' 685 1,006
CONSTRUCTION
Cemex Sa Ser 'A' 29,937 98,692
FOOD & AGRICULTURE
Grupo Ind Bimbo Series 'A' 12,000 49,061
MEDIA
Fomento Economico Mexico Series 'B' 17,000 39,274
Grupo Televisa Ptg Certs Repr 1 A,L,D Shs 11,500 130,452
MISCELLANEOUS FINANCE
Grupo Financiero Bancomer Series 'B' 55,000 15,490
Grupo Financiero Bancomer Series 'L' 2,037 523
Grupo Carso Series 'A1' * 16,000 85,350
MULTI-INDUSTRY
Alfa Sa Series 'A' (Cpo) 3,500 44,791
NON-FERROUS METALS
Industrias Penoles 10,000 41,273
PAPER & FOREST PRODUCTS
Kimberly Clark Mexico 'A' 11,000 166,326
RETAIL
Cifra Sa De Cv 'B' * 147,000 154,542
TELEPHONE
Telefonos De Mexico Series 'L' (Ltd Voting) 162,000 258,620
----------
1,108,231
----------
NETHERLANDS -- 6.11%
AIR TRANSPORT
KLM 2,341 82,366
BANK
ABN Amro Holding 11,227 511,977
CHEMICALS
Akzo Nobel Nv 2,562 296,638
ELECTRONICS
Philips Electronic 11,082 400,974
FOOD & AGRICULTURE
Ahold (kon) Nv 4,389 179,340
Unilever Nv Cva 5,151 724,616
INSURANCE
ING Groep Nv Cva 8,743 584,689
INTERNATIONAL OIL
Royal Dutch Petroleum (Br) 16,546 2,314,186
LIQUOR & TOBACCO
Heineken Nv 1,734 307,968
MEDIA
Elsevier Nv 23,480 313,460
Wolters Kluwer Cva 2,079 196,877
PAPER & FOREST PRODUCTS
KNP BT (Kon) Nv 2,446 62,867
STEEL
Kon Hoogovens Nv Cva 1,568 52,528
TELEPHONE
Kon Ptt Nederland 15,198 552,744
----------
6,581,230
----------
NORWAY -- 3.41%
CHEMICALS
Dyno Industrier 4,900 114,786
DRUGS & MEDICINE
Hafslund Nycomed Series 'A' 10,010 262,218
Hafslund Nycomed Series 'B' 6,018 152,882
FOOD & AGRICULTURE
Orkla As 'A' 6,150 306,631
Orkla As 'B' 1,200 57,361
INSURANCE
Uni Storebrand As 'A' * 51,053 282,826
INTERNATIONAL OIL
Norsk Hydro As 35,100 1,477,812
Transocean * 14,721 255,142
PAPER & FOREST PRODUCTS
Norske Skogsindust 'A' 4,100 120,706
PRODUCER GOODS
Kvaerner As Series 'A' 5,750 203,867
Kvaerner As Series 'B' 3,900 130,867
RAILROAD & SHIPPING
Bergesen Dy As 'A' 7,100 141,599
Bergesen Dy As 'B' Non-Voting 2,400 47,105
Leif Hoegh & Co 4,600 68,441
Unitor As 4,000 55,081
----------
3,677,324
----------
SINGAPORE -- 3.35%
AIR TRANSPORT
Singapore Airlines (Alien Market) 48,000 447,943
BANK
Dev Bank Singapore (Alien Market) 35,250 438,611
Overseas Chinese Bank (Alien Market) 33,833 423,371
United Overseas Bank (Alien Market) 40,804 392,328
CONSUMER DURABLES
Jardine Matheson (Sing Quote) 2,041 13,981
LIQUOR & TOBACCO
Fraser & Neave 18,000 229,062
Straits Trading Co 36,000 84,498
MEDIA
Singapore Press Holdings (Alien Market) 16,000 282,792
MOTOR VEHICLES
Cycle & Carriage 30,000 299,053
MULTI-INDUSTRY
Straits Steamship 44,000 148,692
PRODUCER GOODS
Jurong Shipyard (Nl) 13,000 100,179
Keppel Corp 45,000 400,858
REAL PROPERTY
City Developments 37,600 273,799
Hong Kong Land Holdings (Sing Quote) 25,975 48,054
RETAIL
Dairy Farms Intl (Sing Quote) 21,831 20,084
----------
3,603,305
----------
SPAIN -- 2.31%
BANKS
Argentaria Corp Banc 3,909 161,108
Banco Bilbao Vizcaya (Reg'd) 5,568 200,568
Banco Central Hispan (Reg'd) 3,721 75,453
Banco Santander (Reg'd) 4,588 230,315
CONSTRUCTION
Fomento Const Y Contra 588 45,076
ENERGY & UTILITIES
Empresa Nac Electricid 6,839 387,285
Gas Natural Sdg Sa 1,341 208,916
Iberdrola Sa 19,807 181,227
Union Electrical Fenosa 12,958 77,973
INSURANCE
Corporation Mapfre (Reg'd) 947 53,003
INTERNATIONAL OIL
Repsol Sa 8,351 273,626
LIQUOR & TOBACCO
Tabacalera Sa Series 'A' (Reg'd) 1,599 60,630
NON-FERROUS METALS
Acerinox Sa (Reg'd) 401 40,557
PRODUCER GOODS
Zardoya-Otis 310 33,858
RAILROAD & SHIPPING
Autopistas Cesa 6,059 68,923
REAL PROPERTY
Vallehermoso Sa 2,815 52,325
TELEPHONE
Telefonica De Espana 24,037 332,867
----------
2,483,710
----------
SWITZERLAND -- 5.46%
BANKS
Cs Holding (Reg'd) 6,034 620,102
Schweiz Bangesellsch (Br) 566 614,870
Schweiz Bangesellsch (Reg'd) 252 57,380
Schweiz Bankverein (Reg'd) 700 143,267
CHEMICALS
Ciba-Geigy (Br) 120 105,332
Ciba-Geigy (Reg'd) 380 335,202
CONSTRUCTION
Holderbank Fn Glarus (Br) 135 103,833
Holderbank Fn Glarus Wts (Pur Br) * 55 50
CONSUMER DURABLES
Smh Ag Neuenburg (Reg'd) 475 62,334
Smh Ag Neuenburg (Br) 25 14,992
DRUGS & MEDICINE
Roche Holdings Genusscheine Npv 113 896,124
Roche Holdings (Br) 44 617,564
Sandoz (Reg'd) 835 766,314
ELECTRONICS
Bbc Brown Boveri (Br) 240 279,494
Sgs Holding (Br) 24 47,764
FOOD & AGRICULTURE
Merkur Hldg Ag (Reg'd) 80 17,590
Nestle Sa (Reg'd) 673 746,315
INSURANCE
Zurich Versicherun (Reg'd) 1,200 359,796
NON-FERROUS METALS
Alusuisse-Lonza Holdings (Reg'd) 108 85,788
PRODUCER GOODS
Sulzer Ag Ptg 13 6,947
----------
5,881,058
----------
UNITED KINGDOM -- 14.71%
AIR TRANSPORT
British Airways 44,575 322,505
BANKS
Abbey National 38,813 383,260
Barclays 34,087 391,104
Hsbc Holdings (UK Reg'd) 42,779 652,231
Hsbc Holdings (UK Reg'd) 24,871 388,464
LLoyds Bank 74,113 381,450
CHEMICALS
Boc Group 13,799 193,033
Imperial Chemical Industries 17,053 202,016
CONSTRUCTION
English China Clay 33,609 165,415
Rmc Group 19,470 299,571
Taylor Woodrow 91,386 166,716
DRUGS & MEDICINE
Glaxo Holdings 63,234 898,321
Smithkline Beecham/ Bec Unts (1bch 'B'
12.5P&1sbc Pfd) 22,566 245,953
Smithkline Beecham 'A' 24,860 274,043
Zeneca Group 17,984 347,908
ELECTRONICS
General Electric Co 59,140 325,964
ENERGY & UTILITIES
British Gas 123,228 485,962
National Power 34,132 238,205
Thames Water 26,744 233,358
FOOD & AGRICULTURE
Associated British Foods 33,128 189,793
Cadbury Schweppes 27,535 227,434
Kingfisher 11,117 93,551
Sainsbury (J) 32,305 197,116
Tesco 47,446 218,784
Unilever 14,698 301,910
INSURANCE
Prudential Corp 68,435 440,947
INTERNATIONAL OIL
British Petroleum 125,393 1,049,353
LIQUOR & TOBACCO
BAT Industries 67,568 595,342
Bass 24,550 274,056
Grand Metropolitan 47,103 339,333
Guinness 59,179 435,517
MEDIA
Reuters Holdings 39,031 357,537
MULTI-INDUSTRY
Hanson 107,145 320,230
Inchcape 11,605 44,865
PRODUCER GOODS
Btr * 78,087 398,873
Rolls Royce 54,712 160,548
Rtz Corp (Reg'd) 27,830 404,435
Smiths Industries 22,799 225,130
REAL PROPERTY
Mepc 15,356 94,175
RETAIL
Argos 17,988 166,452
Boots Co 16,552 150,594
Great Univ Stores 19,328 205,559
Marks & Spencer 53,864 376,332
Sears 50,391 81,367
STEEL
British Steel 37,990 95,995
TELEPHONE
British Telecom 130,594 717,771
Cable & Wireless 52,660 376,096
Vodafone Group 74,958 268,255
TRAVEL & RECREATION
Ladbroke Group 64,565 146,857
Thorn Emi 12,257 288,688
------------
15,838,374
------------
TOTAL COMMON STOCKS 102,871,344
(COST $95,345,672) ------------
TOTAL INVESTMENTS $107,690,899
(COST $100,165,227) ============
<FN>
* Non Income producing security
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
At December 31, 1995, industry diversification of the Woodward
International Equity Fund investments was as follows:
<TABLE>
<CAPTION>
% of
Sector Diversification Investments
---------------------- -----------
<S> <C>
Banks/Finance 22.51%
Materials and Services 14.89
Consumer Non-Durables 14.01
Utilities 8.39
International Oil 6.87
Drugs and Medicine 5.96
Capital Goods 5.74
Electronics 5.73
Consumer Durables 4.52
Temporary Cash Investment 4.48
Transportation 3.47
Miscellaneous 2.33
Technology 0.59
Energy 0.51
------
Total Investments 100.00%
======
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series. The Woodward International
Equity Fund (International Fund) commenced operations on December 3, 1994.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed
in the preparation of the financial statements. The policies are in conformity
with generally accepted accounting principles for investment companies.
Following generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments
The International Fund values investment securities at market value
which is determined by a pricing service based upon quoted market prices or
dealer quotes at the close of the respective foreign securities exchange.
Securities for which market prices or dealer quotes are not readily available
are valued by the investment advisor, NBD Bank, (NBD) in accordance with
procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by Woodward or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis. Dividends are
recorded on the ex-dividend date or upon receipt of ex-dividend notification
in the case of certain foreign securities. Investment income is recorded net
of foreign taxes withheld where recovery of such taxes is uncertain.
Forward Foreign Currency Contracts
The International Fund may enter into a forward foreign currency
contract which is an agreement between two parties to buy and sell a currency
at a set price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked-to-market" daily using the prevailing exchange rate and the change in
market value is recorded as an unrealized gain or loss. When the contract is
closed, a realized gain or loss is recorded equal to the difference between
the value of the contract at the time it was entered into and the value at the
time it was closed.
The International Fund may enter into forward foreign currency contracts
with the objective of minimizing its risk from adverse changes in the
relationship between currencies or to enhance income. The International Fund
may also enter into a forward contract in relation to a security denominated
in a foreign currency when it anticipates receipt in a foreign currency of
dividend payments in order to "lock in" the U.S. dollar price of a security or
the U.S. dollar equivalent of such dividend payments.
These contracts involve market risk in excess of the amounts reflected
in the International Fund's Statement of Assets and Liabilities. The face or
contract amount in U.S. dollars, as reflected in Footnote 6, reflects the
total exposure the fund has in that particular currency contract. Losses may
arise due to changes in the value of the foreign currency or if the
counterparty does not perform under the contract.
Foreign Currency Translations
The accounting records of the International Fund are maintained in U.S.
dollars. Foreign currency-denominated assets and liabilities are
"marked-to-market" daily using the prevailing exchange rate and the change in
value is recorded as an unrealized gain or loss. Upon receipt or payment, a
realized gain or loss is recorded equal to the difference between the original
value and the settlement value of the asset or liability. Purchases and sales
of securities, income, and expenses are translated into U.S. dollars at
prevailing exchange rate on the respective date of the transaction.
Net realized gains and losses on foreign currency transactions represent
gains and losses from sales and maturities of forward foreign currency
contracts, disposition of foreign currencies and currency gains and losses
realized between trade and settlement dates on securities transactions and
between the ex, pay and settlement dates on dividend income. Exchange rate
fluctuations on investments are not segregated in the statement of operations
from changes arising in market price movements. The effects of changes in
foreign currency exchange rates on investments in securities are included
within the net realized gain or loss on securities sold and net unrealized
appreciation or depreciation on investment securities held.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to differing treatments for
foreign currency transactions, wash sales and post October 31 capital losses.
Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the net investment
income or realized gains (losses) were recorded by the Fund. Certain
book-to-tax timing differences for the Fund are reflected as excess
distributions in the Statement of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid annually. Net
realized capital gains are distributed annually. Distributions from net
investment income and net realized gains are made during each year to avoid
the 4% excise tax imposed on regulated investment companies by the Internal
Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of the Fund.
Expenses
Expenses are charged daily as a percentage of the Fund's assets.
Woodward monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of the International Fund or change in expectations as to the level of
actual expenses.
Concentration of Risk
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks
include revaluation of currencies, adverse fluctuations in foreign currency
values and possible adverse political, social and economic developments,
including those particular to a specific industry, country or region, which
could cause the securities and their markets to be less liquid and price more
volatile than those of comparable U.S. companies and U.S. government
securities.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive
a fee at the annual rate of .005% of the International Fund's average net
assets and Essex is entitled to receive a fee at the annual rate of .10% of
the aggregate average net assets of Woodward's investment portfolios,
attributable to investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Fund's shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD reimbursed the
International Fund for certain expenses in the amount of $51,707.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted the Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
<PAGE>
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<S> <C>
Gross Unrealized Gains $ 10,121,293
Gross Unrealized Losses (2,595,621)
------------
$ 7,525,672
============
Federal Income Tax Cost $100,165,227
Purchases $ 65,664,939
Sales, at value $ 1,353,172
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of the Fund's average net assets.
<TABLE>
<CAPTION>
Effective Date
- --------------
<S> <C>
Expense Rates:
January 1 1.15%
November 9 1.17%
NBD Advisory Fee:
January 1 0.75%
Amounts Paid:
Advisory Fee to NBD $529,312
Distribution Fees to FoM & Essex $ 4,063
Other
Fees & Out of Pocket Expenses to NBD $140,786
Expense reimbursements by NBD $(51,707)
</TABLE>
<PAGE>
(6) Forward Foreign Currency Contracts
As of December 31, 1995, the Fund had entered into two forward foreign
currency exchange contracts that obligate the Fund to deliver currencies at
specified future dates.
Outstanding contracts as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar
Currency To Value As Of Currency To Value as of Unrealized
Settlement Date Be Delivered Dec. 31, 1995 Be Received Dec. 31, 1995 Gain (Loss)
- --------------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Jan. 2, 1996 770,501 $770,501 3,344,361 $770,234 $(267)
U.S. Dollars Finnish Marks
Jan. 3, 1996 5,349 (8,305) 8,253 (8,253) 52
G.B. Pounds U.S. Dollars
-------- -------- -----
$762,196 $761,981 $(215)
======== ======== =====
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the International
Equity Fund's net asset values have changed during the periods presented.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These Financial Highlights have been derived from the financial statements of
the International Equity Fund and other information for the periods presented.
<TABLE>
<CAPTION>
Year Ended Period ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
Net asset value, beginning of period $ 10.01 $ 10.00
Income from investment operations:
Net investment income 0.10 0.01
Net realized and unrealized gains on investments 1.05 --
------------ -----------
Total from investment operations 1.15 0.01
------------ -----------
Less distributions:
From net investment income (0.11) --
In excess of realized gains (0.00) --
------------ -----------
Total distributions (0.11) --
------------ -----------
Net asset value, end of period $ 11.05 $ 10.01
============ ===========
Total Return (b) 11.47% 1.26%(a)
Ratios/Supplemental Data
Net assets, end of period $107,288,301 $36,545,470
Ratio of expenses to average net assets 1.16% 1.15%(a)
Ratio of net investment income to average net assets 1.43% 1.18%(a)
Ratio of expenses to average net assets without
reimbursed expenses 1.24% 1.92%(a)
Ratio of net investment income to average net assets
without reimbursed expenses 1.35% 0.41%(a)
Portfolio turnover rate 2.09% 0.30%
Average commission rate $ 0.05
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward International Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The Woodward International Equity
Fund as of December 31, 1995, and the related statement of operations for the
year then ended, the statements of changes in net assets and the financial
highlights for each of the periods from inception (as indicated in Note 1)
through December 31, 1995. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The Woodward International Equity Fund as of December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for each of the periods from inception (as
indicated in Note 1) through December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1996
for
CLASS I AND CLASS A SHARES OF THE:
WOODWARD EQUITY INDEX FUND
of
THE WOODWARD FUNDS
c/o NBD Bank
Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Statement of Additional Information (the "Additional
Statement") is meant to be read in conjunction with The Woodward Funds'
Prospectuses dated April 15, 1996 pertaining to all classes of shares of the
Equity Index Fund (the "Equity Index Portfolio" or the "Portfolio"), and is
incorporated by reference in its entirety into the Prospectuses. Because this
Additional Statement is not itself a prospectus, no investment in shares of
the Portfolio should be made solely upon the information contained herein.
Copies of the Portfolio's Prospectuses may be obtained from any office of the
Co- Distributors by writing or calling the Co-Distributors or the Trust.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objective, Policies and Risk Factors.............. 1
Additional Purchase and Redemption Information............... 7
Description of Shares........................................ 8
Additional Information Concerning Taxes...................... 10
Management................................................... 12
Independent Public Accountants............................... 17
Counsel...................................................... 17
Additional Information on Performance........................ 17
Appendix A................................................... A-1
Appendix B................................................... B-1
Report of Independent Public Accountants
and Financial Statements................................... FS-1
-i-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following policies supplement the Portfolio's investment
objective and policies as set forth in its Prospectuses.
Additional Information on Portfolio Instruments
Attached to this Additional Statement is Appendix A which
contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Portfolio may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio securities for the
Portfolio.
The annualized portfolio turnover rate for the Portfolio is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements
which enable the Portfolio to receive favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions.
Purchases of money market instruments by the Portfolio are made
from dealers, underwriters and issuers. The Portfolio currently does not
expect to incur any brokerage commission expense on such transactions because
money market instruments are generally traded on a "net" basis acting as
principal for its own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-counter market are generally on a net basis
(i.e., without
<PAGE>
commission) through dealers, or otherwise involve transactions directly with
the issuer of an instrument.
For the fiscal years ended December 31, 1995, 1994 and 1993 and
the fiscal period ended December 31, 1992, the Equity Index Portfolio paid
brokerage commissions of $137,443, $169,830, $98,588 and $23,460,
respectively.
The Portfolio may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. The Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interests.
The Advisory Agreement for the Portfolio provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available for the Portfolio. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Agreement authorizes the Adviser to cause the
Portfolio to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Portfolio. Such brokerage and research
services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond
and government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolio. The Trustees will
periodically review any commissions paid by the Portfolio to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolio. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised by the Adviser.
Conversely, the
-2-
<PAGE>
Portfolio may be the primary beneficiary of the research or services received
as a result of portfolio transactions effected for such other account or
investment company.
The Trust will not execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Adviser, the
Co-Distributors or an affiliated person of any of them (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted
by the SEC or its staff. In addition, the Portfolio will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which a Co-Distributor or the Adviser, or an affiliated person of
either of them, is a member, except to the extent permitted by the SEC or its
staff. Under certain circumstances, the Portfolio may be at a disadvantage
because of these limitations in comparison with other investment companies
which have similar investment objectives but are not subject to such
limitations.
Investment decisions for the Portfolio are made independently
from those of any other investment companies and accounts advised or managed
by the Adviser. Such other investment companies and accounts may also invest
in the same securities as the Portfolio. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Portfolio
with those to be sold or purchased for other investment companies or accounts
in executing transactions. When a purchase or sale of the same security is
made at substantially the same time on behalf of one or more of the Portfolio
and another investment company or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which
the Adviser believes to be equitable to the Portfolio and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by the Portfolio or the size
of the position obtained or sold by the Portfolio.
Government Obligations
As stated in the Prospectuses, pursuant to its investment
objective the Portfolio may invest in U.S. Government Obligations.
Bank Obligations
In accordance with its investment objective, the Portfolio may
purchase bank obligations, which include bankers' acceptances, negotiable
certificates of deposit and non- negotiable time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions. Although the Portfolio invests in
-3-
<PAGE>
obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser deems the instrument to present minimal credit risks, such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, have been
issued by a corporation having an outstanding bond issue rated A or higher by
a Rating Agency. Bonds and other short term obligations (if not rated as
commercial paper) purchased by the Portfolio must be rated BBB or Baa, or
higher, by a Rating Agency, respectively, or if unrated, be of comparable
investment quality in the judgment of the Adviser.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by the Portfolio, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for the
Portfolio to dispose of instruments if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise
its demand rights, and the Portfolio could, for these or other reasons, suffer
a loss with respect to such instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Portfolio may invest from time to time in securities issued
by other investment companies which invest in high quality, short term debt
securities. The Portfolio intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than
5% of the value of the Portfolio's total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value
of the Portfolio's total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding
-4-
<PAGE>
voting stock of any one investment company will be owned by the Portfolio or
the Trust as a whole.
Lending Securities
When the Portfolio lends its securities, it continues to
receive interest or dividends on the securities loaned and may simultaneously
earn interest on the investment of the cash collateral. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans will be called so that the securities may be voted by the
Portfolio if a material event affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described
in the Prospectuses generally equals the price paid by the Portfolio plus
interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the
Trust's Custodian, in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings
by the Portfolio under the 1940 Act. At the time the Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Portfolio may
decline below the price of the securities it is obligated to repurchase.
When-Issued Purchases and Forward Commitments
The Portfolio will purchase securities on a when-issued basis
or purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however,
the Portfolio may dispose of or renegotiate a commitment after it is entered
into, and may sell securities it has committed to purchase before those
securities are delivered to the Portfolio on the settlement date. In these
cases the Portfolio may realize a capital gain or loss.
-5-
<PAGE>
When the Portfolio engages in when-issued and forward
commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectuses, the Portfolio is subject to the following investment limitations
which may not be changed without approval of the holders of the majority of
the outstanding shares of the Portfolio (as defined under "Miscellaneous"
below).
The Equity Index Portfolio may not:
1. Purchase or sell real estate, except that each Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as the Portfolio might be deemed to
be an underwriter upon the disposition of portfolio securities acquired within
the limitation on purchases of restricted securities and except to the extent
that the purchase of obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except for transactions in options on securities,
indices of securities, futures contracts and options on futures contracts.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to the Portfolio's transactions in futures
contracts and related options, and (b) the Portfolio may obtain short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities.
6. Purchase securities of companies for the purpose of
exercising control.
-6-
<PAGE>
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Portfolio may,
to the extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into futures contracts and related options.
In order to permit the sale of the Portfolio's shares in
certain states, the Trust may make commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses.
Should the Trust determine that any such commitment is no longer in the best
interests of the Portfolio, it will revoke the commitment by terminating sales
of the Portfolio's shares in the state involved and, in the case of investors
in Texas, give notice of such action.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolio are offered and sold on a continuous
basis by the Trust's sponsors and Co-Distributors, FoM and Essex, acting as
agent. As described in the Prospectuses, Class I shares of the Portfolio are
sold primarily to NBD and its affiliated and correspondent banks acting on
behalf of their respective customers. Class A shares of the Portfolio are sold
to the public ("Investors") primarily through financial institutions such as
banks, brokers and dealers.
-7-
<PAGE>
Under the 1940 Act, the Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when:
(a) trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the SEC; (b) the Exchange is closed for
other than customary weekend and holiday closings; (c) the SEC has by order
permitted such suspension; or (d) an emergency exists as determined by the
SEC. (The Trust may also suspend or postpone the recordation of the transfer
of shares upon the occurrence of any of the foregoing conditions).
In addition to the situations described in the Prospectuses
under "Redemption of Shares," the Trust may redeem shares involuntarily to
reimburse the Portfolio for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
Prospectuses from time to time.
The Trust normally redeems shares for cash. However, the
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Trust has elected to be covered by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of net asset value during any 90-day
period for any one shareholder.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust, which
was amended and restated as of May 1, 1992, authorizes the Board of Trustees
to divide shares into two or more series, each series relating to a separate
portfolio of investments, and divide the shares of any series into two or more
classes. The number of shares of each series and/or of a class within each
series shall be unlimited. The Trust does not intend to issue share
certificates.
In the event of a liquidation or dissolution of the Trust or
the Portfolio, shareholders of the Portfolio would be entitled to receive the
assets available for distribution belonging to the Portfolio. If there are any
assets, income, earnings, proceeds, funds or payments, which are not readily
identifiable as belonging to any particular investment portfolio, the Trustees
shall allocate them among any one or more of the
-8-
<PAGE>
investment portfolios as they, in their sole discretion, deem fair and
equitable.
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each investment portfolio affected by the matter. A
investment portfolio is affected by a matter unless it is clear that the
interests of each investment portfolio in the matter are substantially
identical or that the matter does not affect any interest of the investment
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment portfolio only if approved by a majority of the
outstanding shares of such portfolio. However, the Rule also provides that the
ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to particular investment portfolio.
When used in the Prospectuses or in this Additional Statement,
a "majority" of shareholders means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (1) 67% of the shares
of the Trust or the applicable portfolio present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy,
or (2) more than 50% of the outstanding shares of the Trust or the applicable
portfolio.
As of March 29, 1996, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
98.96% of the outstanding shares of the Portfolio. The Trustees and officers
of the Trust, as a group, owned less than 1% of the outstanding shares of the
Portfolio. Furthermore, as of March 29, 1996, the following persons may
have beneficially owned 5% or more of the outstanding shares of the Portfolio:
-9-
<PAGE>
<TABLE>
<CAPTION>
Percent of
Outstanding
Equity Index Portfolio Number of Shares Shares
- ---------------------- ---------------- -----------
<S> <C> <C>
Whirlpool 11,864,524 28.58%
2000 M-63 North
Benton Harbon, MI 49022
Oakland County Retirement 3,271,916 7.88%
System
1200 N. Telegraph
Pontiac, MI 48053
McGregor Fund 3,284,512 7.91%
333 West Fort Street
Detroit, MI 48226
Consumer Power Union Welfare
Benefit 4,235,027 10.20%
212 West Michigan Avenue
Jackson, MI 49201
</TABLE>
When issued for payment as described in the Portfolio's
Prospectuses and this Additional Statement, shares of the Portfolio will be
fully paid and non-assessable by the Trust.
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of duties. It also provides that all third parties shall
look solely to the Trust property for satisfaction of claims arising in
connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the
affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described
in the Prospectuses. No attempt is made to present a detailed explanation of
the tax treatment of the Portfolio or its shareholders, and the discussion
here and in the Prospectuses is not intended as a substitute for careful tax
planning and is based on tax laws and regulations which are in effect on the
date hereof;
-10-
<PAGE>
such laws and regulations may be changed by legislative or administrative
action. Investors are advised to consult their tax advisers with specific
reference to their own tax situations.
The Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, the Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain requirements with respect
to the source of its income for a taxable year. At least 90% of the gross
income of the Portfolio must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Portfolio's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the
Portfolio's principal business of investing in stock or securities, or options
and futures with respect to stock or securities. Any income derived by the
Portfolio from a partnership or trust is treated as derived with respect to
the Portfolio's business of investing in stock, securities or currencies only
to the extent that such income is attributable to items of income which would
have been qualifying income if realized by the Portfolio in the same manner as
by the partnership or trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of the Portfolio's gross income
for a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to the Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by the Portfolio upon maturity or
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
The Portfolio will designate any distribution of long term
capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Portfolio's taxable year.
Shareholders should note that, upon the sale or exchange of Portfolio shares,
if the shareholder has not held such shares for at least six months, any loss
on the sale or exchange of those shares
-11-
<PAGE>
will be treated as long term capital loss to the extent of the capital gain
dividends received with respect to the shares.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%, however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum nominal rate of 35% (or at a maximum effective marginal
rate of 39% in the case of corporations having taxable income between $100,000
and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). The Portfolio intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year
to avoid liability for this excise tax.
If for any taxable year the Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
shareholders to the extent of the Portfolio's current and accumulated earnings
and profits and would be eligible for the dividends received deduction for
corporations.
The Portfolio may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure properly to include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Depending upon the extent of the Portfolio's activities in
states and localities in which its offices are maintained, in which its agents
or independent contractors are located or in which its otherwise deemed to be
conducting business, the Portfolio may be subject to the tax laws of such
states or localities. In addition, in those states and localities which have
income tax laws, the treatment of the Portfolio and its shareholders under
such laws may differ from their treatment under federal income tax laws.
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<PAGE>
MANAGEMENT
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth in the
Prospectuses. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
Effective May 1, 1995, each Trustee receives from the Trust and
The Woodward Variable Annuity Fund a total annual fee of $17,000 and a fee of
$2,000 for each Board of Trustees meeting attended. The Chairman is entitled
to additional compensation of $4,250 per year for his services to the Trusts
in that capacity. These fees are allocated among the investment portfolios of
the Trust and The Woodward Variable Annuity Fund based on their relative net
assets. All Trustees are reimbursed for out of pocket expenses incurred in
connection with attendance at meetings. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trusts.
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<PAGE>
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1995:
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Fund and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Fund* Member
- ------------------------------ --------------- --------------
<S> <C> <C>
Will M. Caldwell, Trustee $21,250 $21,250(2)+
Nicholas J. DeGrazia, Trustee $21,250 $21,250(2)+
John P. Gould, Trustee *** $30,000(4)+
Earl I. Heenan, Jr.,++ $24,437.50 $24,437.50(2)+
Chairman and President
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee++ $21,250 $21,250(2)+
Donald G. Sutherland, Trustee++ $21,250 $21,250(2)+
Donald L. Tuttle, Trustee++ $21,250 $21,250(2)+
Eugene C. Yehle, Trustee $21,250 $21,250(2)+
and Treasurer
<FN>
- ---------
* Amount does not include reimbursed expenses for attending Board meeting,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Woodward Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Mrs. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of other investment companies within the Fund Complex from
which the Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,500, $21,500 and
$21,500 accrued during The Woodward Funds' fiscal year ended December 31,
1995 for Earl I. Heenan, Jr., Julius L. Pallone, Donald G. Sutherland and
Donald L. Tuttle, respectively.
Investment Adviser
Information about NBD and its duties and compensation as
Adviser is contained in the Prospectuses. For the fiscal years ended December
31, 1995, 1994 and 1993, the Trust paid NBD fees for advisory services
aggregating $411,792, $329,438 and $308,549 on behalf of the Equity Index
Portfolio.
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<PAGE>
NBD's own investment portfolio may include bank certificates of
deposit, bankers' acceptances, and corporate debt obligations, any of which
may also be purchased by the Trust. Joint purchase of investments for the
Trust and for NBD's own investment portfolio will not be made. NBD's
Commercial Banking Department may have deposit, loan and other commercial
banking relationships with issuers of securities purchased by the Trust,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities purchased by the Trust.
Investment decisions for the Trust and other fiduciary accounts
are made by NBD's Trust Investment Division solely from the standpoint of the
independent interest of the Trust and such other fiduciary accounts. NBD's
Trust Investment Division performs independent analyses of publicly available
information, the results of which are not made publicly available. In making
investment decisions for the Trust, personnel of NBD's Trust Investment
Division do not obtain information from any other division or department of
NBD or otherwise, which is not publicly available. NBD's Trust Investment
Division executes transactions for the Trust only with unaffiliated dealers
but such dealers may be customers of other divisions of NBD. NBD may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a
pro rata share of the transaction costs incurred in making the bulk purchase.
See "Investment Objective and Policies - Portfolio Transactions" above.
NBD has agreed as Adviser that it will reimburse the Trust such
portions of its fees as may be required to satisfy any expense limitations
imposed by state securities laws or other applicable laws. Restrictive
limitations may be imposed on the Trust as a result of changes in current
state laws and regulations in those states where the Trust has qualified its
shares, or by a decision of the Trustees to qualify the shares in other states
having restrictive expense limitations. To the Trust's knowledge, of the
expense limitations in effect on the date of this Additional Statement none is
more restrictive than two and one-half percent (2-1/2%) of the first $30
million of the Portfolio's average annual net assets, two percent (2%) of the
next $70 million of the average annual net assets and one and one-half percent
(1-1/2%) of the remaining average annual net assets.
Under the terms of the Advisory Agreement, NBD is obligated to
manage the investment of the Portfolio's assets in accordance with applicable
laws and regulations, including, to the extent applicable, the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers
of national banks. These regulations provide, in general, that
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<PAGE>
assets managed by a national bank as fiduciary may not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees, and further provide that fiduciary assets
may not be sold or transferred, by loan or otherwise, to the bank or persons
connected with the bank as described above.
NBD will not accept Trust shares as collateral for a loan which
is for the purpose of purchasing Trust shares, and will not make loans to the
Trust. Inadvertent overdrafts of the Trust's account with the Custodian
occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed
to be the making of a loan to the Trust by NBD.
Under the Advisory Agreement, NBD is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of NBD in the performance of its duties or from its
reckless disregard of its duties and obligations under the Agreement.
Shareholder Servicing Plan
As stated in the Prospectuses for Class A Shares of the
Portfolio, the Trust may enter into Servicing Agreements with Shareholder
Servicing Agents which may include NBD and its affiliates. The Servicing
Agreements provide that the Shareholder Servicing Agents will render
shareholder administrative support services to their customers who are the
beneficial owners of Class A shares in consideration for the Portfolio's
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Class A shares beneficially owned by such customers and held by the
Shareholder Servicing Agents and, at the Trust's option, it may reimburse the
Shareholder Servicing Agents' out-of-pocket expenses. Such services may
include: (i) processing dividend and distribution payments from the Portfolio;
(ii) providing information periodically to customers showing their share
positions; (iii) arranging for bank wires; (iv) responding to customer
inquiries; (v) providing subaccounting with respect to shares beneficially
owned by customers or the information necessary for such subaccounting; (vi)
forwarding shareholder communications; (vii) processing share exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; and (ix) other similar
services requested by the Trust. Banks acting as Shareholder Servicing Agents
are prohibited from engaging in any activity primarily intended to result in
the sale of Portfolio
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<PAGE>
shares. However, Shareholder Servicing Agents other than banks may be
requested to provide marketing assistance (e.g., forwarding sales literature
and advertising to their customers) in connection with the distribution of
Portfolio shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended in connection with the Trust's arrangements
with Shareholder Servicing Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with
Shareholder Servicing Agents under the Shareholder Servicing Agreements must
be approved by a majority of the Board of Trustees (including a majority of
the Disinterested Trustees).
Custodian and Transfer Agent
As Custodian and as Transfer Agent for the Trust, NBD (i)
maintains a separate account or accounts in the name of the Portfolio, (ii)
collects and makes disbursements of money on behalf of the Portfolio, (iii)
issues and redeems shares of the Portfolio, (iv) collects and receives all
income and other payments and distributions on account of the portfolio
securities of the Portfolio, (v) addresses and mails all communications by the
Trust to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy materials for any meeting of shareholders, (vi)
maintains shareholder accounts, (vii) makes periodic reports to the Trust's
Board of Trustees concerning the Trust's operations, and (viii) maintains
on-line computer capability for determining the status of shareholder
accounts.
For its services as Custodian, NBD is entitled to receive fees
from the Portfolio at the following annual rates based on the aggregate market
value of the Portfolio's portfolio securities, held as Custodian: .03% of the
first $20 million; .025% of the next $20 million; .02% of the next $20
million; .015% of the next $40 million; .0125% of the next $200 million; and
.01% of the balance over $300,000,000. NBD will receive an annual account fee
of $1,000 and $1.54 per month per asset held in the Portfolio. In addition,
NBD, as Custodian, is entitled to receive $50 for each cash statement and
inventory statement and $13 for each pass-through certificate payment, $35 for
each option transaction requiring escrow receipts and $20 for all other
security transactions.
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<PAGE>
For its services as Transfer Agent, NBD is entitled to receive
a minimum annual fee from the Portfolio of $11,000 and $12 annually per
account in the Portfolio for the preparation of statements of account, and
$1.00 for each confirmation of purchase and redemption transactions. Charges
for providing computer equipment and maintaining a computerized investment
system are expected to approximate $350 per month for the Portfolio.
Sponsors and Co-Distributors
The Trust's shares are offered on a continuous basis through
FoM and Essex, which act under the Distribution Agreement as sponsors and
Co-Distributors for the Trust. For the fiscal years ended December 31, 1995,
1994 and 1993, the Portfolio paid FoM for its services a fee of $20,590,
$13,455 and $30,631, respectively. For the same fiscal years, FoM incurred
expenses of $0 with respect to the Portfolio for the printing and mailing of
prospectuses to other than current shareholders. FoM was reimbursed for these
expenses. For the fiscal year ended December 31, 1995 and the fiscal period
from April 20, 1994 through December 31, 1994, Essex incurred expenses of $664
and $2,876 with respect to the Portfolio. Additional information concerning
fees for services performed by FoM and Essex, the review of such fees under
the Trust's plan for the payment of distribution expenses and the services
provided by FoM and Essex are described in the Prospectuses.
As stated in the Prospectuses, the Trust's Board of Trustees is
permitted, among other things, to allocate distribution fees which are
attributable to the Class A shares in a Portfolio exclusively to such shares.
As of the date hereof, the Board of Trustees has not exercised its discretion
to make any such allocations for the current fiscal year.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 500
Woodward Avenue, Detroit, Michigan 48226-3424, serve as auditors for the
Trust. The financial statements included in this Statement of Additional
Information and the financial highlights included in the Prospectuses have
been audited by Arthur Andersen LLP, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, are counsel to the Trust.
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<PAGE>
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of shares of
the Portfolio for various periods may be quoted in advertisements, shareholder
reports or other communications to shareholders. Performance information is
generally available by calling (800)688-3350.
Total Return Calculations. The Portfolio computes its "average
annual total return" for a class by determining the average annual compounded
rates of return during specified periods that equate the initial amount
invested to the ending redeemable value of such investment. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the
number of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of
the period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, ex-
pressed in terms of years.
The Portfolio computes its aggregate total returns for each
class by determining the aggregate rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable
value of such investment. The formula for calculating aggregate total return
is as follows:
ERV
T = (------) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Portfolio's mean (or median) account size for any fees that vary
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<PAGE>
with the size of the account. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the
end of the period covered by the computations. The Portfolio's average annual
total return may reflect the deduction of the maximum sales load imposed on
purchases.
The average annual total returns for the Equity Index Portfolio
for the one year period ended December 31, 1995 and the period since inception
were 37.35% and 14.54%, respectively. For the period since inception, the
aggregate total return for the Equity Index Fund was 62.19%.
The Portfolio may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials ("Literature") total return figures that are not calculated
according to the formulas set forth above in order to compare more accurately
its performance with other measures of investment return. For example, in
comparing the Portfolio's total returns with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, the Portfolio
may calculate its returns for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in shares
and assuming the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. The Portfolio does not, for
these purposes, deduct from the initial value invested any amount representing
sales charges. The Portfolio will, however, disclose, if applicable, the
maximum sales charge and will also disclose that the performance data does not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted.
The Portfolio may also from time to time include discussions
or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on
a Portfolio investment are reinvested by being paid in additional Portfolio
shares, any future income or capital appreciation of a Portfolio would
increase the value, not only of the original Portfolio investment, but also of
the additional Portfolio shares received through reinvestment. As a result,
the value of the Portfolio investment would increase more quickly than if
dividends or other distributions had been paid in cash.
The Portfolio may also include discussions or illustrations of
the potential investment goals of a prospective investor, investment
management strategies, techniques, policies or investment suitability of the
Portfolio (such as value investing, market timing, dollar cost averaging,
asset
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<PAGE>
allocation, constant ratio transfer, automatic accounting rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
instruments), economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareholders may summarize the substance
of information contained in shareholder reports (including the investment
composition of the Portfolio), as well as the view of the Trust as to current
market, economy, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to
be of relevance to the Portfolio. The Portfolio may also include in
advertisements charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Portfolio and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of the Portfolio. In
addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
the Portfolio and/or other mutual funds, shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such advertisements or communicators may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
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<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term
in the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade.
A-2
<PAGE>
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings
to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to
adverse developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by the highest capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
A-4
<PAGE>
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial
conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned
by Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB" indicates
the lowest degree of speculation and "C" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to
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meet timely interest and principal payments. The "BB" rating category is also
used for debt subordinated to senior debt that is assigned an actual or
implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest
return is indexed to
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equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of
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projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that
the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes ooccur in the legal documents or the
underlying credit quality of the bonds.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic
cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred
dividends. Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
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The following summarizes the highest four ratings used by Fitch
for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
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"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
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"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
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Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in its Prospectuses, the Equity Index Portfolio may
enter into futures contracts and related options for hedging purposes.
I. Index Futures Contracts
A stock index assigns relative values to the stocks included in
the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Portfolio may sell index futures contracts in order to
offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Portfolio may do so either to
hedge the value of its portfolio as a whole, or to protect against declines,
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, the Portfolio may purchase index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolio may purchase such securities upon termination of
the long futures position, but a long futures position may be terminated
without a corresponding purchase of securities.
In addition, the Portfolio may utilize index futures contracts
in anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Portfolio expects to narrow the range of
industry groups represented in its holdings it may, prior to making purchases
of the actual securities, establish a long futures position based on a more
restricted index, such as an index comprised of securities of a particular
industry group. The Portfolio may also sell futures contracts in connection
with this strategy, in order to protect against the possibility that the value
of the securities to be sold as part of the restructuring of the portfolio
will decline prior to the time of sale.
Transactions in futures contracts and options may also be
desirable to hedge against a price movement in the Index at
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times when the Portfolio is not fully invested in stocks that are included in
the Index. For example, by purchasing a futures contract or option, the
Portfolio may be able to reduce the potential that cash inflows will disrupt
its ability to track the Index, since the futures contract or option may serve
as a temporary substitute for stocks which may then be purchased in an orderly
fashion. Similarly, because futures contracts and options only require a small
initial margin deposit, the Portfolio may be able, as an effective matter, to
be fully invested in the Index while keeping a cash reserve to meet potential
redemptions.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Equity Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
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Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that
is, market value decreased and the Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Portfolio had hedged its
stock portfolio, the results of the Portfolio's transactions in stock index
futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
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Portfolio Futures
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
II. Margin Payments
Unlike when the Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, the Portfolio will be required to deposit with
the broker or in a segregated account with the Portfolio's Custodian an amount
of cash or cash equivalents, the value of which may vary but is generally
equal to 10% or less of the value of the contract. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to
the Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when the Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures
contract, the Adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional
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cash is required to be paid by or released to the Portfolio, and the Portfolio
realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures
by the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Portfolio will experience either a loss or gain on the future
which will not be completely offset by movements in the price of the
securities which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of securities being hedged and movements
in the price of futures contracts, the Portfolio may buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities
being hedged if the volatility over a particular time period of the prices of
such securities has been greater than the volatility over such time period of
the future, of if otherwise deemed to be appropriate by the Adviser.
Conversely, the Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures
contract being used, or if otherwise deemed to be appropriate by the Adviser.
It is also possible that, where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the
value of securities held by the Portfolio may decline. If this occurred, the
Portfolio would lose money on the future and also experience a decline in
value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before the Portfolio is able to invest its
cash (or cash equivalents) in securities (or options) in an orderly fashion,
it is possible that the market may decline instead; if the Portfolio then
concludes not to invest in securities or options at that time because of
concern as to possible further market decline or for other reasons, the
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Portfolio will realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by the
Portfolio, an amount of cash and cash equivalents, equal to the market value
of the futures contracts (or options), will be deposited in a segregated
account with the Portfolio's Custodian and/or in a margin account with a
broker to collateralize the position and thereby insure that the use of such
futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the securities being hedged, the price of futures may not correlate perfectly
with movement in the cash market due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close
futures contracts through off-setting transactions which could distort the
normal relationship between the cash and futures markets. Second, with respect
to financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the
price of futures, a correct forecast of general market trends or interest rate
movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although
the Portfolio intends to purchase or sell futures only on exchanges or boards
of trade where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board of trade
will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures investment position, and in
the event of adverse price movements, the Portfolio would continue to be
required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities, such
securities will not be sold until the futures contract can be terminated. In
such circumstances, an increase in the price
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of the securities, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in the
futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions.
Successful use of futures by the Portfolio is also subject to
the Adviser's ability to predict correctly movements in the direction of the
market. For example, if the Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
IV. Options on Futures Contracts
The Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid
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secondary market). In addition, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract will not be
fully reflected in the value of the option purchased. Depending on the pricing
of the option compared to either the futures contract upon which it is based,
or upon the price of the securities being hedged, an option may or may not be
less risky than ownership of the futures contract or such securities. In
general, the market prices of options can be expected to be more volatile than
the market prices on the underlying futures contract. Compared to the purchase
or sale of futures contracts, however, the purchase of call or put options on
futures contracts may frequently involve less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). Although permitted by its fundamental investment policies,
the Portfolio does not currently intend to write futures options, and will not
do so in the future absent any necessary regulatory approvals.
V. Accounting and Tax Treatment
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by the Portfolio at the close
of the Portfolio's taxable year will be treated for federal income tax
purposes as sold for their fair market value on the last business day of such
year, a process known as "marking-to-market." Forty percent of any gain or
loss resulting from such constructive sale will be treated as short-term
capital gain or loss and 60% of such gain or loss will be treated as long-term
capital gain or loss without regard to the length of time the Portfolio holds
the futures contract ("the 40%-60% rule"). The amount of any capital gain or
loss actually realized by the Portfolio in a subsequent sale or other
disposition of those futures contracts will be adjusted to reflect any capital
gain or loss taken into account by the Portfolio in a prior year as a result
of the constructive sale of the contracts. With respect to futures contracts
to sell, which will be regarded as parts of a "mixed straddle" because their
values fluctuate inversely to the values of specific securities held by the
Portfolio, losses as to such contracts to sell will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof which exceeds the unrecognized gain
(if any) with respect to the other part of the straddle, and to certain wash
sales regulations. Under short sales rules, which will also be applicable, the
holding period of the securities forming part of the straddle will (if they
have not been held for the long-term holding period) be deemed not to
B-8
<PAGE>
begin prior to termination of the straddle. With respect to certain futures
contracts, deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
to sell which are properly identified as such, the Portfolio may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the
last business day of the Portfolio's taxable year, but gains and losses will
be subject to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under temporary
regulations, the Portfolio would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from portions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which
gains and losses would be recognized and offset on a periodic basis during the
taxable year. Under either election, the 40%-60% rule will apply to the net
gain or loss attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated as
long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by the
Portfolio may be subject to the "marking-to-market" process and the 40%-60%
rule in a manner similar to that described in the preceding paragraph for
futures contracts. To receive such federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract
depends; (2) the contract must be entered into at arm's length at a price
determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this Additional Statement, the Treasury
Department has not issued any such regulations. Other foreign currency
contracts entered into by a Portfolio may result in the creation of one or
more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.
As described more fully in "Additional Information Concerning
Taxes", a regulated investment company must derive less than 30% of its gross
income from gains realized on the sale or other disposition of securities and
certain other
B-9
<PAGE>
investments held for less than three months. With respect to futures contracts
and other financial instruments subject to the marking-to-market rules, the
Internal Revenue Service has ruled in private letter rulings that a gain
realized from such a futures contract or financial instrument will be treated
as being derived from a security held for three months or more (regardless of
the actual period for which the contract or instrument is held) if the gain
arises as a result of a constructive sale under the marking-to-market rules,
and will be treated as being derived from a security held for less than three
months only if the contract or instrument is terminated (or transferred)
during the taxable year (other than by reason of marking-to-market) and less
than three months have elapsed between the date the contract or instrument is
acquired and the termination date. In determining whether the 30% test is met
for a taxable year, increases and decreases in the value of the Portfolio's
futures contracts and other investments that qualify as part of a "designated
hedge," as defined in the Code, may be netted.
B-10
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS:
Investment in securities:
At cost $404,271,461
============
At value (Note 2) $537,807,471
Receivable for shares purchased 5,500
Receivable for securities sold 276,211
Income receivable 960,384
Deferred organization costs, net (Note 2) 6,599
Prepaids and other assets 18,025
------------
TOTAL ASSETS 539,074,190
------------
LIABILITIES:
Payable for securities purchased 10,245,243
Payable for shares redeemed 174,627
Accrued investment advisory fee 43,456
Accrued distribution fees 2,173
Accrued custodial fee 8,503
Dividends payable 378,684
Other payables and accrued expenses 18,591
TOTAL LIABILITIES 10,871,277
------------
NET ASSETS $528,202,913
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 3,733,385
Additional paid-in capital 393,359,193
Accumulated undistributed net investment income 142,278
Accumulated undistributed net realized (losses) (2,567,953)
Net unrealized appreciation on investments 133,536,010
------------
TOTAL NET ASSETS $528,202,913
============
Shares of capital stock outstanding 37,333,855
============
Net asset value and redemption price per share $ 14.15
============
Maximum offering price per share $ 14.15
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY INDEX FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME (Note 2):
Interest $ 104,661
Dividends 10,355,653
------------
TOTAL INVESTMENT INCOME 10,460,314
------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 411,792
Distribution fees 21,253
Professional fees 53,872
Custodial fee 79,955
Transfer and dividend disbursing agent fees 7,135
Amortization of deferred organization costs 4,399
Marketing expenses 35,105
Registration, filing fees and other expenses 2,903
------------
TOTAL EXPENSES 616,414
------------
NET INVESTMENT INCOME 9,843,900
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains 4,873,484
Net change in unrealized appreciation on
investments 113,244,299
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 118,117,783
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $127,961,683
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 9,843,900 $ 8,937,984
Net realized gains 4,873,484 6,401,604
Net change in unrealized appreciation
(depreciation) on investments 113,244,299 (11,009,072)
------------- -------------
Net increase in net assets from operations 127,961,683 4,330,516
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (10,140,926) (8,745,069)
From realized gains (4,873,484) (7,135,458)
In excess of realized gains (90,675) (2,477,278)
------------- -------------
Total distributions (15,105,085) (18,357,805)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 142,012,075 123,274,323
Net asset value of shares issued in reinvestment
of distributions to shareholders 13,655,168 17,030,652
------------- -------------
155,667,243 140,304,975
Less: payments for shares redeemed (81,128,978) (110,798,539)
------------- -------------
Net increase in net assets from capital share
transactions 74,538,265 29,506,436
------------- -------------
NET INCREASE IN NET ASSETS 187,394,863 15,479,147
NET ASSETS:
Beginning of year 340,808,050 325,328,903
------------- -------------
End of year $ 528,202,913 $ 340,808,050
============= =============
CAPITAL SHARE TRANSACTIONS:
Shares sold 10,856,382 11,159,448
Shares issued in reinvestment of distributions
to shareholders 1,022,145 1,593,566
------------- -------------
11,878,527 12,753,014
Less: shares redeemed (6,539,777) (9,938,857)
------------- -------------
NET INCREASE IN SHARES OUTSTANDING 5,338,750 2,814,157
CAPITAL SHARES:
Beginning of year 31,995,105 29,180,948
------------- -------------
End of year 37,333,855 31,995,105
============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.92%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes,
5.50%, 11/15/98, all held at Chemical Bank) $10,340,932 $ 10,340,932
------------
(Cost $10,340,932)
Shares
------
COMMON STOCKS -- 98.08%
Aerospace -- 2.41%
Boeing Co. 39,459 3,092,599
General Dynamics Corp. 7,756 458,574
Goodrich (B.F.) Co. 2,800 190,750
Lockheed Martin Corp. 23,009 1,817,711
Loral Corp. 19,100 675,663
McDonnell Douglas Corp. 12,351 1,136,292
Northrop Grumman Corp. 4,572 292,608
Raytheon Co. 27,748 1,311,093
Rockwell International Corp. 25,129 1,328,696
Textron, Inc. 9,333 629,978
TRW, Inc. 8,170 633,174
United Technologies Corp. 14,966 1,419,898
------------
12,987,036
------------
Air Transport -- 0.38%
AMR Corp. * 10,104 750,222
Delta Air Lines, Inc. 4,609 340,490
Federal Express Corp. * 5,806 428,918
Southwest Airlines Co. 14,400 334,800
USAir Group, Inc. * 13,700 181,525
------------
2,035,955
------------
Apparel -- 0.47%
Fruit of the Loom, Inc. Class A * 7,600 185,250
Liz Claiborne, Inc. 7,712 214,008
Nike, Inc. Class B 16,012 1,114,836
Reebok International Ltd. 8,375 236,594
Russell Corp. 7,500 208,124
Spring Industries, Inc 4,400 182,050
Stride Rite Corp. 10,700 80,250
V.F. Corp. 6,348 334,856
------------
2,555,968
------------
Banks -- 6.64%
Banc One Corp. 44,743 1,689,048
Bank of Boston Corp. 13,126 607,078
Bank of New York Co., Inc. 23,190 1,130,513
BankAmerica Corp. 41,132 2,663,297
Bankers Trust New York Corp. 7,894 524,951
Barnett Banks, Inc. 12,604 743,636
Boatmens Bancshares, Inc. 15,366 628,085
Chase Manhattan Corp. 20,182 1,223,534
Chemical Banking Corp. 30,052 1,765,555
Citicorp 48,842 3,284,625
Comerica, Inc. 12,500 501,563
CoreStates Financial Corp. 13,765 521,349
Dean Witter, Discover & Co. 17,707 832,229
First Bank System, Inc. 14,360 712,615
First Chicago NBD Corp. 34,916 1,379,182
First Fidelity Bancorp 8,427 635,185
First Interstate Bancorp 8,270 1,128,855
First Union Corp. 20,814 1,157,779
Fleet Financial Group, Inc. 29,695 1,210,071
J.P. Morgan & Co., Inc. 23,022 1,847,516
KeyCorp 26,700 967,875
MBNA Corp. 19,255 710,028
Mellon Bank Corp. 18,154 975,777
National City Corp. 14,600 483,625
NationsBank Corp. 31,150 2,168,819
Norwest Corp. 42,526 1,403,358
PNC Bank Corp. 29,365 947,021
Republic NY Corp. 5,292 328,766
Suntrust Banks, Inc. 11,752 805,012
U.S. Bancorp 17,367 583,964
Wachovia Corp. 21,673 991,540
Wells Fargo & Co. 5,433 1,173,527
------------
35,725,978
------------
Business Machines -- 4.51%
Amdahl Corp. * 18,600 158,100
Apple Computer, Inc. 11,306 360,379
Autodesk, Inc. 4,800 164,400
Ceridian Corp. * 7,300 301,125
Cisco System, Inc. * 30,300 2,261,138
Compaq Computer Corp. * 30,539 1,465,872
Cray Research, Inc. * 6,500 160,875
Data General Corp. * 14,700 202,125
Digital Equipment Corp. * 15,647 1,003,364
DSC Communications Corp. * 11,450 422,219
Honeywell, Inc. 14,577 708,807
Intergraph Corp. * 14,000 220,500
International Business Machines Corp. 65,437 6,003,845
Microsoft Corp. * 68,100 5,975,775
Novell, Inc. * 37,179 529,801
Pitney Bowes, Inc. 16,721 785,887
Silicon Graphics * 21,335 586,712
Sun Microsystems, Inc. * 24,368 1,111,790
Tandem Computers, Inc. * 11,500 122,187
Xerox Corp. 12,388 1,697,155
------------
24,242,056
------------
Business Services -- 2.00%
Allergan, Inc. 6,247 203,027
Automatic Data Processing, Inc. 18,218 1,352,687
Block (H.&R.), Inc. 11,190 453,195
Browning-Ferris Industries, Inc. 21,348 629,766
Computer Associates International, Inc. 26,271 1,494,163
Computer Sciences Corp. * 5,160 362,490
Deluxe Corp. 7,609 220,661
Dial Corp. 8,718 258,271
Dun & Bradstreet Corp. 20,331 1,316,433
Ecolab, Inc. 5,746 172,380
Harland (John H.) Co. 6,200 129,425
Interpublic Group of Companies, Inc. 11,232 487,188
Laidlaw Inc., Class B 25,242 258,731
Moore Corp. Ltd. 7,228 134,622
National Service Industries, Inc. 5,000 161,875
Ogden Corp. 7,200 153,900
Shared Medical Systems, Inc. 4,900 266,438
U S West Media Group * 59,131 1,123,488
WMX Technologies, Inc. 53,154 1,587,975
------------
10,766,715
------------
Chemicals -- 2.73%
Air Products & Chemicals, Inc. 11,263 594,123
Dow Chemical Co. 30,045 2,114,417
duPont (E I) de Nemours & Co., Inc. 64,446 4,503,164
Grace (W.R.) & Co. 9,911 585,988
Great Lakes Chemical Corp. 7,468 537,696
Hercules, Inc. 11,874 669,397
Monsanto Co. 13,277 1,626,433
Morton International, Inc. 15,537 557,390
Nalco Chemical Co. 6,364 191,716
PPG Industries, Inc. 25,304 1,157,658
Praxair, Inc. 17,414 585,546
Rohm & Haas Co. 9,529 613,428
Safety Kleen Corp. 12,300 192,187
Sigma-Aldrich Corp. 4,800 237,600
Union Carbide Corp. 14,084 528,150
------------
14,694,893
------------
Construction -- 0.51%
Armstrong World Industries, Inc. 3,327 206,274
Centex Corp. (with warrants to purchase
interest in CDC L.P. Class B units and shares
Of 3333 Holdings Corp) 9,783 339,959
Crane Co. 5,200 191,750
Fluor Corp. 7,963 525,558
Masco Corp. 15,411 483,520
Owens-Corning Fiberglas Corp. * 4,189 187,982
Pulte Corp. 6,400 215,200
Sherwin Williams Co. 7,904 322,088
Stanley Works 4,942 254,513
------------
2,726,844
------------
Consumer Durables -- 0.40%
Black & Decker Corp. 8,478 298,850
Jostens, Inc. 8,100 196,425
Maytag Corp. 9,270 187,718
Newell Co. 17,640 456,435
Outboard Marine Corp. 9,000 183,375
Rubbermaid, Inc. 17,234 439,467
Whirlpool Corp. 7,503 399,534
------------
2,161,804
------------
Containers -- 0.13%
Ball Corp. 4,800 132,000
Crown Cork & Seal Co., Inc. * 10,435 435,661
Stone Container Corp. 8,382 120,491
------------
688,152
------------
Domestic Oil -- 1.13%
Amerada Hess Corp. 9,788 518,764
Ashland, Inc. 6,582 231,193
Atlantic Richfield Co. 18,776 2,079,442
Kerr-McGee Corp. 4,421 280,734
Oryx Energy Co. * 13,100 175,213
Pennzoil Co. 3,908 165,113
Phillips Petroleum Co. 30,153 1,028,970
Sun Co., Inc. 9,180 251,302
Unocal Corp. 25,256 735,581
USX-Marathon Group 31,263 609,629
------------
6,075,941
------------
Drugs and Medicine -- 10.35%
Abbott Laboratories 90,874 3,793,990
ALZA Corp. * 6,556 162,261
American Home Products Corp. 35,936 3,485,792
Amgen, Inc. * 29,188 1,733,038
Bard (C.R.), Inc. 6,300 203,175
Bausch & Lomb, Inc. 6,896 273,254
Baxter International, Inc. 31,689 1,326,977
Becton Dickinson & Co. 6,973 522,975
Beverly Enterprises, Inc. * 14,300 151,938
Biomet, Inc. * 11,900 212,712
Bristol-Myers Squibb Co. 59,742 5,130,344
Columbia/HCA Healthcare Corp. 51,766 2,627,125
Community Psychiatric Centers 16,800 205,800
Eli Lilly & Co. 65,314 3,673,913
Humana, Inc. * 16,000 438,000
Johnson & Johnson 74,480 6,377,350
Mallinckrodt Group, Inc. 10,469 380,810
Manor Care, Inc. 5,756 201,460
Medtronic, Inc. 27,732 1,549,526
Merck & Co., Inc. 141,076 9,275,747
Pall Corp. 16,845 452,709
Pfizer, Inc. 71,564 4,508,532
Pharmacia & Upjohn Co. 57,225 2,217,468
St. Jude Medical, Inc. 6,900 296,700
Schering-Plough Corp. 41,606 2,277,929
Tenet Healthcare Corp. 20,102 417,117
United Healthcare Corp. 20,100 1,316,550
United States Surgical Co. 7,300 156,036
U.S. HealthCare, Inc. 16,300 757,950
Warner Lambert Co. 15,568 1,512,041
------------
55,639,219
------------
Electronics -- 4.51%
Advanced Micro Devices, Inc. * 10,652 175,758
AMP, Inc. 22,676 870,192
Andrew Corp. * 4,050 154,913
Boston Scientific Corp. * 20,835 1,020,915
E G & G, Inc. 9,700 235,225
First Data Corp. 26,300 1,758,813
General Signal Corp. 6,453 208,916
Harris Corp. 3,007 164,258
Hewlett-Packard Co. 58,800 4,924,500
Intel Corp. 94,724 5,375,587
Johnson Controls, Inc. 3,508 241,175
LSI Logic Corp. * 14,300 468,325
Micron Technology, Inc. 22,500 891,563
Motorola, Inc. 67,810 3,865,170
National Semiconductor Corp. * 11,816 262,906
Northern Telecom Ltd. 31,505 1,354,715
Perkin Elmer Corp. 4,400 166,100
Raychem Corp. 3,881 220,732
Scientific-Atlanta, Inc. 15,100 226,500
Tektronix, Inc. 3,400 167,024
Teledyne, Inc. 6,300 161,437
Texas Instruments, Inc. 22,928 1,186,523
Thomas & Betts Corp. 2,400 177,000
------------
24,278,247
------------
Energy and Utilities -- 4.52%
American Electric Power Co., Inc. 19,165 776,183
Baltimore Gas & Electric Co. 14,831 422,684
Carolina Power & Light Co. 16,419 566,456
Central & SouthWest Corp. 19,584 545,904
CINergy Corp. 21,342 653,599
Coastal Corp. 14,683 546,942
Columbia Gas System, Inc. * 5,000 219,375
Consolidated Edison Co. of New York, Inc. 24,428 781,696
Consolidated Natural Gas Co. 13,336 605,121
Detroit Edison Co. 16,226 559,797
Dominion Resources, Inc. 21,159 872,809
Duke Power Co. 24,609 1,165,851
Enron Corp. 28,208 1,075,430
Enserch Corp. 10,100 164,125
Entergy Corp. 29,860 873,405
FPL Group, Inc. 22,855 1,059,901
General Public Utilities Corp. 11,743 399,262
Houston Industries, Inc. 33,196 805,003
Niagara Mohawk Power Corp. 17,000 163,625
Nicor, Inc. 6,100 167,750
Noram Energy Inc. 23,600 209,450
Northern States Power Co. 5,948 292,196
ONEOK Inc. 7,600 173,850
Ohio Edison Co. 13,703 322,021
PP&L Resources, Inc. 17,300 432,500
Pacific Enterprises 8,168 230,746
Pacific Gas & Electric Co. 47,730 1,354,339
PacifiCorp 37,377 794,261
Panhandle Eastern Corp. 15,080 420,355
PECO Energy Co. 22,567 679,831
Peoples Energy Corp. 6,000 190,500
Public Service Enterprise Group, Inc. 25,672 786,205
SCE Corp. 50,271 892,310
Sonat, Inc. 8,648 308,085
Southern Co. 75,746 1,865,245
Texas Utilities Co. 27,494 1,130,691
Unicom Corp. 22,576 739,363
Union Electric Co. 10,806 451,150
Williams Companies, Inc. 14,094 618,373
------------
24,316,389
------------
Energy Raw Materials -- 1.37%
Baker Hughes, Inc. 12,357 301,202
Barricks Gold Corp. 37,602 991,753
Burlington Resources, Inc. 12,952 508,366
Dresser Industries, Inc. 17,030 415,106
Eastern Enterprises 5,500 193,875
Halliburton Co. 11,218 567,911
Helmerich & Payne, Inc. 11,600 345,100
Louisiana Land & Exploration Co. 4,500 192,938
McDermott International, Inc. 9,700 213,400
Nacco Industries, Inc. Class A 2,400 133,200
Occidental Petroleum Corp. 33,871 723,993
Pittston Services Group 6,600 207,075
Rowan Companies, Inc. * 22,800 225,150
Santa Fe Energy Resources, Inc. * 19,500 187,688
Schlumberger Ltd. 27,075 1,874,944
Western Atlas, Inc. * 5,154 260,276
------------
7,341,977
------------
Food and Agriculture -- 5.84%
Archer Daniels Midland Co. 67,129 1,208,322
Campbell Soup Co. 28,867 1,732,020
Coca-Cola Co. 144,248 10,710,414
ConAgra, Inc. 28,219 1,164,034
CPC International, Inc. 16,087 1,103,970
Darden Restaurants, Inc. 15,167 180,108
Fleming Companies, Inc. 7,800 160,875
General Mills, Inc. 16,867 974,069
Heinz (H.J.) Co. 42,444 1,405,941
Hershey Foods Corp. 9,606 624,390
Kellogg Co. 25,837 1,995,908
Pepsico, Inc. 90,580 5,061,158
Pioneer Hi-Bred International, Inc. 8,826 490,946
Quaker Oats Co. 12,966 447,327
Ralston-Ralston Purina Group 11,200 698,600
Sara Lee Corp. 55,655 1,774,003
Sysco Corp. 23,827 774,378
Whitman Corp. 9,800 227,850
Wrigley (Wm.) Jr Co. 12,335 647,588
------------
31,381,901
----------
Gold -- 0.20%
Homestake Mining Co. 20,389 318,578
Placer Dome, Inc. 25,255 609,277
Santa Fe Pacific Gold Corp. 10,698 129,713
------------
1,057,568
------------
Insurance -- 3.35%
Aetna Life & Casualty Co. 12,182 843,604
Alexander & Alexander Services, Inc. 7,300 138,700
Allstate Corp. 53,240 2,189,495
American General Corp. 22,363 779,910
American International Group, Inc. 54,548 5,045,690
Chubb Corp. 10,537 1,019,455
CIGNA Corp. 8,555 883,304
General Re Corp. 9,103 1,410,965
ITT Hartford Group, Inc. * 12,269 593,513
Jefferson-Pilot Corp. 6,776 315,061
Lincoln National Corp. 10,969 589,584
Marsh & McLennan Companies, Inc. 9,432 837,090
Providian Corp. 9,897 403,303
SAFECO Corp. 17,292 596,574
St. Paul Companies 9,800 545,125
Torchmark Corp. 6,795 307,474
Transamerica Corp. 9,465 689,761
UNUM Corp. 8,400 462,000
USF&G Corp. 10,400 175,500
USLIFE Corp. 6,400 191,200
------------
18,017,308
------------
International Oil -- 6.64%
Amoco Corp. 57,118 4,105,356
Chevron Corp. 77,214 4,053,735
Exxon Corp. 142,741 11,437,123
Mobil Corp. 45,476 5,093,312
Royal Dutch Petroleum Co., N.Y. Registry 61,354 8,658,583
Texaco, Inc. 30,133 2,365,441
------------
35,713,550
------------
Liquor -- 0.71%
Anheuser-Busch Companies, Inc. 29,261 1,956,829
Brown Forman Corp. Class B 7,254 264,771
Coors (Adolph) Co. Class B 9,700 214,613
Seagram Co. Ltd. 40,159 1,390,505
------------
3,826,718
------------
Media -- 2.40%
Cabletron System, Inc. * 7,670 621,270
Capital Cities/ABC, Inc. 17,650 2,177,569
Comcast Corp., Class A Special 22,800 414,675
Donnelley (R.R.) & Sons Co. 16,445 647,522
Dow Jones & Co., Inc. 9,154 365,016
Gannett Co., Inc. 16,139 990,531
King World Productions, Inc. * 5,100 198,263
Knight-Ridder, Inc. 5,021 313,813
McGraw Hill Companies, Inc. 6,882 599,594
Meredith Corp. 5,300 221,938
New York Times Co. Class A 10,426 308,870
Tele-Communications, Inc. Class A * 75,829 1,507,102
Time Warner, Inc. 46,173 1,748,802
Times Mirror Co. Class A 11,909 403,417
Tribune Co. 8,657 529,159
Viacom, Inc. Class B Non-Voting * 39,334 1,863,447
------------
12,910,988
------------
Miscellaneous and Conglomerates -- 1.07%
Corning, Inc. 31,042 993,344
Eastman Chemical Co. 8,060 504,758
ITT Corp. 12,269 650,257
ITT Industries, Inc. 12,269 294,456
Minnesota Mining & Manufacturing Co. 50,228 3,327,605
------------
5,770,420
------------
Miscellaneous Finance -- 2.70%
Ahmanson (H.F.) & Co. 11,433 302,975
American Express Co. 54,068 2,237,064
Beneficial Corp. 5,140 239,653
Federal Home Loan Mortgage Corp. 22,200 1,853,700
Federal National Mortgage Association 31,747 3,940,596
Golden West Financial Corp. 5,715 315,754
Great Western Financial Corp. 12,328 314,364
Household International, Inc. 12,649 747,872
Merrill Lynch & Co., Inc. 20,657 1,053,507
Morgan Stanley Group, Inc. 9,300 749,813
Salomon, Inc. 10,526 373,672
Travelers Inc. 37,452 2,354,794
------------
14,483,764
------------
Motor Vehicles -- 2.32%
Chrysler Corp. 44,214 2,448,350
Cummins Engine Co., Inc. 4,300 159,100
Dana Corp. 9,124 266,877
Eaton Corp. 8,634 462,998
Echlin, Inc. 4,769 174,069
Fleetwood Enterprises, Inc. 9,100 234,325
Ford Motor Co. 120,028 3,480,812
General Motors Corp. 85,970 4,545,664
Genuine Parts Co. 16,819 689,579
------------
12,461,774
------------
Non-Durables and Entertainment -- 2.29%
American Greetings Corp. Class A 7,080 195,585
Bally Entertainment Corp. * 15,200 212,800
CUC International, Inc. * 23,850 813,881
Handleman Co. 12,600 72,450
Harcourt General, Inc. 6,876 287,933
Hasbro, Inc. 7,758 240,498
Kimberly-Clark Corp. 32,517 2,690,782
Luby's Cafeterias, Inc. 8,600 191,350
Mattel, Inc. 23,913 735,325
McDonalds Corp. 79,782 3,600,163
Oracle Systems Corp. * 49,993 2,118,453
Premark International, Inc. 5,124 259,403
Service Corp. International 13,086 575,783
Shoneys, Inc * 17,100 175,275
Wendy's International, Inc. 7,090 150,662
------------
12,320,343
------------
Non-Ferrous Metals -- 1.02%
Alcan Aluminum Ltd. 30,807 958,868
Aluminum Co. of America 19,344 1,022,814
Asarco, Inc. 5,900 188,800
Cyprus Amax Minerals Co. 8,663 226,321
Echo Bay Mines Ltd. 17,400 180,525
Engelhard Corp. 14,386 312,896
Freeport McMoran Copper Class B 21,000 590,625
Inco, Ltd. 14,174 471,285
Newmont Mining Corp. 12,482 564,811
Phelps Dodge Corp. 9,358 582,535
Reynolds Metals Co. 7,044 398,866
------------
5,498,346
------------
Optical Photographic Equipment -- 0.53%
Eastman Kodak Co. 39,041 2,615,747
Polaroid Corp. 4,396 208,261
------------
2,824,008
------------
Paper and Forest Products -- 1.16%
Bemis, Inc. 5,800 148,625
Boise Cascade Corp. 4,800 166,200
Champion International Corp. 11,355 476,910
Federal Paper Board Co., Inc. 4,900 254,188
Georgia-Pacific Corp. 11,026 756,659
International Paper Co. 32,570 1,233,589
James River Corp. of Virginia 13,338 321,779
Louisiana Pacific Corp. 10,925 264,931
Mead Corp. 5,388 281,523
Potlatch Corp. 4,400 176,000
Temple-Inland, Inc. 5,025 221,728
Union Camp Corp. 9,171 436,769
Westvaco Corp. 8,841 245,338
Weyerhaeuser Co. 21,766 941,379
Willamette Industries, Inc. 5,700 320,625
------------
6,246,243
------------
Producer Goods -- 5.35%
Alco Standard Corp. 13,466 614,386
Allied Signal, Inc. 31,748 1,508,030
Applied Materials Co. * 21,280 837,900
Avery Dennison Corp. 5,770 289,221
Briggs & Stratton Corp. 4,000 173,500
Caterpillar, Inc. 23,480 1,379,450
Cincinnati Milacron, Inc. 5,400 141,750
Cooper Industries, Inc. 10,859 399,068
Deere & Co. 32,823 1,157,011
Dover Corp. 10,862 400,536
Emerson Electric Co. 25,042 2,047,184
FMC Corp. * 5,203 351,853
Foster Wheeler Corp. 4,400 187,000
General Electric Co. 192,042 13,827,024
Giddings & Lewis, Inc. 9,200 151,800
Grainger (W.W.), Inc. 4,812 318,795
Harnischfeger Industries, Inc. 4,600 152,950
Illinois Tool Works, Inc. 13,358 788,122
Ingersoll-Rand Co. 11,162 392,065
Millipore Corp. 5,600 230,300
Navistar International * 18,600 195,300
Parker-Hannifin Corp. 5,815 199,164
Snap-On, Inc. 4,400 199,100
Tenneco, Inc. 20,242 1,004,509
Timken Co. 3,400 130,050
Trinova Corp. 4,600 131,675
Tyco International Ltd. 20,788 740,572
Varity Corp. * 3,550 131,794
Westinghouse Electric Corp. 41,470 684,255
------------
28,764,364
------------
Railroads and Shipping -- 1.05%
Burlington Northern Santa Fe 15,925 1,242,150
Conrail, Inc. 10,666 746,620
CSX Corp. 22,140 1,010,137
Norfolk Southern Corp. 13,876 1,101,408
Union Pacific Corp. 23,667 1,562,022
------------
5,662,337
------------
Retail -- 4.50%
Albertsons, Inc. 30,169 991,806
American Stores Co. 14,264 381,562
Charming Shoppes, Inc. 125,500 360,812
Circuit City Stores, Inc. 10,964 302,881
Dayton Hudson Corp. 7,044 528,300
Dillard Department Stores Class A 11,730 334,305
Federated Department Stores, Inc. * 20,400 561,000
Gap, Inc. 14,456 607,152
Giant Food, Inc. Class A 5,800 182,700
Great Atlantic & Pacific Tea Co., Inc. 9,000 207,000
Home Depot, Inc. 53,265 2,550,062
Kmart Corp. 43,988 318,913
Kroger Co. * 13,345 500,437
Limited, Inc. 35,443 615,822
Longs Drug Stores Corp. 4,500 215,437
Lowes Companies, Inc. 20,584 689,564
May Department Stores Co. 29,670 1,253,558
Melville Corp. 11,512 353,994
Mercantile Stores, Inc. 3,900 180,375
Nordstrom, Inc. 7,793 315,617
J.C. Penney & Co., Inc. 26,988 1,285,304
Pep Boys Manny Moe & Jack 7,700 197,313
Price/Costco, Inc. * 21,613 329,598
Rite-Aid Corp. 8,156 279,343
Sears, Roebuck & Co. 44,809 1,747,551
Supervalu, Inc. 6,231 196,276
Tandy Corp. 9,138 379,227
TJX Companies, Inc. 13,100 247,263
Toys R Us * 28,967 630,032
Wal Mart Stores, Inc. 263,995 5,906,888
Walgreen Co. 25,686 767,369
Winn-Dixie Stores, Inc. 17,274 636,979
Woolworth Corp. 11,464 149,032
------------
24,203,472
------------
Soaps and Cosmetics -- 2.72%
Alberto-Culver Co. Class B 6,000 206,250
Avon Products, Inc. 7,090 534,409
Clorox Co. 4,947 354,329
Colgate-Palmolive Co. 16,027 1,125,897
Gillette Co. 50,518 2,633,251
International Flavors & Fragrances, Inc. 14,843 712,464
Procter & Gamble Co. 78,887 6,547,621
Unilever N.V. 18,014 2,535,470
------------
14,649,691
------------
Steel -- 0.28%
Armco, Inc. * 36,400 213,850
Bethlehem Steel Corp. * 8,538 119,532
Inland Steel Industries, Inc. 10,972 275,672
Nucor Corp. 9,259 528,920
USX-U.S. Steel Group 7,828 240,711
Worthington Industries, Inc. 6,785 141,213
------------
1,519,898
------------
Telephone -- 8.41%
AT&T Corp. 183,000 11,849,250
AirTouch Communications, Inc. * 54,510 1,539,908
ALLTEL Corp. 24,305 716,998
Ameritech Corp. 62,912 3,711,808
Bell Atlantic Corp. 50,790 3,396,581
Bellsouth Corp. 114,250 4,969,875
GTE Corp. 111,373 4,900,412
MCI Communications Corp. 75,559 1,973,979
NYNEX Corp. 48,110 2,597,940
Pacific Telesis Group 47,110 1,584,074
SBC Communications Inc. 70,076 4,029,370
Sprint Corp. 39,565 1,577,655
Tellabs, Inc. * 8,848 327,376
US WEST Communications Group 57,731 2,063,882
------------
45,239,108
------------
Tires and Rubber Goods -- 0.20%
Cooper Tire & Rubber Co. 6,842 168,484
Goodyear Tire & Rubber Co. 19,742 895,794
------------
1,064,278
------------
Tobacco -- 2.15%
American Brands, Inc. 20,002 892,589
Loews Corp. 13,620 1,067,468
Philip Morris Companies, Inc. 96,623 8,744,382
Schweitzer Mauduit International, Inc. * 1 21
UST, Inc. 25,615 854,90
------------
11,559,360
------------
Travel and Recreation -- 0.96%
Brunswick Corp. 9,813 235,512
Disney (Walt) Co. 60,667 3,579,353
Harrahs Entertainment, Inc. 10,050 243,712
Hilton Hotels Corp. 7,883 484,804
Marriott International, Inc. 16,137 617,240
------------
5,160,621
------------
Trucking and Freight -- 0.17%
Consolidated Freightways, Inc. 6,200 164,300
PACCAR, Inc. 4,292 180,800
Roadway Services, Inc. 3,773 184,405
Ryder System, Inc. 6,199 153,425
Yellow Corp. 17,000 210,375
------------
893,305
------------
TOTAL COMMON STOCKS 527,466,539
------------
(Cost $393,930,529)
TOTAL INVESTMENTS $537,807,471
============
(Cost $404,271,461)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
THE WOODWARD FUNDS
EQUITY INDEX FUND
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series. The Woodward Equity Index
Fund (Equity Index Fund) commenced operations on July 10, 1992.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Equity Index Fund in the preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. Following generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Investments
The Equity Index Fund values investment securities at market value which
is determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by Woodward or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments.
Dividends are recorded on the ex-dividend date.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions and
post-October 31 capital losses. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were recorded by the Fund.
Certain book-to-tax timing differences for the funds are reflected as excess
distributions in the Statements of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by
the Equity Index Fund. Net realized capital gains are distributed annually.
Distributions from net investment income and net realized gains are made
during each year to avoid the 4% excise tax imposed on regulated investment
companies
<PAGE>
by the Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of the Equity
Index Fund.
Expenses
Expenses are charged daily as a percentage of the Fund's net assets.
Woodward monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of Woodward or a change in expectations as to the level of actual
expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Equity Index Fund's average net assets and
Essex is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For its
advisory services to Woodward, NBD is entitled to a fee, computed daily and
payable monthly. Under the Advisory Agreement, NBD also provides Woodward with
certain administrative services, such as maintaining Woodward's general ledger
and assisting in the preparation of various regulatory reports. NBD receives
no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered by
the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Fund's shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
<PAGE>
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions, based on the aggregate cost of investments for federal income
tax purposes, excluding short-term securities, is as follows:
<TABLE>
<S> <C>
Gross Unrealized Gains $ 142,270,373
Gross Unrealized Losses (11,735,522)
-------------
$ 130,534,851
=============
Federal Income Tax Cost $ 407,272,620
Purchases $ 114,112,109
Sales $ 43,881,654
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee rates
payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
Effective Date
--------------
<S> <C>
Expense Rates:
January 1 0.15%
NBD Advisory Fee:
January 1 0.10%
Amounts Paid:
Advisory Fee to NBD $411,792
Distribution Fee to FoM & Essex $ 21,253
Other Fees & Out of Pocket Expenses
to NBD $ 89,143
</TABLE>
<PAGE>
THE WOODWARD FUNDS
EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
The Financial Highlights presents a per share analysis of how the Equity
Index Fund's net asset values have changed during the periods presented.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Equity Index Fund and other information for the periods presented.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.65 $ 11.15 $ 10.52 $ 10.00
Income from investment operations:
Net investment income 0.30 0.31 0.28 0.12
Net realized and unrealized gains (losses)
on investments 3.65 (0.20) 0.75 0.52
------------ ------------ ------------ ------------
Total from investment operations 3.95 0.11 1.03 0.64
------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.31) (0.30) (0.27) (0.12)
From realized gains (0.14) (0.23) (0.13) --
In excess of realized gains (0.00) (0.08) -- --
------------ ------------ ------------ ------------
Total distributions (0.45) (0.61) (0.40) (0.12)
------------ ------------ ------------ ------------
Net asset value, end of period $ 14.15 $ 10.65 $ 11.15 $ 10.52
============ ============ ============ ============
Total Return 37.35% 1.02% 9.77% 13.61%(a)
Ratios/Supplemental Data
Net assets, end of period $528,202,913 $340,808,050 $325,328,903 $242,057,866
Ratio of expenses to average net assets 0.15% 0.17% 0.20% 0.22%(a)
Ratio of net investment income to average net
assets 2.39% 2.71% 2.59% 2.71%(a)
Portfolio turnover rate 10.66% 24.15% 16.01% 0.50%
Average commission rate $ 0.03
<FN>
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
See accompanying notes to financial statements.
</TABLE>
Exhibit (17)(n)
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1996
for
CLASS I AND CLASS A SHARES OF THE:
WOODWARD INTERMEDIATE BOND FUND
WOODWARD BOND FUND
WOODWARD SHORT BOND FUND
of
THE WOODWARD FUNDS
c/o NBD Bank
Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Statement of Additional Information (the "Additional
Statement") is meant to be read in conjunction with The Woodward Funds'
Prospectuses dated April 15, 1996 pertaining to all classes of shares of the
Woodward Intermediate Bond Fund (the "Intermediate Bond Portfolio"), Woodward
Bond Fund (the "Bond Portfolio") and Woodward Short Bond Fund (the "Short Bond
Portfolio") (each, a "Portfolio" and collectively, the "Portfolios"), and is
incorporated by reference in its entirety into the Prospectuses. Because this
Additional Statement is not itself a prospectus, no investment in shares of
the Portfolios should be made solely upon the information contained herein.
Copies of the Portfolios' Prospectuses may be obtained from any office of the
Co-Distributors by writing or calling the Co-Distributors or the Trust.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS....................... 1
NET ASSET VALUE........................................................ 15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................... 15
DESCRIPTION OF SHARES.................................................. 17
MANAGEMENT............................................................. 21
INDEPENDENT PUBLIC ACCOUNTANTS......................................... 27
COUNSEL........................................................ 27
ADDITIONAL INFORMATION ON PERFORMANCE.................................. 27
APPENDIX A........................................................... A-1
APPENDIX B.............................................................B-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL
STATEMENTS............................................................FS-1
-i-
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Portfolios' respective
investment objectives and policies as set forth in the Prospectuses.
Additional Information on Portfolio Instruments
Attached to this Additional Statement is Appendix A which
contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Portfolios may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio securities for each
Portfolio.
The annualized portfolio turnover rate for each Portfolio is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements
which enable the Portfolios to receive favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions, and the
Portfolios may engage in short term trading to achieve their respective
investment objectives.
Purchases of money market instruments by the Portfolios are
made from dealers, underwriters and issuers. The Portfolios currently do not
expect to incur any brokerage commission expense on such transactions because
money market instruments are generally traded on a "net" basis acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-
<PAGE>
counter market are generally on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument.
For the fiscal years ended December 31, 1995, 1994, and 1993,
the Intermediate Bond and Bond Portfolios incurred no brokerage commissions,
and for the fiscal year ended December 31, 1995 and the period from September
17, 1994 (commencement of operations) through December 31, 1994, the Short
Bond Portfolio incurred no brokerage commissions.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. A Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interests.
The Advisory Agreement for the Portfolios provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available for each Portfolio. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Agreement authorizes the Adviser to cause a Portfolio
to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer
for effecting the same transaction, provided that the Adviser determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either the particular transaction or the overall responsibilities of
the Adviser to the Portfolios. Such brokerage and research services might
consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolios. The Trustees will
periodically review any commissions paid by the Portfolios to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolios. It is
possible that certain of the supplementary research or
-2-
<PAGE>
other services received will primarily benefit one or more other investment
companies or other accounts for which investment discretion is exercised by
the Adviser. Conversely, a Portfolio may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected
for such other account or investment company.
The Trust will not execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Adviser, the
Co-Distributors or an affiliated person of any of them (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted
by the SEC or its staff. In addition, a Portfolio will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which a Co-Distributor or the Adviser, or an affiliated person of either of
them, is a member, except to the extent permitted by the SEC or its staff.
Under certain circumstances, the Portfolios may be at a disadvantage because
of these limitations in comparison with other investment companies which have
similar investment objectives but are not subject to such limitations.
Investment decisions for each Portfolio are made independently
from those for the other Portfolios and for any other investment companies and
accounts advised or managed by the Adviser. Such other investment companies
and accounts may also invest in the same securities as the Portfolios. To the
extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for the Portfolios with those to be sold or purchased for other
investment companies or accounts in executing transactions. When a purchase or
sale of the same security is made at substantially the same time on behalf of
one or more of the Portfolios and another investment company or account, the
transaction will be averaged as to price and available investments allocated
as to amount, in a manner which the Adviser believes to be equitable to each
Portfolio and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or sold by the Portfolio.
Government Obligations
As stated in the Prospectuses, pursuant to their investment
objectives, the Portfolios may invest in U.S.
Government Obligations.
-3-
<PAGE>
Stripped U.S. Government Obligations
Within the past several years, the Treasury Department has
facilitated transfers of ownership of zero coupon securities by accounting
separately for the beneficial ownership of particular interest coupon and
principal payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program as established
by the Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." The Portfolios may purchase
securities registered in the STRIPS program. Under the STRIPS program, the
Portfolios will be able to have their beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu
of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
In addition, the Portfolios may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate
of Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax purposes. The Trust is
not aware of any binding legislative, judicial or administrative authority on
this issue.
Bank Obligations
In accordance with their investment objectives, the Portfolios
may purchase bank obligations, which include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions. Although the Portfolios invest in
obligations of foreign banks or foreign branches of U.S. banks
-4-
<PAGE>
only where the Adviser deems the instrument to present minimal credit risks,
such investments may nevertheless entail risks that are different from those
of investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. All investments in
bank obligations are limited to the obligations of financial institutions
having more than $1.0 billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, must have
been issued by a corporation having an outstanding bond issue rated A or
higher by a Rating Agency. Bonds and other short term obligations (if not
rated as commercial paper) purchased by the Portfolios must be rated BBB or
Baa, or higher, by a Rating Agency, respectively, or if unrated, be of
comparable investment quality in the judgment of the Adviser.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by the Portfolios, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Portfolios may invest from time to time in securities issued
by other investment companies which invest in high quality, short term debt
securities. Each of the Portfolios intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of the Portfolio's total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value
of the Portfolio's total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio or the Trust as a whole.
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<PAGE>
Lending Securities
When a Portfolio lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the investment of the cash collateral. Although voting rights, or
rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described
in the Prospectuses generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the
Trust's Custodian, in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings
by the Portfolios under the 1940 Act. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Portfolio may
decline below the price of the securities it is obligated to repurchase.
Futures Contracts and Related Options
See Appendix B to this Additional Statement for a discussion of
futures contracts and related options.
Options Trading
As stated in the Prospectuses, the Portfolios may purchase and
sell put and call options listed on a national securities exchange and issued
by the Options Clearing Corporation. Such transactions may be effected on a
principal basis with primary reporting dealers in U.S. Government securities
in an amount not exceeding 5% of a Portfolio's net assets. This is a highly
specialized activity which entails greater than ordinary investment risks.
Regardless of how much the market price of the underlying security increases
or decreases, the option buyer's risk is limited to the amount of the original
investment for the purchase of the option. However,
-6-
<PAGE>
options may be more volatile than the underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities. A listed call
option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking
the obligations under the option contract. A listed put option gives the
purchaser the right to sell to a clearing corporation the underlying security
at the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security. Put and call options
purchased by a Portfolio will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
A Portfolio's obligation to sell a security subject to a
covered call option written by it, or to purchase a security subject to a
secured put option written by it, may be terminated prior to the expiration
date of the option by the Portfolio executing a closing purchase transaction,
which is effected by purchasing on an exchange an option of the same series
(i.e., same underlying security, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to
realize a profit on an outstanding option, to prevent an underlying security
from being called, to permit the sale of the underlying security or to permit
the writing of a new option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Portfolio will have incurred a loss in the transaction. An option position
may be closed out only on an exchange which provides a secondary market for an
option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be
able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise with the result that the writer
in such circumstances will be subject to the risk of market decline in the
underlying security during such period. A Portfolio will write an option on a
particular security only if the Adviser believes that a liquid secondary
market will exist on an exchange for options of the same series which will
permit the Portfolio to make a closing purchase transaction in order to close
out its position.
When a Portfolio writes a covered call option, an amount equal
to the net premium (the premium less the commission)
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<PAGE>
received by the Portfolio is included in the liability section of the
Portfolio's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated
expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a
covered call option may be offset by a decline in the market price of the
underlying security during the option period. If a covered call option is
exercised, the Portfolio may deliver the underlying security held by it or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received
and the Portfolio will realize a gain or loss. If a secured put option is
exercised, the amount paid by the Portfolio involved for the underlying
security will be partially offset by the amount of the premium previously paid
to the Portfolio. Premiums from expired options written by a Portfolio and net
gains from closing purchase transactions are treated as short-term capital
gains for federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses.
When-Issued Purchases and Forward Commitments
A Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities
are delivered to the Portfolio on the settlement date. In these cases the
Portfolio may realize a capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Mortgage Backed Securities
Mortgage Backed Securities Generally. Mortgage backed
securities held by the Portfolios represent an ownership interest
in a pool of residential mortgage loans. These securities are
designed to provide monthly payments of interest and principal to
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<PAGE>
the investor. The mortgagor's monthly payments to his lending institution are
"passed-through" to an investor such as the Portfolios. Most issuers or
poolers provide guarantees of payments, regardless of whether or not the
mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance
purchased by the issuers or poolers so that they can meet their obligations
under the policies. Mortgage backed securities issued by private issuers or
poolers, whether or not such securities are subject to guarantees, may entail
greater risk than securities directly or indirectly guaranteed by the U.S.
Government.
Interests in pools of mortgage backed securities differ from
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. Instead, these securities provide a monthly payment which consists
of both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their residential mortgage loans, net of any fees paid. Additional payments
are caused by repayments resulting from the sale of the underlying residential
property, refinancing or foreclosure net of fees or costs which may be
incurred. Some mortgage backed securities are described as "modified
pass-through". These securities entitle the holders to receive all interest
and principal payments owed on the mortgages in the pool, net of certain fees,
regardless of whether or not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the
U.S. Government and was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues
Participation Certificates ("PC's"), which represent interests in mortgages
from FHLMC's national portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal.
The Federal National Mortgage Association ("FNMA") is a U.S.
Government sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban
Development. FNMA purchases residential mortgages from a list of approved
seller/servicers which include state and federally-chartered savings and loan
credit unions and mortgage bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA.
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<PAGE>
The principal guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S
Government, the timely payment of principal and interest on securities issued
by approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of conventional residential mortgage
loans. Pools created by such non-governmental issuers generally offer a higher
rate of interest than government and government-related pools because there
are no direct or indirect government guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance purchased by the issuer. The insurance
and guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
The Trust expects that governmental or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payment may vary or whose terms to maturity may be
shorter than previously customary. As new types of mortgage backed securities
are developed and offered in the market, the Trust may consider making
investments in such new types of securities.
Underlying Mortgages. Pools consist of whole mortgage loans or
participations in loans. The majority of these loans are made to purchasers of
one to four family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Intermediate
Bond and Bond Portfolios may purchase pools of variable rate mortgages
("VRM"), growing equity mortgages ("GEM"), graduated payment mortgages ("GPM")
and other types where the principal and interest payment procedures vary.
VRM's are mortgages which reset the mortgage's interest rate periodically with
changes in open market interest rates. To the extent that a Portfolio is
actually invested in VRM's, its interest income will vary with changes in the
applicable interest rate on pools of VRM's. GPM and GEM pools maintain
constant interest rates, with varying levels of principal repayment over the
life of the mortgage. These different interest and principal payment
procedures should
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<PAGE>
not impact the Portfolios' net asset value since the prices at which these
securities are valued will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included
in the pools. In addition, some mortgages included in pools are insured
through private mortgage insurance companies.
Average Life. The average life of pass-through pools varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. The occurrence of mortgage prepayments
is affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions.
Returns on Mortgage Backed Securities. Yields on mortgage
backed pass-through securities are typically quoted based on the maturity of
the underlying instruments and the associated average life assumption.
Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yields of the
Portfolios. The compounding effect from reinvestments of monthly payments
received by the Portfolios will increase their respective yields to
shareholders, compared to bonds that pay interest semi-annually.
Municipal Securities
As stated in the Prospectuses, the Portfolios may invest in
municipal securities including general obligation securities, revenue
securities, notes, and moral obligation bonds, which are normally issued by
special purpose authorities ("Municipal Securities"). There are, of course,
variations in the quality of Municipal Securities, both within a particular
classification and between classifications, and the yields on Municipal
Securities depend in part on a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Municipal Securities by
Rating Agencies represent their opinions as to the quality of Municipal
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Securities with the same
maturity, interest rate and rating may have different yields while Municipal
Securities with the same maturity and interest rate with different ratings
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<PAGE>
may have the same yield. Subsequent to its purchase by a Portfolio, a
Municipal Security may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Portfolio. The Adviser will
consider such an event in determining whether the Portfolio should continue to
hold the obligation.
The payment of principal and interest on most Municipal
Securities purchased by the Portfolios will depend upon the ability of the
issuers to meet their obligations. The District of Columbia, each state, each
possession and territory of the United States, each of their political
subdivisions, agencies, instrumentalities and authorities and each state
agency of which a state is a member is a separate "issuer" as that term is
used in this Additional Statement and in the Prospectuses. The
non-governmental user of facilities financed by a private activity bond is
also considered to be an "issuer." An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights or remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest or principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Securities held by the Portfolios may
be insured at the time of issuance as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of the
Municipal Securities at the time of original issuance. In the event that the
issuer defaults with respect to interest or principal payments, the insurer
will be notified and will be required to make payment to the bondholders.
There is, however, no guarantee that the insurer will meet its obligations. In
addition, such insurance will not protect against market fluctuations caused
by changes in interest rates and other factors.
Stand-By Commitments
Each Portfolio may acquire "stand-by commitments" with respect
to Municipal Securities it holds. Under a stand-by commitment, a dealer agrees
to purchase, at the Portfolio's option specified Municipal Securities at a
specified price. Stand-by commitments may be exercisable by the Portfolio at
any time before the maturity of the underlying Municipal Securities and may be
sold, transferred or assigned only with the instruments involved.
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<PAGE>
The Portfolios expect that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolios may pay for a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). A Portfolio
will not acquire a stand-by commitment unless immediately after the
acquisition, with respect to 75% of its assets not more than 5% of its total
assets will be invested in instruments subject to a demand feature, including
stand-by commitments, with the same institution.
The Portfolios intend to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the Adviser's opinion,
present minimal credit risks. A Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Portfolios in connection with a "stand-by commitment" will
not be qualitatively different from the risk of loss faced by a person that is
holding securities pending settlement after having agreed to sell the
securities in the ordinary course of business.
The Portfolios will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Securities which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Where a Portfolio pays directly or indirectly for
a stand-by commitment, its cost will be reflected as an unrealized loss for
the period during which the commitment is held and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectuses, the Portfolios are subject to the following investment
limitations which may not be changed without approval of the holders of the
majority of the outstanding shares of the affected Portfolio (as defined under
"Description of Shares" below).
None of the Portfolios may:
1. Purchase or sell real estate, except that each
Portfolio may purchase securities of issuers which deal in real
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estate and may purchase securities which are secured by interests
in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as a Portfolio might be deemed to be
an underwriter upon the disposition of portfolio securities acquired within
the limitation on purchases of restricted securities and except to the extent
that the purchase of obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except for transactions in options on securities
or indices of securities, futures contracts and options on futures contracts,
and in the case of the Short Bond Portfolio, similar investments.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in futures contracts
and related options, (b) with respect to the Short Bond Portfolio, this
investment limitation shall not apply to the Portfolio's transactions in
options on securities or indices of securities and similar instruments, and
(c) each Portfolio may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
6. Purchase securities of companies for the purpose
of exercising control.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that (a) the
Intermediate Bond and Bond Portfolios may, to the extent appropriate to their
respective investment objectives, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may enter into
futures contracts and related options, and (b) the Short Bond Portfolio may,
to the extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into transactions in options on securities or indices of
securities, futures contracts, options on futures contracts and similar
instruments.
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In order to permit the sale of a Portfolio's shares in certain
states, the Trust may make commitments with respect to a Portfolio more
restrictive than the investment policies and limitations described above and
in its Prospectuses. Should the Trust determine that any such commitment is no
longer in the best interests of a particular Portfolio, it will revoke the
commitment by terminating sales of the Portfolio's shares in the state
involved and, in the case of investors in Texas, give notice of such action.
As of the date of this Additional Statement, the Trust has made no such
commitments.
NET ASSET VALUE
"Assets which belong to" a Portfolio consist of the
consideration received upon the issuance of shares of the Portfolio together
with all income, earnings, profits and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any funds
or payments derived from any reinvestment of such proceeds, and a portion of
any general assets of the Trust not belonging to a particular investment
portfolio. Assets belonging to a Portfolio are charged with the direct
liabilities of the Trust which are normally allocated in proportion to the
relative net asset values of all of the Trust's investment portfolios at the
time of allocation. Subject to the provisions of the Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets, with respect to
a Portfolio are conclusive.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are offered and sold on a continuous
basis by the Trust's sponsors and Co-Distributors, FoM and Essex, acting as
agent. As described in their Prospectuses, Class I shares of the Portfolios
are sold primarily to NBD and its affiliated and correspondent banks acting on
behalf of their respective customers. Class A shares of the Portfolios are
sold to the public ("Investors") primarily through financial institutions such
as banks, brokers and dealers. The Co-Distributors may be entitled to the
payment of a sales charge on the sale of Class A shares of the Portfolios as
described in the Prospectuses.
An illustration of the computation of the public offering price
per Class A share of the Portfolios, based on the value of the Portfolios'
total net assets and total number of shares outstanding on March 15, 1996,
is as follows:
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TABLE
<TABLE>
<CAPTION>
Intermediate Short
Bond Bond Bond
Portfolio Portfolio Portfolio
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Assets .................... $ 395,996,370 $ 508,392,506 $ 161,880,880
--------------- --------------- ---------------
Number of Shares Outstanding .. 38,923,097 50,172,782 15,976,543
=============== =============== ===============
Net Asset Value Per Share ..... $ 10.17 $ 10.13 $ 10.13
--------------- --------------- ---------------
Sales Charge, 4.75% of
offering price (4.99%
of net asset value per
share) of Intermediate Bond
and Bond Portfolios and 3.00%
of offering price (3.099% of
net asset value per share of
Short Bond Portfolio .......... $ .51 $ .51 $ .31
--------------- --------------- ---------------
Offering Price to Public ...... $ 10.68 $ 10.64 $ 10.44
=============== =============== ===============
</TABLE>
Under the 1940 Act, the Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when:
(a) trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the SEC; (b) the Exchange is closed for
other than customary weekend and holiday closings; (c) the SEC has by order
permitted such suspension; or (d) an emergency exists as determined by the
SEC. (The Trust may also suspend or postpone the recordation of the transfer
of shares upon the occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectuses
under "Redemption of Shares," the Trust may redeem shares involuntarily to
reimburse the Portfolios for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
Prospectuses from time to time.
The Trust normally redeems shares for cash. However, the
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Trust has elected to be covered by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of net asset value during any 90-day
period for any one shareholder.
Total sales charges paid by shareholders of the Intermediate
Bond, Bond and Short Bond Portfolios for the fiscal
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year ended December 31, 1995 were $7,877, $30,433 and $2,848, respectively.
Total sales charges paid by shareholders of the Intermediate Bond, Bond and
Short Bond Portfolios for the fiscal year ended December 31, 1994 were
$41,775, $203,760 and $0, respectively. Total sales charges paid by
shareholders of the Intermediate Bond and Bond Portfolios for the fiscal year
ended December 31, 1993 were $391,744 and $1,215,391, respectively.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust, which
was amended and restated as of May 1, 1992, authorizes the Board of Trustees
to divide shares into two or more series, each series relating to a separate
portfolio of investments, and divide the shares of any series into two or more
classes. The number of shares of each series and/or of a class within each
series shall be unlimited. The Trust does not intend to issue share
certificates. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of shares of beneficial interest in the
Trust representing interests in the Portfolios. The shares of each Portfolio
are offered in two separate classes: Class I and Class A.
In the event of a liquidation or dissolution of the Trust or an
individual Portfolio, shareholders of a particular Portfolio would be entitled
to receive the assets available for distribution belonging to such Portfolio.
If there are any assets, income, earnings, proceeds, funds or payments, which
are not readily identifiable as belonging to any particular Portfolio, the
Trustees shall allocate them among any one or more of the Portfolios as they,
in their sole discretion, deem fair and equitable.
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the matter. A Portfolio is
affected by a matter unless it is clear that the interests of each Portfolio
in the matter are substantially identical or that the matter does not affect
any interest of the Portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of such Portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together in
the aggregate without regard to particular Portfolios.
-17-
<PAGE>
When used in the Prospectuses or in this Additional Statement,
a "majority" of shareholders means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (1) 67% of the shares
of the Trust or the applicable Portfolio present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy,
or (2) more than 50% of the outstanding shares of the Trust or the applicable
portfolio.
As of March 29, 1996, Trussal & Co., a nominee of NBD's
Trust Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of
record 97.00%, 94.06% and 99.55% of the outstanding shares of the
Intermediate Bond, Bond and Short Bond Portfolios, respectively. The Trustees
and officers of the Trust, as a group, owned less than 1% of the outstanding
shares of the Portfolios. Furthermore, as of March 29, 1996, the following
persons may have beneficially owned 5% or more of the outstanding shares of
the Portfolios:
<TABLE>
<CAPTION>
Percent of
Outstanding
Number of Shares Shares
---------------- -----------
<S> <C> <C>
Bond Portfolio
Henry Ford Investment Management 9,504,320 17.88%
Account
600 Fisher Building
Detroit, MI 48202
Short Bond Portfolio
Comprehensive Health System, Inc. 4,058,447 25.25%
6500 John C. Lodge
Detroit, MI 48202
Kresge Foundation 3,551,158 22.10%
3215 W. Big Beaver
P.O. Box 3151
Troy, MI 48007-3151
</TABLE>
To the Trust's knowledge, there were no persons who
beneficially owned 5% or more of the outstanding shares of the Intermediate
Bond Portfolio as of March 29, 1996.
When issued for payment as described in the Portfolios'
Prospectuses and this Additional Statement, shares of the Portfolios will be
fully paid and non-assessable by the Trust.
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to
-18-
<PAGE>
the Trust or to a shareholder, nor will any such person be liable to any third
party in connection with the affairs of the Trust, except as such liability
may arise from his or its own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions
stated, the Declaration of Trust provides that a Trustee, officer, employee or
agent is entitled to be indemnified against all liability in connection with
the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses are not intended as a substitute
for careful tax planning and is based on tax laws and regulations which are in
effect on the date hereof; such laws and regulations may be changed by
legislative or administrative action. Investors are advised to consult their
tax advisers with specific reference to their own tax situations.
Each Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, a Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain requirements with respect
to the source of its income for a taxable year. At least 90% of the gross
income of a Portfolio must be derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Portfolio's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the
Portfolio's principal business of investing in stock or securities, or options
and futures with respect to stock or securities. Any income derived by a
Portfolio from a partnership or trust is treated as derived with respect to
the Portfolio's business of investing in stock, securities or currencies only
to the extent that such income is attributable to items of income which would
have been qualifying income if realized by the Portfolio in the same manner as
by the partnership or trust.
-19-
<PAGE>
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Portfolio's gross income for
a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by a Portfolio upon maturity or
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Each Portfolio will designate any distribution of long term
capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Portfolio's taxable year.
Shareholders should note that, upon the sale or exchange of Portfolio shares,
if the shareholder has not held such shares for at least six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%, however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum nominal rate of 35% (or at a maximum effective marginal
rate of 39% in the case of corporations having taxable income between $100,000
and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Portfolio intends
to make sufficient distributions or deemed distributions of its ordinary
taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
-20-
<PAGE>
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions (whether or not derived from interest on
Municipal Securities) would be taxable as ordinary income to shareholders to
the extent of the Portfolio's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
Each Portfolio may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure properly to include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Depending upon the extent of the Portfolios' activities in
states and localities in which their offices are maintained, in which their
agents or independent contractors are located or in which they are otherwise
deemed to be conducting business, the Portfolios may be subject to the tax
laws of such states or localities. In addition, in those states and localities
which have income tax laws, the treatment of the Portfolios and their
shareholders under such laws may differ from their treatment under federal
income tax laws.
MANAGEMENT
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth in the
Prospectuses. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
Effective May 1, 1995, each Trustee receives from the Trust and
The Woodward Variable Annuity Fund a total annual fee of $17,000 and a fee of
$2,000 for each Board of Trustees meeting attended. The Chairman is entitled
to additional compensation of $4,250 per year for his services to the Trusts
in that capacity. These fees are allocated among the investment portfolios of
the Trust and The Woodward Variable Annuity Fund based on their relative net
assets. All Trustees are reimbursed for out of pocket expenses incurred in
connection with attendance at
-21-
<PAGE>
meetings. Drinker Biddle & Reath, of which Mr. McConnel is a
partner, receives legal fees as counsel to the Trusts.
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1995:
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Fund and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Fund* Member
- ------------------------------ ------------------- -------------------
<S> <C> <C>
Will M. Caldwell, Trustee $21,250 $21,250(2)+
Nicholas J. DeGrazia, Trustee $21,250 $21,250(2)+
John P. Gould, Trustee *** $30,000(4)+
Earl I. Heenan, Jr., $24,437.50 $24,437.50(2)+
Chairman and President++
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee++ $21,250 $21,250(2)+
Donald G. Sutherland, Trustee++ $21,250 $21,250(2)+
Donald L. Tuttle, Trustee++ $21,250 $21,250(2)+
Eugene C. Yehle, Trustee $21,250 $21,250(2)+
and Treasurer
<FN>
- ----------------------
* Amount does not include reimbursed expenses for attending Board meeting,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Woodward Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Mrs. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of other investment companies within the Fund Complex from
which the Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,500, $21,500 and
$21,500 accrued during The Woodward Funds' fiscal year ended December 31,
1995 for Earl I. Heenan, Jr., Julius L. Pallone, Donald G. Sutherland and
Donald L. Tuttle, respectively.
- --------------------------------
</TABLE>
Investment Adviser
Information about NBD and its duties and compensation as
Adviser is contained in the Prospectuses. For the fiscal years ended December
31, 1995, 1994 and 1993, the Trust paid NBD
-22-
<PAGE>
fees for advisory services as follows: (i) $2,650,418, $2,718,286 and
$2,127,982 with respect to the Intermediate Bond Portfolio; (ii) $3,121,267,
$3,200,907 and $2,588,697 with respect to the Bond Portfolio. For the fiscal
year ended December 31, 1995 and the fiscal period from September 17, 1994
(commencement of operations) through December 31, 1994, the Trust paid NBD
fees for advisory services aggregating $650,298 and $112,091, respectively, on
behalf of the Short Bond Portfolio. For the same periods, NBD reimbursed the
Short Bond Portfolio in the amount of $65,761 and $32,000, respectively, for
certain other expenses.
NBD's own investment portfolio may include bank certificates of
deposit, bankers' acceptances, and corporate debt obligations, any of which
may also be purchased by the Trust. Joint purchase of investments for the
Trust and for NBD's own investment portfolio will not be made. NBD's
Commercial Banking Department may have deposit, loan and other commercial
banking relationships with issuers of securities purchased by the Trust,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities purchased by the Trust.
Investment decisions for the Trust and other fiduciary accounts
are made by NBD's Trust Investment Division solely from the standpoint of the
independent interest of the Trust and such other fiduciary accounts. NBD's
Trust Investment Division performs independent analyses of publicly available
information, the results of which are not made publicly available. In making
investment decisions for the Trust, personnel of NBD's Trust Investment
Division do not obtain information from any other division or department of
NBD or otherwise, which is not publicly available. NBD's Trust Investment
Division executes transactions for the Trust only with unaffiliated dealers
but such dealers may be customers of other divisions of NBD. NBD may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a
pro rata share of the transaction costs incurred in making the bulk purchase.
See "Investment Objectives, Policies and Risk Factors - Portfolio
Transactions" above.
NBD has agreed as Adviser that it will reimburse the Trust such
portions of its fees as may be required to satisfy any expense limitations
imposed by state securities laws or other applicable laws. Restrictive
limitations may be imposed on the Trust as a result of changes in current
state laws and regulations in those states where the Trust has qualified its
shares, or by a decision of the Trustees to qualify the shares in other states
having restrictive expense limitations. To the Trust's knowledge, of the
expense limitations in effect on the date of this Additional Statement none is
more restrictive than
-23-
<PAGE>
two and one-half percent (2-1/2%) of the first $30 million of a Portfolio's
average annual net assets, two percent (2%) of the next $70 million of the
average annual net assets and one and one-half percent (1-1/2%) of the
remaining average annual net assets.
Under the terms of the Advisory Agreement, NBD is obligated to
manage the investment of each Portfolio's assets in accordance with applicable
laws and regulations, including, to the extent applicable, the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers
of national banks. These regulations provide, in general, that assets managed
by a national bank as fiduciary may not be invested in stock or obligations
of, or property acquired from, the bank, its affiliates or their directors,
officers or employees, and further provide that fiduciary assets may not be
sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above.
NBD will not accept Trust shares as collateral for a loan which
is for the purpose of purchasing Trust shares, and will not make loans to the
Trust. Inadvertent overdrafts of the Trust's account with the Custodian
occasioned by clerical error or by failure of a shareholder to provide
available funds in connection with the purchase of shares will not be deemed
to be the making of a loan to the Trust by NBD.
Under the Advisory Agreement, NBD is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of NBD in the performance of its duties or from its
reckless disregard of its duties and obligations under the Agreement.
Shareholder Servicing Plan
As stated in the Prospectus for Class A shares of the
Portfolios, the Trust may enter into Servicing Agreements with Shareholder
Servicing Agents which may include NBD and its affiliates. The Servicing
Agreements provide that the Shareholder Servicing Agents will render
shareholder administrative support services to their customers who are the
beneficial owners of Class A shares in consideration for the Portfolios'
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Class A shares beneficially owned by such customers and held by the
Shareholder Servicing Agents and, at the Trust's option, it may reimburse the
Shareholder Servicing Agents' out-of-pocket expenses. Such services may
include: (i) processing dividend and distribution
-24-
<PAGE>
payments from a Portfolio; (ii) providing information periodically to
customers showing their share positions; (iii) arranging for bank wires; (iv)
responding to customer inquiries; (v) providing subaccounting with respect to
shares beneficially owned by customers or the information necessary for such
subaccounting; (vi) forwarding shareholder communications; (vii) processing
share exchange and redemption requests from customers; (viii) assisting
customers in changing dividend options, account designations and addresses;
and (ix) other similar services requested by the Trust. Banks acting as
Shareholder Servicing Agents are prohibited from engaging in any activity
primarily intended to result in the sale of Class A shares. However,
Shareholder Servicing Agents other than banks may be requested to provide
marketing assistance (e.g., forwarding sales literature and advertising to
their customers) in connection with the distribution of Portfolio shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended in connection with the Trust's arrangements
with Shareholder Servicing Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with
Shareholder Servicing Agents under the Shareholder Servicing Agreements must
be approved by a majority of the Board of Trustees (including a majority of
the Disinterested Trustees).
Custodian and Transfer Agent
As Custodian and as Transfer Agent for the Trust, NBD (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
collects and makes disbursements of money on behalf of each Portfolio, (iii)
issues and redeems shares of each Portfolio, (iv) collects and receives all
income and other payments and distributions on account of the portfolio
securities of each Portfolio, (v) addresses and mails all communications by
the Trust to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy materials for any meeting of shareholders, (vi)
maintains shareholder accounts, (vii) makes periodic reports to the Trust's
Board of Trustees concerning the Trust's operations, and (viii) maintains
on-line computer capability for determining the status of shareholder
accounts.
For its services as Custodian, NBD is entitled to receive from
the Portfolios at the following annual rates based on the aggregate market
value of such Portfolios' portfolio
-25-
<PAGE>
securities, held as Custodian: .03% of the first $20 million; .025% of the
next $20 million; .02% of the next $20 million; .015% of the next $40 million;
.0125% of the next $200 million; and .01% of the balance over $300,000,000.
NBD will receive an annual account fee of $1,000 and $1.54 per month per asset
held in each of these Portfolios. In addition, NBD, as Custodian, is entitled
to receive $50 for each cash statement and inventory statement and $13 for
each pass-through certificate payment, $35 for each option transaction
requiring escrow receipts and $20 for all other security transactions.
For its services as Transfer Agent, NBD is entitled to receive
a minimum annual fee from each Portfolio of $11,000, $15 annually per account
in the Intermediate Bond, Bond and Short Bond Portfolios for the preparation
of statements of account, and $1.00 for each confirmation of purchase and
redemption transactions. Charges for providing computer equipment and
maintaining a computerized investment system are expected to approximate $350
per month for each Portfolio.
Sponsors and Co-Distributors
The Trust's shares are offered on a continuous basis through
FoM and Essex, which act under the Distribution Agreement as sponsors and
Co-Distributors for the Trust. For the fiscal year ended December 31, 1995,
the Intermediate Bond, Bond and Short Bond Portfolios paid FoM for its
services a fee of $20,388, $26,762 and $5,002, respectively. For the fiscal
year ended December 31, 1994, the Intermediate Bond and Bond Portfolios paid
FoM for its services a fee of $17,302 and $20,668, respectively. For the
fiscal year ended December 31, 1993, the Intermediate Bond and Bond Portfolios
paid FoM for its services a fee of $32,525 and $39,354, respectively. For the
fiscal period from September 17, 1994 (commencement of operations) through
December 31, 1994, the Short Bond Portfolio paid FoM for its services a fee of
$377. For the fiscal years ended December 31, 1995, 1994 and 1993, FoM
incurred expenses of $0 with respect to each of the Portfolios for the
printing and mailing of prospectuses to other than current shareholders. For
the fiscal year ended December 31, 1995, the Intermediate Bond, Bond and Short
Bond Portfolio paid Essex a fee for its services of $8,391, $24,725 and $163,
respectively. For the fiscal period from April 20, 1994 (date of Distribution
Agreement with Essex) through December 31, 1994, the Portfolios paid Essex a
fee for its services of $10,763, $27,439 and $537, respectively. For the
fiscal year ended December 31, 1995 and the fiscal period ended December 31,
1994, Essex incurred expenses of $0 with respect to each of the Portfolios.
Additional information concerning fees for services performed by FoM and
Essex, the review of such fees under the Trust's plan for the payment of
distribution expenses and the services provided by FoM and Essex are described
in the Prospectuses.
-26-
<PAGE>
As stated in the Prospectuses, the Trust's Board of Trustees is
permitted, among other things, to allocate distribution fees which are
attributable to the Class A shares in a Portfolio exclusively to such shares.
As of the date hereof, the Board of Trustees has not exercised its discretion
to make any such allocations for the current fiscal year.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 500
Woodward Avenue, Detroit, Michigan 48226-3424, serve as auditors for the
Trust. The financial statements included in this Statement of Additional
Information and the financial highlights included in the Prospectuses have
been audited by Arthur Andersen LLP, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, are counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, yield and total return of each class of
shares of each Portfolio for various periods may be quoted in advertisements,
shareholder reports or other communications to shareholders. Performance
information is generally available by calling 1-(800)688-3350.
Yield Calculations. A Portfolio's yield is calculated by
dividing the Portfolio's net investment income per share (as described below)
earned during a 30-day period by the maximum offering price per share on the
last day of the period and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. A Portfolio's net
investment income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can
be expressed as follows:
-27-
<PAGE>
a-b 6
Yield = 2 [(----- + 1) - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities held by a Portfolio is recognized by accruing 1/360 of the stated
dividend rate of the security each day that the security is in the portfolio.
Each Portfolio calculates interest earned on any debt obligations held in its
portfolio by computing the yield to maturity of each obligation held by it
based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is in the portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market values of such debt obligations.
Undeclared earned income may be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the 30-day base
period, has not been declared as a dividend, but is reasonably expected to be
and is declared as a dividend shortly thereafter.
For the 30-day period ended December 31, 1995, the yields,
calculated as set forth above, of the Intermediate Bond,
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<PAGE>
Bond and Short Bond Portfolios were 5.51%, 5.86% and 5.24%, (taking into
account the deduction of the maximum sales charge) and 5.79%, 6.16% and 5.40%
(without taking into account the deduction of the maximum applicable sales
charge).
Total Return Calculations. Each Portfolio computes its "average
annual total return" for a class by determining the average annual compounded
rates of return during specified periods that equate the initial amount
invested to the ending redeemable value of such investment. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the
number of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, ex-
pressed in terms of years.
The Portfolios compute their aggregate total returns for each
class by determining the aggregate rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable
value of such investment. The formula for calculating aggregate total return
is as follows:
ERV
T = [(------ - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Portfolio's mean or (median) account size for any fees that vary
with the size of the account. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the
hypothetical investment and the
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<PAGE>
deduction of all nonrecurring charges at the end of the period covered by the
computations. Each Portfolio's average annual total return may reflect the
deduction of the maximum sales load imposed on purchases.
The average annual total returns for the Intermediate Bond, Bond
and Short Bond Portfolios for the one year period ended December 31, 1995 (if
applicable) and the period since commencement of operations are shown below:
<TABLE>
<CAPTION>
Average Annual Average Annual Average Annual Average Annual
Total Return Total Return Total Return Total Return
For One Year For One Year From Inception From Inception
Ended 12/31/95 Ended 12/31/95 Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc- (with Deduction (without Deduc-
of Maximum tion for Any of Maximum tion for Any
Sales Charge) Sales Charge) Sales Charge) Sales Charge)
--------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Intermediate Bond Portfolio 13.80% 19.48% 6.65% 7.78%
- ---------------------------
Inception: June 1, 1991
Bond Portfolio 17.86% 23.75% 8.28% 9.43%
- --------------
Inception: June 1, 1991
Short Bond Portfolio 6.77% 10.07% 5.27% 7.78%
- --------------------
Inception: September 17, 1994
</TABLE>
The aggregate annual total returns for the Portfolios for the one
year period ended December 31, 1995 (if applicable) and the period since
commencement of operations are shown below:
<TABLE>
<CAPTION>
Aggregate Total Aggregate Total
Return From Return From
Inception Inception
Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc-
of Maximum tion for Any
Sales Charge) Sales Charge)
---------------- ----------------
<S> <C> <C>
Intermediate Bond Portfolio 34.35% 41.05%
- ---------------------------
Inception: June 1, 1991
Bond Portfolio 44.03% 51.22%
- -----------------
Inception: June 1, 1991
Short Bond Portfolio 6.85% 10.16%
- --------------------
Inception: September 17, 1994
</TABLE>
The Portfolios may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials ("Literature") total return figures that are not calculated
according to the formulas set forth above in order to compare more accurately
a Portfolio's performance with other measures of investment return. For
example, in comparing the Portfolios' total returns with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
-30-
<PAGE>
Weisenberger Investment Company Service, or with the performance of an index,
the Portfolios may calculate their returns for the period of time specified in
the advertisement or communication by assuming the investment of $10,000 in
shares and assuming the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value and
by dividing the remainder by the beginning value. The Portfolios do not, for
these purposes, deduct from the initial value invested any amount representing
sales charges. The Portfolios will, however, disclose the maximum sales charge
and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance
quoted.
The Portfolios may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Portfolio
investment are reinvested by being paid in additional Portfolio shares, any
future income or capital appreciation of a Portfolio would increase the value,
not only of the original Portfolio investment, but also of the additional
Portfolio shares received through reinvestment. As a result, the value of the
Portfolio investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Portfolios may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of a Portfolio
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting rebalancing, or the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic conditions, the relationship between sectors of the
economy as a whole, various securities markets, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Portfolio), as well as the view of the Trust as to current market, economy,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Portfolio. The Portfolios may also include in advertisements
charts, graphs or drawings which compare the investment objective, return
potential, relative stability and/or growth possibilities of the Portfolios
and/or other mutual funds, or illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to,
stocks, bonds, treasury bills and shares of a Portfolio. In addition,
advertisements or shareholder
-31-
<PAGE>
communications may include a discussion of certain attributes or benefits to
be derived by an investment in a Portfolio and/or other mutual funds,
shareholder profiles and hypothetical investor scenarios, timely information
on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
advertisements or communicators may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
-32-
<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely
payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and
other protection factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks,
A-3
<PAGE>
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity
for timely repayment.
"A1" - Obligations are supported by the highest
capacity for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
A-4
<PAGE>
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and
A-5
<PAGE>
principal repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal. The
"B" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality.
They carry the smallest degree of investment risk and are
A-6
<PAGE>
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
(P)... - When applied to forward delivery bonds,
indicates that the rating is provisional pending delivery of the
bonds. The rating may be revised prior to delivery if changes
A-7
<PAGE>
ooccur in the legal documents or the underlying credit quality of
the bonds.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future
A-8
<PAGE>
developments, short-term debt of these issuers is generally rated
"F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A-9
<PAGE>
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned
by Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's
lowest investment grade category and indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB"
A-10
<PAGE>
are, however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
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<PAGE>
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality
and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
APPENDIX B
As stated in their Prospectuses, each of the Portfolios may enter
into futures contracts and related hedging purposes.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Portfolios may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Portfolios presently could accomplish a similar result to that
which they hope to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term
bonds and investing in long-term bonds when interest rates are expected to
decline. However, because of the liquidity that is often available in the
futures market the protection is more likely to be achieved, perhaps at a
lower cost and without changing the rate of interest being earned by the
Portfolio, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Portfolio, as purchaser, to take delivery of
the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date
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<PAGE>
without the making or taking of delivery of securities. Closing out a futures
contract sale is effected by the Portfolio's entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and the same delivery date. If the price in the sale exceeds the
price in the offsetting purchase, the Portfolio is paid the difference and
thus realizes a gain. If the offsetting purchase price exceeds the sale price,
the Portfolio pays the difference and realizes a loss. Similarly, the closing
out of a futures contract purchase is effected by the Portfolio's entering
into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Portfolio realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. The Portfolios would deal only in standardized contracts on
recognized exchanges. Each exchange guarantees performance under contract
provisions through a clearing corporation, a nonprofit organization managed
by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; three-month United States Treasury Bills; and ninety-day commercial
paper. The Portfolios may trade in any futures contract for which there exists
a public market, including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. The Portfolios would engage in
an interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all
of the loss in market value that would otherwise accompany a decline in
long-term securities prices. Assume that the market value of a certain
security in a Portfolio tends to move in concert with the futures market
prices of long-term United States Treasury bonds ("Treasury bonds"). The
Adviser wishes to fix the current market value of this portfolio security
until some point in the future. Assume the portfolio security has a market
value of 100, and the Adviser believes that, because of an anticipated rise in
interest rates, the value will decline to 95. The Portfolio might enter into
futures contract sales of Treasury bonds for an equivalent of 98. If the
market value of the portfolio security does indeed decline from 100 to 95, the
equivalent futures market price for the Treasury bonds might also decline from
98 to 93.
In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to
B-2
<PAGE>
more than 93 or to less than 93 because of the imperfect correlation between
cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
Examples of Futures Contract Purchase. The Portfolios would engage
in an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Portfolio's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Portfolio would be endeavoring at the same time to eliminate the effect of all
or part of an expected increase in market price of the long-term bonds that
the Portfolio may purchase.
For example, assume that the market price of a long-term bond that
the Portfolio may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The Adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the Adviser believes that,
because of an anticipated fall in interest rates, the price will have risen to
105 (and the yield will have dropped to about 9 1/2%) in four months. The
Portfolio might enter into futures contracts purchases of Treasury bonds for
an equivalent price of 98. At the same time, the Portfolio would assign a pool
of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term
bond at an assumed market price of 100. Assume these short-term securities are
yielding 15%. If the market price of the long-term bond does indeed rise from
100 to 105, the equivalent futures market price for Treasury bonds might also
rise from 98 to 103. In that case, the 5-point increase in the price that the
Portfolio pays for the long-term bond would be offset by the 5-point gain
realized by closing out the futures contract purchase.
B-3
<PAGE>
The Adviser could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that the Portfolio would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Portfolio would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The
benefit of this continued incremental income will be reduced by the loss
realized on closing out the futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts
A bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds
included. Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of
the parties to each contract.
The Portfolios may sell index futures contracts in order to offset
a decrease in market value of its portfolio securities that might otherwise
result from a market decline. A Portfolio may do so either to hedge the value
of its portfolio as a whole, or to protect against declines, occurring prior
to sales of securities, in the value of the securities to be sold. Conversely,
the Portfolios may purchase index futures contracts in anticipation of
purchases of securities. In a substantial majority of these transactions, the
Portfolios may purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a
corresponding purchase of securities.
In addition, the Portfolios may utilize index futures
contracts in anticipation of changes in the composition of their
B-4
<PAGE>
portfolio holdings. For example, in the event that a Portfolio expects to
narrow the range of industry groups represented in its holdings it may, prior
to making purchases of the actual securities, establish a long futures
position based on a more restricted index, such as an index comprised of
securities of a particular industry group. The Portfolio may also sell futures
contracts in connection with this strategy, in order to protect against the
possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in bond index futures
(net of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Bond Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Bond Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A BOND PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Bond Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Bond Portfolio-Own Buy 16 Index Futures at 120
Bond with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and the Portfolio had
B-5
<PAGE>
entered into an anticipatory purchase hedge, or market value increased and the
Portfolio had hedged its bond portfolio, the results of the Portfolio's
transactions in bond index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Bond Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Bond Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A BOND PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 =$62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Bond Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Bond Portfolio-Own Buy 16 Index Futures at 130
Bond with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
III. Margin Payments
Unlike when a Portfolio purchases or sells a security, no price is
paid or received by the Portfolio upon the purchase or sale of a futures
contract. Initially, the Portfolio will be required to deposit with the broker
or in a segregated account with the Portfolio's Custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security
B-6
<PAGE>
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied. Subsequent payments,
called variation margin, to and from the broker, will be made on a daily basis
as the price of the underlying security or index fluctuates making the long
and short positions in the futures contract more or less valuable, a process
known as marking to the market. For example, when a Portfolio has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures
contract, the Adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Portfolio involved will experience either a loss or gain on
the future which will not be completely offset by movements in the price of
the securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged and
movements in the price of futures contracts, a Portfolio may buy or sell
futures contracts in a greater dollar amount than the
B-7
<PAGE>
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, of if otherwise deemed to be
appropriate by the Adviser. Conversely, a Portfolio may buy or sell fewer
futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser. It is also possible that, where a Portfolio has
sold futures to hedge its portfolio against a decline in the market, the
market may advance and the value of securities held by the Portfolio may
decline. If this occurred, the Portfolio would lose money on the future and
also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Portfolio then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Portfolio will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value
of the futures contracts (or options), will be deposited in a segregated
account with the Portfolio's Custodian and/or in a margin account with a
broker to collateralize the position and thereby insure that the use of such
futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the securities being hedged, the price of futures may not correlate perfectly
with movement in the cash market due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close
futures contracts through off-setting transactions which could distort the
normal relationship between the cash and futures markets. Second, with respect
to financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and
B-8
<PAGE>
because of the imperfect correlation between the movements in the cash market
and movements in the price of futures, a correct forecast of general market
trends or interest rate movements by the Adviser may still not result in a
successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures. Although a
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may
not be possible to close a futures investment position, and in the event of
adverse price movements, a Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions.
Successful use of futures by a Portfolio is also subject to the
Adviser's ability to predict correctly movements in the direction of the
market. For example, if a Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
B-9
<PAGE>
V. Options on Futures Contracts
The Portfolios may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of
the securities being hedged, an option may or may not be less risky than
ownership of the futures contract or such securities. In general, the market
prices of options can be expected to be more volatile than the market prices
on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Portfolio because
the maximum amount at risk is the premium paid for the options (plus
transaction costs).
VI. Accounting and Tax Treatment
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts held by a Portfolio at the close of
the Portfolio's taxable year will be treated for federal income tax purposes
as sold for their fair market value on the last business day of such year, a
process known as "marking-to-market." Forty percent of any gain or loss
resulting from such constructive sale will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Portfolio holds the
futures contract ("the 40%-60% rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Portfolio in a prior year as a
B-10
<PAGE>
result of the constructive sale of the contracts. With respect to futures
contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Portfolio, losses as to such contracts to sell will be subject to
certain loss deferral rules which limit the amount of loss currently
deductible on either part of the straddle to the amount thereof which exceeds
the unrecognized gain (if any) with respect to the other part of the straddle,
and to certain wash sales regulations. Under short sales rules, which will
also be applicable, the holding period of the securities forming part of the
straddle will (if they have not been held for the long-term holding period) be
deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts, deductions for interest and carrying charges will
not be allowed. Notwithstanding the rules described above, with respect to
futures contracts to sell which are properly identified as such, a Portfolio
may make an election which will exempt (in whole or in part) those identified
futures contracts from being treated for federal income tax purposes as sold
on the last business day of the Portfolio's taxable year, but gains and losses
will be subject to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and
losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40%-60% rule will apply to the net gain or
loss attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated as
long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by a Portfolio may
be subject to the "marking-to-market" process and the 40%-60% rule in a manner
similar to that described in the preceding paragraph for futures contracts. To
receive such federal income tax treatment, a foreign currency contract must
meet the following conditions: (1) the contract must require delivery of a
foreign currency of a type in which regulated futures contracts are traded or
upon which the settlement value of the contract depends; (2) the contract must
be entered into at arm's length at a price determined by reference to the
price in the interbank market; and (3) the contract must be traded in the
interbank market. The Treasury Department has broad authority to issue
regulations under the provisions respecting foreign currency contracts. As of
the date of this Additional Statement, the Treasury Department has not issued
any such regulations.
B-11
<PAGE>
Other foreign currency contracts entered into by a Portfolio may result in the
creation of one or more straddles for federal income tax purposes, in which
case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
As described more fully in "Additional Information Concerning
Taxes", a regulated investment company must derive less than 30% of its gross
income from gains realized on the sale or other disposition of securities and
certain other investments held for less than three months. With respect to
futures contracts and other financial instruments subject to the
marking-to-market rules, the Internal Revenue Service has ruled in private
letter rulings that a gain realized from such a futures contract or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale
under the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date
the contract or instrument is acquired and the termination date. In
determining whether the 30% test is met for a taxable year, increases and
decreases in the value of each Portfolio's futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
B-12
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS: BOND FUND
---------
Investment in securities:
At cost $481,852,916
============
At value (Note 2) $512,978,615
Cash --
Receivable for securities sold 225,826
Interest receivable 5,748,712
Deferred organization costs, net (Note 2) 6,439
Prepaids and other assets 4,113
------------
TOTAL ASSETS 518,963,705
------------
LIABILITIES:
Payable for securities purchased 456,491
Accrued investment advisory fee 283,332
Accrued distribution fees 5,095
Accrued custodial fee 7,282
Dividends payable 582,184
Other payables and accrued expenses 63,742
------------
TOTAL LIABILITIES 1,398,126
------------
NET ASSETS $517,565,579
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 4,952,384
Additional paid-in capital 509,179,119
Accumulated undistributed net investment income 233,362
Accumulated undistributed net realized gains (losses) (27,924,985)
Net unrealized appreciation on investments 31,125,699
------------
TOTAL NET ASSETS $517,565,579
============
Shares of capital stock outstanding 49,523,843
============
Net asset value and redemption price per share $ 10.45
============
Maximum offering price per share $ 10.97
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
INTERMEDIATE SHORT
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
Investment in securities:
At cost $391,716,402 $159,199,919
============ ============
At value (Note 2) $401,008,361 $161,484,092
Cash 231,665 --
Receivable for securities sold -- --
Interest receivable 4,975,654 2,337,249
Deferred organization costs, net (Note 2) 3,565 25,504
Prepaids and other assets 21,456 78,198
----------- ------------
TOTAL ASSETS 406,240,701 163,925,043
----------- ------------
LIABILITIES:
Payable for securities purchased -- 31,588
Accrued investment advisory fee 222,293 89,955
Accrued distribution fees 2,543 714
Accrued custodial fee 6,109 3,255
Dividends payable 632,436 443,656
Other payables and accrued expenses 67,381 19,020
------------ ------------
TOTAL LIABILITIES 930,762 588,188
------------ ------------
NET ASSETS $405,309,939 $163,336,855
============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 3,909,253 $ 1,596,349
Additional paid-in capital 402,590,497 159,350,652
Accumulated undistributed net investment income 291,887 65,478
Accumulated undistributed net realized gains (losses (10,773,659) 40,203
Net unrealized appreciation on investments 9,291,959 2,284,173
------------ ------------
TOTAL NET ASSETS $405,309,939 $163,336,855
============ ============
Shares of capital stock outstanding 39,092,534 15,963,488
============ ============
Net asset value and redemption price per share $ 10.37 $ 10.23
============ ============
Maximum offering price per share $ 10.89 $ 10.55
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
BOND FUND
---------
<S> <C>
INTEREST INCOME (Note 2) $ 34,039,591
------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 3,121,267
Distribution fees 51,487
Professional fees 69,263
Custodial fee 80,898
Transfer and dividend disbursing agent fees 38,611
Amortization of deferred organization costs 15,455
Marketing expenses 43,247
Security pricing services 13,033
Registration, filing fees and other expenses 118,444
Less:
Expense reimbursement --
------------
NET EXPENSES 3,551,705
------------
NET INVESTMENT INCOME 30,487,886
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) (1,566,826)
Net change in unrealized appreciation on
investments 72,514,668
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 70,947,842
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $101,435,728
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
INTERMEDIATE SHORT
BOND FUND BOND FUND
------------ ------------
<S> <C> <C>
INTEREST INCOME (Note 2) $27,227,503 $6,498,945
----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 2,650,418 650,298
Distribution fees 28,779 5,165
Professional fees 67,806 67,810
Custodial fee 71,081 31,613
Transfer and dividend disbursing agent fees 18,952 4,585
Amortization of deferred organization costs 8,555 6,801
Marketing expenses 39,826 32,438
Security pricing services 13,033 13,033
Registration, filing fees and other expenses 79,582 2,375
Less:
Expense reimbursement -- (65,761)
----------- ----------
NET EXPENSES 2,978,032 748,357
----------- ----------
NET INVESTMENT INCOME 24,249,471 5,750,588
----------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) (4,126,208) 97,446
Net change in unrealized appreciation on
investments 52,637,906 3,290,608
----------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 48,511,698 3,388,054
----------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $72,761,169 $9,138,642
=========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
BOND FUND
------------------------------
Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 30,487,886 $ 30,959,603
Net realized gains (losses) (1,566,826) (17,468,162)
Net change in unrealized appreciation
(depreciation) on investments 72,514,668 (49,072,055)
------------ ------------
Net increase (decrease) in net assets from
operations 101,435,728 (35,580,614)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (31,071,705) (30,287,702)
From realized gains -- (1,125,200)
------------ ------------
Total distributions (31,071,705) (31,412,902)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 81,776,844 136,836,769
Net asset value of shares issued in reinvestment
of distributions to shareholders 24,963,507 26,773,071
------------ ------------
106,740,351 163,609,840
Less: payments for shares redeemed (86,707,190) (170,644,207)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions 20,033,161 (7,034,367)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 90,397,184 (74,027,883)
NET ASSETS:
Beginning of period 427,168,395 501,196,278
------------ ------------
End of period $517,565,579 $427,168,395
============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 8,355,987 13,838,356
Shares issued in reinvestment of distributions
to shareholders 2,525,870 2,798,104
------------ ------------
10,881,857 16,636,460
Less: shares redeemed (8,790,418) (17,749,867)
------------ ------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 2,091,439 (1,113,407)
CAPITAL SHARES:
Beginning of period 47,432,404 48,545,811
------------ ------------
End of period 49,523,843 47,432,404
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
INTERMEDIATE SHORT
BOND FUND BOND FUND
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 24,249,471 $ 23,804,528 $ 5,750,588 $ 1,090,862
Net realized gains (losses) (4,126,208) (3,493,275) 97,446 (31,726)
Net change in unrealized appreciation
(depreciation) on investments 52,637,906 (47,966,003) 3,290,608 (1,006,435)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations 72,761,169 (27,654,750) 9,138,642 52,701
------------ ------------ ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (24,265,050) (23,538,862) (5,697,455) (1,078,517)
From realized gains -- (325,750) (25,517) --
------------ ------------ ------------ ------------
Total distributions (24,265,050) (23,864,612) (5,722,972) (1,078,517)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 47,268,989 108,142,125 114,313,557 74,761,056
Net asset value of shares issued in reinvestment
of distributions to shareholders 19,077,115 19,356,266 3,924,968 941,812
------------ ------------ ------------ ------------
66,346,104 127,498,391 118,238,525 75,702,868
Less: payments for shares redeemed (102,551,452) (112,749,718) (22,556,503) (10,437,889)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
capital share transactions (36,205,348) 14,748,673 95,682,022 65,264,979
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 12,290,771 (36,770,689) 99,097,692 64,239,163
NET ASSETS:
Beginning of period 393,019,168 429,789,857 64,239,163 --
------------ ------------ ------------ ------------
End of period $405,309,939 $393,019,168 $163,336,855 $ 64,239,163
============ ============ ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 4,818,378 10,895,776 11,284,693 7,483,171
Shares issued in reinvestment of distributions
to shareholders 1,922,824 1,990,229 388,668 95,210
------------ ------------ ------------ ------------
6,741,202 12,886,005 11,673,361 7,578,381
Less: shares redeemed (10,335,186) (11,494,626) (2,236,808) (1,051,446)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (3,593,984) 1,391,379 9,436,553 6,526,935
CAPITAL SHARES:
Beginning of period 42,686,518 41,295,139 6,526,935 --
------------ ------------ ------------ ------------
End of period 39,092,534 42,686,518 15,963,488 6,526,935
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 5.47%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $16,559,026 $ 16,559,026
Nikko Securities, Revolving Repurchase Agreement,
5.90%, 1/2/96 (secured by various U.S. Treasury
Bills with maturities ranging from 9/19/96
through 10/17/96, and U.S. Treasury Notes with
maturities ranging from 5/31/96 through 8/15/00,
all held at the Bank of New York) 11,500,000 11,500,000
-----------
(Cost $28,059,026) 28,059,026
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 82.21%
U.S. Treasury Securities -- 36.90%
Principal Strip from U.S. Treasury Securities
due:
8/15/98 1,500,000 1,309,425
2/15/99 7,450,000 6,332,128
11/15/18 61,840,000 15,020,318
8/15/20 55,640,000 12,111,715
5/15/18 3,720,000 932,976
5/15/05 3,950,000 2,324,614
Strip from U.S. Treasury Securities due:
5/15/98 1,800,000 1,592,856
11/15/98 1,700,000 1,464,992
2/15/99 3,355,000 2,851,146
2/15/11 4,525,000 1,832,172
5/15/11 9,338,000 3,716,898
2/15/12 4,555,000 1,721,061
5/15/13 10,594,000 3,684,064
2/15/14 8,950,000 2,962,897
U.S. Treasury Bonds:
12.750%, 11/15/10 9,000,000 13,708,080
10.375%, 11/15/12 8,830,000 12,207,475
U.S. Treasury Notes:
7.375%, 5/15/96 5,001,000 5,039,308
6.125%, 7/31/96 1,000,000 1,004,840
8.000%, 10/15/96 4,400,000 4,490,728
7.250%, 11/15/96 3,890,000 3,954,418
6.750%, 2/28/97 2,100,000 2,135,763
8.500%, 4/15/97 3,505,000 3,645,761
8.500%, 5/15/97 3,130,000 3,263,995
6.750%, 5/31/97 1,000,000 1,020,620
8.625%, 8/15/97 18,900,000 19,892,250
8.750%, 10/15/97 6,150,000 6,518,016
8.875%, 11/15/97 8,780,000 9,345,169
7.875%, 1/15/98 12,592,000 13,231,422
8.125%, 2/15/98 3,000,000 3,172,500
7.875%, 4/15/98 16,125,000 17,027,032
5.375%, 5/31/98 4,000,000 4,013,120
6.875%, 7/31/99 7,410,000 7,780,500
-----------
(Cost $174,104,991) 189,308,259
-----------
Agency Obligations -- 45.31%
Federal Home Loan Mortgage Corp. Participation
Ctfs.:
#170269, 12.000%, 8/1/15 1,938,783 2,173,246
#200070, 7.500%, 4/1/02 314,427 321,520
#274081, 7.500%, 7/1/16 95,532 97,744
#289711, 7.500%, 4/1/17 171,732 175,599
#555238, 12.000%, 7/1/19 887,323 994,945
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.000%, 7/15/18 1,255,907 1,288,962
Series 11 Class D, 9.500%, 7/15/19 1,500,000 1,669,289
Series 22 Class C, 9.500%, 4/15/20 1,104,876 1,251,748
Series 23 Class E, 9.400%, 8/15/19 823,046 849,687
Series 23 Class F, 9.600%, 4/15/20 1,150,000 1,283,652
Series 32 Class B, 9.500%, 8/15/19 1,000,494 1,020,613
Series 38 Class C, 9.500%, 1/15/19 596,952 612,735
Series 41 Class I, HB, 84.000%, 5/15/20 141,037 331,436
Series 47 Class F, 10.000%, 6/15/20 500,000 559,415
Series 51 Class D, 10.000%, 5/15/19 802,603 807,105
Series 56 Class E, 9.600%, 5/15/20 2,220,582 2,215,606
Series 82 Class D, 8.900%, 10/15/20 1,000,000 1,018,119
Series 99 Class Z, 9.500%, 1/15/21 2,181,715 2,347,545
Series 129 Class E, 8.850%, 6/15/09 3,500,000 3,565,136
Series 134 Class B, IO, 9.000%, 8/15/22 1,177,894 265,026
Series 204 Class E, HB, IF, 5/15/23 21,745 478,384
Series 1022 Class G, 8.000%, 2/15/19 696,411 699,815
Series 1045 Class G, HB, 1066.2085%, 2/15/21 5,071 135,144
Series 1051 Class D, 7.000%, 11/15/19 1,429,602 1,447,085
Series 1065 Class J, 9.000%, 4/15/21 2,000,000 2,175,618
Series 1072 Class A, HB, 1008.500%, 5/15/06 35,279 697,117
Series 1079 Class S, IF, 5/15/21 1,332,679 1,501,756
Series 1084 Class F, AR, 5/15/21 2,000,000 2,039,918
Series 1084 Class S, IF, 5/15/21 1,400,000 1,820,000
Series 1089 Class C, IO, IF, 6/15/21 91,366 1,000,233
Series 1098 Class M, HB, 10.080%, 6/15/06 15,632 326,711
Series 1144 Class KB, 8.500%, 9/15/21 2,000,000 2,117,078
Series 1172 Class L, HB, 1167.776%, 11/15/21 21,071 611,045
Series 1196 Class B, HB, IF, 1/15/22 93,403 934,965
Series 1295 Class JB, 4.500%, 3/15/07 2,400,000 2,173,605
Series 1297 Class H, 7.500%, 1/15/20 1,699,404 1,741,021
Series 1298 Class L, HB, 981.8667, 6/15/07 9,000 328,500
Series 1329 Class S, IO, IF, 8/15/99 5,014,742 269,542
Series 1360 Class PK, 10.000%, 12/15/20 2,500,000 2,869,872
Series 1370 Class F, 6.750%, 3/15/19 600,000 606,329
Series 1378 Class H, 10.000%, 1/15/21 1,500,000 1,728,119
Series 1378 Class JZ, 7.500%, 11/15/21 2,280,849 2,318,934
Series 1418 Class B, 6.500%, 11/15/19 2,250,000 2,253,062
Series 1456 Class G, 6.500%, 12/15/18 6,500,000 6,506,818
Series 1465 Class SA, IO, IF, 2/15/08 29,155,288 1,439,397
Series 1483 Class E, 6.500%, 2/15/20 3,150,000 3,148,138
Series 1489 Class L, 5.500%, 4/15/08 2,087,129 2,036,306
Series 1506 Class F, AR, 5/15/08 1,632,714 1,640,877
Series 1506 Class S, IF, 5/15/08 583,112 530,632
Series 1506 Class SD, IO, IF, 5/15/08 27,449,198 1,269,525
Series 1508 Class KB, IO, IF, 5/15/23 8,872,418 571,118
Series 1531 Class K, 6.000%, 4/15/08 1,127,152 1,093,314
Series 1554 Class KA, PO, 8/15/08 927,383 736,685
Series 1583 Class NS, IF, 9/15/23 1,270,128 939,895
Series 1585 Class NB, IF, 9/15/23 2,271,596 1,839,993
Series 1586 Class A, 6.000%, 9/15/08 1,478,062 1,422,175
Series 1595 Class S, IO, IF, 10/15/11 14,871,975 604,100
Series 1604 Class SE, IF, 11/15/08 701,374 561,099
Series 1628 Class S, IF, 12/15/23 2,550,000 1,606,500
Series 1640 Class A, 5.500%, 10/15/07 1,102,202 1,073,455
Series 1655 Class F, AR, 12/15/08 1,494,755 1,483,544
Series 1655 Class SA, IF, 12/15/08 344,875 257,146
Series 1681 Class K, 7.000%, 8/15/23 1,115,049 1,090,606
Series 1686 Class SH, IF, 2/15/24 1,535,892 1,132,720
Series 1689 Class SD, IF, 10/15/23 1,725,000 1,535,250
Series 1694 Class SE, IF, 5/15/23 1,418,419 1,290,761
Series 1706 Class LA, 7.000%, 3/15/24 5,227,604 5,121,740
Series 1757-A Class A, 9.500%, 5/15/23 3,532,192 3,757,369
Series 1796-A, Class S, IF, 2/15/09 1,000,000 755,000
Series 1798-B, Class C, 6.500%, 3/15/08 2,250,000 2,200,073
GNMA Series 29 Class SD, IO, IF, 4/25/24 24,545,249 613,631
Federal Housing Administration Merrill Lynch
Project Pool 170 Pass Thru Ctfs., 7.430%,
8/1/20 1,368,496 1,413,821
Federal National Mortgage Assn. Mortgage Backed
Securities,
Stripped Trust:
23, Class 2, IO, 10.000%, 9/1/17 1,348,966 346,521
50, Class 2, IO, 10.500%, 3/25/19 180,863 46,912
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #44699, 7.000%, 4/1/17 350,441 355,329
Pool #50966, 7.000%, 1/1/24 2,047,461 2,068,364
Pool #70226, AR, 1/1/19 603,874 604,629
Pool #116612, AR, 3/1/19 2,562,238 2,651,219
Pool #160330, 6.345%, 3/1/99 2,391,211 2,433,057
Pool #303306, 12.500%, 1/1/16 2,182,598 2,515,988
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 841,800 897,829
1988 Class 17-B, 9.400%, 10/25/17 736,900 760,273
1989 Class 27-D, 10.000%, 1/25/16 827,434 852,744
1989 Class 34-E, 9.850%, 8/25/14 1,000,000 1,066,785
1989 Class 69-G, 7.600%, 10/25/19 2,250,000 2,321,397
1989 Class 70-G, 8.000%, 10/25/19 2,000,000 2,122,378
1989 Class 73-C, PO, 10/25/19 1,299,464 1,015,206
1989 Class 78-H, 9.400%, 11/25/19 1,250,000 1,393,024
1990 Class 1-D, 8.800%, 1/25/20 3,200,000 3,400,189
1990 Class 60-K, 5.500%, 6/25/20 750,000 713,669
1990 Class 63-H, 9.500%, 6/25/20 900,000 1,003,301
1990 Class 93-G, 5.500%, 8/25/20 1,500,000 1,427,669
1990 Class 94-H, HB, 505.000%, 8/25/20 36,402 527,832
1990 Class 95-J, HB, 1118.040%, 8/25/20 20,445 654,236
1990 Class 102-J, 6.500%, 8/25/20 4,000,000 3,990,276
1990 Class 106-H, 8.500%, 1/25/19 1,135,711 1,137,731
1990 Class 134-SC, IF, 11/25/20 1,210,648 1,325,659
1990 Class 140-K, HB, 652.1454%, 12/25/20 23,237 426,391
1991 Class 4-N, HB, 758.750%, 1/25/06 11,237 162,935
1991 Class 7-K, HB, 908.500%, 2/25/21 8,010 172,206
1991 Class 33-J, HB, 1008.250%, 4/25/06 10,292 206,673
1991 Class 55-G, HB, 1148.550%, 2/25/05 3,554 14,215
1991 Class 144-PZ, 8.500%, 6/25/21 2,134,822 2,258,319
1992 Class 13-S, HB, IF, 1/25/99 35,593 263,385
1992 Class 135-LC, 7.500%, 9/25/07 1,000,000 1,035,809
1992 Class 137-BA, 3.500%, 1/25/17 2,297,663 2,212,970
1992 Class 199-S, IO, IF, 11/25/99 13,023,680 577,861
1992 Class 204-B, 6.000%, 10/25/20 4,300,000 4,160,418
1993 Class 8-SB, IO, IF, 8/25/06 16,001,583 729,992
1993 Class 12-S, IO, IF, 2/25/23 7,558,799 481,873
1993 Class 12-SB, HB, IF, 2/25/23 59,767 552,847
1993 Class 13-G, 6.000%, 6/25/20 2,000,000 1,962,738
1993 Class 15-K, 7.000%, 2/25/08 792,410 788,415
1993 Class 19-G, 5.000%, 5/25/19 3,265,000 3,096,457
1993 Class 32-K, 6.000%, 3/25/23 1,888,847 1,816,240
1993 Class 38-S, IO, IF, 11/25/22 33,215,974 913,439
1993 Class 44-S, IO, IF, 4/25/23 11,772,196 518,683
1993 Class 58-J, 5.500%, 4/25/23 2,065,801 1,930,512
1993 Class 94-K, 6.750%, 5/25/23 1,299,186 1,271,473
1993 Class 113-S, IO, IF, 7/25/23 8,861,933 509,561
1993 Class 139-SG, IF, 8/25/23 3,450,311 2,675,060
1993 Class 152-D, PO, 8/25/23 1,000,000 785,000
1993 Class 155-LA, 6.500%, 5/25/23 4,166,134 4,109,970
1993 Class 155-SB, IO, IF, 9/25/23 10,689,381 581,182
1993 Class 156-SD, IF, 10/25/19 1,250,000 900,000
1993 Class 167-S, IF, 9/25/23 1,776,420 1,314,551
1993 Class 190-SE, IF, 10/25/08 1,719,713 1,336,526
1993 Class 207-SC, IF, 11/25/23 3,435,541 2,507,945
1993 Class 209-KB, 5.659%, 8/25/08 3,632,376 3,466,773
1993 Class 214-L, 6.000%, 12/25/08 838,760 829,005
1993 Class 220-SD, IF, 11/25/13 2,087,684 1,622,506
1993 Class 223-FB, AR, 12/25/23 5,732,752 5,646,761
1993 Class 223-SB, IF, 12/25/23 2,901,860 2,321,488
1993 Class X-225C VO, IF, 12/25/22 1,600,000 1,456,000
1994 Class 8-G, PO, 11/25/23 2,249,815 1,631,116
1994 Class 19-C, 5.000%, 1/25/24 2,519,478 2,329,230
1994 Class 26-G, PO, 2/25/24 2,278,569 1,458,284
1994 Class 30-LA, 6.500%, 2/25/09 1,953,476 1,929,623
1994 Class 36-SG, IO, IF, 8/25/23 7,651,123 399,236
1994 Class 36-SE, IF, 11/25/23 2,061,342 1,649,073
1994 Class 39-F, AR, 3/25/24 1,133,152 1,125,356
1994 Class 39-S, IF, 3/25/24 435,828 387,067
1994 Class 53-CA, PO, 11/25/23 2,500,000 1,731,250
1994 Class 59-PK, 6.000%, 3/25/24 1,766,334 1,717,140
1994 Class 82-SA, IO, IF, 5/25/23 41,672,922 1,119,751
1995 Class 13-B, 6.500%, 3/25/09 3,457,934 3,381,203
1995 Class XG1C C, 8.800%, 1/25/25 1,000,000 1,096,116
1992-G Class 15-Z, 7.000%, 1/25/22 1,633,455 1,588,745
1992-G Class 27-SQ, HB, IF, 5/25/22 7,749 1,118,615
1992-G Class 42-Z, 7.000%, 7/25/22 1,644,947 1,620,098
1992-G Class 59-C, 6.000%, 12/25/21 1,300,000 1,261,831
1992-G Class 61-Z, 7.000%, 10/25/22 1,028,251 946,207
1993-G Class 19-K, 6.500%, 6/25/19 2,208,259 2,169,833
1993-G Class 27-SE, IF, 8/25/23 1,343,715 863,337
1994-G Class 13-ZB, 7.000%, 11/17/24 2,359,038 2,258,067
Government National Mortgage Assn. Pass Thru
Securities
Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22 7,700,000 490,875
Government National Mortgage Assn. Pass Thru
Pool:
#023594, 8.500%, 7/15/08 453,589 479,352
#190923, 9.000%, 12/15/16 445,009 474,753
#297628, 8.000%, 9/15/22 3,428,413 3,581,557
#313110, 7.500%, 11/15/22 2,076,338 2,140,142
#345288, 7.500%, 3/15/23 852,574 878,329
International Bank For Reconstruction &
Development, 2/15/15 2,000,000 576,830
------------
(Cost $217,452,161) 232,446,081
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 421,754,340
------------
(Cost $391,557,152)
CORPORATE BONDS AND NOTES -- 9.07%
Finance -- 7.54%
American Express Co., 11.625%, 12/12/00 1,400,000 1,562,750
Associates Corp. of North America:
9.125%, 4/1/00 2,350,000 2,652,372
8.150%, 8/1/09 3,085,000 3,516,838
Chase Manhattan Grantor Trust, Series 95-B,
5.900%, 11/15/01 1,692,081 1,702,943
Collaterized Mortgage Obligation Trust CMO:
Series 10, Class Z, 8.950%, 12/1/16 3,070,227 3,121,344
Series 12, Class D, 9.500%, 2/1/17 889,933 953,517
Series 16, Class Q, 14.750%, 3/20/18 491,993 521,513
Ford Credit Grantor Trust, Series 94-A, 6.350%,
5/15/99 2,040,088 2,061,344
Ford Motor Credit Co., 9.625%, 2/27/96 2,150,000 2,161,761
General Motors Acceptance Corp. Medium Term Note,
7.550%, 1/14/97 2,500,000 2,550,125
Government National Mortgage Assn. Backed Trust I
CMO, Class A, Zero Coupon, PO, 5/20/17 354,912 278,101
Kidder Peabody Mortgage Assets Trust CMO, Series
24 Class E, 8.940%, 4/1/19 1,125,000 1,162,405
Merrill Lynch Trust Series 43 Class E CMO 6.500%,
8/27/15 4,000,000 3,979,956
Morgan Stanley Mortgage Trust CMO:
Series 35-2, HB, IF, 4/20/21 5,248 760,996
Series 37-2, HB, IF, 7/20/21 5,996 779,480
Series 39-3, PO, 12/20/21 999,131 815,851
PaineWebber CMO Trust:
Series H-4, 8.750%, 4/1/18 1,030,480 1,080,241
Series P-4, 8.500%, 8/1/19 2,479,357 2,620,405
Rural Housing Trust 1987-1 Sr. Mortgage Pass Thru
Ctf., Class 3-B, 7.330%, 4/1/26 1,199,436 1,225,594
Shearson Lehman, Inc. CMO, Mortgage Backed
Sequential Pay Bond, Series U, Sequence U-1,
8.750%, 8/27/17 322,556 325,249
Standard Credit Card Master Trust Asset Backed
Ctf., Series 1995-5, Class A, Adjustable Rate,
5/8/00 2,000,000 2,000,620
Toyota Auto Receivables Grantor Trust, Series
95-A Class A, 5.850%, 3/15/01 1,314,302 1,320,767
World Omni Automobile LSE SEC Trust, Series 95-5
Class A, 6.050%, 11/25/01 1,500,000 1,513,619
------------
(Cost $39,352,083) 38,667,791
------------
Industrial -- 1.24%
Boeing Co., 7.950%, 8/15/24 1,730,000 2,036,573
Dominos Pizza Funding Corp., Series A, Adjustable
Rate, 4/1/96 995,000 1,005,235
General Motors Corp., 8.800%, 3/1/21 2,695,000 3,321,668
------------
(Cost $5,521,130) 6,363,476
------------
Public Utility -- 0.29%
Nippon Telegraph & Telephone Corp., 9.500%,
7/27/98 1,355,000 1,479,850
------------
(Cost $1,447,437)
TOTAL CORPORATE BONDS AND NOTES 46,511,117
------------
(Cost $46,320,650)
FOREIGN -- 3.25%
African Development Bank Note, 9.300%, 7/1/00 1,572,000 1,784,786
Kingdom of Belgium Put Euro Dollar, 9.200%, 6/28/10 2,000,000 2,542,500
Metropolis of Tokyo, 8.700%, 10/05/99 2,250,000 2,483,620
National Australia Bank Ltd, 9.700%, 10/15/98 800,000 879,136
Province of Ontario, 15.750%, 3/15/12 1,415,000 1,653,031
Province of Ontario Eurobond, 7.000%, 1/27/99 4,300,000 4,461,250
Province of Quebec, 9.125%, 8/22/01 2,515,000 2,849,809
------------
(Cost $15,916,088) 16,654,13
------------
TOTAL INVESTMENTS $512,978,615
============
(Cost $481,852,916)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
(a) The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $1,496,849. The book cost of certain IO and HB securities
includes a write down in the amount of $6,056,100 taken during 1993 to
properly state the net realizable value of the securities. The write down
results in a lower cost of investments than the tax cost disclosed in Note
4 in Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 3.30%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $8,248,085 $ 8,248,085
Nikko Securities, Revolving Repurchase Agreement,
5.90%, 1/2/96 (secured by various U.S. Treasury
Bills with maturities ranging fom 9/19/96 through
10/17/96, and U.S. Treasury Notes with maturities
ranging from 5/31/96 through 8/15/00, all held at
the Bank of New York) 5,000,000 5,000,000
------------
(Cost $13,248,085) 13,248,085
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 85.73%
U.S. Treasury Securities -- 47.10%
Principal Strip from U.S. Treasury Securities
due:
2/15/99 6,900,000 5,864,655
Strip from U.S. Treasury Securities due:
5/15/98 6,600,000 5,840,472
11/15/98 7,600,000 6,549,376
2/15/99 2,760,000 2,345,503
5/15/05 5,660,000 3,330,967
8/15/08 6,350,000 3,046,667
2/15/09 4,300,000 1,996,318
U.S. Treasury Bonds:
12.750%, 11/15/10 6,731,000 10,252,121
10.375%, 11/12/12 4,800,000 6,636,000
U.S. Treasury Notes:
7.375%, 5/15/96 540,000 544,136
6.125%, 7/31/96 1,000,000 1,004,840
7.250%, 11/15/96 2,000,000 2,033,120
6.750%, 2/28/97 5,000,000 5,085,150
8.500%, 4/15/97 11,640,000 12,107,462
6.875%, 4/30/97 10,000,000 10,206,200
8.500%, 5/15/97 11,470,000 11,961,031
6.750%, 5/31/97 2,000,000 2,041,240
8.625%, 8/15/97 3,000,000 3,157,500
8.750%, 10/15/97 9,950,000 10,545,408
8.875%, 11/15/97 19,985,000 21,271,434
7.875%, 1/15/98 23,710,000 24,913,994
8.125%, 2/15/98 8,300,000 8,777,250
7.875%, 4/15/98 12,425,000 13,120,055
5.125%, 4/30/98 3,320,000 3,313,260
5.375%, 5/31/98 4,500,000 4,514,760
6.875%, 7/31/99 8,000,000 8,400,000
------------
(Cost $185,580,125) 188,858,919
------------
Agency Obligations -- 38.63%
Federal Home Loan Mortgage Corp. Participation
Ctf.:
#170269, 12.000%, 8/01/15 1,533,401 1,718,840
#252600, 7.500%, 9/1/08 369,227 379,170
#252601, 8.000%, 6/1/01 389,128 400,802
#555238, 12.000%, 7/1/19 673,464 755,147
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.000%, 7/15/18 1,998,034 2,050,621
Series 11 Class D, 9.500%, 7/15/19 500,000 556,429
Series 14 Class A, 9.000%, 12/15/19 44,298 44,434
Series 18 Class A, 9.000%, 11/15/19 80,381 80,707
Series 23 Class E, 9.400%, 8/15/19 548,697 566,458
Series 30 Class C, 9.500%, 5/15/18 731,331 747,009
Series 32 Class B, 9.500%, 8/15/19 2,718,733 2,773,404
Series 38 Class C, 9.500%, 1/15/19 397,968 408,490
Series 39 Class E, 10.000%, 10/15/19 876,507 898,953
Series 41 Class I, HB, 84.000%, 5/15/20 105,777 248,577
Series 47 Class F, 10.000%, 6/15/20 500,000 559,415
Series 51 Class D, 10.000%, 5/15/19 525,068 528,013
Series 56 Class E, 9.600%, 5/15/20 2,599,353 2,593,528
Series 63 Class F, 9.350%, 10/15/19 315,973 320,447
Series 82 Class D, 8.900%, 10/15/20 700,000 712,683
Series 99 Class Z, 9.500%, 1/15/21 2,181,715 2,347,545
Series 115 Class G, 9.000%, 3/15/18 684,605 683,762
Series 129 Class E, 8.850%, 6/15/09 2,700,000 2,750,248
Series 191 Class D, 9.000%, 9/15/21 203,506 203,398
Series 204 Class E, HB, IF, 5/15/23 7,008 154,175
Series 1022 Class G, 8.000%, 2/15/19 654,626 657,826
Series 1072 Class A, HB, 1008.500%, 5/15/06 23,438 463,139
Series 1079 Class S, IF, 5/15/21 999,510 1,126,317
Series 1084 Class F, AR, 5/15/21 500,000 509,979
Series 1084 Class S, IF, 5/15/21 350,000 455,000
Series 1098 Class M, HB, 10.080%, 6/15/06 3,474 72,602
Series 1144 Class KB, 8.500%, 9/15/21 2,000,000 2,117,078
Series 1172 Class L, HB, 1167.776%, 11/15/21 18,197 527,720
Series 1196 Class B, HB, IF, 1/15/22 61,111 611,721
Series 1295 Class JB, 4.500%, 3/15/07 1,500,000 1,358,503
Series 1298 Class L, HB, 981.86%, 6/15/07 6,000 219,000
Series 1329 Class S, IO, IF, 8/15/99 4,297,785 231,006
Series 1360 Class PK, 10.000%, 12/15/20 2,000,000 2,295,898
Series 1378 Class H, 10.000%, 1/15/21 1,500,000 1,728,119
Series 1418 Class B, 6.500%, 11/15/19 1,250,000 1,251,701
Series 1456 Class G, 6.500%, 12/15/18 3,000,000 3,003,147
Series 1465 Class SA, IO, IF, 2/15/08 26,873,569 1,326,748
Series 1489 Class L, 5.500%, 4/15/08 1,744,840 1,702,351
Series 1506 Class F, AR, 5/15/08 1,088,476 1,093,918
Series 1506 Class SD, IO, IF, 5/15/08 15,122,475 699,414
Series 1506 Class S, IF, 5/15/08 388,742 353,755
Series 1508 Class KB, IF, 5/15/23 4,613,657 296,981
Series 1531 Class K, 6.000%, 4/15/08 1,040,448 1,009,212
Series 1583 Class NS, IF, 9/15/23 982,727 727,218
Series 1585 Class NB, IF, 9/15/23 2,513,255 2,035,737
Series 1586 Class A, 6.000%, 9/15/08 1,377,285 1,325,208
Series 1595 Class S, IO, IF, 10/15/13 20,963,156 851,523
Series 1628 Class S, IF, 12/15/23 2,500,000 1,575,000
Series 1640 Class A, 5.500%, 10/15/07 1,992,442 1,940,477
Series 1655 Class F, AR, 12/15/08 970,128 962,852
Series 1655 Class SA, IF, 12/15/08 223,945 166,978
Series 1689 Class SD, IF, 10/15/23 1,500,000 1,335,000
Series 1694 Class SE, IF, 5/15/23 1,086,730 988,924
Series 1706 Class LA, 7.000%, 3/15/24 3,400,068 3,331,213
Series 1757-A Class A, 9.500%, 5/15/23 2,649,144 2,818,027
Series 1796-A, Class S, IF, 2/15/09 1,391,843 1,050,841
GNMA Series 29 Class SD, IO, IF, 4/25/24 14,249,782 356,245
Federal National Mortgage Assn. Mortgage Backed
Securities Stripped Trust:
46, Class 1, 7.000%, 12/25/03 290,697 292,877
50, Class 2, IO, 10.500%, 3/25/19 286,367 74,278
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 823,889 878,726
1988 Class 17-B, 9.400%, 10/25/17 128,067 132,130
1989 Class 26-D, 10.000%, 5/25/04 1,000,000 1,057,759
1989 Class 27-D, 10.000%, 1/25/16 1,510,067 1,556,259
1989 Class 34-D, 9.850%, 7/25/13 750,247 760,142
1989 Class 70-G, 8.000%, 10/25/19 2,000,000 2,122,378
1989 Class 73-C, PO, 10/25/19 275,805 215,472
1989 Class 78-H, 9.400%, 11/25/19 1,750,000 1,950,233
1990 Class 1-D, 8.800%, 1/25/20 950,000 1,009,431
1990 Class 60-K, 5.500%, 6/25/20 1,250,000 1,189,449
1990 Class 63-H, 9.500%, 6/25/20 755,000 841,658
1990 Class 93-G, 5.500%, 8/25/20 1,250,000 1,189,724
1990 Class 94-H, HB, 505.000%, 8/25/20 21,561 312,639
1990 Class 95-J, HB, 1118.040%, 8/25/20 10,222 327,119
1990 Class 102-J, 6.500%, 8/25/20 4,600,000 4,588,817
1990 Class 106-H, 8.500%, 1/25/19 879,775 881,341
1990 Class 134-SC, IF, 11/25/20 719,616 787,979
1990 Class 140-K, HB, 652.145%, 12/25/20 21,687 397,964
1991 Class 4-N, HB, 758.750%, 1/25/06 3,966 57,503
1991 Class 7-K, HB, 908.500%, 2/25/21 2,002 43,052
1991 Class 20-M, HB, 908.750%, 3/25/06 2,044 33,936
1991 Class 33-J, HB, 1008.250%, 4/25/06 4,803 96,448
1991 Class 55-G, HB, 1148.550%, 2/25/05 4,442 17,769
1991 Class 161-H, 7.500%, 2/25/21 780,627 794,256
1992 Class 13-S, HB, IF, 1/25/99 10,539 77,988
1992 Class 137-BA, 3.500%, 1/25/17 1,969,426 1,896,831
1992 Class 199-S, IO, IF, 11/25/99 9,074,832 402,650
1992 Class 204-B, 6.000%, 10/25/20 2,000,000 1,935,078
1993 Class 8-SB, IO, IF, 8/25/06 15,386,138 701,916
1993 Class 12-S, IO, IF, 2/25/23 4,781,380 304,813
1993 Class 12-SB, HB, IF, 2/25/23 52,736 487,806
1993 Class 19-G, 5.000%, 5/25/19 3,530,000 3,347,778
1993 Class 38-S, IO, IF, 11/25/22 31,190,042 857,726
1993 Class 58-J, 5.50%, 4/25/23 1,549,351 1,447,884
1993 Class 94-K, 6.750%, 5/25/23 866,124 847,649
1993 Class 110-SC, IO, IF, 7/25/23 4,235,993 177,361
1993 Class 113-S, IO, IF, 7/25/23 7,935,546 456,294
1993 Class 139-SG, IF, 8/25/23 2,597,473 2,013,847
1993 Class 152-D, PO, 8/25/23 700,000 549,500
1993 Class 155-LA, 6.500%, 5/25/23 1,735,889 1,712,488
1993 Class 155-SB, IO, IF, 9/25/23 7,696,354 418,451
1993 Class 156-SD, IF, 10/25/19 1,000,000 720,000
1993 Class 167-S, IF, 9/25/23 2,138,284 1,582,330
1993 Class 190-SE, IF, 10/25/08 1,495,403 1,162,197
1993 Class 207-SC, IF, 11/25/23 2,366,706 1,727,695
1993 Class 209-KB, 5.659%, 8/25/08 2,804,924 2,677,045
1993 Class 214-L, 6.000%, 12/25/08 1,677,520 1,658,009
1993 Class 220-SD, IF, 11/25/13 1,242,669 965,777
1993 Class 223-FB, AR, 12/25/23 721,333 710,513
1993 Class 223-SB, IF, 12/25/23 651,339 521,071
1993 Class X225-C VO, IF, 12/25/22 2,000,000 1,820,000
1994 Class 8-G, PO, 11/25/23 1,730,627 1,254,705
1994 Class 19-C, 5.000%, 1/25/24 2,082,214 1,924,984
1994 Class 26-G, PO, 2/25/24 2,199,391 1,407,610
1994 Class 30-LA, 6.500%, 2/25/09 2,123,344 2,097,416
1994 Class 36-SE, IF, 11/25/23 1,198,454 958,764
1994 Class 36-SG, IO, IF, 8/25/23 3,480,275 181,601
1994 Class 39-F, AR, 3/25/24 1,019,837 1,012,820
1994 Class 39-S, IF, 3/25/24 392,245 348,361
1994 Class 53-CA, PO, 11/25/23 3,352,442 2,321,566
1994 Class 59-PK, 6.000%, 3/25/24 2,826,135 2,747,424
1994 Class 82-SA, IO, IF, 5/25/23 20,541,515 551,951
1995 Class 13-B, 6.500%, 3/25/09 2,497,397 2,441,980
1995 Class X-G1C C, 1/25/25 1,000,000 1,096,116
1992-G Class 27-SQ, HB, IF, 5/25/22 3,907 563,973
1992-G Class 42-Z, 7.000%, 7/25/22 630,973 621,441
1993-G Class 8-PG, 6.500%, 7/25/18 1,000,000 997,249
1993-G Class 13-G, 6.000%, 6/25/20 1,000,000 981,369
1993-G Class 19-K, 6.500%, 6/25/19 1,613,728 1,585,647
1993-G Class 27-SE, IF, 8/25/23 1,535,674 986,671
1994-G Class 13-ZB, 7.000%, 11/17/24 2,359,038 2,258,069
Federal National Mortgage Assn. Pass Thru Pool:
#111366, AR, 8/01/19 517,219 534,649
#116612, AR, 3/01/19 1,643,700 1,700,782
#160330, 6.345%, 3/1/99 2,391,210 2,433,057
#303306, 12.500%, 1/1/16 1,440,515 1,660,552
Government National Mortgage Assn. Pass Thru
Pool:
#297628, 8.000%, 9/15/22 2,285,609 2,387,705
#313110, 7.500%, 11/15/22 1,922,535 1,981,613
------------
(Cost $149,905,032) 154,886,744
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 343,745,663
------------
(Cost $335,485,157)
CORPORATE BONDS AND NOTES -- 9.24%
Finance -- 8.45%
American Express Co., 11.625%, 12/12/00 1,250,000 1,395,313
American Express Credit Corp., 8.500%, 6/15/99 300,000 325,020
Associates Corp. of North America:
9.125%, 4/1/00 1,675,000 1,890,521
8.150%, 8/1/09 3,625,000 4,132,427
Bear Stearns Secured Investments, Inc. CMO,
Series 88-7B, 9.250%, 12/1/18 576,823 574,723
Case Equipment Loan Trust Asset Backed Ctf.
1994 Series A, Class A2, 4.650%, 8/15/99 1,398,171 1,389,794
1994 Series C, Class A2, 8.100%, 6/15/01 2,000,000 2,089,818
Chase Manhattan Grantor Trust Automobile Loan
Pass Thru Ctfs. Series 1995-B, Class A,
5.900%, 11/15/01 1,450,355 1,459,665
Collaterized Mortgage Obligation Trust CMO:
Series 10, Class Z, 8.950%, 12/1/16 4,950,742 5,033,167
Series 12, Class D, 9.500%, 2/1/17 444,966 476,759
Series 16 Class Q, 14.750%, 3/20/18 277,484 294,133
Collaterized Mortgage Securities Corp. CMO:
Series 88-2 Class B, 8.800%, 4/20/19 585,723 617,454
General Motors Acceptance Corp. Medium Term Note,
7.550%, 1/14/97 4,735,000 4,829,937
Goldman Sachs Trust 7-C CMO, Series 7, Class C-2,
9.100%, 4/27/17 16,195 16,184
Merrill Lynch Trust 43-E CMO, Series 43, Class E,
6.500%, 8/27/15 1,500,000 1,492,483
Morgan Stanley Mortgage Trust, CMO:
Series 35-2, HB, IF, 4/20/21 3,999 579,806
Series 37-2, HB, IF, 7/20/21 4,065 528,466
Series 39-3, PO, 12/20/21 777,102 634,550
Rural Housing Trust 1987-1, Senior Mortgage
Pass-Thru Ctf.,
Sub Class 3-B, 7.330%, 4/1/26 536,660 548,364
Standard Credit Card Master Trust Asset Backed
Ctf.
Series 1995-5, Class A, IF, 5/8/00 200,000 200,062
Series 1995-10, Class A, 5.900%, 2/7/01 2,520,000 2,547,339
Toyota Auto Receivable Grantor Trust Asset Backed
Ctf.
Series 1995-A, Class A, 5.850%, 3/15/01 1,311,436 1,317,887
World Omni Automobile Lse Sec Trust Asset Backed
Ctf.
Series 1995-A, Class A, 6.050%, 11/25/01 1,500,000 1,513,619
------------
(Cost $33,041,515) 33,887,491
------------
Industrial -- 0.79%
Boeing Co., 8.375%, 3/1/96 3,020,000 3,034,257
Dominos Pizza Funding Corp., Series A, Adjustable
Rate, 4/1/96 145,000 146,492
------------
(Cost $3,183,157) 3,180,749
------------
TOTAL CORPORATE BONDS AND NOTES 37,068,240
------------
(Cost $36,224,672)
FOREIGN -- 1.73%
African Development Bank Note, 9.300%, 7/1/00 983,000 1,116,059
Metropolis of Tokyo, 8.700%, 10/5/99 1,500,000 1,655,746
National Australia Bank Ltd., 9.700%, 10/15/98 400,000 439,568
Province of Ontario Eurobond, 7.000%, 1/27/99 3,600,000 3,735,000
------------
(Cost $6,758,488) 6,946,373
------------
TOTAL INVESTMENTS $401,008,361
============
(Cost $391,716,402)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
(a) The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $1,408,358. The book cost of certain IO and HB securities
includes a write down in the amount of $2,639,653 taken during 1993 to
properly state the net realizable value of the securities. The write down
results in a lower cost of investments than the tax cost disclosed in Note
4 in Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
SHORT BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.16%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes,
5.500%, 11/15/98, all held at Chemical Bank) $ 262,082 $ 262,082
------------
(Cost $262,082)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 87.11%
U.S. Treasury Securities -- 71.75%
Strips from U.S. Treasury Note Principal due:
5/15/96 380,000 372,997
8/15/98 500,000 436,475
U.S. Treasury Notes:
5.875%, 5/31/96 1,430,000 1,433,575
7.625%, 5/31/96 3,200,000 3,229,984
7.875%, 7/15/96 1,500,000 1,520,160
6.125%, 7/31/96 4,000,000 4,019,360
8.000%, 10/15/96 1,000,000 1,020,620
7.500%, 1/31/97 1,945,000 1,990,883
6.625%, 3/31/97 500,000 508,280
8.500%, 4/15/97 2,750,000 2,860,440
6.500%, 5/15/97 10,500,000 10,675,560
8.500%, 5/15/97 500,000 521,405
6.750%, 5/31/97 600,000 612,372
6.125%, 5/31/97 25,490,000 25,816,552
8.500%, 7/15/97 250,000 262,070
8.750%, 10/15/97 490,000 519,322
8.875%, 11/15/97 4,000,000 4,257,480
5.750%, 10/31/97 250,000 252,422
7.875%, 1/15/98 11,265,000 11,837,037
5.625%, 1/31/98 1,450,000 1,462,006
7.875%, 4/15/98 3,200,000 3,379,008
5.125%, 4/30/98 1,000,000 997,970
9.000%, 5/15/98 4,500,000 4,874,062
5.375%, 5/31/98 1,100,000 1,103,608
5.125%, 6/30/98 4,500,000 4,490,865
5.250%, 7/31/98 3,000,000 3,000,930
5.125%, 11/30/98 5,000,000 4,983,600
5.125%, 12/31/98 500,000 498,280
5.875%, 3/31/99 1,000,000 1,017,810
7.000%, 4/15/99 1,000,000 1,051,250
6.500%, 4/30/99 3,000,000 3,109,680
6.750%, 5/31/99 2,200,000 2,298,309
6.750%, 6/30/99 990,000 1,035,164
6.375%, 7/15/99 1,700,000 1,761,353
6.875%, 8/31/99 1,000,000 1,050,940
7.125%, 9/30/99 1,000,000 1,060,000
7.500%, 10/31/99 1,500,000 1,610,385
7.750%, 11/30/99 2,250,000 2,438,078
7.750%, 12/31/99 1,000,000 1,085,936
7.750%, 1/31/00 1,300,000 1,412,937
------------
(Cost $114,151,228) 115,869,165
------------
Agency Obligations -- 15.36%
Federal Home Loan Bank Consolidated Bond:
4.265%, 3/12/96 500,000 499,050
4.410%, 7/8/96 665,000 661,350
4.410%, 8/26/96 1,000,000 994,950
4.750%, 1/13/97 1,500,000 1,492,600
4.920%, 2/24/97 1,000,000 996,180
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 2 Class Z, 9.300%, 3/15/19 1,418,594 1,515,951
Series 10 Class D, 10.000%, 7/15/18 285,434 292,946
Series 11 Class C, 9.500%, 4/15/19 266,023 277,662
Series 81 Class A, 8.125%, 11/15/20 450,236 461,492
Series 85 Class C, 8.600%, 1/15/21 1,000,000 1,056,045
Series 99 Class Z, 9.500%, 1/15/21 1,090,858 1,173,773
Series 192 Class H, 9.000%, 7/15/21 521,411 535,744
Series 1045 Class G, HB, 1066.2085%, 2/15/21 2,536 67,572
Series 1096 Class D, 7.000%, 6/15/20 1,344,241 1,350,867
Series 1238 Class E, 6.500%, 2/15/04 329,352 329,282
Series 1477 Class F, 6.650%, 5/15/18 300,000 305,973
Series 1559 Class VF, 6.250%, 2/15/20 500,000 502,214
Series 1578 Class C, 5.500%, 11/15/12 1,000,000 998,689
Series 1603 Class F, 5.750%, 4/15/21 500,000 489,739
Series 1623 Class PC, 5.000%, 11/15/07 300,000 297,525
Federal National Mortgage Assn. Medium Term Note,
4.920%, 9/28/98 220,000 215,181
Federal National Mortgage Assn. Mortgage Backed
Securities
Stripped Trust 268, Class 2, IO, 9.000%,
12/25/21 282,888 69,485
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #070226, AR, 1/1/19 362,325 362,778
Pool #111366, AR, 8/1/19 417,754 431,832
Pool #116612, AR, 3/1/19 918,538 950,437
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 895,532 955,137
1988 Class 15-A, 9.000%, 6/25/18 188,049 198,405
1988 Class 16-B, 9.500%, 6/25/18 1,124,388 1,212,273
1988 Class 17-B, 9.400%, 10/25/17 64,034 66,065
1988 Class 19-H, 9.500%, 7/25/17 267,638 269,709
1989 Class 27-D, 10.000%, 1/25/16 206,859 213,186
1989 Class 31-D, 9.150%, 8/25/18 358,340 367,269
1989 Class 73-C, PO, 10/25/19 212,157 165,748
1990 Class 77-C, 9.000%, 7/25/19 387,757 404,463
1990 Class 94-C, 8.000%, 1/25/19 183,675 186,015
1991 Class 16-G, 8.000%, 3/25/04 1,050,000 1,066,830
1991 Class 41-O, 9.000%, 8/25/06 375,000 392,591
1992 Class 13-S, HB, IF, 1/25/99 4,479 33,146
1992 Class 137-BA, 3.500%, 1/25/17 328,238 316,139
1993 Class 35-C, 5.500%, 10/25/01 200,000 199,310
1993 Class 85-PD, 5.500%, 7/25/03 300,000 299,181
1993 Class 107-D, 6.500%, 12/25/06 400,000 409,600
1994-G Class 7-PB, 6.000%, 4/17/08 1,000,000 1,002,659
1994-G Class 8-B, 6.650%, 8/17/07 700,000 707,000
------------
(Cost $24,493,755) 24,794,043
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 140,663,208
------------
(Cost $138,644,983)
CORPORATE BONDS AND NOTES -- 12.73%
Finance -- 10.62%
American Southwest Financial Corp. CMO, Series
67-D,
9.450%, 3/1/15 464,754 467,208
Associates Corp. of North America:
8.800%, 3/1/96 405,000 407,048
9.700%, 5/1/97 765,000 805,392
6.800%, 12/15/97 800,000 819,067
8.500%, 1/10/00 500,000 547,895
7.550%, 8/23/01 250,000 268,825
Associates Corp. of North America Medium Term
Note
Tranche #SR 00455, 7.480%, 7/27/02 300,000 322,988
Bear Stearns Secured Investments, Inc. CMO,
Series 88-7B, 9.250%, 12/1/18 288,412 287,361
Beneficial Finance Corp. Medium Term Note:
Tranche #00107, 9.250%, 10/15/96 1,150,000 1,182,456
Tranche #00490, 7.200%, 2/21/97 400,000 407,515
Tranche #00659, 7.340%, 11/26/99 200,000 210,421
CFC-7 Grantor Trust Asset Backed Ctf., 8.650%,
10/15/96 262,064 262,983
Chemical Bank Grantor Trust 1989-B Participation
Marine Contracts, Class 1, 8.900%, 12/15/96 212,785 218,927
Citicorp Mortgage Securities, Inc. Remic Pass
Thru Ctf.,
Series 89-16, Class A-1, AR, 4/1/19 336,678 336,678
Collaterized Mortgage Obligation Trust CMO:
Series 12, Class D, 9.500%, 2/1/17 222,483 238,379
Collaterized Mortgage Securities Corp. CMO:
Series 88-16, Class B, 9.100%, 2/27/18 44,941 44,948
Ford Credit Grantor Trust Asset Backed Ctf.
Series 1994-B, Class A, 7.300%, 10/15/99 242,975 248,028
Ford Motor Credit Co.:
8.625%, 4/15/96 475,000 479,028
9.500%, 4/15/00 590,000 669,731
Ford Motor Credit Co. Euro Dollar Debenture,
9.625%, 2/27/96 500,000 502,735
Ford Motor Credit Co. Medium Term Note:
9.750%, 5/6/96 1,005,000 1,019,900
9.000%, 7/26/96 500,000 509,726
Tranche #TR 00493, 6.450%, 7/21/97 300,000 304,111
Tranche #00281, 7.470%, 7/29/99 1,000,000 1,054,275
Tranche #00442, 7.590%, 4/6/00 300,000 319,328
General Electric Capital Corp., 8.750%, 11/26/96 500,000 514,477
General Electric Capital Corp. Medium Term Note
Tranche #TR 00624, 7.665%, 2/3/97 500,000 512,393
General Motors Acceptance Corp. Medium Term Note
Tranche #00162, 7.750%, 2/20/97 250,000 255,992
Goldman Sachs CMO:
Trust 4, Series C-3, 9.450%, 10/27/03 269,782 271,120
Trust 7, Class 2-C, 9.100%, 4/27/17 7,393 7,388
Lomas Mortgage Funding Corp. II, CMO, Series
88-1A,
9.000%, 9/20/15 62,912 63,463
MBNA Master Credit Card Trust Asset Backed Ctf.:
Trust 91-1, Series 1991-1A, 7.750%, 10/15/98 1,000,000 1,017,229
Trust 92-1, Series 1992-1A, 7.250%, 6/15/99 750,000 768,682
Morgan Stanley Mortgage Trust, CMO, Series 38-4,
PO, 11/20/21 71,667 56,258
Ryland Acceptance Corp. Four, CMO, Series 78,
Class 78-B, 9.550%, 3/1/16 653,661 675,166
Shearson Lehman, Inc. CMO, Mortgage Backed
Sequential Pay Bond, Series U, Sequence U-1,
8.750%, 8/27/17 30,833 31,141
Western Financial Grantor Trust Auto Receivable P/T Ctf:
1993-4, Class A1, 4.600%, 4/1/99 614,418 609,109
1994-3, Class A, 6.650%, 12/1/99 423,509 430,607
------------
(Cost $18,335,649) 18,581,444
------------
Industrial -- 2.11%
Coca-Cola Co., 7.750%, 2/15/96 290,000 290,799
Ford Holdings Inc.:
9.250%, 3/1/00 468,000 525,722
9.250%, 7/15/97 861,000 907,744
General Electric Co., 7.875%, 5/1/96 488,000 491,940
Pepsico, Inc.:
7.875%, 8/15/96 445,000 451,858
7.000%, 11/15/96 182,000 184,628
Waste Management Inc., 7.875%, 8/15/96 550,000 558,133
------------
(Cost $1,957,205) 1,977,358
------------
TOTAL CORPORATE BONDS AND NOTES 20,558,802
------------
(Cost $20,292,854)
TOTAL INVESTMENTS $161,484,092
============
(Cost $159,199,919)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
SHORT BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
<PAGE>
THE WOODWARD FUNDS
BOND FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series of which there were five Bond
Funds, as described below. Woodward Bond Fund Woodward Intermediate Bond Fund
Woodward Short Bond Fund Woodward Municipal Bond Fund Woodward Michigan
Municipal Fund
The Bond and Intermediate Bond Funds commenced operations on June 1,
1991. The Municipal Bond and Michigan Municipal Bond Funds commenced
operations February 1, 1993. The Short Bond Fund commenced operations on
September 17, 1994.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Bond Funds in the preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Bond Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD or its third
party custodian to assure its value remains at least equal to 102% of the
repurchase agreement amount; and 3) funds are not disbursed by Woodward or its
agent unless collateral is presented or acknowledged by the collateral
custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
<PAGE>
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions for all Funds
and write downs for book purposes on the Bond and Intermediate Bond funds (See
notes to Portfolio of Investments). Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year the income or realized gains were recorded by the Fund.
As of December 31, 1995, the Bond Funds had capital loss carryforwards
and related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 2002 2003 Total
- ---- ---- ---- -----
<S> <C> <C> <C>
Bond $19,955,806 $1,041,792 $20,997,598
Intermediate Bond 3,916,956 2,190,497 6,107,453
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared and paid monthly by the
Bond Funds. Net realized capital gains are distributed annually. Distributions
from net investment income and net realized gains are made during each year to
avoid the 4% excise tax imposed on regulated investment companies by the
Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
When Issued/To Be Announced (TBA) Securities.
The Bond Funds may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a
commitment by the Funds to purchase particular securities, with payment and
delivery taking place at a future date, for which all specific information,
such as the face amount and maturity date of such investment security, is not
known at the time of the trade. These transactions are subject to market
fluctuations and the risk that the value at delivery may be more or less than
the purchase price at which the transactions were entered. The current value
of these securities is determined in the same manner as that of other
portfolio securities. Although the Bond Funds generally purchase these
securities with the intention of acquisition, such securities may be sold
before the settlement date.
Expenses
Expenses are charged daily as a percentage of the Fund's assets. Woodward
monitors the rate at which expenses are charged to ensure that a proper amount
of expense is charged to income each year. This percentage is subject to
revision if there is a change in the estimate of the future net assets of
Woodward or a change in expectations as to the level of actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Bond Funds's average net assets and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For its
advisory services to Woodward, NBD is entitled to a fee, computed daily and
payable monthly. Under the Advisory Agreement, NBD also provides Woodward with
certain administrative services, such as maintaining Woodward's general ledger
and assisting in the preparation of various regulatory reports. NBD receives
no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered by
the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
<PAGE>
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD reimbursed the Short
Bond, Municipal Bond, and Michigan Municipal Bond Funds for certain expenses
in the amount of $65,761, $88,071, and $119,481 respectively.
On March 10, 1994, Woodward adopted the Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
INTERMEDIATE SHORT
BOND FUND BOND FUND BOND FUND
--------- ------------ ---------
<S> <C> <C> <C>
Gross Unrealized
Gains $ 35,731,180 $ 13,566,717 $ 2,333,204
Gross Unrealized
Losses (11,032,156) (7,073,022) (49,031)
------------ ------------ ------------
$ 24,699,024 $ 6,493,695 $ 2,284,173
============ ============ ============
Federal Income Tax
Cost $488,279,591 $394,514,666 $159,199,919
Purchases $191,486,673 $141,628,950 $129,641,103
Sales & Maturities, at value $189,618,003 $176,498,989 $ 31,673,292
</TABLE>
<PAGE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
INTERMEDIATE SHORT
Effective Date BOND FUND BOND FUND BOND FUND
- -------------- --------- ------------ ---------
<S> <C> <C> <C>
Expense Rates:
January 1 0.74% 0.73% 0.75%
March 21 0.74% 0.73% 0.75%
NBD Advisory Fee:
January 1 0.65% 0.65% 0.65%
Amounts Paid:
Advisory Fee to NBD $3,121,267 $2,650,418 $650,298
Distribution Fees to FoM
& Essex $ 51,487 $ 28,779 $ 5,165
Other Fees & Out of Pocket
Expenses to NBD $ 124,183 $ 92,054 $ 36,588
Expense reimbursement by NBD -- -- $(65,761)
</TABLE>
(6) Portfolio Composition
Although the Municipal Bond Fund has a diversified investment portfolio,
the Fund has investments greater than 10% of its total investments in the
state of Illinois. The Michigan Municipal Bond Fund does not have a
diversified portfolio since all of its investments are within the state of
Michigan. Such concentrations within particular states may subject the Funds
more significantly to economic changes occuring within those states.
<PAGE>
THE WOODWARD FUNDS
BOND FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Bond
Funds' net asset values have changed during the periods presented. Additional
quantitative measures expressed in ratio form analyze important relationships
between certain items presented in the financial statements. These financial
highlights have been derived from the financial statements of the Bond Funds
and other information for the periods presented.
<TABLE>
<CAPTION>
Bond Fund
-------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.01 $ 10.32 $ 10.25 $ 10.55 $ 10.00
Income from investment operations:
Net investment income 0.63 0.61 0.76 0.83 0.51
Net realized and unrealized gains
(losses) on investments 1.45 (1.31) 0.38 (0.17) 0.57
------------ ------------- ------------ ------------ ------------
Total from investment operations 2.08 (0.70) 1.14 0.66 1.08
------------ ------------- ------------ ------------ ------------
Less distributions:
From net investment income (0.64) (0.59) (0.76) (0.83) (0.51)
From realized gains -- (0.02) (0.31) (0.13) (0.02)
------------ ------------- ------------ ------------ ------------
Total distributions (0.64) (0.61) (1.07) (0.96) (0.53)
------------ ------------- ------------ ------------ ------------
Net asset value, end of period $ 10.45 $ 9.01 $ 10.32 $ 10.25 $ 10.55
============ ============= ============ ============ ============
Total Return (b) 23.75% (6.99%) 11.39% 6.56% 18.45%(a)
Ratios/Supplemental Data
Net assets, end of period $517,565,579 $427,168,395 $501,196,278 $321,758,333 $237,673,316
Ratio of expenses to average net assets 0.74% 0.74% 0.73% 0.73% 0.75%(a)
Ratio of net investment income to
average net assets 6.39% 6.36% 7.20% 8.08% 8.44%(a)
Portfolio turnover rate 41.91% 75.67% 111.52% 90.45% 8.19%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Intermediate Bond Fund
-----------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.21 $ 10.41 $ 10.28 $ 10.55 $ 10.00
Income from investment operations:
Net investment income 0.59 0.56 0.59 0.71 0.40
Net realized and unrealized gains (losses)
on investments 1.16 (1.20) 0.26 (0.10) 0.57
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.75 (0.64) 0.85 0.61 0.97
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.59) (0.55) (0.59) (0.71) (0.40)
From realized gains -- (0.01) (0.13) (0.17) (0.02)
------------ ------------ ------------ ------------ ------------
Total distributions (0.59) (0.56) (0.72) (0.88) (0.42)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.37 $ 9.21 $ 10.41 $ 10.28 $ 10.55
============ ============ ============ ============ ============
Total Return (b) 19.48% (6.31%) 8.41% 6.00% 16.62%(a)
Ratios/Supplemental Data
Net assets, end of period $405,309,939 $393,019,168 $429,789,857 $220,432,255 $130,367,032
Ratio of expenses to average net assets 0.73% 0.74% 0.74% 0.74% 0.75%(a)
Ratio of net investment income to average net
assets 5.98% 5.73% 5.44% 6.91% 6.59%(a)
Portfolio turnover rate 36.47% 54.60% 92.80% 56.30% 7.38%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short Bond Fund
------------------------------
Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
Net asset value, beginning of period $ 9.84 $ 10.00
Income from investment operations:
Net investment income 0.58 0.17
Net realized and unrealized gains
(losses) on investments 0.39 (0.16)
------------ ------------
Total from investment operations 0.97 0.01
------------ ------------
Less distributions:
From net investment income (0.58) (0.17)
From realized gains (0.00) --
------------ ------------
Total distributions (0.58) (0.17)
------------ ------------
Net asset value, end of period $ 10.23 $ 9.84
============ ===========
Total Return (b) 10.07% 0.21%(a)
Ratios/Supplemental Data
Net assets, end of period $163,336,855 $64,239,163
Ratio of expenses to average net assets 0.75% 0.75%(a)
Ratio of net investment income to
average net assets 5.74% 5.92%(a)
Ratio of expenses to average net assets
without fee waivers/ reimbursed expenses 0.81% 0.93%(a)
Ratio of net investment income to average
net assets without fee waivers/
reimbursed expenses 5.68% 5.74%(a)
Portfolio turnover rate 30.94% 10.20%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Bond Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Bond Funds of THE WOODWARD
FUNDS (comprising, as indicated in Note 1, the Bond, Intermediate Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond Funds) as of December 31,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Bond Funds of The
Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
from inception (as indicated in Note 1) through December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
Exhibit (17)(o)
April 15, 1996
for
CLASS I AND CLASS A SHARES OF THE:
WOODWARD MUNICIPAL BOND FUND
WOODWARD MICHIGAN MUNICIPAL BOND FUND
of
THE WOODWARD FUNDS
c/o NBD Bank
Transfer Agent
P.O. Box 7058
Troy, Michigan 48007-7058
(800) 688-3350
This Statement of Additional Information (the "Additional
Statement") is meant to be read in conjunction with The Woodward Funds'
Prospectuses dated April 15, 1996 pertaining to all classes of shares of the
Woodward Municipal Bond Fund (the "Municipal Bond Portfolio") and Woodward
Michigan Municipal Bond Fund (the "Michigan Municipal Bond Portfolio") (each,
a "Portfolio" and collectively, the "Portfolios"), and is incorporated by
reference in its entirety into the Prospectuses. Because this Additional
Statement is not itself a prospectus, no investment in shares of the
Portfolios should be made solely upon the information contained herein. Copies
of the Portfolios' Prospectuses may be obtained from any office of the Co-
Distributors by writing or calling the Co-Distributors or the Trust.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives, Policies and Risk Factors.................... 1
Net Asset Value..................................................... 11
Additional Purchase and Redemption Information...................... 12
Description of Shares............................................... 13
Additional Information Concerning Taxes............................. 15
Management.......................................................... 20
Independent Public Accountants...................................... 25
Counsel............................................................. 26
Additional Information on Performance............................... 26
Appendix A.......................................................... A-1
Appendix B.......................................................... B-1
Appendix C.......................................................... C-1
Report of Independent Public Accountants
and Financial Statements.......................................... FS-1
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Portfolios' respective
investment objectives and policies as set forth in their Prospectuses.
Additional Information on Portfolio Instruments
Attached to this Additional Statement is Appendix A which
contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Portfolios may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio securities for each
Portfolio.
The annualized portfolio turnover rate for each Portfolio is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements
which enable the Portfolios to receive favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions, and the
Portfolios may engage in short term trading to achieve their respective
investment objectives.
Purchases of money market instruments by the Portfolios are
made from dealers, underwriters and issuers. The Portfolios currently do not
expect to incur any brokerage commission expense on such transactions because
money market instruments are generally traded on a "net" basis acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-
<PAGE>
counter market are generally on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument.
For the fiscal year ended December 31, 1995, 1994 and the
period from February 1, 1993 (commencement of operations) through December 31,
1993, the Municipal Bond and Michigan Municipal Bond Portfolios paid no
brokerage commissions.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. A Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interests.
The Advisory Agreement for the Portfolios provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available for each Portfolio. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Agreement authorizes the Adviser to cause a Portfolio
to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer
for effecting the same transaction, provided that the Adviser determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either the particular transaction or the overall responsibilities of
the Adviser to the Portfolios. Such brokerage and research services might
consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolios. The Trustees will
periodically review any commissions paid by the Portfolios to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolios. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other
accounts for which investment
-2-
<PAGE>
discretion is exercised by the Adviser. Conversely, a Portfolio may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
The Trust will not execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in or enter into
repurchase or reverse repurchase agreements with the Adviser, the
Co-Distributors or an affiliated person of any of them (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted
by the SEC or its staff. In addition, a Portfolio will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which a Co-Distributor or the Adviser, or an affiliated person of either of
them, is a member, except to the extent permitted by the SEC or its staff.
Under certain circumstances, the Portfolios may be at a disadvantage because
of these limitations in comparison with other investment companies which have
similar investment objectives but are not subject to such limitations.
Investment decisions for each Portfolio are made independently
from those for the other Portfolios and for any other investment companies and
accounts advised or managed by the Adviser. Such other investment companies
and accounts may also invest in the same securities as the Portfolios. To the
extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for the Portfolios with those to be sold or purchased for other
investment companies or accounts in executing transactions. When a purchase or
sale of the same security is made at substantially the same time on behalf of
one or more of the Portfolios and another investment company or account, the
transaction will be averaged as to price and available investments allocated
as to amount, in a manner which the Adviser believes to be equitable to each
Portfolio and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or sold by the Portfolio.
Government Obligations
As stated in the Prospectuses, pursuant to their investment
objectives the Portfolios may invest in U.S.
Government Obligations.
Bank Obligations
In accordance with their respective investment objective, the
Portfolios may purchase bank obligations, which include banker's acceptances,
negotiable certificates of deposit and non-negotiable time deposits, including
U.S. dollar-
-3-
<PAGE>
denominated instruments issued or supported by the credit of U.S. or foreign
banks or savings institutions. Although the Portfolios invest in obligations
of foreign banks or foreign branches of U.S. banks only where the Adviser
deems the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1.0
billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, have been
issued by a corporation having an outstanding bond issue rated A or higher by
a Rating Agency. Bonds and other short term obligations (if not rated as
commercial paper) purchased by the Portfolios must be rated BBB or Baa, or
higher, by a Rating Agency, respectively, or if unrated, be of comparable
investment quality in the judgment of the Adviser.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by the Portfolios, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
notes and will continuously monitor their financial status to meet payment on
demand. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Portfolios may invest from time to time in securities issued
by other investment companies which invest in high quality, short term debt
securities. Each of the Portfolios intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of the Portfolio's total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value
of the Portfolio's total assets will be invested in the aggregate in
securities of
-4-
<PAGE>
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or
the Trust as a whole.
Lending Securities
When a Portfolio lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the investment of the cash collateral. Although voting rights, or
rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Repurchase Agreements and Reverse Repurchase Agreements
The repurchase price under the repurchase agreements described
in the Prospectuses generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements are held by the
Trust's Custodian, in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans under the 1940 Act.
Reverse repurchase agreements are considered to be borrowings
by the Portfolios under the 1940 Act. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Portfolio may
decline below the price of the securities it is obligated to repurchase.
Options Trading
As stated in the Prospectuses, the Portfolios may purchase and
sell put and call options listed on a national securities exchange and issued
by the Options Clearing Corporation. Such transactions may be effected on a
principal basis with primary reporting dealers in U.S. Government securities
in an amount not exceeding 5% of a Portfolio's net assets. This is a highly
specialized activity which entails greater than ordinary investment risks.
Regardless of how much the market price of the underlying security increases
or decreases, the option buyer's risk is limited to the amount of the original
investment for the purchase of the option. However, options may be more
volatile than the underlying securities, and
-5-
<PAGE>
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking
the obligations under the option contract. A listed put option gives the
purchaser the right to sell to a clearing corporation the underlying security
at the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security. Put and call options
purchased by a Portfolio will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
A Portfolio's obligation to sell a security subject to a
covered call option written by it, or to purchase a security subject to a
secured put option written by it, may be terminated prior to the expiration
date of the option by the Portfolio executing a closing purchase transaction,
which is effected by purchasing on an exchange an option of the same series
(i.e., same underlying security, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to
realize a profit on an outstanding option, to prevent an underlying security
from being called, to permit the sale of the underlying security or to permit
the writing of a new option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Portfolio will have incurred a loss in the transaction. An option position
may be closed out only on an exchange which provides a secondary market for an
option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be
able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise with the result that the writer
in such circumstances will be subject to the risk of market decline in the
underlying security during such period. A Portfolio will write an option on a
particular security only if the Adviser believes that a liquid secondary
market will exist on an exchange for options of the same series which will
permit the Portfolio to make a closing purchase transaction in order to close
out its position.
When a Portfolio writes a covered call option, an amount equal
to the net premium (the premium less the commission) received by the Portfolio
is included in the liability section of
-6-
<PAGE>
the Portfolio's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated
expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a
covered call option may be offset by a decline in the market price of the
underlying security during the option period. If a covered call option is
exercised, the Portfolio may deliver the underlying security held by it or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received
and the Portfolio will realize a gain or loss. If a secured put option is
exercised, the amount paid by the Portfolio involved for the underlying
security will be partially offset by the amount of the premium previously paid
to the Portfolio. Premiums from expired options written by a Portfolio and net
gains from closing purchase transactions are treated as short-term capital
gains for federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses.
When-Issued Purchases and Forward Commitments
A Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities
are delivered to the Portfolio on the settlement date. In these cases the
Portfolio may realize a capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
Municipal Securities
As stated in the Prospectuses, the Portfolios may invest in
Municipal Securities including general obligation securities, revenue
securities, notes, and moral obligation bonds, which are normally issued by
special purpose authorities. There are, of course, variations in the quality
of Municipal
-7-
<PAGE>
Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend in part on a
variety of factors, including general market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating
of the issue. The ratings of Municipal Securities by Rating Agencies represent
their opinions as to the quality of Municipal Securities. It should be
emphasized, however, that ratings are general and are not absolute standards
of quality, and Municipal Securities with the same maturity, interest rate and
rating may have different yields while Municipal Securities with the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Portfolio, a Municipal Security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Portfolio. The Adviser will consider such an event in
determining whether the Portfolio should continue to hold the obligation.
The payment of principal and interest on most Municipal
Securities purchased by the Portfolios will depend upon the ability of the
issuers to meet their obligations. The District of Columbia, each state, each
possession and territory of the United States, each of their political
subdivisions, agencies, instrumentalities and authorities and each state
agency of which a state is a member is a separate "issuer" as that term is
used in this Additional Statement and in the Prospectuses. The
non-governmental user of facilities financed by a private activity bond is
also considered to be an "issuer". An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights or remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest or principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Securities held by the Portfolios may
be insured at the time of issuance as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of the
Municipal Securities at the time of original issuance. In the event that the
issuer defaults with respect to interest or principal payments, the insurer
will be notified and will be required to make payment to the bondholders.
There is, however, no guarantee that the insurer will meet its obligations. In
addition, such
-8-
<PAGE>
insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
From time to time proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Securities. For example, pursuant to
federal tax legislation passed in 1986 interest on certain private activity
bonds must be included in an investor's federal alternative minimum taxable
income, and corporate investors must include all tax-exempt interest in their
federal alternative minimum taxable income. The Trust cannot predict what
legislation, if any, may be proposed in Congress in the future as regards the
federal income tax status of interest on Municipal Securities in general, or
which proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of municipal securities for
investments by the Portfolios and their liquidity and value. In such event,
the Board of Trustees would re-evaluate the Portfolios' investment objectives
and policies and consider changes in their structure or possible dissolution.
Stand-By Commitments
The Portfolios may acquire "stand-by commitments" with respect
to Municipal Securities they hold. Under a stand-by commitment, a dealer
agrees to purchase at the Portfolio's option specified Municipal Securities at
a specified price. Stand-by commitments may be exercisable by the Portfolios
at any time before the maturity of the underlying Municipal Securities and may
be sold, transferred or assigned only with the instruments involved.
The Portfolios expect that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolios may pay for a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). The Portfolios
will acquire a stand-by commitment unless immediately after the acquisition,
with respect to 75% of its assets not more than 5% of its total assets will be
invested in instruments subject to a demand feature, including stand-by
commitments, with the same institution.
The Portfolios intend to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the Adviser's opinion,
present minimal credit risks. The Portfolios' reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Portfolios in connection with a "stand-by
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<PAGE>
commitment" will not be qualitatively different from the risk of loss faced by
a person that is holding securities pending settlement after having agreed to
sell the securities in the ordinary course of business.
The Portfolios will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Securities which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Where a Portfolio pays directly or indirectly for
a stand-by commitment, its cost will be reflected as an unrealized loss for
the period during which the commitment is held by the Portfolio and will be
reflected in realized gain or loss when the commitment is exercised or
expires.
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectuses, the Portfolios are subject to the following investment
limitations which may not be changed without approval of the holders of the
majority of the outstanding shares of the affected Portfolio (as defined under
"Description of Shares" below).
Neither of the Portfolios may:
1. Purchase or sell real estate, except that each Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as a Portfolio might be deemed to be
an underwriter upon the disposition of portfolio securities acquired within
the limitation on purchases of restricted securities and except to the extent
that the purchase of obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except for
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<PAGE>
transactions in options on securities, indices of securities, futures
contracts and options on futures contracts.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in futures contracts
and related options, and (b) a Portfolio may obtain short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities.
6. Purchase securities of companies for the purpose of
exercising control.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that each Portfolio
may, to the extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into futures contracts and related options.
In order to permit the sale of a Portfolio's shares in certain
states, the Trust may make commitments with respect to a Portfolio more
restrictive than the investment policies and limitations described above and
in its Prospectuses. As of the date of this Statement of Additional
Information, the Trust has made commitments that the Municipal Bond Portfolio
will not invest more than 5% of its total assets in securities of issuers
which have been in continuous operation for less than three years, and that
the Municipal Bond and Michigan Municipal Bond Portfolios will not invest more
than 15% of their total assets in such "unseasoned issuers" which are
restricted as to disposition. Should the Trust determine that any such
commitment is no longer in the best interests of a particular Portfolio, it
will revoke the commitment by terminating sales of the Portfolio's shares in
the state involved and, in the case of investors in Texas, give notice of such
action.
NET ASSET VALUE
"Assets which belong to" a Portfolio consist of the
consideration received upon the issuance of shares of the Portfolio together
with all income, earnings, profits and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any funds
or payments derived from any reinvestment of such proceeds, and a portion of
any general assets of the Trust not belonging to a particular investment
portfolio. Assets belonging to a Portfolio are charged with the direct
liabilities of the Trust which are normally allocated in proportion to the
relative net asset values of all of the Trust's investment portfolios at the
time of allocation. Subject to the provisions of the Declaration of
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<PAGE>
Trust, determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets, with respect to
a Portfolio are conclusive.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are offered and sold on a continuous
basis by the Trust's sponsors and Co-Distributors, FoM and Essex, acting as
agent. As described in their Prospectuses, Class I shares of the Portfolios
are sold primarily to NBD and its affiliated and correspondent banks acting on
behalf of their respective customers. Class A shares of the Portfolios are
sold to the public ("Investors") primarily through financial institutions such
as banks, brokers and dealers. The Co- Distributors may be entitled to a sales
charge on the sale of Class A shares of the Portfolios as described in the
Prospectuses.
An illustration of the computation of the public offering price
per Class A share of the Portfolios, based on the value of the Portfolios'
total net assets and total number of shares outstanding on March 15, 1996,
is as follows:
<TABLE>
<CAPTION>
TABLE
Michigan
Municipal Municipal
Bond Bond
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Net Assets............................ $80,308,585 $52,877,558
Number of Shares Outstanding.......... 7,788,167 5,156,229
Net Asset Value Per Share............. $10.31 $10.26
Sales Charge, 4.75 percent
of offering price (4.99
percent of net asset value
per share)........................... $ .51 $ .51
----------- -----------
Offering Price to Public.............. $10.82 $10.77
</TABLE>
Under the 1940 Act, the Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when:
(a) trading on the New York Stock Exchange is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. (The
Trust may also suspend or postpone the recordation of the transfer of shares
upon the occurrence of any of the foregoing conditions).
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<PAGE>
In addition to the situations described in the Prospectuses
under "Redemption of Shares," the Trust may redeem shares involuntarily to
reimburse the Portfolios for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
Prospectuses from time to time.
The Trust normally redeems shares for cash. However, the
Trustees can determine that conditions exist making cash payments undesirable.
If they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Trust has elected to be covered by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of net asset value during any 90-day
period for any one shareholder.
Total sales charges paid by shareholders of the Municipal Bond
and Michigan Municipal Bond Portfolios for the fiscal years ended December 31,
1995 and 1994 were $11,707 and $105,322, and $23,507 and $151,042,
respectively. Total sales charges paid by shareholders of the Municipal Bond
and Michigan Municipal Bond Portfolios for the fiscal period from February 1,
1993 (commencement of operations) through December 31, 1993 were $300,627
and $737,222, respectively.
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust, which
was amended and restated as of May 1, 1992, authorizes the Board of Trustees
to divide shares into two or more series, each series relating to a separate
portfolio of investments, and divide the shares of any series into two or more
classes. The number of shares of each series and/or of a class within each
series shall be unlimited. The Trust does not intend to issue share
certificates.
In the event of a liquidation or dissolution of the Trust or an
individual Portfolio, shareholders of a particular Portfolio would be entitled
to receive the assets available for distribution belonging to such Portfolio.
If there are any assets, income, earnings, proceeds, funds or payments, which
are not readily identifiable as belonging to any particular Portfolio, the
Trustees shall allocate them among any one or more of the Portfolios as they,
in their sole discretion, deem fair and equitable.
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<PAGE>
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the matter. A Portfolio is
affected by a matter unless it is clear that the interests of each Portfolio
in the matter are substantially identical or that the matter does not affect
any interest of the Portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of such Portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together in
the aggregate without regard to particular Portfolios.
When used in the Prospectuses or in this Additional Statement,
a "majority" of shareholders means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (1) 67% of the shares
of the Trust or the applicable Portfolio present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy,
or (2) more than 50% of the outstanding shares of the Trust or the applicable
portfolio.
As of March 29, 1996, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
84.92% and 61.43% of the outstanding shares of the Municipal Bond and Michigan
Municipal Bond Portfolios, respectively. The Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of the
Portfolios. Furthermore, as of March 29, 1996 with respect to the Municipal
Bond Portfolio, the following persons may have beneficially owned 5% or more
of the outstanding shares of such Portfolios:
<TABLE>
<CAPTION>
Percent of
Outstanding
Number of Shares Shares
---------------- ------
Municipal Bond Portfolio
- ------------------------
<S> <C> <C>
Charles J. Lefler Revocable 620,328 7.74%
Trust
39740 Walker Court
Northville, MI 48167
Consumers Power Non Union 1,493,370 18.64%
</TABLE>
-14-
<PAGE>
Wel-Ret Health
212 West Michigan Avenue
Jackson, MI 49201
To the Trust's knowledge, there were no persons who
beneficially owned 5% or more of the outstanding shares of the Michigan
Municipal Bond Portfolio as of March 29, 1996.
When issued for payment as described in the Portfolio's
Prospectuses and this Additional Statement, shares of the Portfolios will be
fully paid and non-assessable by the Trust.
The Declaration of Trust provides that the Trustees, officers,
employees and agents of the Trust will not be liable to the Trust or to a
shareholder, nor will any such person be liable to any third party in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of duties. It also provides that all third parties shall
look solely to the Trust property for satisfaction of claims arising in
connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the
affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses is not intended as a substitute
for careful tax planning and is based on tax laws and regulations which are in
effect on the date hereof; such laws and regulations may be changed by
legislative or administrative action. Investors are advised to consult their
tax advisers with specific reference to their own tax situations.
Each Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, each Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain requirements with respect
to the source of its income for a taxable year. At least 90% of the gross
income of each Portfolio must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains
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<PAGE>
from options, futures, or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies. The
Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to the Portfolio's principal
business of investing in stock or securities, or options and futures with
respect to stock or securities. Any income derived by a Portfolio from a
partnership or trust is treated as derived with respect to the Portfolio's
business of investing in stock, securities or currencies only to the extent
that such income is attributable to items of income which would have been
qualifying income if realized by the Portfolio in the same manner as by the
partnership or trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Portfolio's gross income for
a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by a Portfolio upon maturity or
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Each Portfolio will designate any distribution of long term
capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Portfolio's taxable year.
Shareholders should note that, upon the sale or exchange of Portfolio shares,
if the shareholder has not held such shares for at least six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%, however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are
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<PAGE>
both taxable at a maximum nominal rate of 35% (or at a maximum effective
marginal rate of 39% in the case of corporations having taxable income between
$100,000 and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Portfolio intends
to make sufficient distributions or deemed distributions of its ordinary
taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions (whether or not derived from interest on
Municipal Securities) would be taxable as ordinary income to shareholders to
the extent of the Portfolio's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
Each Portfolio may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure properly to include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."
Depending upon the extent of the Portfolios' activities in
states and localities in which their offices are maintained, in which their
agents or independent contractors are located or in which they are otherwise
deemed to be conducting business, the Portfolios may be subject to the tax
laws of such states or localities. In addition, in those states and localities
which have income tax laws, the treatment of the Portfolios and their
shareholders under such laws may differ from their treatment under federal
income tax laws.
As described above and in the Portfolios' Prospectuses, the
Portfolios are designed to provide investors with current tax-exempt interest
income. The Portfolios are not intended to constitute a balanced investment
program and are not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Portfolios would not be suitable for tax-exempt institutions and
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<PAGE>
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs since such plans and accounts are generally
tax-exempt and, therefore, would not only fail to gain any additional benefit
from the Portfolios' dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed to them. In addition,
the Portfolios may not be appropriate investments for entities which are
"substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5%
of the total revenues derived by all users of such facilities, or who occupies
more than 5% of the usable area of such facilities or for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each Portfolio's policy is to pay each year as federal
exempt-interest dividends substantially all of its Municipal Securities
interest income net of certain deductions. In order for a Portfolio to pay
exempt-interest dividends with respect to any taxable year, at the close of
each quarter of its taxable year at least 50% of the aggregate value of the
Portfolio's assets must consist of exempt-interest obligations. After the
close of its taxable year, each Portfolio will notify its shareholders of the
portion of the dividends paid by it which constitutes an exempt-interest
dividend with respect to such taxable year. However, the aggregate amount of
dividends so designated by a Portfolio cannot exceed the excess of the amount
of interest exempt from tax under Section 103 of the Code received by the
Portfolio during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by a Portfolio with respect to any taxable year which qualify
as federal exempt-interest dividends will be the same for all shareholders
receiving dividends for such year.
A percentage of the interest on indebtedness incurred by a
shareholder to purchase or carry the Portfolios' shares, equal to the
percentage of the total non-capital gain dividends distributed during the
shareholder's taxable year that are exempt-interest dividends, is not
deductible for federal income tax purposes.
Michigan Taxes
As stated in the Prospectuses, dividends paid by the Michigan
Municipal Bond Portfolio that are derived from interest
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<PAGE>
attributable to tax-exempt Michigan Municipal Securities will be exempt from
Michigan income tax, Michigan intangibles tax and Michigan single business
tax. Conversely, to the extent that such Portfolio's dividends are derived
from interest on obligations other than Michigan Municipal Securities or
certain U.S. Government obligations (or are derived from short-term or
long-term gains), such dividends will be subject to Michigan income tax,
Michigan intangibles tax and Michigan single business tax, even though the
dividends may be exempt for federal income tax purposes.
In particular, gross interest income and dividends derived from
obligations or securities of the State of Michigan and its political
subdivisions, exempt from federal income tax, are exempt from Michigan income
tax under Act No. 281, Public Acts of Michigan, 1967, as amended ("Michigan
Income Tax Act"), from Michigan intangibles tax under Act No. 301, Public Acts
of Michigan, 1939, as amended ("Michigan Intangibles Tax Act") and from
Michigan single business tax under Act. No. 228, Public Acts of Michigan,
1975, as amended ("Michigan Single Business Tax Act"). The Michigan Income Tax
Act levies a flat rate income tax on individuals, estates and trusts. The
Michigan Intangibles Tax Act levies a tax on the ownership of intangible
personal property of individuals, estates, trusts and certain corporations.
The Single Business Tax Act levies a tax of 2.30% upon the "adjusted tax base"
of most individuals, financial institutions, partnerships, joint ventures,
corporations, estates and trusts engaged in "business activity" as defined in
the Act.
The transfer of Portfolio shares by a shareholder is subject to
Michigan taxes measured by gain on the sale, payment or other disposition
thereof. In addition, the transfer of Portfolio shares by a shareholder may be
subject to Michigan estate or inheritance tax under Act No. 188, Public Acts
of Michigan, 1899, as amended ("Michigan Estate Tax").
The foregoing is only a summary of some of the important
Michigan state tax considerations generally affecting the Michigan Municipal
Bond Portfolio and its shareholders. No attempt has been made to present a
detailed explanation of the Michigan state tax treatment of the Portfolio or
its shareholders, and this discussion is not intended as a substitute for
careful planning. Accordingly, potential investors in the Portfolios should
consult their tax advisers with respect to the application of such taxes to
the receipt of Portfolio dividends and as to their own Michigan state tax
situation, in general.
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<PAGE>
MANAGEMENT
Trustees and Officers of the Trust
The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth in the
Prospectuses. Each Trustee has an address at The Woodward Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226.
Effective May 1, 1995, each Trustee receives from the Trust and
The Woodward Variable Annuity Fund a total annual fee of $17,000 and a fee of
$2,000 for each Board of Trustees meeting attended. The Chairman is entitled
to additional compensation of $4,250 per year for his services to the Trusts
in that capacity. These fees are allocated among the investment portfolios of
the Trust and The Woodward Variable Annuity Fund based on their relative net
assets. All Trustees are reimbursed for out of pocket expenses incurred in
connection with attendance at meetings. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trusts.
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ending December 31, 1995:
<TABLE>
<CAPTION>
(3)
Total
Compensation
(2) From Fund and
Aggregate Fund Complex**
(1) Compensation Paid to Board
Name of Board Member from Fund* Member
- ------------------------------ ------------------- -------------------
<S> <C> <C>
Will M. Caldwell, Trustee $21,250 $21,250(2)+
Nicholas J. DeGrazia, Trustee $21,250 $21,250(2)+
John P. Gould, Trustee *** $30,000(4)+
Earl I. Heenan, Jr., $24,437.50 $24,437.50(2)+
Chairman and President++
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee++ $21,250 $21,250(2)+
Donald G. Sutherland, Trustee++ $21,250 $21,250(2)+
Donald L. Tuttle, Trustee++ $21,250 $21,250(2)+
Eugene C. Yehle, Trustee $21,250 $21,250(2)+
and Treasurer
<FN>
- ----------------------
-20-
<PAGE>
* Amount does not include reimbursed expenses for attending Board meeting,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Woodward Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Mrs. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of other investment companies within the Fund Complex from
which the Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,500, $21,500 and
$21,500 accrued during The Woodward Funds' fiscal year ended December 31,
1995 for Earl I. Heenan, Jr., Julius L. Pallone, Donald G. Sutherland and
Donald L. Tuttle, respectively.
- --------------------------------
</TABLE>
Investment Adviser
Information about NBD and its duties and compensation as
Adviser is contained in the Prospectuses. For the fiscal year ended December
31, 1995, the Trust paid NBD fees for advisory services in the amounts of
$444,288 and $327,020 with respect to the Municipal Bond Portfolio and
Michigan Municipal Bond Portfolio, respectively. For the same period,
NBD reimbursed the respective Portfolios in the amounts of $88,071 and
$119,481 for certain other expenses. For the fiscal year ended
December 31, 1994, the Trust paid NBD fees for advisory services
$402,986 and $286,599 with respect to the Municipal Bond Portfolio
and Michigan Municipal Bond Portfolio, respectively. For the same period,
NBD reimbursed the respective Portfolios in the amounts of $70,000 and
$120,000 for certain other expenses. For the fiscal year ended December 31,
1994, NBD voluntarily waived advisory fees in the amounts of $150,712 and
$108,612 with respect to the Municipal Bond and Michigan Municipal Bond
Portfolios, respectively. For the fiscal period from February 1, 1993
(commencement of operations) through December 31, 1993, NBD voluntarily waived
its entire fees for advisory services of $191,142 and $146,227 with respect to
the Municipal Bond and Michigan Municipal Bond Portfolios. For the same
period, NBD reimbursed the respective Portfolios in the amounts of $75,841 and
$83,732 for certain other expenses.
NBD's own investment portfolio may include bank certificates of
deposit, bankers' acceptances, and corporate debt obligations, any of which
may also be purchased by the Trust. Joint purchase of investments for the
Trust and for NBD's own investment portfolio will not be made. NBD's
Commercial Banking Department may have deposit, loan and other commercial
banking relationships with issuers of securities purchased by the Trust,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities purchased by the Trust.
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<PAGE>
Investment decisions for the Trust and other fiduciary accounts
are made by NBD's Trust Investment Division solely from the standpoint of the
independent interest of the Trust and such other fiduciary accounts. NBD's
Trust Investment Division performs independent analyses of publicly available
information, the results of which are not made publicly available. In making
investment decisions for the Trust, personnel of NBD's Trust Investment
Division do not obtain information from any other division or department of
NBD or otherwise, which is not publicly available. NBD's Trust Investment
Division executes transactions for the Trust only with unaffiliated dealers
but such dealers may be customers of other divisions of NBD. NBD may make bulk
purchases of securities for the Trust and for other customer accounts (but not
for its own investment portfolio), in which case the Trust will be charged a
pro rata share of the transaction costs incurred in making the bulk purchase.
See "Investment Objectives, Policies and Risk Factors - Portfolio
Transactions" above.
NBD has agreed as Adviser that it will reimburse the Trust such
portions of its fees as may be required to satisfy any expense limitations
imposed by state securities laws or other applicable laws. Restrictive
limitations may be imposed on the Trust as a result of changes in current
state laws and regulations in those states where the Trust has qualified its
shares, or by a decision of the Trustees to qualify the shares in other states
having restrictive expense limitations. To the Trust's knowledge, of the
expense limitations in effect on the date of this Additional Statement none is
more restrictive than two and one-half percent (2-1/2%) of the first $30
million of a Portfolio's average annual net assets, two percent (2%) of the
next $70 million of the average annual net assets and one and one-half percent
(1-1/2%) of the remaining average annual net assets.
Under the terms of the Advisory Agreement, NBD is obligated to
manage the investment of each Portfolio's assets in accordance with applicable
laws and regulations, including, to the extent applicable, the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers
of national banks. These regulations provide, in general, that assets managed
by a national bank as fiduciary may not be invested in stock or obligations
of, or property acquired from, the bank, its affiliates or their directors,
officers or employees, and further provide that fiduciary assets may not be
sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above.
NBD will not accept Trust shares as collateral for a loan which
is for the purpose of purchasing Trust shares, and will not make loans to the
Trust. Inadvertent overdrafts of the Trust's account with the Custodian
occasioned by clerical error
-22-
<PAGE>
or by failure of a shareholder to provide available funds in connection with
the purchase of shares will not be deemed to be the making of a loan to the
Trust by NBD.
Under the Advisory Agreement, NBD is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of NBD in the performance of its duties or from its
reckless disregard of its duties and obligations under the Agreement.
Shareholder Servicing Plan
As stated in the Prospectus for Class A shares of the
Portfolios, the Trust may enter into Servicing Agreements with Shareholder
Servicing Agents which may include NBD and its affiliates. The Servicing
Agreements provide that the Shareholder Servicing Agents will render
shareholder administrative support services to their customers who are the
beneficial owners of Class A shares in consideration for the Portfolios'
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Class A shares beneficially owned by such customers and held by the
Shareholder Servicing Agents and, at the Trust's option, it may reimburse the
Shareholder Servicing Agents' out-of-pocket expenses. Such services may
include: (i) processing dividend and distribution payments from a Portfolio;
(ii) providing information periodically to customers showing their share
positions; (iii) arranging for bank wires; (iv) responding to customer
inquiries; (v) providing subaccounting with respect to shares beneficially
owned by customers or the information necessary for such subaccounting; (vi)
forwarding shareholder communications; (vii) processing share exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; and (ix) other similar
services requested by the Trust. Banks acting as Shareholder Servicing Agents
are prohibited from engaging in any activity primarily intended to result in
the sale of Portfolio shares. However, Shareholder Servicing Agents other than
banks may be requested to provide marketing assistance (e.g., forwarding sales
literature and advertising to their customers) in connection with the
distribution of Portfolio shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended in connection with the Trust's arrangements
with Shareholder Servicing Agents and the purposes for which the expenditures
were made. In addition, such arrangements are approved annually by a majority
of the Trustees, including a majority of the Trustees who are not
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<PAGE>
"interested persons" of the Trust as defined in the 1940 Act and have no
direct or indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with
Shareholder Servicing Agents under the Shareholder Servicing Agreements must
be approved by a majority of the Board of Trustees (including a majority of
the Disinterested Trustees).
Custodian and Transfer Agent
As Custodian and as Transfer Agent for the Trust, NBD (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
collects and makes disbursements of money on behalf of each Portfolio, (iii)
issues and redeems shares of each Portfolio, (iv) collects and receives all
income and other payments and distributions on account of the portfolio
securities of each Portfolio, (v) addresses and mails all communications by
the Trust to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy materials for any meeting of shareholders, (vi)
maintains shareholder accounts, (vii) makes periodic reports to the Trust's
Board of Trustees concerning the Trust's operations, and (viii) maintains
on-line computer capability for determining the status of shareholder
accounts.
For its services as Custodian, NBD is entitled to receive from
the Portfolios at the following annual rates based on the aggregate market
value of such Portfolios' portfolio securities, held as Custodian: .03% of the
first $20 million; .025% of the next $20 million; .02% of the next $20
million; .015% of the next $40 million; .0125% of the next $200 million; and
.01% of the balance over $300,000,000. NBD will receive an annual account fee
of $1,000 and $1.54 per month per asset held in each of these Portfolios. In
addition, NBD, as Custodian, is entitled to receive $50 for each cash
statement and inventory statement and $13 for each pass-through certificate
payment, $35 for each option transaction requiring escrow receipts and $20 for
all other security transactions.
For its services as Transfer Agent, NBD is entitled to receive
a minimum annual fee from each Portfolio of $11,000, $15 annually per account
in the Municipal Bond and Michigan Municipal Bond Portfolios for the
preparation of statements of account, and $1.00 for each confirmation of
purchase and redemption transactions. Charges for providing computer equipment
and maintaining a computerized investment system are expected to approximate
$350 per month for each Portfolio.
-24-
<PAGE>
Sponsors and Co-Distributors
The Trust's shares are offered on a continuous basis through
FoM and Essex, which act under the Distribution Agreement as sponsors and
Co-Distributors for the Trust. For the fiscal year ended December 31, 1995,
the Municipal Bond and Michigan Municipal Bond Portfolios paid FoM for its
services a fee of $3,418 and $2,516, respectively. For the fiscal year ended
December 31, 1994, the Municipal Bond and Michigan Municipal Bond Portfolios
paid FoM for its services a fee of $2,572 and $1,814, respectively. For the
fiscal period from February 1, 1993 (commencement of operations) through
December 31, 1993, the Municipal Bond and Michigan Municipal Bond Portfolios
paid FoM for its services a fee of $2,933 and $2,250, respectively. For the
fiscal years ending December 31, 1994 and 1993, FoM incurred expenses of $0
with respect to the Portfolios for the printing and mailing of prospectuses to
other than current shareholders. For the fiscal year ended December 31, 1993,
FoM was reimbursed for these expenses. For the fiscal year ended December 31,
1995, the Municipal Bond and Michigan Municipal Bond Portfolios paid Essex for
its services a fee of $9,913 and $16,695, respectively. For the period from
April 20, 1994 (date of Distribution Agreement with Essex) through December
31, 1994, the Municipal Bond and Michigan Municipal Bond Portfolios paid Essex
for its services a fee of $9,016 and $16,068, respectively. Additional
information concerning fees for services performed by FoM and Essex, the
review of such fees under the Trust's plan for the payment of distribution
expenses and the services provided by FoM and Essex are described in the
Prospectuses.
As stated in the Prospectuses, the Trust's Board of Trustees is
permitted, among other things, to allocate distribution fees which are
attributable to the Class A shares in a Portfolio exclusively to such shares.
As of the date hereof, the Board of Trustees has not exercised its discretion
to make any such allocations for the current fiscal year.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP, independent public accountants, 500
Woodward Avenue, Detroit, Michigan 48226-3424, serve as auditors for the
Trust. The financial statements included in this Statement of Additional
Information and the financial highlights included in the Prospectuses have
been audited by Arthur Andersen, LLP, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
-25-
<PAGE>
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, are counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, yield and total return of each class of
shares of each Portfolio for various periods may be quoted in advertisements,
shareholder reports or other communications to shareholders. Performance
information is generally available by calling 1-800-338-7262 (outside
Michigan) or 1-800-637-9504 (within Michigan).
Yield Calculations. A Portfolio's yield is calculated by
dividing the Portfolio's net investment income per share (as described below)
earned during a 30-day period by the maximum offering price per share on the
last day of the period and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. A Portfolio's net
investment income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can
be expressed as follows:
a-b 6
Yield = 2 [(----- + 1) - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities held by a Portfolio is recognized by accruing 1/360 of the stated
dividend rate of the security each
-26-
<PAGE>
day that the security is in the portfolio. Each Portfolio calculates interest
earned on any debt obligations held in its portfolio by computing the yield to
maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that
the obligation is in the portfolio. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls
for amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Undeclared earned income may be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the 30-day base
period, has not been declared as a dividend, but is reasonably expected to be
and is declared as a dividend shortly thereafter.
For the 30-day period ended December 31, 1995, the yields,
calculated as set forth above (taking into account the deduction of the
maximum sales charge), of the Municipal Bond and Michigan Municipal Bond
Portfolios were 3.54% and 3.45%, respectively. The 30-day yields (calculated
without taking into account the deduction of the maximum applicable sales
charge) for the fiscal year ended December 31, 1995, of the same Portfolios
were 3.81% and 3.73%, respectively.
The tax-equivalent yields for the 30-day period ended December
31, 1995, (taking into account the deduction of the maximum sales charge), of
the Municipal Bond and Michigan Municipal Bond Portfolios (assuming a 39.6%
federal tax rate for both Portfolios and a 4.4% Michigan income tax rate for
the Michigan Municipal Bond Portfolio) were 5.86% and 5.71%, respectively. The
tax-equivalent yields for the 30-day period ended December 31, 1995, (without
taking into account the deduction of the maximum sales charge), of the same
Portfolios were 6.31% and 6.18%, respectively.
Total Return Calculations. Each Portfolio computes its "average
annual total return" for a class by determining the average annual compounded
rates of return during specified periods that equate the initial amount
invested to the ending
-27-
<PAGE>
redeemable value of such investment. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years
(or fractional portion thereof) covered by the computation and subtracting one
from the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, ex-
pressed in terms of years.
The Portfolios compute their aggregate total returns by
determining the aggregate rates of return during specified periods that
likewise equate the initial amount invested to the ending redeemable value of
such investment. The formula for calculating aggregate total return is as
follows:
ERV
T = [(----- - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and including all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Portfolio's mean (or median) account size for any fees that vary
with the size of the account. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the
end of the period covered by the computation. Each Portfolio's average annual
total return may reflect the deduction of the maximum sales load imposed on
purchases.
The average annual total returns for the Municipal Bond and
Michigan Municipal Bond Portfolios for the one year period ended
December 31, 1995 (if applicable) and the period since commencement of
operations are shown below.
-28-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Average Annual Average Annual Average Annual
Total Return Total Return Total Return Total Return
For One Year For One Year From Inception From Inception
Ended 12/31/95 Ended 12/31/95 Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc- (with Deduction (without Deduc-
of Maximum tion for Any of Maximum tion for Any
Sales Charge) Sales Charge) Sales Charge) Sales Charge)
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Municipal Bond Portfolio 11.00% 16.94% 5.33% 7.08%
- ------------------------
Inception: February 1, 1993
Michigan Municipal Bond Portfolio 10.96% 16.49% 5.09% 6.82%
- ---------------------------------
Inception: February 1, 1993
</TABLE>
The aggregate annual total returns for the Portfolios for
the one year period ended December 31, 1995 (if applicable) and the period
since commencement of operations are shown below:
<TABLE>
<CAPTION>
Aggregate Aggregate
Total Return Total Return
From Inception From Inception
Through 12/31/95 Through 12/31/95
(with Deduction (without Deduc-
of Maximum tion for Any
Sales Charge) Sales Charge)
--------------- ---------------
<S> <C> <C>
Municipal Bond Portfolio 16.81% 22.64%
- ------------------------
Inception: February 1, 1993
Michigan Municipal Bond Portfolio 16.00% 21.74%
- ---------------------------------
Inception: February 1, 1993
</TABLE>
The Portfolios may also from time to time include in
advertisements, sales literature, communications to shareholders and other
materials ("Literature") total return figures that are not calculated
according to the formulas set forth above in order to compare more accurately
a Portfolio's performance with other measures of investment return. For
example, in comparing the Portfolios' total returns with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of an index,
the Portfolios may calculate their returns for the period of time specified in
the advertisement or communication by assuming the investment of $10,000 in
shares and assuming the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value and
by dividing the remainder by the beginning value. The Portfolios do not, for
these purposes, deduct from the initial value invested any amount representing
sales charges. The Portfolios will, however, disclose the maximum sales charge
and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance
quoted.
The Portfolios may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Portfolio
investment are reinvested by being paid in additional Portfolio shares, any
future income or capital appreciation of a Portfolio would increase the value,
not only of the original Portfolio investment, but also of the additional
Portfolio shares received through reinvestment. As a result, the value of the
Portfolio investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Portfolios may also include discussions or illustrations of
the potential investment goals of a prospective investor, investment
management strategies, techniques, policies
-29-
<PAGE>
or investment suitability of a Portfolio (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic accounting rebalancing, the advantages and disadvantages of
investing in tax-deferred and taxable instruments), economic conditions, the
relationship between sectors of the economy and the economy as a whole,
various securities markets, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements or communications
to shareholders may summarize the substance of information contained in
shareholder reports (including the investment composition of a Portfolio), as
well as the view of the Trust as to current market, economy, trade and
interest rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to a
Portfolio. The Portfolios may also include in advertisements charts, graphs or
drawings which compare the investment objective, return potential, relative
stability and/or growth possibilities of the Portfolio and/or other mutual
funds, or illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds, treasury
bills and shares of a Portfolio. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to
be derived by an investment in a Portfolio and/or other mutual funds,
shareholder profiles and hypothetical investor scenarios, timely information
on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
advertisements or communicators may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
-30-
<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term
in the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely
payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade.
A-2
<PAGE>
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term ratings
to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity
for timely repayment.
"A1" - Obligations are supported by the highest
capacity for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
A-4
<PAGE>
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned
by Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB-" rating.
A-5
<PAGE>
"B" - Debt has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain swaps and
options; and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
A-6
<PAGE>
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
A-7
<PAGE>
(P)... - When applied to forward delivery bonds, indicates that
the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes ooccur in the legal documents or the
underlying credit quality of the bonds.
The following summarizes the long-term debt ratings used by Duff
& Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred
dividends. Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
A-8
<PAGE>
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment
A-9
<PAGE>
of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation represents the highest category assigned
by Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
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"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established
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cash flows, superior liquidity support or demonstrated broad-based access to
the market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality
and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in their Prospectuses, each of the Portfolios may enter
into futures contracts and related hedging purposes.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash
market, bonds are purchased and sold with payment for the full purchase price
of the bond being made in cash, generally within five business days after the
trade. In the futures market, only a contract is made to purchase or sell a
bond in the future for a set price on a certain date. Historically, the prices
for bonds established in the futures markets have tended to move generally in
the aggregate in concert with the cash market prices and have maintained
fairly predictable relationships. Accordingly, the Portfolios may use interest
rate futures as a defense, or hedge, against anticipated interest rate changes
and not for speculation. As described below, this would include the use of
futures contract sales to protect against expected increases in interest rates
and futures contract purchases to offset the impact of interest rate declines.
The Portfolios presently could accomplish a similar result to
that which they hope to achieve through the use of futures contracts by
selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase, or conversely,
selling short-term bonds and investing in long-term bonds when interest rates
are expected to decline. However, because of the liquidity that is often
available in the futures market the protection is more likely to be achieved,
perhaps at a lower cost and without changing the rate of interest being earned
by the Portfolio, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Portfolio, as purchaser, to take delivery of
the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the
Portfolio's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery
date. If the price in the sale exceeds the price in the offsetting purchase,
the Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Portfolio's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
Portfolio realizes a gain, and if the purchase price exceeds the offsetting
sale price, the Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board
of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange.
The Portfolios would deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the
exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; three-month United States Treasury Bills; and ninety-day commercial
paper. The Portfolios may trade in any futures contract for which there exists
a public market, including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. The Portfolios would engage in
an interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all
of the loss in market value that would otherwise accompany a decline in
long-term securities prices. Assume that the market value of a certain
security in a Portfolio tends to move in concert with the futures market
prices of long-term United States Treasury bonds ("Treasury bonds"). The
Adviser wishes to fix the current market value of this portfolio security
until some point in the future. Assume the portfolio security has a market
value of 100, and the Adviser believes that, because of an anticipated rise in
interest rates, the value will decline to 95. The Portfolio might enter into
futures contract sales of Treasury bonds for an equivalent of 98. If the
market value of the portfolio security does indeed decline from 100 to 95, the
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equivalent futures market price for the Treasury bonds might also decline from
98 to 93.
In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the
above example might incur a loss of 2 points (which might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
Examples of Futures Contract Purchase. The Portfolios would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, e.g., shorter-term securities whose yields are greater than those
available on long-term bonds. The Portfolio's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Portfolio would be endeavoring at the same time to eliminate
the effect of all or part of an expected increase in market price of the
long-term bonds that the Portfolio may purchase.
For example, assume that the market price of a long-term bond
that the Portfolio may purchase, currently yielding 10%, tends to move in
concert with futures market prices of Treasury bonds. The Adviser wishes to
fix the current market price (and thus 10% yield) of the long-term bond until
the time (four months away in this example) when it may purchase the bond.
Assume the long-term bond has a market price of 100, and the Adviser believes
that, because of an anticipated fall in interest rates, the price will have
risen to 105 (and the yield will have dropped to about 9 1/2%) in four months.
The Portfolio might enter into futures contracts purchases of Treasury bonds
for an equivalent price of 98. At the same time, the Portfolio would assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term
bond at an assumed market price of 100. Assume these short-term
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securities are yielding 15%. If the market price of the long-term bond does
indeed rise from 100 to 105, the equivalent futures market price for Treasury
bonds might also rise from 98 to 103. In that case, the 5-point increase in
the price that the Portfolio pays for the long-term bond would be offset by
the 5-point gain realized by closing out the futures contract purchase.
The Adviser could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that the Portfolio would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Portfolio would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The
benefit of this continued incremental income will be reduced by the loss
realized on closing out the futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts
A bond index assigns relative values to the bonds included
in the index and the index fluctuates with changes in the market values
of the bonds included. Some Futures contracts are traded on organized
exchanges regulated by the Commodity Futures Trading Commission.
Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each
contract.
The Portfolios may sell index futures contracts in order to
offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. A Portfolio may do so either to hedge
the value of its portfolio as a whole, or to protect against declines,
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, the Portfolios may purchase index futures contracts
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in anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolios may purchase such securities upon termination of
the long futures position, but a long futures position may be terminated
without a corresponding purchase of securities.
In addition, the Portfolios may utilize index futures contracts
in anticipation of changes in the composition of their portfolio holdings. For
example, in the event that a Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more
restricted index, such as an index comprised of securities of a particular
industry group. The Portfolio may also sell futures contracts in connection
with this strategy, in order to protect against the possibility that the value
of the securities to be sold as part of the restructuring of the portfolio
will decline prior to the time of sale.
The following are examples of transactions in bond index futures
(net of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Bond Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Bond Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A BOND PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Bond Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
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Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Bond Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Bond Portfolio-Own Buy 16 Index Futures at 120
Bond with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and the Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Portfolio had hedged its
stock portfolio, the results of the Portfolio's transactions in stock index
futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Bond Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Bond Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A BOND PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Bond Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
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Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Bond Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Bond Portfolio-Own Buy 16 Index Futures at 130
Bond with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
III. Margin Payments
Unlike when a Portfolio purchases or sells a security, no price
is paid or received by the Portfolio upon the purchase or sale of a futures
contract. Initially, the Portfolio will be required to deposit with the broker
or in a segregated account with the Portfolio's Custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying security
or index fluctuates making the long and short positions in the futures
contract more or less valuable, a process known as marking to the market. For
example, when a Portfolio has purchased a futures contract and the price of
the contract has risen in response to a rise in the underlying instruments,
that position will have increased in value and the Portfolio will be entitled
to receive from the broker a variation margin payment equal to that increase
in value. Conversely, where a Portfolio has purchased a futures contract and
the price of the future contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and the Portfolio
would be required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, the Adviser may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Portfolio's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the
Portfolio, and the Portfolio realizes a loss or gain.
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IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by
a Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Portfolio involved will experience either a loss or gain on
the future which will not be completely offset by movements in the price of
the securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged and
movements in the price of futures contracts, a Portfolio may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, of if otherwise deemed to be appropriate by the Adviser.
Conversely, a Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures
contract being used, or if otherwise deemed to be appropriate by the Adviser.
It is also possible that, where a Portfolio has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the
value of securities held by the Portfolio may decline. If this occurred, the
Portfolio would lose money on the future and also experience a decline in
value in its portfolio securities.
Where futures are purchased to hedge against a possible increase
in the price of securities before a Portfolio is able to invest its cash (or
cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Portfolio then concludes
not to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, the Portfolio will
realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value
of the futures contracts (or options),
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will be deposited in a segregated account with the Portfolio's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the securities being hedged, the price of futures may not correlate perfectly
with movement in the cash market due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close
futures contracts through off-setting transactions which could distort the
normal relationship between the cash and futures markets. Second, with respect
to financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the
price of futures, a correct forecast of general market trends or interest rate
movements by the Adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although a
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may
not be possible to close a futures investment position, and in the event of
adverse price movements, a Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected
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by "daily price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures contract price during a single
trading day. Once the daily limit has been reached in the contract, no trades
may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions.
Successful use of futures by a Portfolio is also subject to the
Adviser's ability to predict correctly movements in the direction of the
market. For example, if a Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
V. Options on Futures Contracts
The Portfolios may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of
the securities being hedged, an option may or may not be less risky than
ownership of the futures contract or such securities. In general, the market
prices of options can be expected to be more volatile than the market prices
on the underlying futures contract. Compared to the purchase or
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sale of futures contracts, however, the purchase of call or put options on
futures contracts may frequently involve less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options (plus
transaction costs).
VI. Accounting and Tax Treatment
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by a Portfolio at the close of
the Portfolio's taxable year will be treated for federal income tax purposes
as sold for their fair market value on the last business day of such year, a
process known as "marking-to-market." Forty percent of any gain or loss
resulting from such constructive sale will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Portfolio holds the
futures contract ("the 40%-60% rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Portfolio in a prior year as a result of the
constructive sale of the contracts. With respect to futures contracts to sell,
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by the
Portfolio, losses as to such contracts to sell will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof which exceeds the unrecognized gain
(if any) with respect to the other part of the straddle, and to certain wash
sales regulations. Under short sales rules, which will also be applicable, the
holding period of the securities forming part of the straddle will (if they
have not been held for the long-term holding period) be deemed not to begin
prior to termination of the straddle. With respect to certain futures
contracts, deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
to sell which are properly identified as such, a Portfolio may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the
last business day of the Portfolio's taxable year, but gains and losses will
be subject to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and
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losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40%-60% rule will apply to the net gain or
loss attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated as
long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by a Portfolio
may be subject to the "marking-to-market" process and the 40%-60% rule in a
manner similar to that described in the preceding paragraph for futures
contracts. To receive such federal income tax treatment, a foreign currency
contract must meet the following conditions: (1) the contract must require
delivery of a foreign currency of a type in which regulated futures contracts
are traded or upon which the settlement value of the contract depends; (2) the
contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Additional Statement, the Treasury Department has not
issued any such regulations. Other foreign currency contracts entered into by
a Portfolio may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and
wash sales rules and the requirement to capitalize interest and carrying
charges may apply.
As described more fully in "Additional Information Concerning
Taxes", a regulated investment company must derive less than 30% of its gross
income from gains realized on the sale or other disposition of securities and
certain other investments held for less than three months. With respect to
futures contracts and other financial instruments subject to the
marking-to-market rules, the Internal Revenue Service has ruled in private
letter rulings that a gain realized from such a futures contract or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale
under the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date
the contract or instrument is acquired and the termination date. In
determining whether the 30% test is met for a taxable year, increases and
decreases in the value of each Portfolio's futures contracts and other
investments that qualify
B-12
<PAGE>
as part of a "designated hedge," as defined in the Code, may be
netted.
B-13
<PAGE>
<TABLE>
<CAPTION>
Appendix C
Federal TAX-EXEMPT YIELD
1995 Federal Marginal
Taxable Income Bracket Tax Rate* 3.0 3.5 4.0 4.5 5.0 5.5 6.0
- ---------------------------------------------------------------------------------------------------
Single Return Joint Return Taxable Yield
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $23,500 $ 0 - $39,000 15% 3.529 4.118 4.706 5.294 5.882 6.471 7.059
$23,351 - $56,550 $39,001 - $94,250 28% 4.167 4.861 5.556 6.250 6.944 7.639 8.333
$56,551 - $117,950 $94,251 - $143,600 31.0% 4.348 5.072 5.797 6.522 7.246 7.971 8.696
$117,951 - $256,500 $143,601 - $256,500 36.0% 4.688 5.469 6.250 7.031 7.812 8.594 9.375
Over $256,500 Over $256,500 39.6% 4.967 5.795 6.623 7.450 8.278 9.106 9.934
<FN>
- --------------------
*Note: The income amount shown is subject to federal income tax reduced by
adjustments to income, exemptions and itemized deductions. If the standard
deduction is taken for federal income tax purposes, the taxable equivalent
yield required to equal a specified tax-exempt yield is at least as great as
that shown in the table. Rates reflect those currently in effect and do not
include the phase out of personal exemptions or itemized deductions. It is
assumed that the investor is not subject to the federal alternative minimum
tax. Where applicable, investors should consider that the benefit of certain
itemized deductions and the benefit of personal exemptions are limited in the
case of higher income individuals. For 1995, taxpayers with adjusted gross
income in excess of a threshold amount of approximately $114,700 are subject
to an overall limitation on certain itemized deductions, requiring a reduction
in such deductions equal to the lesser of (i) 3% of adjusted gross income in
excess of the threshold of approximately $111,800 or (ii) 80% of the amount of
such itemized deductions otherwise allowable. The benefit of each personal
exemption is phased out at the rate of two percentage points for each $2,500
(or fraction thereof) of adjusted gross income in the phase-out zone. For
single taxpayers the range of adjusted gross income comprising the phase-out
zone for 1995 is estimated to be from $111,800 to $237,201 and for married
taxpayers filing a joint return from $172,500 to $295,001. The federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
</TABLE>
C-1
<PAGE>
The table below shows the effects for individuals of combined
federal and state income taxes on what an individual would have to earn on a
taxable investment to equal a given tax-free yield.
<TABLE>
<CAPTION>
COMBINED MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
- ------------------------------------------------------------------------------
Adjusted Combined
Gross State* & Tax-Exempt Yield
Taxable Income Federal -------------------------------------------------------
Income (1,000's) Tax Rate(1) 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25%
------- --------- --------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-35,800 $ 0-100.0 22.0% 7.05 7.37 7.69 8.01 8.33 8.65 8.97 9.29
35,801-86,500 0-100.0 34.0 8.33 8.71 9.09 9.47 9.85 10.23 10.61 10.98
100.0-150.0 34.5 8.40 8.78 9.16 9.54 9.92 10.31 10.69 11.07
Over 86,500 0-100.0 36.5 8.66 9.06 9.45 9.84 10.24 10.63 11.02 11.42
100.0-150.0 37.5 8.80 9.20 9.60 10.00 10.40 10.80 11.20 11.60
150.0-272.5 39.5 9.09 9.50 9.92 10.33 10.74 11.16 11.57 11.98
Over 272.5 37.5(2) 8.80 9.20 9.60 10.00 10.40 10.80 11.20 11.60
<CAPTION>
COMBINED MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
- ------------------------------------------------------------------------------
Adjusted Combined
Gross State* & Tax-Free Yield
Taxable Income Federal -------------------------------------------------------
Income (1,000's) Tax Rate(1) 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25%
------- --------- --------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-21,450 $ 0-100.0 22.0% 7.05 7.37 7.69 8.01 8.33 8.65 8.97 9.29
21,451-51,900 0-100.0 34.0 8.33 8.71 9.09 9.47 9.85 10.23 10.61 10.98
Over 51,900 0-100.0 36.5 8.66 9.06 9.45 9.84 10.24 10.63 11.02 11.42
100-222.5 38.0 8.87 9.27 9.68 10.08 10.48 10.89 11.29 11.69
Over 222.5 37.52 8.80 9.20 9.60 10.00 10.40 10.80 11.20 11.60
<FN>
* The table reflects federal and state income and state intangibles
taxes but does not reflect the effect of the exemption of certain
distributions from local income taxes. Accordingly, Michigan residents
subject to such local income taxes would need a somewhat higher
taxable return than those shown to equal the tax-exempt yield of the
Fund.
1 The table reflects the effect of the limitations on itemized
deductions and the deduction for personal exemptions that were added
by the Revenue Reconciliation Act of 1990. They were designed to phase
out certain benefits of these deductions for higher income taxpayers.
These limitations, in effect, raise the marginal federal tax rate to
approximately 34% for taxpayers filing a joint return and entitled to
four personal exemptions and to approximately 32.5% for taxpayers
filing a single return entitled to only one personal exemption. These
limitations are subject to certain maximums, which depend on the
number of exemptions claimed and the total amount of the taxpayer's
itemized deductions. For example, the limitation on itemized
C-2
<PAGE>
deductions will not cause a taxpayer to lose more than 80% of his
allowable itemized deductions, with certain exceptions.
2 Federal tax rate reverts to 31% after the 80% cap on the limitation on
itemized deductions has been met.
</TABLE>
* * *
These tables are for illustrative purposes only and are not
intended to predict the actual return an individual might earn on an
investment in the Portfolios. The tax rates used in these tables are based
upon published 1995 marginal federal tax rates and marginal state tax rates
currently available and scheduled to be in effect. They reflect the current
federal tax limitations on itemized deductions and personal exemptions, which
may raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels. The state tax rates assumed do not take into
account possible adjustment of tax brackets based on changes in the Consumer
Price Index. For cases in which two state brackets fall within a federal
bracket, the higher state bracket is combined with the federal bracket. The
combined state and Federal tax brackets shown reflect the fact that state tax
payments are currently deductible for federal tax purposes. The tax rates
shown here may be higher or lower than an individual's actual tax rate. A
higher tax rate would tend to make the dollar amounts in the tables lower,
while a lower tax rate would make the amounts higher. Investors should consult
their tax advisers to determine their actual tax rates.
C-3
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
MICHIGAN
MUNICIPAL MUNICIPAL
BOND FUND BOND FUND
----------- -----------
<S> <C> <C>
Investment in securities:
At cost $75,750,865 $51,219,137
=========== ===========
At value (Note 2) $78,252,712 $52,778,540
Cash -- 94,074
Receivable for securities sold -- --
Interest receivable 1,277,409 716,553
Deferred organization costs, net (Note 2) 6,315 6,315
Prepaids and other assets 36,597 18,137
----------- ------------
TOTAL ASSETS 79,573,033 53,613,619
----------- -----------
LIABILITIES:
Payable for securities purchased 2,372,029 --
Accrued investment advisory fee 41,971 29,027
Accrued distribution fees 1,295 1,907
Accrued custodial fee 1,459 1,318
Dividends payable 190,088 125,268
Other payables and accrued expenses 2,627 2,939
----------- -----------
TOTAL LIABILITIES 2,609,469 160,459
----------- -----------
NET ASSETS $76,963,564 $53,453,160
=========== ===========
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 720,543 $ 504,175
Additional paid-in capital 74,166,371 51,420,410
Accumulated undistributed net investment income 5,107 1,934
Accumulated undistributed net realized gains (losses (430,304) (32,762)
Net unrealized appreciation on investments 2,501,847 1,559,403
----------- -----------
TOTAL NET ASSETS $76,963,564 $53,453,160
=========== ===========
Shares of capital stock outstanding 7,205,434 5,041,749
=========== ===========
Net asset value and redemption price per share $ 10.68 $ 10.60
=========== ===========
Maximum offering price per share $ 11.21 $ 11.13
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
MICHIGAN
MUNICIPAL MUNICIPAL
BOND FUND BOND FUND
---------- -----------
<S> <C> <C>
INTEREST INCOME (Note 2) $ 3,692,331 $2,756,908
----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 444,288 327,020
Distribution fees 13,331 19,211
Professional fees 54,065 54,065
Custodial fee 17,836 15,729
Transfer and dividend disbursing agent fees 11,521 16,438
Amortization of deferred organization costs 3,031 3,031
Marketing expenses 34,056 33,105
Security pricing services 18,692 18,692
Registration, filing fees and other expenses 33,300 31,536
Less:
Expense reimbursement (88,071) (119,481)
----------- ----------
NET EXPENSES 542,049 399,346
----------- ----------
NET INVESTMENT INCOME 3,150,282 2,357,562
----------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) (132,105) 95,495
Net change in unrealized appreciation on
investments 7,347,301 5,119,573
----------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 7,215,196 5,215,068
----------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $10,365,478 $7,572,630
=========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MICHIGAN
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,150,282 $ 3,064,874 $ 2,357,562 $ 2,210,323
Net realized gains (losses) (132,105) (297,451) 95,495 (128,351)
Net change in unrealized appreciation
(depreciation) on investments 7,347,301 (6,604,737) 5,119,573 (4,621,088)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations 10,365,478 (3,837,314) 7,572,630 (2,539,116)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,149,113) (3,086,808) (2,358,540) (2,226,665)
From realized gains -- -- -- --
------------ ------------ ------------ ------------
Total distributions (3,149,113) (3,086,808) (2,358,540) (2,226,665)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 25,660,467 29,816,164 12,994,627 20,635,934
Net asset value of shares issued in reinvestment
of distributions to shareholders 964,584 1,002,601 927,746 1,084,833
------------ ------------ ------------ ------------
26,625,051 30,818,765 13,922,373 21,720,767
Less: payments for shares redeemed (18,133,625) (17,342,844) (10,946,362) (13,805,722)
------------ ------------ ------------ ------------
Net increase in net assets from capital share
transactions 8,491,426 13,475,921 2,976,011 7,915,045
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS 15,707,791 6,551,799 8,190,101 3,149,264
NET ASSETS:
Beginning of year 61,255,773 54,703,974 45,263,059 42,113,795
------------ ------------ ------------ ------------
End of year $ 76,963,564 $ 61,255,773 $ 53,453,160 $ 45,263,059
============ ============ ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 2,502,764 2,923,798 1,290,446 2,066,281
Shares issued in reinvestment of distributions
to shareholders 93,325 100,547 90,653 109,478
------------ ------------ ------------ ------------
2,596,089 3,024,345 1,381,098 2,175,759
Less: shares redeemed (1,774,851) (1,757,269) (1,085,688) (1,401,752)
------------ ------------ ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 821,238 1,267,076 295,410 774,007
CAPITAL SHARES:
Beginning of year 6,384,196 5,117,120 4,746,339 3,972,332
------------ ------------ ------------ ------------
End of year 7,205,434 6,384,196 5,041,749 4,746,339
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 99.94%
Alaska -- 3.33%
Fairbanks North Star Borough Series S (MBIA
Insured), 5.45%, 3/1/06 $2,500,000 $ 2,602,825
Arizona -- 2.19%
Phoenix General Obligation Refunding Series A,
5.00%, 7/1/03 1,000,000 1,036,700
Salt River Project Agricultural Improvement Power
District Revenue, Electric System Series D,
6.00%, 1/1/08 625,000 680,319
-----------
1,717,019
-----------
California -- 1.34%
Los Angeles Waste Water System Revenue Series D
(MBIA Insured) 6.25%, 12/1/15 1,000,000 1,052,030
-----------
Florida -- 5.17%
Florida State Board of Education Capital Outlay
Public Education Series C, 5.10%, 6/1/09 1,650,000 1,656,765
Florida State Pollution Control Series Y, 6.40%,
7/1/08 1,400,000 1,527,624
Gainesville Utilities System Revenue Series B,
5.50%, 10/1/13 850,000 860,804
-----------
4,045,193
-----------
Georgia -- 0.86%
Georgia State Housing and Finance Authorit Revenue
Series B, 6.10%, 12/1/12 650,000 669,922
Illinois -- 14.15%
Chicago Metropolitan Water Capital Improvement,
5.50%, 12/1/12 1,000,000 1,046,100
Chicago School Finance Authority (FGIC Insured)
Series A, 5.20%, 6/1/06 1,000,000 1,020,120
DuPage Co. Forest Preservation District, 6.00%,
11/1/03 1,750,000 1,910,790
Evanston General Obligation Unlimited Tax, 6.10%,
12/1/09 1,000,000 1,082,480
Illinois Dedicated Tax Revenue (AMBAC Insured)
Civic Center, 6.25%, 12/15/11 250,000 280,255
Illinois Health Facilities Authority Revenue
Northwestern Memorial Hospital Series A, 5.60%,
8/15/06 1,000,000 1,056,800
Illinois Housing Development, Series A, 5.95%,
7/1/21 2,000,000 2,013,240
Illinois State Toll Highway Authority Revenue,
Series A, Variable Rate, 1/1/10 2,666,000 2,666,000
-----------
11,075,785
-----------
Indiana -- 9.53%
Ball State University Revenue (FGIC Insured)
Student Fee Series G, 6.125%, 7/1/09 400,000 427,724
Fort Wayne Sewer Works Improvement Revenue Indiana
(FGIC Insured), 5.75%, 8/1/10 1,100,000 1,131,482
Indiana State Vocational Technology Revenue Series
D, 5.90%, 7/1/06 1,000,000 1,077,090
Indiana Transportation Finance Authority, Series A
6.25%, 11/1/16 1,500,000 1,551,255
North Adams Community Schools Participation Ctfs.,
5.75%, 7/15/12 1,000,000 1,031,960
Perry Township Multi School Corporation Revenue,
5.20%, 1/15/11 1,200,000 1,176,672
St. Joseph Co. Hospital Authority Facilities
Revenue (MBIA Insured), Memorial Hospital South
Bend Project, 6.25%, 8/15/12 1,000,000 1,064,990
-----------
7,461,173
-----------
Kentucky -- 1.60%
Kentucky State Turnpike Authority Economic
Development Revenue (AMBAC Insured) Refunding,
5.50%, 7/1/06 1,175,000 1,250,223
-----------
Maryland -- 1.31%
Maryland State Community Development Administration
Dept. Housing & Community Development, First
Series, 5.80%, 4/1/07 1,000,000 1,026,520
-----------
Massachusetts -- 3.68%
Massachusetts General Obligation Series A, 5.25%,
2/1/08 500,000 503,930
Massachusetts State Finance Agency, Series F 6.00%,
1/1/15 2,265,000 2,377,781
-----------
2,881,711
-----------
Michigan -- 8.66%
Grand Rapids Water Supply System Revenue (FGIC
Insured), 6.30%, 1/1/04 250,000 272,323
Michigan State Building Authority Revenue Series I,
6.40%, 10/1/04 600,000 659,724
Michigan State Housing Development Authority
Revenue Series C, 6.375%, 12/1/11 1,450,000 1,514,293
Michigan State Trunk Line Revenue Series B-2,
5.75%, 10/1/12 500,000 510,315
Rochester Community School District School Building
& Site Unlimited Tax, 6.50%, 5/1/06 250,000 278,455
Royal Oak Hospital Finance Authority Revenue,
William Beaumont Hospital:
Series C, 7.20%, 1/1/05 250,000 276,582
Series G, 5.60%, 11/15/11 850,000 860,225
Saranac Community School District, 6.00%, 5/1/13 250,000 263,870
Wyandotte Electric Revenue, 6.25%, 10/1/17 2,000,000 2,140,200
-----------
6,775,987
-----------
Missouri -- 2.48%
Kansas City School District Building Revenue
Elementary School Project Series D, 5.10%, 2/1/07 1,905,000 1,937,995
-----------
Nevada -- 1.54%
Nevada General Obligation Series B Prison Board
Limited Tax, 6.30%, 4/1/05 1,100,000 1,201,310
-----------
Gloucester Co. Improvement Authority Gtd. Revenue,
Solid Waste Landfill Project Series AA, 6.20%,
9/1/07 400,000 428,084
Monmouth Co. General Obligation Utility Unlimited
Tax, 7.00%, 8/1/08 250,000 282,723
-----------
710,807
-----------
New York -- 2.27%
New York State Thruway Authority Highway Revenue
Series B, 5.125%, 4/1/15 1,500,000 1,482,705
Tri-Borough Bridge & Tunnel Authority Revenue
General Purpose Series X, 6.625%, 1/1/12 250,000 290,767
-----------
1,773,472
-----------
North Carolina -- 5.37%
Charlotte North Carolina General Obligation
Series A, 5.50%, 7/1/07 1,000,000 1,057,440
Mecklenberg County General Obligation Unlimited
Tax, 5.50%, 4/1/12 2,000,000 2,096,180
North Carolina Municipal Power Agency Catawba
Electric Revenue, 6.00%, 1/1/05 1,000,000 1,049,610
-----------
4,203,230
-----------
Ohio -- 6.66%
Franklin Co. Hospital Revenue, Children's Hospital
Series A, 6.50%, 5/1/07 950,000 1,035,329
Ohio State Building Authority Revenue, State
Facilities Adult Correctional Building Fund
Series A, 6.125%, 10/1/09 250,000 269,080
Ohio State Water Development Authority Revenue
(MBIA Insured), 5.75%, 12/1/05 1,000,000 1,072,750
Ohio General Obligation State of Public & Sewer
Imports Unlimited Tax, 6.00%, 8/1/07 1,000,000 1,103,350
Ohio Housing Financial Agency Mortgage Revenue
Residential GNMA Series A-1, 6.20%, 9/1/14 1,670,000 1,732,542
-----------
5,213,051
-----------
South Dakota -- 3.09%
South Dakota Housing Development Authority Revenue
Series C, 6.25%, 5/1/15 1,000,000 1,024,390
South Dakota State Building Authority Lease Revenue
(AMBAC Insured), 6.625%, 9/1/12 1,200,000 1,390,464
-----------
2,414,854
-----------
Tennessee -- 1.31%
Metropolitan Government Nashville/Davis County
Revenue, 7.00%, 1/1/14 1,000,000 1,022,250
-----------
Texas -- 6.68%
Austin Utilities System Revenue (AMBAC Insured),
6.50%, 5/15/11 250,000 273,917
El Paso General Obligation Unlimited Tax, 5.00%,
8/15/09 500,000 498,505
Harris Co. Flood Control District Refunding General
Obligation, 6.25%, 10/1/05 250,000 269,060
Houston General Obligation Series C, 6.00%, 3/1/05 400,000 427,328
Round Rock General Obligation (AMBAC Insured)
Unlimited Tax, 5.30%, 8/15/05 500,000 515,450
San Antonio Water Revenue (MBIA Insured), 6.50%,
5/15/10 250,000 275,483
Tarrant Co. Water Control & Improvement District #1
Revenue Series A, 6.10%, 3/1/05 400,000 423,912
Texas General Obligation, 7.70%, 8/1/06 1,305,000 1,444,257
Texas General Obligation Refunding Series A
Unlimited Tax 6.00%, 10/1/05 1,000,000 1,102,350
-----------
5,230,262
-----------
Virginia -- 9.29%
Norfolk Virginia General Obligation 7.00%, 10/1/07 1,500,000 1,643,494
Virginia State Housing Development Authority
Revenue, 5.60%, 11/1/10 1,500,000 1,496,880
Virginia State Housing Development Commonwealth
Series H, 6.20%, 1/1/08 1,000,000 1,035,660
Virginia State Public School Authority Revenue
Series A, 6.25%, 1/1/11 500,000 524,575
Virginia State Transportation Board Contract
Revenue #58 Corridor, 6.00%, 5/15/19 2,500,000 2,567,650
-----------
7,268,259
-----------
Washington -- 3.17%
Kent General Obligation (AMBAC Insured) Unlimited
Tax, 5.40%, 12/1/06 1,300,000 1,360,021
King Co. General Obligation Series A, 7.00%,
12/1/07 550,000 617,034
Seattle General Obligation, 4.90%, 12/1/05 500,000 506,420
-----------
2,483,475
-----------
Wisconsin -- 5.35%
Wisconsin Housing and Economic Development
Authority Revenue Series A, 6.15%, 9/1/17 1,500,000 1,525,305
Wisconsin Public Power System Revenue (AMBAC
Insured), Power Supply System Series A:
5.20%, 7/1/06 400,000 410,560
5.30%, 7/1/08 700,000 710,969
Wisconsin State Health & Educational Facilities
Authority Revenue, Lutheran Hospital Benevolent
Development Fund Series A, 5.60%, 2/15/09 450,000 462,920
Wisconsin State Transportation Revenue Series B,
5.75%, 7/1/12 1,000,000 1,077,410
-----------
4,187,164
-----------
TOTAL MUNICIPAL BONDS 78,204,517
-----------
(Cost $75,702,670)
TEMPORARY CASH INVESTMENT -- 0.06%
Woodward Tax Exempt Money Market Fund 48,195 48,195
-----------
(Cost $48,195)
TOTAL INVESTMENTS $78,252,712
===========
(Cost $75,750,865)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MICHIGAN MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 98.62%
Michigan -- 98.62%
Allegan Public School District General Obligation
(AMBAC Insured), Unlimited Tax, 5.75%, 5/1/12 $ 200,000 $ 208,860
Ann Arbor General Obligation Resource Recovery
Improvements, Series A, 6.375%, 9/1/10 525,000 560,726
Dearborn Economic Division Oakwood Obligation
Group Series, 5.60%, 11/15/08 1,690,000 1,759,882
Detroit Sewer Disposal Revenue (FGIC Insured):
6.00%, 7/1/00 1,225,000 1,312,575
Series A, Sewer Improvement, 5.30%, 7/1/06 455,000 470,443
East China Township School District School
Building & Site, Unlimited Tax, 6.00%, 5/1/03 400,000 431,500
Eastern Michigan University General Obligation
Revenue (AMBAC Insured), 5.125%, 6/1/11 500,000 495,250
Eastern Michigan University General Sinking Fund,
6.375%, 6/1/14 1,000,000 1,070,030
Fenton Area Public Schools, 7.00%, 5/1/04 250,000 275,880
Ferndale School District, 5.50%, 5/1/11 1,000,000 1,022,880
Grand Haven Electric Revenue, 5.25%, 7/1/13 1,315,000 1,317,919
Grand Traverse Co. Hospital Finance Authority
Revenue (AMBAC Insured), Munson Healthcare
Series A, 5.90%, 7/1/04 1,000,000 1,078,450
Hartland Consolidated School District General
Obligation (AMBAC Insured), Unlimited Tax,
6.00%, 5/1/11 650,000 695,895
Holland Electric Revenue:
5.00%, 7/1/09 625,000 620,756
Kent Co. Building Authority Limited Tax, 6.45%,
12/1/02 620,000 671,981
Lansing Building Authority (AMBAC Insured),
6.00%, 6/1/05 1,000,000 1,101,210
Livingston Co. General Obligation Bldg. Authority
Limited Tax, 5.80%, 7/1/08 1,330,000 1,408,975
Marysville Public School District, 5.60%, 5/1/09 620,000 644,626
Michigan General Obligation Environmental
Protection Program:
6.25%, 11/1/08 450,000 507,928
Michigan Municipal Bond Authority Revenue:
Equipment & Real Property Financing Program G,
5.70%, 5/1/05 365,000 381,732
Local Government Loan Program Series A, 5.70%,
8/1/07 1,145,000 1,200,361
Michigan State Building Authority Revenue
Series I:
6.40%, 10/1/04 400,000 439,816
(AMBAC Insured), 5.00%, 10/1/06 950,000 960,897
Michigan State Comprehensive Transportation
Revenue Series B, 5.75%, 5/15/11 2,140,000 2,187,915
Michigan State Hospital Finance Authority
Revenue:
Detroit Medical Center -- B (AMBAC Insured),
5.00%, 8/15/06 1,000,000 1,004,040
Henry Ford Hospital, 6.00%, 9/1/11 1,250,000 1,315,425
Henry Ford Hospital, 5.75%, 9/1/17 750,000 758,092
Mercy Mt. Clemens, 6.25%, 5/15/11 500,000 525,855
Sisters of Mercy (MBIA Insured):
Series P, 5.00%, 8/15/06 460,000 458,845
Series H, 7.50%, 8/15/07 250,000 270,133
Michigan State Housing Development Authority
Revenue:
Rental, Series A, 6.20%, 4/1/03 1,000,000 1,055,990
Single Family Mortgage Series B, 6.30%, 4/1/03 1,000,000 1,002,180
Series C, 6.375%, 12/1/11 750,000 783,255
Michigan State University Revenue Series A:
6.125%, 8/15/07 500,000 533,515
6.25%, 8/15/15 2,000,000 2,112,140
Newaygo Public Schools General Obligation
Unlimited Tax, 6.00%, 5/1/12 300,000 318,339
Norway Vulcan Area Schools, 5.75%, 5/1/13 250,000 257,998
Novi Community Schools, 6.125%, 5/1/13 750,000 807,645
Novi General Obligation Series A & B Recreational
Facilities & Public Improvements, 5.00%,
10/1/11 725,000 706,433
Oak Park School District (AMBAC Insured):
6.00%, 6/1/09 250,000 266,470
Oakland County General Obligation Segment I & II
Evergreen Farmington Sewer Disposal System,
6.80%, 11/1/03 750,000 814,965
Oakland Community College Refunding & Improvement
Limited Tax:
5.15%, 5/1/09 910,000 898,707
General Obligation, 5.20%, 5/1/10 700,000 689,527
Okemos Public School District, 6.30%, 5/1/06 655,000 725,393
Ottawa Co. General Obligation Water Supply
System, 6.00%, 8/1/08 1,950,000 2,100,735
Perry Public Schools General Obligation Unlimited
Tax, 6.00%, 5/1/12 250,000 263,870
Rockford Public Schools, 5.875%, 5/1/12 500,000 522,905
Royal Oak Hospital Finance Authority Revenue,
William Beaumont Hospital -- G, 5.60%, 11/15/11 2,000,000 2,024,060
Saranac Community School District, 6.00%, 5/1/13 250,000 263,870
Traverse City Area Public School District,
Series I, 5.70%, 5/1/12 2,400,000 2,500,800
Troy City School District, School Improvements,
6.40%, 5/1/12 400,000 426,076
University of Michigan Revenue Hospital Series A:
5.75%, 12/1/12 850,000 859,409
5.50%, 12/1/21 450,000 445,077
University of Michigan Revenue Medical Service
Plan, 6.20%, 12/1/03 1,000,000 1,100,100
University of Michigan Revenue Student Fee
Series A, 5.25%, 4/1/15 1,000,000 997,510
Washtenaw Community College Unlimited Tax, 6.25%,
4/1/07 1,000,000 1,048,770
Wayne State University (AMBAC Insured):
5.50%, 11/15/07 1,000,000 1,044,180
5.65%, 11/15/15 800,000 813,904
Wayne Westland Community Schools (FGIC Insured),
Unlimited Tax, 5.75%, 5/1/11 350,000 360,951
Webberville Community School, 5.60%, 5/1/11 500,000 511,415
Western University Revenue (FGIC Insured), 6.25%,
11/15/12 250,000 270,172
Wyoming Public School, 5.875%, 5/1/13 350,000 367,010
-----------
TOTAL MUNICIPAL BONDS 52,052,248
-----------
(Cost $50,492,845)
TEMPORARY CASH INVESTMENT -- 1.38%
Woodward Michigan Tax-Exempt Money Market Fund 726,292 726,292
-----------
(Cost $726,292)
TOTAL INVESTMENTS $52,778,540
===========
(Cost $51,219,137)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BOND FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series of which there were five Bond
Funds, as described below. Woodward Bond Fund Woodward Intermediate Bond Fund
Woodward Short Bond Fund Woodward Municipal Bond Fund Woodward Michigan
Municipal Fund
The Bond and Intermediate Bond Funds commenced operations on June 1,
1991. The Municipal Bond and Michigan Municipal Bond Funds commenced
operations February 1, 1993. The Short Bond Fund commenced operations on
September 17, 1994.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Bond Funds in the preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Bond Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD or its third
party custodian to assure its value remains at least equal to 102% of the
repurchase agreement amount; and 3) funds are not disbursed by Woodward or its
agent unless collateral is presented or acknowledged by the collateral
custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
<PAGE>
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions for all Funds
and write downs for book purposes on the Bond and Intermediate Bond funds (See
notes to Portfolio of Investments). Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year the income or realized gains were recorded by the Fund.
As of December 31, 1995, the Bond Funds had capital loss carryforwards
and related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 2002 2003 Total
- ---- ---- ---- -----
<S> <C> <C> <C>
Municipal Bond $ 96,878 $333,098 $429,976
Michigan Municipal Bond 29,400 -- 29,400
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared and paid monthly by the
Bond Funds. Net realized capital gains are distributed annually. Distributions
from net investment income and net realized gains are made during each year to
avoid the 4% excise tax imposed on regulated investment companies by the
Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
When Issued/To Be Announced (TBA) Securities.
The Bond Funds may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a
commitment by the Funds to purchase particular securities, with payment and
delivery taking place at a future date, for which all specific information,
such as the face amount and maturity date of such investment security, is not
known at the time of the trade. These transactions are subject to market
fluctuations and the risk that the value at delivery may be more or less than
the purchase price at which the transactions were entered. The current value
of these securities is determined in the same manner as that of other
portfolio securities. Although the Bond Funds generally purchase these
securities with the intention of acquisition, such securities may be sold
before the settlement date.
Expenses
Expenses are charged daily as a percentage of the Fund's assets. Woodward
monitors the rate at which expenses are charged to ensure that a proper amount
of expense is charged to income each year. This percentage is subject to
revision if there is a change in the estimate of the future net assets of
Woodward or a change in expectations as to the level of actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Bond Funds's average net assets and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For its
advisory services to Woodward, NBD is entitled to a fee, computed daily and
payable monthly. Under the Advisory Agreement, NBD also provides Woodward with
certain administrative services, such as maintaining Woodward's general ledger
and assisting in the preparation of various regulatory reports. NBD receives
no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered by
the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
<PAGE>
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD reimbursed the Short
Bond, Municipal Bond, and Michigan Municipal Bond Funds for certain expenses
in the amount of $65,761, $88,071, and $119,481 respectively.
On March 10, 1994, Woodward adopted the Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
MUNICIPAL MUNICIPAL
BOND FUND BOND FUND
--------- ---------
<S> <C> <C>
Gross Unrealized
Gains $ 2,346,519 $ 1,652,718
Gross Unrealized
Losses (155,328) (93,315)
------------ ------------
$ 2,501,847 $ 1,559,403
============ ============
Federal Income Tax
Cost $ 75,750,865 $ 51,219,137
Purchases $ 24,624,824 $ 16,596,409
Sales & Maturities, at value $ 13,656,636 $ 13,193,153
</TABLE>
<PAGE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
MICHIGAN
MUNICIPAL MUNICIPAL
Effective Date BOND FUND BOND FUND
- -------------- --------- ---------
<S> <C> <C>
Expense Rates:
January 1 0.77% 0.77%
March 21 0.80% 0.80%
NBD Advisory Fee:
January 1 0.65% 0.65%
Amounts Paid:
Advisory Fee to NBD $444,288 $ 327,020
Distribution Fees to FoM
& Essex $ 13,331 $ 19,211
Other Fees & Out of Pocket
Expenses to NBD $ 33,445 $ 34,020
Expense reimbursement by NBD $(88,071) $(119,481)
</TABLE>
(6) Portfolio Composition
Although the Municipal Bond Fund has a diversified investment portfolio,
the Fund has investments greater than 10% of its total investments in the
state of Illinois. The Michigan Municipal Bond Fund does not have a
diversified portfolio since all of its investments are within the state of
Michigan. Such concentrations within particular states may subject the Funds
more significantly to economic changes occuring within those states.
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Fund
---------------------------------------------
Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.59 $ 10.69 $ 10.00
Income from investment operations:
Net investment income 0.48 0.50 0.45
Net realized and unrealized gains
(losses) on investments 1.08 (1.11) 0.69
----------- ----------- -----------
Total from investment operations 1.56 (0.61) 1.14
----------- ----------- -----------
Less distributions:
From net investment income (0.47) (0.49) (0.44)
From realized gains -- -- (0.01)
----------- ----------- -----------
Total distributions (0.47) (0.49) (0.45)
----------- ----------- -----------
Net asset value, end of period $ 10.68 $ 9.59 $ 10.69
=========== =========== ===========
Total Return (b) 16.54% (5.72%) 12.69%(a)
Ratios/Supplemental Data
Net assets, end of period $76,963,564 $61,255,773 $54,703,974
Ratio of expenses to average net assets 0.79% 0.53% 0.19%(a)
Ratio of net investment income to
average net assets 4.63% 4.94% 5.27%(a)
Ratio of expenses to average net assets
without fee waivers/ reimbursed expenses 0.93% 0.88% 1.12%(a)
Ratio of net investment income to average
net assets without fee waivers/
reimbursed expenses 4.49% 4.59% 4.34%(a)
Portfolio turnover rate 20.46% 19.11% 11.12%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Bond Fund
---------------------------------------------
Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.54 $ 10.60 $ 10.00
Income from investment operations:
Net investment income 0.48 0.50 0.44
Net realized and unrealized gains (losses)
on investments 1.06 (1.06) 0.59
----------- ----------- -----------
Total from investment operations 1.54 (0.56) 1.03
----------- ----------- -----------
Less distributions:
From net investment income (0.48) (0.50) (0.43)
From realized gains -- -- --
----------- ----------- -----------
Total distributions (0.48) (0.50) (0.43)
----------- ----------- -----------
Net asset value, end of period $ 10.60 $ 9.54 $ 10.60
=========== =========== ===========
Total Return (b) 16.49% (5.42%) 11.50%(a)
Ratios/Supplemental Data
Net assets, end of period $53,453,160 $45,263,059 $42,113,795
Ratio of expenses to average net assets 0.79% 0.53% 0.19%(a)
Ratio of net investment income to average net assets 4.71% 5.01% 5.12%(a)
Ratio of expenses to average net assets without fee
waivers/ reimbursed expenses 1.04% 1.05% 1.21%(a)
Ratio of net investment income to average net assets
without fee waivers/reimbursed expenses 4.46% 4.49% 4.10%(a)
Portfolio turnover rate 26.97% 25.93% 41.70%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Bond Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Bond Funds of THE WOODWARD
FUNDS (comprising, as indicated in Note 1, the Bond, Intermediate Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond Funds) as of December 31,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Bond Funds of The
Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
from inception (as indicated in Note 1) through December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
Exhibit (17)(p)
Prospectus APRIL 11, 1996
[PRAIRIE FUNDS LOGO]
The Prairie Funds are open-end, management investment companies. Through
this Prospectus, investors may invest in any of 14 separate funds (the "Funds"),
divided into five general fund types: Asset Allocation; Equity; Bond; Municipal
Bond; and Money Market.
First Chicago Investment Management Company ("FCIMCO" or the "Investment
Adviser") serves as each Fund's investment adviser and administrator. The
Investment Adviser has engaged ANB Investment Management and Trust Company
("ANB-IMC") to serve as sub-investment adviser to the International Equity Fund
and to provide day-to-day management of that Fund's investments.
Concord Financial Group, Inc. (the "Distributor") serves as each Fund's
distributor. By this Prospectus, Class A shares of each Fund, Class B shares of
each Fund other than the U.S. Government Money Market and Municipal Money Market
Funds, and Class I shares of each Fund other than the Money Market Funds, are
being offered.
Class A shares of each Fund, other than the Money Market Funds,
are subject to a sales charge imposed at the time of purchase and Class B shares
of each such Fund are subject to a contingent deferred sales charge imposed on
redemptions made within up to six years of purchase. Class A and Class B shares
are offered to any investor. Each Fund offers these alternatives to 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. Class B shares of the Money Market Fund may be
acquired only through the exchange of Class B shares of the other Funds.
Class I shares are offered without a sales charge and are sold only to
qualified trust, custody and/or agency account clients of The First National
Bank of Chicago ("FNBC"), American National Bank and Trust Company ("ANB") or
their affiliates and to certain qualified employee benefit plans or other
programs.
Other differences between the Classes include the services offered to and
expenses borne by each Class and certain voting rights, as described herein.
Fund shares are not deposits or obligations of, or guaranteed by, any bank,
and are not federally insured by the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board, or any other agency. Fund shares involve
certain investment risks, including the possible loss of principal. For all
Funds other than the Money Market Funds, investors should recognize that the
share price, yield and investment return of each Fund fluctuate and are not
guaranteed.
For the Money Market Funds, investors should recognize that an investment
in a Money Market Fund is neither insured nor guaranteed by the U.S. Government.
There can be no assurance that the Money Market Funds will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely information about the Funds that an
investor should know before investing. It should be read and retained for future
reference.
The Statement of Additional Information, dated April 11, 1996, which may be
revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, write to the Prairie Funds at Three First
National Plaza, Chicago, Illinois 60670, or call 1-800-224-4800.
----------------------------------------------
ASSET ALLOCATION FUNDS
The Managed
Assets Income Fund
The Managed
Assets Fund
EQUITY FUNDS
The Equity Income Fund
The Growth Fund
The Special Opportunities Fund
The International Equity Fund
BOND FUNDS
The Intermediate Bond Fund
The Bond Fund
The International Bond Fund
MUNICIPAL BOND FUNDS
The Intermediate Municipal
Bond Fund
The Municipal Bond Fund
MONEY MARKET FUNDS
The U.S. Government
Money Market Fund
The Money Market Fund
The Municipal
Money Market Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
4 Fee Table
8 Condensed Financial Information
18 Highlights
22 Description of the Funds
27 Risk Factors
30 Alternative Purchase Methods
31 How to Buy Shares
34 Shareholder Services
35 How to Redeem Shares
38 Management of the Funds
40 Distribution Plans and
Shareholder
Services Plans
40 Dividends, Distributions and
Taxes
41 Performance Information
42 General Information
A-1 Appendix
The Prairie Funds
ASSET ALLOCATION FUNDS
These Funds will follow an asset allocation strategy by investing in equity
securities, fixed-income securities and short-term instruments of domestic and
foreign issuers:
The Managed Assets Income Fund
seeks to maximize current income; capital appreciation is a secondary, but
nonetheless important, goal.
The Managed Assets Fund
seeks to maximize total return, consisting of capital appreciation and current
income, without assuming undue risk.
EQUITY FUNDS
These Funds will invest principally in equity securities:
The Equity Income Fund
seeks to provide income; capital appreciation and growth of earnings are
secondary, but nonetheless important, goals. This Fund will invest primarily in
income-producing equity securities of domestic issuers.
The Growth Fund
seeks long-term capital appreciation. This Fund will invest primarily in equity
securities of domestic issuers believed by the Fund's investment adviser to have
above-average growth characteristics.
The Special Opportunities Fund
seeks long-term capital appreciation. This Fund will invest primarily in equity
securities of small- to medium-sized emerging growth domestic issuers that the
Fund's investment adviser believes are undervalued in the marketplace.
The International Equity Fund
seeks long-term capital appreciation. This Fund will invest primarily in equity
securities of foreign issuers.
BOND FUNDS
These Funds will invest principally in fixed-income securities:
The Intermediate Bond Fund
seeks to provide as high a level of current income as is consistent with the
preservation of capital. This Fund will invest primarily in a portfolio of U.S.
dollar denominated investment grade fixed-income securities of domestic and
foreign issuers which, under normal market conditions, will have a
dollar-weighted average maturity expected to range between three and ten years.
The Bond Fund
seeks to provide as high a level of current income as is consistent with the
preservation of capital. This Fund will invest primarily in a portfolio of U.S.
dollar denominated investment grade fixed-income securities of domestic and
foreign issuers, without regard to maturity.
The International Bond Fund
seeks to provide both long-term capital appreciation and current income. This
Fund will invest primarily in investment grade debt securities of foreign
issuers.
MUNICIPAL BOND FUNDS
These Funds will invest principally in Municipal Obligations:
The Intermediate Municipal Bond Fund
seeks to provide as high a level of current income exempt from Federal income
tax as is consistent with the preservation of capital. This Fund will invest
primarily in a portfolio of investment grade Municipal Obligations which, under
normal conditions, will have a dollar-weighted average maturity expected to
range between three and ten years.
The Municipal Bond Fund
seeks to provide as high a level of current income exempt from Federal income
tax as is consistent with the preservation of capital. This Fund will invest
primarily in a portfolio of investment grade Municipal Obligations without
regard to maturity.
MONEY MARKET FUNDS
These Funds will invest in various kinds of money market instruments and will
seek a stable net asset value of $1.00 per share:
The U.S. Government Money Market Fund
seeks to provide as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity. This Fund will invest
only in short-term securities issued or guaranteed as to principal or interest
by the U.S. Government, its agencies and instrumentalities, and repurchase
agreements in respect of such securities.
The Money Market Fund
seeks to provide as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity. This Fund will invest
in short-term money market instruments.
The Municipal Money Market Fund
seeks to provide as high a level of current income exempt from Federal income
tax as is consistent with the preservation of capital and the maintenance of
liquidity. This Fund will invest in short-term Municipal Obligations.
The Prairie Funds
Fee Table
<TABLE>
<CAPTION>
------------------------------ ------------------------- ---------
CLASS A CLASS B CLASS I
- ------------------------------------------------------------------------------------------------------------------------
All Other
Money Intermediate All Funds All Funds
SHAREHOLDER Market Bond Other Intermediate Offering Offering
TRANSACTION EXPENSES Funds Funds Funds Bond Funds Class B Class I
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge
Imposed On Purchases
(as a percentage of offering price) None 3.00% 4.50% None None None
Sales Charge On
Reinvested Dividends None None None None None None
Maximum Deferred Sales
Charge Imposed On Redemptions
(as a percentage of the amount
subject to charge) None None* None* 3.00% 5.00% None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
</TABLE>
* A contingent deferred sales charge of up to 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales charge as
part of an investment of $1 million or more.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
- --------------------------------
Class A Shares
<TABLE>
<CAPTION>
EXAMPLE
An investor would pay the following
expenses on a $1,000 investment,
assuming
(1) 5% annual return and (2) redemption
TOTAL at the end of each time period:
MANAGEMENT 12b-1 OTHER OPERATING 5 10
FEES* FEES EXPENSES* EXPENSES* 1 YEAR 3 YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.65% none 0.40% 1.05% $55 $77 $100 $167
Managed Assets Fund 0.65% none 0.40% 1.05% $55 $77 $100 $167
EQUITY FUNDS:
Equity Income Fund 0.50% none 0.40% 0.90% $54 $72 $ 93 $151
Growth Fund 0.65% none 0.40% 1.05% $55 $77 $100 $167
Special Opportunities Fund 0.70% none 0.40% 1.10% $56 $78 $103 $173
International Equity Fund 0.80% none 0.50% 1.30% $58 $84 $113 $195
BOND FUNDS:
Intermediate Bond Fund 0.40% none 0.40% 0.80% $38 $55 $ 73 $126
Bond Fund 0.55% none 0.40% 0.95% $54 $74 $ 95 $156
International Bond Fund 0.70% none 0.50% 1.20% $57 $81 $108 $184
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.40% none 0.40% 0.80% $38 $55 $ 73 $126
Municipal Bond Fund 0.40% none 0.40% 0.80% $53 $69 $ 87 $140
MONEY MARKET FUNDS:
U.S. Government Money Market Fund 0.40% none 0.40% 0.80% $8 $26 $44 $99
Money Market Fund 0.40% none 0.40% 0.80% $8 $26 $44 $99
Municipal Money Market Fund 0.40% none 0.30% 0.70% $7 $22 $39 $87
</TABLE>
* After expense reimbursements or fee waivers.
- - THE PRAIRIE FUNDS
- --------------------------------
Class B Shares
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12b-1 OTHER OPERATING
FEES* FEES EXPENSES* EXPENSES*
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.65% 0.75% 0.40% 1.80%
Managed Assets Fund 0.65% 0.75% 0.40% 1.80%
EQUITY FUNDS:
Equity Income Fund 0.50% 0.75% 0.40% 1.65%
Growth Fund 0.65% 0.75% 0.40% 1.80%
Special Opportunities Fund 0.70% 0.75% 0.40% 1.85%
International Equity Fund 0.80% 0.75% 0.50% 2.05%
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.75% 0.40% 1.55%
Bond Fund 0.55% 0.75% 0.40% 1.70%
International Bond Fund 0.70% 0.75% 0.50% 1.95%
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.40% 0.75% 0.40% 1.55%
Municipal Bond Fund 0.40% 0.75% 0.40% 1.55%
MONEY MARKET FUNDS:
Money Market Fund 0.40% 0.75% 0.40% 1.55%
<CAPTION>
EXAMPLE
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) except where
noted, redemption at the end of each
time period:
10
1 YEAR 3 YEARS 5 YEARS YEARS+
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund $68/$18** $87/$57** $117/$ 97** $183
Managed Assets Fund $68/$18** $87/$57** $117/$ 97** $183
EQUITY FUNDS:
Equity Income Fund $67/$17** $82/$52** $110/$ 90** $166
Growth Fund $68/$18** $87/$57** $117/$ 97** $183
Special Opportunities Fund $69/$19** $88/$58** $120/$100** $188
International Equity Fund $71/$21** $94/$64** $130/$110** $210
BOND FUNDS:
Intermediate Bond Fund $46/$16** $69/$49** $ 94/$ 84** $146
Bond Fund $67/$17** $84/$54** $112/$ 92** $172
International Bond Fund $70/$20** $91/$61** $125/$105** $199
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund $46/$16** $69/$49** $ 94/$84** $146
Municipal Bond Fund $66/$16** $79/$49** $104/$84** $155
MONEY MARKET FUNDS:
Money Market Fund $16 $49 $84 $155
</TABLE>
* After expense reimbursements or fee waivers.
** Assuming no redemption of Class B shares.
+ Ten-year figures assume conversion of Class B shares to Class A shares.
- --------------------------------
Class I Shares
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12b-1 OTHER OPERATING
FEES* FEES EXPENSES* EXPENSES*
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.65% none 0.15% 0.80%
Managed Assets Fund 0.65% none 0.15% 0.80%
EQUITY FUNDS:
Equity Income Fund 0.50% none 0.15% 0.65%
Growth Fund 0.65% none 0.15% 0.80%
Special Opportunities Fund 0.70% none 0.15% 0.85%
International Equity Fund 0.80% none 0.25% 1.05%
BOND FUNDS:
Intermediate Bond Fund 0.40% none 0.15% 0.55%
Bond Fund 0.55% none 0.15% 0.70%
International Bond Fund 0.70% none 0.25% 0.95%
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.40% none 0.15% 0.55%
Municipal Bond Fund 0.40% none 0.15% 0.55%
<CAPTION>
EXAMPLE
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption
at the end of each time period:
10
1 YEAR 3 YEARS 5 YEARS YEARS
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund $8 $26 $44 $99
Managed Assets Fund $8 $26 $44 $99
EQUITY FUNDS:
Equity Income Fund $7 $21 $36 $81
Growth Fund $8 $26 $44 $99
Special Opportunities Fund $9 $27 $47 $105
International Equity Fund $11 $33 $58 $128
BOND FUNDS:
Intermediate Bond Fund $6 $18 $31 $69
Bond Fund $7 $22 $39 $87
International Bond Fund $10 $30 $53 $117
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund $6 $18 $31 $69
Municipal Bond Fund $6 $18 $31 $69
</TABLE>
* After expense reimbursements or fee waivers.
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE EACH EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS
THAN 5%.
The purpose of the foregoing tables is to assist investors in understanding
the costs and expenses that investors in a Fund will bear, directly or
indirectly, the payment of which will reduce investors' annual return. With
respect to each Fund, Total Operating Expenses noted above have been restated to
reflect an undertaking by the Investment Adviser that if, in the fiscal year
ending December 31, 1996, Fund expenses, including the investment advisory fee,
exceed the Total Operating Expenses noted in the tables above for such Fund for
the fiscal year, the Investment Adviser may waive its investment advisory fee or
bear certain other expenses to the extent of such excess expense. Long-term
investors in Class B shares of a Fund could pay more in 12b-1 fees than the
economic equivalent of paying a front-end sales charge. FCIMCO, FNBC, ANB and
their affiliates and certain Service Agents (as defined below) may charge their
clients direct fees for effecting transactions in Fund shares; such fees are not
reflected in the foregoing tables. See "How to Buy Shares," "Management of the
Funds" and "Distribution Plans and Shareholder Services Plans." The Other
Expenses and Total Operating Expenses noted in the foregoing tables for each
Fund, without expense reimbursements or fee waivers, and estimated 1996 Total
Operating Expenses are as follows:
- --------------------------------
Class A Shares
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING ESTIMATED 1996 TOTAL
EXPENSES EXPENSES OPERATING EXPENSES
<S> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.89% 1.54% 1.53%
Managed Assets Fund 2.50% 3.15% 2.61%
EQUITY FUNDS:
Equity Income Fund 0.94% 1.44% 1.00%
Growth Fund 0.74% 1.39% 1.18%
Special Opportunities Fund 1.86% 2.56% 1.31%
International Equity Fund 1.16% 1.96% 1.45%
BOND FUNDS:
Intermediate Bond Fund 0.75% 1.15% 0.95%
Bond Fund 1.02% 1.57% 1.18%
International Bond Fund 2.95% 3.65% 2.16%
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.57% 0.97% 0.88%
Municipal Bond Fund 0.64% 1.04% 0.90%
MONEY MARKET FUNDS:
U.S. Government Money Market Fund 0.67% 1.07% 1.25%
Money Market Fund 0.67% 1.07% 1.17%
Municipal Money Market Fund 0.54% 0.94% 0.94%
</TABLE>
- THE PRAIRIE FUNDS
Class B Shares
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING ESTIMATED 1996 TOTAL
EXPENSES EXPENSES OPERATING EXPENSES
<S> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.72% 2.12% 2.28%
Managed Assets Fund 5.44% 6.84% 3.36%
EQUITY FUNDS:
Equity Income Fund 1.40% 2.65% 1.75%
Growth Fund 1.20% 2.60% 1.93%
Special Opportunities Fund 8.07% 9.52% 2.06%
International Equity Fund 2.28% 3.83% 2.20%
BOND FUNDS:
Intermediate Bond Fund 0.63% 1.78% 1.70%
Bond Fund 2.61% 3.91% 1.93%
International Bond Fund 7.24% 8.69% 2.91%
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.86% 2.01% 1.63%
Municipal Bond Fund 0.89% 2.04% 1.65%
MONEY MARKET FUNDS:
Money Market Fund 0.87% 2.02% 1.92%
</TABLE>
- --------------------------------
Class I Shares
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING ESTIMATED 1996 TOTAL
EXPENSES EXPENSES OPERATING EXPENSES
<S> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Income Fund 0.57% 1.22% 1.28%
Managed Assets Fund 3.47% 4.12% 2.36%
EQUITY FUNDS:
Equity Income Fund 0.27% 0.77% 0.75%
Growth Fund 0.27% 0.92% 0.93%
Special Opportunities Fund 0.39% 1.09% 1.06%
International Equity Fund 0.58% 1.38% 1.20%
BOND FUNDS:
Intermediate Bond Fund 0.27% 0.67% 0.70%
Bond Fund 0.32% 0.87% 0.93%
International Bond Fund 1.23% 1.93% 1.91%
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund 0.28% 0.68% 0.63%
Municipal Bond Fund 0.27% 0.67% 0.65%
</TABLE>
Condensed Financial Information
The information in the following tables has been audited by Ernst & Young
LLP, each Fund's independent auditors, whose report thereon appear in the
Statement of Additional Information. Further financial data and related notes
are included in the Statement of Additional Information, available upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
Class A, Class B and Class I of the Managed Asset Income Fund (including its
predecessor fund--First Prairie Diversified Asset Fund) for the periods
indicated. This information has been derived from information provided in the
Funds' financial statements.
MANAGED ASSETS INCOME FUND(1):
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
Fiscal Year Ended December 31,
--------------------------------------------------------
1986(2) 1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
period $10.00 $10.75 $9.73 $10.66 $11.54 $10.79
INVESTMENT OPERATIONS:
Investment income-net 0.63 0.70 0.78 0.88 0.86 0.83
Net realized and unrealized
gain (loss) on investments 0.70 (0.85) 0.92 1.10 (0.54) 1.77
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 1.33 (0.15) 1.70 1.98 0.32 2.60
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.58) (0.77) (0.74) (0.89) (0.88) (0.83)
Distributions from net realized
gain on investments -- (0.10) (0.03) (0.21) (0.19) --
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.58) (0.87) (0.77) (1.10) (1.07) (0.83)
Net asset value, end of period $10.75 $9.73 $10.66 $11.54 $10.79 $12.56
TOTAL INVESTMENT RETURN(7) 13.59%(8) (1.73%) 17.78% 19.08% 2.94% 24.87%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets -- -- -- -- -- --
Ratio of net investment income
to average net assets 5.90%(8) 6.61% 7.38% 7.74% 7.71% 7.04%
Decrease reflected in above
expense ratios due to
undertakings 1.41%(8) 2.69% 2.62% 2.96% 2.58% 2.16%
Portfolio Turnover Rate 15.19%(8) 23.99% 15.71% 49.46% 29.97% 26.02%
Net Assets, end of period
(000's omitted) $2,212 $4,989 $5,900 $7,407 $8,950 $14,038
<CAPTION>
CLASS A
--------------------------------------------
Fiscal Year Ended December 31,
--------------------------------------------
1992 1993 1994 1995
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
period $12.56 $12.68 $13.11 $12.13
INVESTMENT OPERATIONS:
Investment income-net 079 0.72 0.73 0.64
Net realized and unrealized
gain (loss) on investments 0.26 0.61 (0.98) 2.48
TOTAL FROM INVESTMENT
OPERATIONS 1.05 1.33 (0.25) 3.12
DISTRIBUTIONS:
Dividends from investment
income-net (0.77) (0.72) (0.72) (0.68)
Dividends from net realized
gain on investments (0.16) (0.18) (0.01) (0.03)
TOTAL DISTRIBUTIONS (0.93) (0.90) (0.73) (0.71)
Net asset value, end of period $12.68 $13.11 $12.13 $14.54
TOTAL INVESTMENT RETURN(7) 8.68% 10.70% (1.92%) 26.40%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets 0.02% 0.39% 0.63% 1.17%
Ratio of net investment income
to average net assets 6.24% 5.54% 5.77% 4.88%
Decrease reflected in above
expense ratios due to
undertakings 1.86% 1.26% 1.04% 0.37%
Portfolio Turnover Rate 22.14% 16.40% 28.69% 8.23%
Net Assets, end of period
(000's omitted) $34,262 $51,586 $44,367 $51,997
<CAPTION>
CLASS I
--------
CLASS B Fiscal
------------------ Period
Fiscal Period Ended Ended
------------------------ ------
December December
December 31, 31,
2, 1994(3) 1995(4) 1995(5)
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
period $13.05 $12.42 $12.42
INVESTMENT OPERATIONS:
Investment income-net 0.51 0.45 0.57
Net realized and unrealized
gain (loss) on investments (0.91) 2.17 2.18
TOTAL income (loss) from
INVESTMENT OPERATIONS (0.40) 2.62 2.75
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.54) (0.45) (0.57)
Distributions from net realized
gain on investments (0.01) (0.03) (0.03)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.55) (0.48) (0.60)
Net asset value, end of period $12.10(6) $14.56 $14.57
TOTAL INVESTMENT RETURN(7) (3.13%)(8) 21.42% 22.55%(8)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets 1.21%(9) 1.92% 0.77%(9)
Ratio of net investment income
to average net assets 4.10%(9) 3.89% 5.12%(9)
Decrease reflected in above
expense ratios due to
undertakings 0.96%(9) 0.20% 0.45%(9)
Portfolio Turnover Rate 28.69% 8.23% 8.23%(8)
Net Assets, end of period
(000's omitted) -- $2,175 $1,294
</TABLE>
(1) On March 3, 1995, all of the assets and liabilities of First Prairie
Diversified Asset Fund were transferred to the Managed Assets Income Fund in
exchange for Class A shares of the Managed Assets Income Fund. The financial
data provided above for periods prior to such date is for First Prairie
Diversified Asset Fund.
(2) From January 23, 1986 (commencement of operations) to December 31, 1986.
(3) For the period February 8, 1994 (initial offering date of Class B
shares) through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of the then-existing Class B shares and converted Class B shares
outstanding at that time to Class A shares. The Fund commenced offering Class B
shares under the current sales load structure on March 3, 1995.
(4) From March 3, 1995 (re-offering date of Class B shares) to December 31,
1995.
(5) From March 3, 1995 (initial offering date of Class I shares) to December 31,
1995.
(6) Conversion to Class A shares. See note 3 above.
(7) Excludes sales charges.
(8) Not annualized.
(9) Annualized.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
Class A, Class B and Class I of the Intermediate Bond Fund for the periods
indicated. This information has been derived from information provided in the
Funds' financial statements.
INTERMEDIATE BOND FUND(1):
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------- ----------------------
Fiscal Fiscal Eleven-Month Fiscal Fiscal
Period Year Period Period Period
Ended Ended Ended Ended Ended
January January December December December
31, 31, 31, 2, 31,
1994(3) 1995 1995(4) 1994(5) 1995(6)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $8.36 $8.25 $7.68 $8.16 $8.13
INVESTMENT OPERATIONS:
Investment income-net 0.47 0.52 0.44 0.40 0.24
Net realized and unrealized
gain (loss) on investments (0.09) (0.57) 0.72 (0.55) 0.27
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.38 (0.05) 1.16 (0.15) 0.51
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.47) (0.52) (0.44) (0.40) (0.24)
Distributions from net realized
gain on investments (0.02) -- (0.22) -- (0.22)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.49) (0.52) (0.66) (0.40) (0.46)
Net asset value, end of period $8.25 $7.68 $8.18 $7.61(7) $8.18
TOTAL INVESTMENT RETURN(8) 5.16%(9) (0.45%) 15.55%(10) (1.82%)(10) 6.41%(10)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets -- 0.04% 0.94%(9) -- 1.60%(9)
Ratio of net investment income
to average net assets 5.96%(9) 6.70% 5.72%(9) 6.48%(9) 5.00%(9)
Decrease reflected in above
expense ratios due to
undertakings 3.67%(9) 2.74% 0.21%(9) 2.58%(9) 0.18%(9)
Portfolio Turnover Rate 26.54%(10) 71.65% 173.26%(10) 71.65%(10) 173.26%(10)
Net Assets, end of period (000's
omitted) $65 $69 $6,095 -- $259
<CAPTION>
CLASS I (2)
--------------------------------------
Fiscal Eleven-Month
Fiscal Year Period
Period Ended Ended
Ended January December
January 31, 31, 31,
1994(3) 1995 1995(4)
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $8.36 $8.25 $7.68
INVESTMENT OPERATIONS:
Investment income-net 0.47 0.52 0.47
Net realized and unrealized
(loss) on investments (0.09) (0.57) 0.72
TOTAL GAIN (LOSS) FROM
INVESTMENT OPERATIONS 0.38 (0.05) 1.19
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.47) (0.52) (0.47)
Distributions from net realized
gain on investments (0.02) -- (0.22)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.49) (0.52) (0.69)
Net asset value, end of period $8.25 $7.68 $8.18
TOTAL INVESTMENT RETURN(8) 5.16%(9) (0.48%) 15.90%(10)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets -- 0.04% 0.55%(9)
Ratio of net investment income
to average net assets 6.21%(9) 6.70% 6.34%(9)
Decrease reflected in above
expense ratios due to
undertakings 2.64%(9) 2.66% 0.12%(9)
Portfolio Turnover Rate 26.54% 71.65% 173.26%(10)
Net Assets, end of period (000's
omitted) $5,128 $7,101 $191,930
</TABLE>
(1) On January 17, 1995, the management policies of the Intermediate Bond Fund
were changed as described under "General Information."
(2) Formerly, Class F shares.
(3) From March 5, 1993 (commencement of operations) to January 31, 1994.
(4) Effective February 1, 1995, the Fund changed its fiscal year-end from
January 31 to December 31. The figures presented are from February 1, 1995
to December 31, 1995.
(5) For the period February 8, 1994 (initial offering date of Class B
shares) through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of the then-existing Class B shares and converted Class B shares
outstanding at that time to Class A shares. The Fund commenced offering Class B
shares under the current sales load structure on May 31, 1995.
(6) From May 31, 1995 (re-offering date of Class B shares) to December 31,
1995.
(7) Conversion to Class A shares. See note 5 above.
(8) Excludes sales charges.
(9) Annualized.
(10) Not annualized.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
Class A, Class B and Class I of the Intermediate Municipal Bond Fund (including
its predecessor fund--the Intermediate Series of First Prairie Municipal Bond
Fund, Inc.) for the periods indicated. This information has been derived from
information provided in the Funds' financial statements.
INTERMEDIATE MUNICIPAL BOND FUND(1):
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
Ten-
Month
Period
Ended
Fiscal Year Ended February 28/29, December
----------------------------------------------------------- 31,
1989(2) 1990 1991 1992 1993 1994 1995 1995(3)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $11.46 $11.43 $11.65 $11.95 $12.25 $12.79 $12.18 $11.79
INVESTMENT OPERATIONS:
Investment income-net 0.79 0.78 0.80 0.76 0.64 0.61 0.55 0.44
Net realized and
unrealized gain
(loss) on investments (0.03) 0.22 0.31 0.37 0.68 0.01 (0.36) 0.56
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.76 1.00 1.11 1.13 1.32 0.62 0.19 1.00
DIVIDENDS AND DISTRIBUTIONS:
Dividends from
investment income-net (0.79) (0.78) (0.80) (0.76) (0.64) (0.61) (0.55) (0.44)
Distributions from net
realized gain on
investments -- -- (0.01) (0.07) (0.14) (0.62) (0.03) (0.10)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.79) (0.78) (0.81) (0.83) (0.78) (1.23) (0.58) (0.54)
Net asset value, end
of period $11.43 $11.65 $11.95 $12.25 $12.79 $12.18 $11.79 $12.25
TOTAL INVESTMENT
RETURN(9) 6.82%(10) 9.00% 9.94% 9.78% 11.26% 4.94% 1.64% 8.58%(11)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets -- -- -- -- -- 0.06% 0.29% 0.83%(10)
Ratio of net
investment income to
average net assets 6.83%(10) 6.62% 6.76% 6.15% 5.16% 4.78% 4.73% 4.30%(10)
Decrease reflected in
above expense ratios
due to undertakings 2.25%(10) 2.75% 2.75% 1.72% 1.31% 1.21% 1.09% 0.14%(10)
Portfolio Turnover
Rate 101.17%(11) 46.68% 12.22% 86.91% 63.67% 167.95% 128.02% 44.75%(11)
Net Assets, end of
period (000's
omitted) $2,593 $4,582 $7,251 $18,310 $27,885 $28,826 $17,243 $17,777
<CAPTION>
CLASS B CLASS I
--------------------------------------------------- -----------------------
Ten- Ten-
Month Month
Fiscal Period Fiscal Period
Period Period Period Ended Period Ended
Ended Ended Ended December Ended December
February December February 31, February 31,
28, 1994(4) 2, 1994(5) 28, 1995(6) 1995(3) 28, 1995(7) 1995(3)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $12.32 $12.18 $11.57 $11.80 $11.57 $11.80
INVESTMENT OPERATIONS:
Investment income-net 0.03 0.37 0.04 0.37 0.04 0.47
Net realized and
unrealized gain
(loss) on investments (0.14) (0.72) 0.23 0.55 0.23 0.55
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS (0.11) (0.35) 0.27 0.92 0.27 1.02
DIVIDENDS AND DISTRIBUTIONS:
Dividends from
investment income-net (0.03) (0.37) (0.04) (0.37) (0.04) (0.47)
Distributions from net
realized gain on
investments -- (0.03) -- (0.10) -- (0.10)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.03) (0.40) (0.04) (0.47) (0.04) (0.57)
Net asset value, end
of period $12.18 $11.43(8) $11.80 $12.25 $11.80 $12.25
TOTAL INVESTMENT
RETURN(9) (0.93%)(11) (2.98%) 2.30%(11) 7.75% 2.37%(11) 8.76%(11)
RATIOS/SUPPLEMENTAL DATE
Ratio of expenses to
average net assets 0.75%(10) 0.76%(10) 1.36%(10) 1.71% 0.50%(10) 0.55%(10)
Ratio of net
investment income to
average net assets 1.68%(10) 4.03%(10) 3.72%(10) 3.36%(10) 4.79%(10) 4.78%(10)
Decrease reflected in
above expense ratios
due to undertakings 2.25%(10) 1.24%(10) 0.28%(10) 0.30%(10) 0.10%(10) 0.13%(10)
Portfolio Turnover
Rate 167.95% 128.02% 128.02% 44.75%(11) 128.02% 44.75%(11)
Net Assets, end of
period (000's
omitted) $12 -- $6 341 $365,801 $373,753
</TABLE>
(1) On January 31, 1995, all of the assets and liabilities of the Intermediate
Series of First Prairie Municipal Bond Fund, Inc. were transferred to the
Intermediate Municipal Bond Fund in exchange for Class A shares of the
Intermediate Municipal Bond Fund. The financial data provided above for
periods prior to such date is for the Intermediate Series of First Prairie
Municipal Bond Fund, Inc.
(2) From March 1, 1988 (commencement of operations) to February 28, 1989.
(3) Effective March 1, 1995, the Fund changed its fiscal year-end from February
28/29 to December 31. The figures presented are from March 1, 1995 to
December 31, 1995.
(4) For the period February 8, 1994 (initial offering date of Class B
shares) to February 28, 1994.
(5) For the period March 1, 1994 through December 2, 1994. On December 2, 1994,
the Fund terminated its offering of the then-existing Class B shares and
converted Class B shares outstanding at that time to Class A shares. The
Fund commenced offering Class B shares under the current sales load
structure on January 30, 1995. See note 5 below.
(6) For the period January 30, 1995 (re-offering date of Class B shares) to
February 28, 1995.
(7) For the period January 30, 1995 (initial offering date of Class I
shares) to February 28, 1995.
(8) Conversion to Class A shares. See note 5 above.
(9) Excludes sales charges.
(10) Annualized.
(11) Not annualized.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
Class A, Class B and Class I of the Municipal Bond Fund for the periods
indicated. This information has been derived from information provided in the
Funds' financial statements.
MUNICIPAL BOND FUND(1):
<TABLE>
<CAPTION>
Fiscal Year Ended February 28/29
----------------------------------------------------------
1989(2) 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $11.94 $11.82 $11.77 $12.10 $12.49 $13.25 $12.13
INVESTMENT OPERATIONS:
Investment income-net 0.89 0.81 0.81 0.76 0.70 0.63 0.60
Net realized and unrealized
gain (loss) on investments (0.12) 0.28 0.33 0.47 1.01 (0.15) (0.07)
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.77 1.09 1.14 1.23 1.71 0.48 0.53
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.89) (0.81) (0.81) (0.76) (0.70) (0.63) (0.60)
Distributions from net realized
gain on investments -- (0.33) -- (0.08) (0.25) (0.96) --
Distributions from excess net
realized gain on investments -- -- -- -- -- (0.01) --
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.89) (1.14) (0.81) (0.84) (0.95) (1.60) (0.60)
Net asset value, end of period $11.82 $11.77 $12.10 $12.49 $13.25 $12.13 $12.06
TOTAL INVESTMENT RETURN(9) 6.82%(10) 9.39% 10.13% 10.50% 14.37% 3.70% 4.45%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets -- -- -- -- -- -- 1.98%
Ratio of net investment income
to average net assets 7.46%(10) 6.60% 6.87% 5.99% 5.49% 4.85% 5.09%
Decrease reflected in above
expense ratios due to
undertakings 2.25%(10) 2.75% 2.75% 2.75% 1.59% 1.44% 1.91%
Portfolio Turnover Rate 36.19%(11) 85.07% 32.40% 66.28% 88.53% 175.06% 60.78%
Net Assets, end of period
(000's omitted) $673 $1,192 $2,244 $6,591 $11,290 $9,234 $6,840
<CAPTION>
CLASS A CLASS I
-------- CLASS B -------------------
------------------------------ Ten-
Ten- Fiscal Fiscal Fiscal Month
Month Year Period Period Period
Period Ended Ended Ended Ended
Ended February December December February December
December 28, 2, 31, 28, 31,
31, 1995(3) 1994(4) 1994(5) 1995(6) 1995(7) 1995(3)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $12.06 $12.37 $12.14 $12.17 $12.06 $12.06
INVESTMENT OPERATIONS:
Investment income-net 0.48 0.03 0.41 0.34 0.05 0.52
Net realized and unrealized
gain (loss) on investments 0.82 (0.23) (0.70) 0.72 -- 0.81
TOTAL INCOME GAIN (LOSS) FROM
INVESTMENT OPERATIONS 1.30 (0.20) (0.29) 1.06 0.05 1.33
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.48) (0.03) (0.41) (0.34) (0.05) (0.52)
Distributions from net realized
gain on investments (0.24) -- -- (0.24) -- (0.24)
Distributions from excess net
realized gain on investments -- -- -- -- -- --
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.72) (0.03) (0.41) (0.58) (0.05) (0.76)
Net asset value, end of period $12.64 $12.14 $11.44 $12.65 $12.06 $12.63
TOTAL INVESTMENT RETURN(9) 10.95%(11) (1.64%)(11) (4.30%) 8.81%(11) 0.39%(11) 11.20%(11)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets 0.89%(10) 0.50%(10) 3.18%(10) 1.66%(10) 0.65%(10) 0.54%(10)
Ratio of net investment income
to average net assets 4.57%(10) 4.10%(10) 4.51%(10) 3.61%(10) 5.45%(10) 4.95%(10)
Decrease reflected in above
expense ratios due to
undertakings 0.15%(10) 2.41%(10) 2.67%(10) 0.38%(10) 0.14%(10) 0.13%(10)
Portfolio Turnover Rate 69.31%(11) 175.06% 60.78% 69.31%(11) 60.78% 69.31%(11)
Net Assets, end of period
(000's omitted) $7,426 $2 -- $238 $220,143 $240,160
</TABLE>
(1) On September 12, 1989 and on January 17, 1995, the management policies of
the Municipal Bond Fund were changed as described under "General
Information."
(2) From March 1, 1988 (commencement of operations) to February 28, 1989.
(3) Effective March 1, 1995, the Fund changed its fiscal year-end from February
28/29 to December 31. The figures presented are from March 1, 1995 to
December 31, 1995.
(4) From February 8, 1994 (commencement of initial offering of Class B
shares) to February 28, 1994.
(5) For the period March 1, 1994 through December 2, 1994. On December 2, 1994,
the Fund terminated its offering of the then-existing Class B shares and
converted Class B shares outstanding at that time to Class A shares. The
Fund commenced offering Class B shares under the current sales load
structure on April 4, 1995.
(6) From April 4, 1995 (re-offering date of Class B shares) to December 31,
1995.
(7) From February 1, 1995 (commencement of initial offering of Class I) to
February 28, 1995.
(8) Conversion to Class A shares. See note 5 above.
(9) Excludes sales charges.
(10) Annualized.
(11) Not annualized.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
the U.S. Government Money Market Fund (including its predecessor fund--the
Government Money Market Series of First Prairie Money Market Fund) for the
periods indicated. This information has been derived from information provided
in the Funds' financial statements for its U.S. Government Money Market Series.
U.S. GOVERNMENT MONEY MARKET FUND(1):
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------------------------------
1987(2) 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $1.0000 $1.0004 $1.0001 $1.0000 $1.0000
INVESTMENT OPERATIONS:
Investment income-net 0.0409 0.0652 0.0811 0.0715 0.0498
Net realized gain (loss) on
investments 0.0004 -- -- -- --
TOTAL INCOME FROM
INVESTMENT OPERATIONS 0.0413 0.0652 0.0811 0.0715 0.0498
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.0409) (0.0652) (0.0811) (0.0715) (0.0498)
Distributions from net realized gain
on investments -- (0.0003) (0.0001) -- --
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.0409) (0.0655) (0.0812) (0.0715) (0.0498)
CAPITAL CONTRIBUTION FROM AN
AFFILIATE OF THE INVESTMENT
ADVISER -- -- -- -- --
Net asset value, end of period $1.0004 $1.0001 $1.0000 $1.0000 $1.0000
TOTAL INVESTMENT RETURN 6.21%(3) 6.75% 8.43% 7.39% 5.10%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets 0.56%(3) 0.80% 0.93% 0.93% 0.90%
Ratio of net investment income to
average net assets 6.11%(3) 6.56% 8.05% 7.09% 4.97%
Decrease reflected in above expense
ratios due to expense
reimbursements 0.42(3) 0.17% 0.02% -- --
Net Assets, end of period (000's
omitted) $99,904 $141,348 $272,578 $777,257 $990,897
<CAPTION>
1992 1993 1994 1995
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $1.0000 $1.0000 $0.9999 $0.9996
INVESTMENT OPERATIONS:
Investment income-net 0.0283 0.0249 0.0379 0.0498
Net realized gain (loss) on
investments -- (0.0001) (0.0083) 0.0001
TOTAL INCOME FROM INVESTMENT OPERATIONS 0.0283 0.0248 0.0296 0.0499
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.0283) (0.0249) (0.0379) (0.0498)
Distributions from net realized gain on
investments -- -- -- --
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.0283) (0.0249) (0.0379) (0.0498)
CAPITAL CONTRIBUTION FROM AN
AFFILIATE OF THE INVESTMENT
ADVISER -- -- 0.0080 --
Net asset value, end of period $1.0000 $0.9999 $0.9996 $0.9997
TOTAL INVESTMENT RETURN 2.87% 2.52% 3.86% 5.09%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets 0.91% 0.74% 0.86% 0.78%
Ratio of net investment income to
average net assets 2.87% 2.48% 3.73% 4.97%
Decrease reflected in above expense
ratios due to expense
reimbursements -- 0.14% 0.02% 0.29%
Net Assets, end of period (000's
omitted) $548,733 $154,613 $116,353 $57,264
</TABLE>
(1) On May 20, 1995, all of the assets and liabilities of the U.S. Government
Money Market Series of First Prairie Money Market Fund were transferred to
the U.S. Government Money Market Fund in exchange for shares of the U.S.
Government Money Market Fund. The financial data provided above for periods
prior to such date is for the U.S. Government Money Market Series of First
Prairie Money Market Fund.
(2) From May 1, 1987 (commencement of operations) to December 31, 1987.
(3) Annualized.
(4) Had there not been a capital contribution from an affiliate of the
Investment Adviser during the year, the Fund's total return would have been
2.83%.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
Class A and Class B of the Money Market Fund (including its predecessor
fund--the Money Market Series of First Prairie Money Market Fund) for the
periods indicated. This information has been derived from information provided
in the Funds' financial statements.
MONEY MARKET FUND(1):
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
Fiscal Year Ended December 31,
-------------------------------------------------------------
1986(2) 1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $1.0000 $1.0000 $0.9999 $1.0000 $1.0000 $1.0000
INVESTMENT OPERATIONS:
Investment income-net 0.0552 0.0585 0.0679 0.0842 0.0734 0.0543
Net realized gain (loss)
on investments -- (0.0001) 0.0001 -- -- --
TOTAL INCOME FROM INVESTMENT
OPERATIONS 0.0552 0.0584 0.0680 0.0842 0.0734 0.0543
DIVIDENDS AND DISTRIBUTIONS:
Dividends from
investment income-net (0.0552) (0.0585) (0.0679) (0.0842) (0.0734) (0.0543)
Distributions from net
realized gain on
investments -- -- -- -- -- --
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.0552) (0.0585) (0.0679) (0.0842) (0.0734) (0.0543)
CAPITAL CONTRIBUTION
FROM AN AFFILIATE OF
THE INVESTMENT
ADVISER -- -- -- -- -- --
Net asset value, end of
period $1.0000 $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
TOTAL INVESTMENT
RETURN 6.26%(4) 6.01% 7.01% 8.75% 7.59% 5.57%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 0.88%(4) 0.96% 0.98% 0.95% 0.96% 0.97%
Ratio of net investment
income to average net
assets 5.73%(4) 5.82% 6.82% 8.34% 7.33% 5.42%
Decrease reflected in
above expense ratios
due to expense
reimbursements 0.23%(4) 0.03% 0.01% -- -- --
Net Assets, end of
period (000's omitted) $174,024 $128,485 $159,814 $355,260 $414,258 $456,791
<CAPTION>
CLASS B
---------
Fiscal
CLASS A Period
------------------------------------------------- Ended
Fiscal Year Ended December 31, December
------------------------------------------------- 31,
1992 1993 1994 1995 1995(3)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $1.0000 $1.0000 $1.0001 $0.9998 $1.0000
INVESTMENT OPERATIONS:
Investment income-net 0.0313 0.0274 0.0355 0.0514 0.0162
Net realized gain (loss)
on investments -- 0.0001 (0.0109) 0.0010 0.0008
TOTAL INCOME FROM INVESTMENT
OPERATIONS 0.0313 0.0275 0.0246 0.0524 0.0170
DIVIDENDS AND DISTRIBUTIONS:
Dividends from
investment income-net (0.0313) (0.0274) (0.0355) (0.0514) (0.0162)
Distributions from net
realized gain on
investments -- -- (0.0002) (0.0006) (0.0006)
TOTAL DIVIDENDS AND
DISTRIBUTIONS (0.0313) (0.0274) (0.0357) (0.0520) (0.0168)
CAPITAL CONTRIBUTION
FROM AN AFFILIATE OF
THE INVESTMENT
ADVISER -- -- 0.0108 -- --
Net asset value, end of
period $1.0000 $1.0001 $0.9998 $1.0002 $1.0002
TOTAL INVESTMENT
RETURN 3.18% 2.77% 3.63%(5) 5.33% 1.69%(6)
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to
average net assets 0.98% 0.94% 1.02% 0.79% 1.51%(4)
Ratio of net investment
income to average net
assets 3.17% 2.73% 3.51% 5.12% 4.33%(4)
Decrease reflected in
above expense ratios
due to expense
reimbursements -- 0.05% -- 0.28% 0.51%(4)
Net Assets, end of
period (000's omitted) $260,865 $162,623 $119,400 $203,994 $65
</TABLE>
(1) On May 20, 1995, all of the assets and liabilities of the Money Market
Series of First Prairie Money Market Fund were transferred to the Money
Market Fund in exchange for Class A shares of the Money Market Fund. The
financial data provided above for periods prior to such date is for the
Money Market Series of First Prairie Money Market Fund.
(2) From February 5, 1986 (commencement of operations) to December 31, 1986.
(3) From May 20, 1995 (initial offering date of Class B shares) to December
31, 1995.
(4) Annualized.
(5) Had there not been a capital contribution from an affiliate of the
Investment Adviser during the year, the Fund's total return would have been
2.61%.
(6) Not annualized.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for a share of
the Municipal Money Market Fund (including its predecessor fund--First Prairie
Municipal Money Market Fund) for the periods indicated. This information has
been derived from information provided in the Funds' financial statements.
MUNICIPAL MONEY MARKET FUND(1):
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
----------------------------------------------------
1986(2) 1987 1988 1989 1990
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $1.0000 $0.9998 $0.9999 $0.9999 $0.9999
INVESTMENT OPERATIONS:
Investment income-net 0.0383 0.0410 0.0480 0.0580 0.0527
Net realized and unrealized
gain (loss)
on investments (0.0002) 0.0001 -- -- --
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.0381 0.0411 0.0480 (0.0580) (0.0527)
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.0383) (0.0410) (0.0480) (0.0580) (0.0527)
Net asset value, end of
period $0.9998 $0.9999 $0.9999 $0.9999 $0.9999
TOTAL INVESTMENT RETURN 4.30% 4.18% 4.91% 5.96% 5.40%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 0.71% 0.96% 0.98% 0.98% 1.00%
Ratio of net investment
income
to average net assets 4.02% 4.08% 4.79% 5.79% 5.27%
Decrease reflected in above
expense ratios due to
undertakings 0.34% -- -- -- --
Net Assets, end of period
(000's omitted) $211,271 $145,524 $142,806 $158,515 $176,009
<CAPTION>
Fiscal Year Ended December 31,
----------------------------------------------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $0.9999 $0.9999 $0.9999 $0.9999 $0.9997
INVESTMENT OPERATIONS:
Investment income-net 0.0413 0.0236 0.0174 0.0234 0.0322
Net realized and unrealized
gain (loss) on investments -- -- -- (0.0002) 0.0001
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS 0.0413 0.0236 0.0174 0.0232 0.0323
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment
income-net (0.0413) (0.0236) (0.0174) (0.0234) (0.0322)
Net asset value, end of
period $0.9999 $0.9999 $0.9999 $0.9997 $0.9998
TOTAL INVESTMENT RETURN 4.21% 2.38% 1.75% 2.36% 3.26%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 0.98% 0.95% 0.79% 0.68% 0.70%
Ratio of net investment
income
to average net assets 4.11% 2.38% 1.74% 2.33% 3.21%
Decrease reflected in above
expense ratios due to
undertakings -- 0.01% 0.16% 0.25% 0.24%
Net Assets, end of period
(000's omitted) $233,675 $210,000 $177,698 $173,130 $228,511
</TABLE>
(1) On May 20, 1995, all of the assets and liabilities of First Prairie
Municipal Money Market Fund were transferred to the Municipal Money Market
Fund in exchange for shares of the Municipal Money Market Fund. The
financial data provided above for periods prior to such date is for First
Prairie Municipal Money Market Fund.
(2) From February 5, 1986 (commencement of operations) to December 31, 1986.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment
return, ratios to average net assets and other supplemental data for the Class,
Fund and periods indicated. This information has been derived from information
provided in the Funds' financial statements.
Class A Shares
<TABLE>
<CAPTION>
For the Fiscal Period Ended December 31, 1995
------------------------------------------------------------------------
Equity Special International International Managed
Income Growth Opportunities Bond Bond Equity Assets
Fund(1) Fund(1) Fund(1) Fund(1) Fund(2) Fund(3) Fund(4)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Investment income-net 0.36 0.11 0.02 0.98 0.57 0.10 0.14
Net realized and unrealized gain
on investments 2.57 2.86 2.45 1.10(5) 1.20 1.40(5) 1.50
TOTAL INCOME FROM INVESTMENT OPERATIONS 2.93 2.97 2.47 2.08 1.77 1.50 1.64
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment income-net (0.36) (0.11) (0.02) (0.98) (0.57) (0.09) (0.14)
In excess of net investment income (0.01) - - (0.01) - - -
Distributions from net realized gains on
investments and foreign currency transactions (0.34) (0.89) (0.25) (0.34) (0.39) (0.25) -
Net asset value, end of period $12.22 $11.97 $12.20 $10.75 $10.81 $11.16 $11.50
TOTAL INVESTMENT RETURN(5) 29.78% 29.98% 24.80% 21.10% 18.22% 15.16% 16.48%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(6) 1.11% 1.21% 1.25% 1.33% 1.02% 1.50% 1.26%
Ratio of net investment income
to average net assets(6) 3.33% 0.86% 0.19% 4.91% 5.94% 1.19% 2.45%
Decrease reflected in above expense ratios due to fee
waivers and expense reimbursements(6) 0.33% 0.18% 1.31% 2.32% 0.55% 0.46% 1.89%
Portfolio Turnover Rate(7) 44.07% 106.02% 38.89% 48.03% 156.11% 5.65% 2.25%
Net Assets, end of period (000's omitted) $2,873 $4,329 $672 $487 $1,847 $2,749 $8,356
</TABLE>
(1)For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(2)For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(3)For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4)For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(5)The total return figures provided are not annualized and do not include the
effect of any sales charges.
(6) Annualized.
(7) Not annualized.
Class B Shares
<TABLE>
<CAPTION>
For the Fiscal Period Ended December 31, 1995
---------------------------------------------------------------------------
Equity Special International International Managed
Income Growth Opportunities Bond Bond Equity Assets
Fund(1) Fund(1) Fund(1) Fund(1) Fund(2) Fund(3) Fund(4)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Investment income-net 0.29 0.06 (0.03) 0.91 0.50 0.05 0.13
Net realized and unrealized gain on investments 2.56 2.84 2.40 1.16 1.20 1.39 1.45
TOTAL INCOME FROM INVESTMENT OPERATIONS 2.85 2.90 2.37 2.07 1.70 1.44 1.58
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment income-net (0.29) (0.06) - (0.91) (0.50) (0.05) (0.13)
In excess of net investment income - - - (0.01) - - -
Distributions from net realized gains on
investments and foreign currency transactions (0.34) (0.89) (0.25) (0.34) (0.39) (0.25) -
Net asset value, end of period $12.22 $11.95 $12.12 $10.81 $10.81 $11.14 $11.45
TOTAL INVESTMENT RETURN(5) 28.97% 29.15% 23.76% 20.90% 17.41% 14.52% 15.83%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(6) 1.90% 2.04% 2.00% 2.03% 1.87% 2.28% 2.00%
Ratio of net investment income to average net
assets(6) 2.65% 0.02% (0.51)% 4.39% 5.22% 0.40% 1.69%
Decrease reflected in above expense ratios due to
fee waivers and expense reimbursements(6) 0.75% 0.56% 7.52% 6.66% 2.04% 1.55% 4.84%
Portfolio Turnover Rate(7) 44.07% 106.02% 38.89% 48.03% 156.11% 5.65% 2.25%
Net Assets, end of period (000's omitted) $593 $268 $15 $4 $61 $193 $833
</TABLE>
(1)For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(2)For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(3)For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4)For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(5)The total return figures provided are not annualized and do not include the
effect of any sales charges.
(6) Annualized.
(7) Not annualized.
Class I Shares
<TABLE>
<CAPTION>
For the Fiscal Period Ended December 31, 1995
----------------------------------------------------------------------------
Equity Special International International Managed
Income Growth Opportunities Bond Bond Equity Assets
Fund(1) Fund(1) Fund(1) Fund(1) Fund(2) Fund(3) Fund(4)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Investment income-net 0.42 0.15 0.06 1.02 0.61 0.14 0.22
Net realized and unrealized gain on investments 2.55 2.86 2.44 1.16 1.20 1.40 1.46
TOTAL INCOME FROM INVESTMENT OPERATIONS 2.97 3.01 2.50 2.18 1.81 1.54 1.68
DIVIDENDS AND DISTRIBUTIONS:
Dividends from investment income-net (0.42) (0.15) (0.06) (1.02) (0.61) (0.12) (0.22)
In excess of net investment income - - - (0.01) - - -
Distributions from net realized gains on
investments and foreign currency transactions (0.34) (0.89) (0.25) (0.34) (0.39) (0.25) -
Net asset value, end of period $12.21 $11.97 $12.19 $10.81 $10.81 $11.17 $11.46
TOTAL INVESTMENT RETURN(5) 30.27% 30.38% 25.08% 22.13% 18.57% 15.62% 16.90%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(6) 0.65% 0.80% 0.85% 0.95% 0.70% 1.05% 0.80%
Ratio of net investment income to average net
assets(6) 4.08% 1.46% 0.59% 5.71% 6.48% 1.70% 3.06%
Decrease reflected in above expense ratios due to
fee waivers and expense reimbursements(6) 0.12% 0.12% 0.24% 0.98% 0.17% 0.33% 3.32%
Portfolio Turnover Rate(7) 44.07% 106.02% 38.89% 48.03% 156.11% 5.65% 2.25%
Net Assets, end of period (000's omitted) $283,927 $293,944 $92,926 $14,504 $125,401 $101,448 $411
</TABLE>
(1)For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(2)For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(3)For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4)For the period April 1, 1995 (commencement of operations) through December
31, 1995.
(5)The total return figures provided are not annualized and do not include the
effect of any sales charges.
(6) Annualized.
(7) Not annualized.
Further information about performance is contained in the Fund's annual
report, which may be obtained without charge by writing to the address or
calling the number set forth on the cover page of this Prospectus.
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
THE FUNDS
Each of the Intermediate Bond Fund and Municipal Bond Fund is a separate
open-end, management investment company organized under the name Prairie
Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc., respectively. The
remaining Funds are series of Prairie Funds, an open-end, management investment
company.
PROPOSED REORGANIZATION
On December 1, 1995, FCIMCO's ultimate parent company, First Chicago
Corporation, merged with NBD Bancorp, Inc., with the combined company renamed
First Chicago NBD Corporation ("FCNBD"). FCNBD has now begun the process of
reorganizing their proprietary mutual funds: Prairie Funds, Prairie
Institutional Funds and The Woodward Funds (whose investment adviser is NBD
Bank, a wholly-owned subsidiary of FCNBD). A Special Meeting of Shareholders of
each Fund will be held in June 1996 to consider an Agreement and Plan of
Reorganization ("Reorganization"). The proposed Reorganization generally
provides for the transfer of all or substantially all of each Fund's assets,
subject to liabilities, to a corresponding series of The Woodward Funds, which
would be co-advised by FCIMCO and an affiliate, in a tax free exchange for
shares of such series of The Woodward Funds, and the assumption by such series
of stated liabilities. Shares of The Woodward Funds' series would be distributed
to the relevant Fund's shareholders and the Funds would be dissolved. A
Prospectus/Proxy Statement which describes The Woodward Funds and the
transactions contemplated with respect to the proposed Reorganization will be
mailed to Fund shareholders.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund's investment objective is set forth on the cover page of this
Prospectus. The differences in objectives and policies among the Funds determine
the types of portfolio securities in which each Fund invests and can be expected
to affect the degree of risk to which each Fund is subject and each Fund's yield
or return. The Funds' management policies are described on the page of this
Prospectus indicated below.
NAME OF FUND PAGE
Managed Assets Income Fund 23
Managed Assets Fund 23
Equity Income Fund 24
Growth Fund 24
Special Opportunities Fund 24
International Equity Fund 24
Intermediate Bond Fund 25
Bond Fund 25
International Bond Fund 25
Intermediate Municipal Bond Fund 26
Municipal Bond Fund 26
U.S. Government Money Market Fund 26
Money Market Fund 26
Municipal Money Market Fund 26
INVESTMENT ADVISER AND ADMINISTRATOR
FCIMCO is each Fund's investment adviser and administrator. Each Fund has
agreed to pay the Investment Adviser an annual fee as set forth under
"Management of the Funds." The Investment Adviser has engaged ANB-IMC to serve
as sub-investment adviser to the International Equity Fund.
ALTERNATIVE PURCHASE METHODS
Each Fund offers Class A shares; each Fund, other than the U.S. Government
Money Market and Municipal Money Market Funds, offers Class B shares; and each
Fund, other than the Money Market Funds, offers Class I shares. Each Class A,
Class B and Class I share represents an identical pro rata interest in the
relevant Fund's investment portfolio. Class A shares are sold at net asset value
per share plus, for each Fund, other than the Money Market Funds, an initial
sales charge imposed at the time of purchase. The initial sales charge may be
reduced or waived for certain purchases. See "How to Buy Shares--Class A
Shares." Class A shares of each Fund are subject to an annual service fee. Class
A shares held by investors who after purchasing Class A shares establish a
Fiduciary Account (as defined below) automatically will convert to Class I
shares, based on the relative net asset values for shares of each such Class.
Class B shares are sold at net asset value per share with no initial sales
charge at the time of purchase; as a result, the entire purchase price is
immediately invested in the Fund. Class B shares are subject to a contingent
deferred sales charge ("CDSC"), which is assessed only if the Class B shares are
redeemed within six years (five years in the case of the Intermediate Bond Fund
and Intermediate Municipal Bond Fund) of purchase. Class B shares of the Money
Market Fund may be acquired only through the exchange of Class B shares of the
other Funds and are subject to the CDSC, if any, of the shares with which the
exchange is made. See "How to Redeem Shares--Contingent Deferred Sales
Charge--Class B Shares." Class B shares are subject to an annual distribution
fee and service fee. The distribution fee paid by Class B will cause Class B to
have a higher expense ratio and to pay lower dividends than Class A.
Approximately eight years (seven years in the case of the Intermediate Bond Fund
and Intermediate Municipal Bond Fund) after the date of purchase, Class B shares
automatically will convert to Class A shares, based on the relative net asset
values for shares of each such Class, and will no longer be subject to a
distribution fee. Class I shares are sold at net asset value with no sales
charge. Class I shares are offered exclusively to qualified trust, custody
and/or agency account clients of FNBC, ANB or their affiliates ("Fiduciary
Accounts") and qualified benefit plans or other programs with assets of at least
$100 million invested in shares of the Funds or other investment companies or
accounts advised by the Investment Adviser ("Eligible Retirement Plans"). Class
I shares held by investors who after purchasing Class I shares withdraw from
their Fiduciary Accounts automatically will convert to Class A shares, based on
the relative net asset values for shares of each such Class, and will be subject
to the annual service fee charged Class A. See "Alternative Purchase Methods."
HISTORICAL PERFORMANCE INFORMATION
Composite performance for the Funds or predecessor funds, as the case may
be, for various periods ended December 31, 1995.
- ---------------------------
Class A Shares
(Maximum Offering Price)
<TABLE>
<CAPTION>
Average Annual Total Return
3 5 10
1 Year Years Years Years
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Fund (1) 11.25% N/A N/A N/A
Managed Assets Income Fund (2) 20.83% 9.02% 11.94% 11.10%(3)
EQUITY FUNDS:
Equity Income Fund (4) 23.95% 10.19% 13.63% 10.90%
Growth Fund (4) 24.14% 10.63% 15.63% 12.40%
Special Opportunities Fund (4) 19.20% 7.95% 18.20% 12.75%
International Equity Fund (1) 9.99% N/A N/A N/A
BOND FUNDS:
Intermediate Bond Fund 13.61% 5.65%(5) N/A N/A
Bond Fund (4) 14.66% 6.49% 8.23% 8.21%
International Bond Fund (4) 15.66% 11.36% 10.09% N/A
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund (2) 9.21% 5.47% 7.08% 7.46%(6)
Municipal Bond Fund 11.67% 6.60% 8.21% 8.30%(6)
MONEY MARKET FUNDS:
U.S. Government Money Market Fund (2) 5.09% 3.82% 3.88% 5.31%(7)
Money Market Fund (2) 5.33% 3.90% 4.08% 5.58%(8)
Municipal Money Market Fund (2) 3.26% 2.46% 2.79% 3.86%(8)
</TABLE>
- --------------------------
Class A Shares
(Net Asset Value)
<TABLE>
<CAPTION>
Average Annual Total Return
3 5 10
1 Year Years Years Years
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Fund (1) 16.48% N/A N/A N/A
Managed Assets Income Fund (2) 26.50% 10.89% 12.98% 11.62%(3)
EQUITY FUNDS:
Equity Income Fund(4) 29.78% 11.91% 14.69% 11.42%
Growth Fund (4) 30.57% 12.82% 14.09% 12.67%
Special Opportunities Fund (4) 24.80% 9.63% 19.29% 13.26%
International Equity Fund (1) 15.16% N/A N/A N/A
BOND FUNDS:
Intermediate Bond Fund 17.19% 6.80%(5) N/A N/A
Bond Fund (4) 20.07% 8.13% 9.24% 8.71%
International Bond Fund (4) 21.09% 13.05% 11.12% N/A
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund(2) 12.55% 6.54% 7.72% 7.88%(6)
Municipal Bond Fund 16.89% 8.26% 9.20% 8.94%(6)
MONEY MARKET FUNDS:
U.S. Government Money Market Fund (2) 5.09% 3.82% 3.88% 5.31%(7)
Money Market Fund (2) 5.33% 3.90% 4.08% 5.58%(8)
Municipal Money Market Fund (2) 3.26% 2.46% 2.79% 3.86%(8)
</TABLE>
THE PRAIRIE FUNDS
---------------------------
Class B Shares
(Net Asset Value/With CDSc)
<TABLE>
<CAPTION>
Average Annual Total Return
3 5 10
1 Year Years Years Years
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Fund (1) 15.84%/10.83% N/A N/A N/A
Managed Assets Income Fund (2) 25.69%/21.69% 11.40%/9.47% N/A N/A
EQUITY FUNDS:
Equity Income Fund (4) 28.97%/24.97% 11.12%/10.58% 13.87% 10.61%
Growth Fund (4) 29.15%/25.15% 11.55%/11.01% 15.51% 12.08%
Special Opportunities Fund (4) 23.76%/19.76% 8.77%/ 8.21% 18.38% 12.41%
International Equity Fund (1) 14.52%/ 9.52% N/A N/A N/A
BOND FUNDS:
Intermediate Bond Fund 16.68%/13.68% 7.71%/ 6.22%(9) N/A N/A
Bond Fund (4) 19.18%/15.18% 7.32%/ 6.74% 8.43% 7.90%
International Bond Fund (4) 20.90%/16.90% 12.43%/11.90% 10.42% N/A
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund (2) 8.40%/ 5.40% 4.21%/ 2.68%(9) N/A N/A
Municipal Bond Fund 16.22%/12.22% 6.65%/ 4.64%(9) N/A N/A
MONEY MARKET FUND:
Money Market Fund (10) 1.69% N/A N/A N/A
</TABLE>
- ---------------------------
Class I Shares
<TABLE>
<CAPTION>
Average Annual Total Return
3 5 10
1 Year Years Years Years
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Fund (1) 16.90% N/A N/A N/A
Managed Assets Income Fund (10) 22.55% N/A N/A N/A
EQUITY FUNDS:
Equity Income Fund (4) 30.27% 12.45% 15.26% 11.99%
Growth Fund (4) 30.38% 13.86% 16.91% 13.48%
Special Opportunities Fund (4) 25.08% 10.09% 19.84% 13.82%
International Equity Fund (1) 15.62% N/A N/A N/A
BOND FUNDS:
Intermediate Bond Fund 17.53% 6.91%(5) N/A N/A
Bond Fund (4) 20.48% 8.63% 9.78% 9.27%
International Bond Fund (4) 22.13% 13.77% 11.78% N/A
MUNICIPAL BOND FUNDS:
Intermediate Municipal Bond Fund(2) 11.33%(11) N/A N/A N/A
Municipal Bond Fund 14.20%(12) N/A N/A N/A
</TABLE>
(1) No predecessor fund existed; thus, the average annual total return
information for the Fund presented is for the Fund since its
inception on April 3, 1995 for Managed Assets Fund and on March 3,
1995 for International Equity Fund.
(2) The Fund commenced operations through a transfer of assets from a
predecessor investment company advised by FNBC, using substantially the
same investment objective, policies, restrictions and methodologies as the
Fund. The predecessor funds were: for Managed Assets Income Fund, First
Prairie Diversified Asset Fund; for Intermediate Municipal Bond Fund, the
Intermediate Series of First Prairie Municipal Bond Fund; for U.S.
Government Money Market Fund, the Government Series of First Prairie Money
Market Fund; for Money Market Fund, the Money Market Series of First
Prairie Money Market Fund; and for Municipal Money Market Fund, First
Prairie Municipal Money Market Fund. The performance shown is that of the
predecessor fund and, in the case of the Intermediate Municipal Bond Fund
only, the Fund.
(3) From commencement of operations on January 23, 1986.
(4) The Fund commenced operations through a transfer of assets from a common
trust fund managed by FNBC, using substantially the same investment
objective, policies, restrictions and methodologies as the Fund. The common
trust fund did not charge any expenses. The performance information
reflects the maximum operating expenses that may be charged as more fully
set forth in the Fee Table above.
(5) From commencement of operations on March 5, 1993.
(6) From commencement of operations on March 1, 1988.
(7) From commencement of operations on May 1, 1987.
(8) From commencement of operations on February 5, 1986.
(9) From date of initial offering on February 8, 1994.
(10) No predecessor class existed; thus, the performance information for
the Class presented is for the Class since its initial offering date on
May 20, 1995 for Money Market Fund and March 3, 1995 for Managed Assets
Income Fund.
(11) From date of initial offering on January 30, 1995.
(12) From date of initial offering on February 1, 1995.
The historical pro-forma performance information presented above for each
Fund listed is deemed relevant because the predecessor fund was advised by FNBC
which reorganized the personnel responsible for advising the predecessor fund
into FCIMCO, its wholly-owned subsidiary, which manages the Fund, using
substantially the same investment objective, policies, restrictions and
methodologies as those used by the Fund. However, this performance information
is not necessarily indicative of the future performance of any Fund. Because
each Fund will be actively managed, its investments will vary from time to time
and will not be identical to the past portfolio investments of the predecessor
fund. Each Fund's performance will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
HOW TO BUY SHARES
Orders for the purchase of Class A and Class B shares may be placed through
a number of institutions including FCIMCO, FNBC, ANB and their affiliates,
including First Chicago Investment Services, Inc. ("FCIS"), a registered
broker-dealer, the Distributor and certain banks, securities dealers and other
industry professionals such as investment advisers, accountants and estate
planning firms (collectively, "Service Agents").
Investors purchasing Class I shares through their Fiduciary Accounts at FNBC,
ANB or their affiliates should contact such entity directly for appropriate
instructions, as well as for information about conditions pertaining to the
account and any related fees. Class I shares may be purchased for a Fiduciary
Account or Eligible Retirement Plan only by a custodian, trustee, investment
manager or other entity authorized to act on behalf of such Account or Plan.
The minimum initial investment is $1,000. All subsequent investments must
be at least $100. See "How to Buy Shares."
SHAREHOLDER SERVICES
The Funds offer shareholders certain services and privileges including:
Exchange Privilege, Letter of Intent and Automatic Investment Plan. Certain
services and privileges may not be available through all Service Agents.
HOW TO REDEEM SHARES
Generally, investors should contact their representatives at FCIMCO, FNBC,
ANB or appropriate Service Agent for redemption instructions. Investors who are
not clients of FCIMCO, FNBC, ANB or a Service Agent may redeem Fund shares by
written request to the transfer agent. See "How to Redeem Shares."
Description of the Funds
GENERAL
Each of the Intermediate Bond Fund and Municipal Bond Fund is a separately
organized mutual fund. Each of the remaining Funds is a separate portfolio of
Prairie Funds (the "Trust"), which is a mutual fund divided into separate
portfolios known as a "series fund." Each portfolio is treated as a separate
entity for certain matters under the Investment Company Act of 1940, as amended
(the "1940 Act"), and for other purposes, and a shareholder of one portfolio is
not deemed to be a shareholder of any other portfolio. As described below, for
certain matters Trust shareholders vote together as a group; as to others they
vote separately by portfolio. By this Prospectus, shares of 12 of the Trust's
portfolios and shares of the Intermediate Bond Fund and Municipal Bond Fund are
being offered: five of the Funds are diversified investment companies (the
"Diversified Funds")--Managed Assets Income Fund, Managed Assets Fund, U.S.
Government Money Market Fund, Money Market Fund and Municipal Money Market
Fund--and nine of the Funds are non-diversified investment companies (the
"Non-Diversified Funds")--Equity Income Fund, Special Opportunities Fund, Growth
Fund, International Equity Fund, Intermediate Bond Fund, Bond Fund,
International Bond Fund, Intermediate Municipal Bond Fund and Municipal Bond
Fund.
INVESTMENT OBJECTIVES
Each Fund's investment objective is set forth on the cover page of this
Prospectus. The differences in objectives and policies among the Funds determine
the types of portfolio securities in which each Fund invests and can be expected
to affect the degree of risk to which each Fund is subject and each Fund's yield
or return. See "Management Policies" below, and "Appendix." Each Fund's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of such Fund's outstanding voting
securities. There can be no assurance that each Fund's investment objective will
be achieved.
MANAGEMENT POLICIES
The following section should be read in conjunction with "Certain Portfolio
Securities" and "Investment Techniques" in the Appendix.
Asset Allocation Funds
Each of the Managed Assets Income Fund and Managed Assets Fund will follow
an asset allocation strategy by investing in equity, fixed-income and short-term
securities of domestic and foreign issuers. For each Asset Allocation Fund, the
asset classes, market sectors, securities and portfolio strategies selected will
be those that the Investment Adviser believes prudent and offer the greatest
potential for achieving the relevant Asset Allocation Fund's investment
objective. The Investment Adviser has broad latitude in selecting investments
and portfolio strategies. See "Risk Factors--Investing in Foreign Securities"
below. The equity securities in which each Asset Allocation Fund may invest
consist of common stocks, preferred stocks and convertible securities, including
those in the form of depositary receipts, as well as warrants to purchase such
securities (collectively, "Equity Securities"). The fixed-income securities in
which each Asset Allocation Fund may invest include bonds and debentures
(including those that are convertible), notes, mortgage-related securities,
asset-backed securities, municipal obligations and convertible debt obligations
(collectively, "Fixed-Income Securities"), with maturities of more than three
years. The short-term securities which may be purchased by an Asset Allocation
Fund include fixed-income securities with maturities of less than three years at
the time of purchase, and money market instruments of the type in which the
Money Market Fund invests (collectively, "Money Market Instruments"), as
described below.
Each Asset Allocation Fund's portfolio of debt securities will consist
primarily of those which are rated no lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff "), or, if unrated, deemed to be of comparable quality by the Investment
Adviser. Debt securities rated Baa by Moody's or BBB by S&P, Fitch or Duff are
considered investment grade obligations which lack outstanding investment
characteristics and have speculative characteristics as well. The Managed Assets
Fund may invest up to 20% of its net assets in debt securities rated below
investment grade and the Managed Assets Income Fund may invest up to 5% of its
net assets in convertible bonds rated below investment grade. See "Risk
Factors-- Lower Rated Securities" below.
The following table sets forth for each Asset Allocation Fund the asset
classes, benchmark percentages and asset class strategy ranges within which the
Investment Adviser intends to manage the Fund's assets:
<TABLE>
<CAPTION>
MANAGED ASSETS INCOME FUND MANAGED ASSETS FUND
-------------------------- ----------------------
ASSET Benchmark Strategy Benchmark Strategy
CLASS Percentage Range Percentage Range
<S> <C> <C> <C> <C>
Equity 40% 25-55% 60% 45-75%
Fixed-Income
and Money Market
Instruments 60% 45-75% 40% 25-55%
</TABLE>
"Benchmark percentage" represents the asset mix the Investment Adviser would
expect to maintain when its assessment of economic conditions and investment
opportunities indicate that the financial markets are fairly valued relative to
each other. The asset class "strategy range" indicates ordinarily expected
variations from this benchmark and reflects the fact that the Investment Adviser
expects to make policy weight shifts within specific asset classes. Under normal
conditions, the Investment Adviser expects to adhere to the asset class strategy
ranges set forth above; however, the Investment Adviser reserves the right to
vary the asset class mix and the percentage of securities invested in any asset
class or market from the benchmark percentages and asset class strategy ranges
set forth above as the risk/return characteristics of either markets or asset
classes, as assessed by the Investment Adviser, vary over time. When the
Investment Adviser determines that adverse market conditions exist, each Asset
Allocation Fund may adopt a temporary defensive posture and invest its entire
portfolio in Money Market Instruments. Each Asset Allocation Fund will invest in
substantially the same securities within an investment class. The amount of each
Asset Allocation Fund's aggregate assets invested in a particular investment
class, and thus in particular securities, will differ, but the relative
percentage that a particular security comprises within an investment class
ordinarily will remain substantially the same. The asset allocation mix selected
will be a primary determinant in the respective Asset Allocation Fund's
investment performance. Under certain market conditions, limiting the Asset
Allocation Fund's asset allocation among these asset classes may inhibit their
ability to achieve their respective investment objectives.
Each Asset Allocation Fund also may engage in futures and options
transactions and other derivative securities transactions, such as interest rate
and equity index swaps, leveraging, short-selling, foreign exchange transactions
and lending portfolio securities, each of which involves risk. See "Risk
Factors" below and "Appendix--Investment Techniques."
Equity Funds
Each of the Equity Income Fund, Growth Fund, Special Opportunities Fund and
International Equity Fund (the "Equity Funds") will invest at least 65% of the
value of its total assets (except when maintaining a temporary defensive
position) in Equity Securities, as defined under "Asset Allocation Funds" above.
Each Equity Fund may invest, in anticipation of otherwise investing cash
positions, to meet asset segregation or margin requirements or as otherwise
noted below, in Money Market Instruments. Under normal market conditions, no
Equity Fund expects to have a substantial portion of its assets invested in
Money Market Instruments. However, when the Investment Adviser determines that
adverse market conditions exist, an Equity Fund may adopt a temporary defensive
posture and invest entirely in Money Market Instruments.
Each Equity Fund also may invest in Fixed-Income Securities (as defined under
"Asset Allocation Funds" above) to the extent described below.
Each Equity Fund also may engage in futures and options transactions and
other derivative securities transactions, such as equity index swaps,
leveraging, short-selling and lending portfolio securities, and, except for the
Equity Income Fund, may engage in foreign exchange transactions, each of which
involves risk. See "Risk Factors" below and "Appendix--Investment Techniques."
The EQUITY INCOME FUND will invest primarily in income-producing Equity
Securities of domestic issuers. The Investment Adviser will be particularly
alert to companies which pay above-average dividends, yet offer opportunities
for capital appreciation and growth of earnings. In addition, the Fund may
invest up to 35% of the value of its total assets in convertible debt securities
that generally have features similar to both common stocks and bonds and offer
the potential for current income and capital appreciation over time.
While the Fund will invest primarily in Equity Securities of domestic
issuers, the Fund also may invest in depositary receipts of foreign issuers. See
"Risk Factors--Investing in Foreign Securities" below. The Fund also may invest
in Fixed-Income Securities and Money Market Instruments based on the Investment
Adviser's assessment of economic conditions and investment opportunities. The
Fixed-Income Securities, other than convertible debt securities, in which the
Fund may invest must be rated investment grade, or, if unrated, deemed to be of
comparable quality by the Investment Adviser. The convertible debt securities in
which the Fund may invest may be rated lower than investment grade. See "Risk
Factors--Lower Rated Securities" below.
The GROWTH FUND will invest primarily in Equity Securities of domestic
issuers believed by the Investment Adviser to have above-average growth
characteristics. The Investment Adviser will consider some of the following
factors in making its investment decisions: the development of new or improved
products or services, a favorable outlook for growth in the industry, patterns
of increasing sales and earnings, the probability of increased operating
efficiencies, cyclical conditions, or other signs that the company is expected
to show greater than average earnings growth and capital appreciation.
While the Fund will invest primarily in Equity Securities of domestic
issuers, the Fund also may invest in depositary receipts of foreign issuers and
may invest up to 20% of its total assets (valued at the time of investment) in
Equity Securities of foreign issuers. See "Risk Factors--Investing in Foreign
Securities" below. The Fund also may invest in Fixed-Income Securities which,
other than convertible debt securities, are rated investment grade, or, if
unrated, deemed to be of comparable quality by the Investment Adviser. The Fund
may invest in convertible debt securities rated lower than investment grade. See
"Risk Factors-- Lower Rated Securities" below.
The SPECIAL OPPORTUNITIES FUND will invest primarily in Equity Securities of
small- to medium-sized emerging growth domestic issuers (typically with market
capitalizations of $100 million to $750 million) that the Investment Adviser
believes are undervalued in the marketplace. The Investment Adviser will
consider some of the following factors in making its investment decisions: high
quality management, significant equity ownership positions by management, a
leading or dominant position in a major product line, a sound financial position
and a relatively high rate of return on invested capital. The Fund also may
invest in companies that offer the possibility of accelerating earnings growth
because of management changes, new products or structural changes in industry or
the economy.
While the Fund will invest primarily in Equity Securities of domestic
issuers, the Fund also may invest in depositary receipts of foreign issuers and
may invest up to 20% of its total assets (valued at the time of investment) in
Equity Securities of foreign issuers. See "Risk Factors--Investing in Foreign
Securities" below. The Fund also may invest in Fixed-Income Securities which,
other than convertible debt securities, are rated investment grade, or, if
unrated, deemed to be of comparable quality by the Investment Adviser. The Fund
may invest in convertible debt securities rated lower than investment grade. See
"Risk Factors-- Lower Rated Securities" below.
The INTERNATIONAL EQUITY FUND will invest in Equity Securities of issuers
located throughout the world, except the United States. As a neutral position,
the Fund will hold Equity Securities of issuers located in the countries which
constitute the Morgan Stanley Capital International-Europe, Australia and Far
East ("EAFE") Index. The EAFE Index is a broadly diversified international index
composed of the Equity Securities of approximately 1,000 companies located
outside the United States. Building on this base, the Investment Adviser and
ANB-IMC will shift the Fund's holdings to emphasize or de-emphasize regions of
the international market based on such region's relative attractiveness. In
making these shifts, the Investment Adviser and ANB-IMC will use a
computer-based model which takes into account a number of factors, including
relative economic strength, relative inflation rates, relative valuation of
equity markets, bond yield differentials, forecasts of trade flows and financial
market volatility. See "Risk Factors--Investing in Foreign Securities" below.
The Fund will seek to identify those countries offering the greatest relative
potential investment return, rather than selecting individual companies in each
country which will outperform the major stock index of their respective
countries. Thus, the individual stocks selected will generally be chosen through
a statistical procedure to approximate the investment performance of the
relevant country index. The Fund is not an index fund and is neither sponsored
by nor affiliated with Morgan Stanley Capital International.
Bond Funds
Each of the Intermediate Bond Fund, Bond Fund and International Bond Fund
(the "Bond Funds") will invest at least 65% of the value of its total assets
(except when maintaining a temporary defensive position) in bonds, debentures
and other debt instruments. Each Bond Fund will invest in Fixed-Income
Securities. When management believes it advisable for temporary defensive
purposes or in anticipation of otherwise investing cash positions, each Bond
Fund may invest in Money Market Instruments.
Each Bond Fund also may engage in futures and options transactions and other
derivative securities transactions, such as interest rate swaps, leveraging,
short-selling and lending portfolio securities, and the International Bond Fund
may engage in foreign exchange transactions, each of which involves risk. See
"Risk Factors" below and "Appendix--Investment Techniques."
The INTERMEDIATE BOND FUND invests in a portfolio of U.S. dollar denominated
Fixed-Income Securities of domestic and foreign issuers which, under normal
market conditions, will have a dollar-weighted average maturity expected to
range between three and ten years. Under normal market conditions, at least 65%
of the value of the Intermediate Bond Fund's total assets will consist of Fixed-
Income Securities rated A or better by Moody's, S&P, Fitch or Duff. The
remainder of the Fund's assets may be invested in investment grade Fixed-Income
Securities and Money Market Instruments rated within the two highest rating
categories by Moody's, S&P, Fitch or Duff. The Fund also may invest in
Fixed-Income Securities which, while not rated, are determined by the Investment
Adviser to be of comparable quality to those rated securities in which the Fund
may invest. The Fund is not limited in the maturities of the securities in which
it invests and the maturity of a portfolio security may range from overnight to
40 years. See "Risk Factors--Lower Rated Securities" and "--Investing in Foreign
Securities" below.
The BOND FUND will invest in a broad range of U.S. dollar denominated
Fixed-Income Securities of domestic and foreign issuers, without regard to
maturity. Under normal market conditions, at least 65% of the value of the
Fund's total assets will consist of Fixed-Income Securities rated A or better by
Moody's, S&P, Fitch or Duff. The remainder of the Fund's assets may be invested
in Fixed-Income Securities rated no lower than B by Moody's, S&P, Fitch and
Duff. The Fund also may invest in Fixed-Income Securities which, while not
rated, are determined by the Investment Adviser to be of comparable quality to
those rated securities in which the Fund may invest. See "Risk Factors--Lower
Rated Securities" and "--Investing in Foreign Securities" below.
The INTERNATIONAL BOND FUND will invest in Fixed-Income Securities of issuers
located throughout the world, except the United States. The Fund also may invest
in convertible preferred stocks. The Fund may hold foreign currency, and may
purchase debt securities or hold currencies in combination with forward currency
exchange contracts. The Fund will be alert to opportunities to profit from
fluctuations in currency exchange rates. The Fund will be particularly alert to
favorable arbitrage opportunities (such as those resulting from favorable
interest rate differentials) arising from the relative yields of the various
types of securities in which the Fund may invest and market conditions
generally. The Fund may invest without restriction in companies in, or
governments of, developing countries. Developing countries have economic
structures that are generally less diverse and mature, and political systems
that are less stable, than those of developed countries. The markets of
developing countries may be more volatile than the markets of more mature
economies; however, such markets may provide higher rates of return to
investors. See "Risk Factors--Investing in Foreign Securities" below.
Under normal market conditions, at least 65% of the value of the Fund's total
assets will consist of Fixed-Income Securities rated A or better by Moody's,
S&P, Fitch or Duff. The remainder of the Fund's assets may be invested in
Fixed-Income Securities rated no lower than B by Moody's, S&P, Fitch and Duff.
The Fund also may invest in Fixed-Income Securities which, while not rated, are
determined by the Investment Adviser to be of comparable quality to those rated
securities in which the Fund may invest. See "Risk Factors--Lower Rated
Securities" below.
Municipal Funds
It is a fundamental policy of each of the Intermediate Municipal Bond Fund
and Municipal Bond Fund (the "Municipal Bond Funds" and, together with the
Municipal Money Market Fund, the "Municipal Funds") that it will invest (except
when maintaining a temporary defensive position) at least 80% of the value of
its net assets in Municipal Obligations and at least 65% of the value of its
total assets in bonds, debentures and other debt instruments. Municipal
Obligations in which the Municipal Funds will invest are debt obligations issued
by states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which is, in the opinion
of bond counsel to the issuer, exempt from Federal income tax. From time to
time, each Municipal Fund may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users. Interest on Municipal Obligations (including certain
industrial development bonds) which are specified private activity bonds, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), issued
after August 7, 1986, while exempt from Federal income tax, is a preference item
for the purpose of the alternative minimum tax. Where a regulated investment
company receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a preference item
to the shareholder. Each Municipal Fund may invest without limitation in such
Municipal Obligations if the Investment Adviser determines that their purchase
is consistent with the Fund's investment objective. See "Risk Factors--Municipal
Obligations" below.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the value of the Fund's net assets) or for
temporary defensive purposes, each Municipal Fund may invest in taxable Money
Market Instruments. Dividends paid by the Fund that are attributable to income
earned by it from these securities will be taxable to investors. See "Dividends,
Distributions and Taxes." Under normal market conditions, it is anticipated that
not more than 5% of the value of a Municipal Fund's total assets will be
invested in any one category of these securities.
Each Municipal Bond Fund also may engage in futures and options transactions
and lending portfolio securities, each of which involves risk. Futures and
options transactions involve derivative securities. See "Risk Factors" below and
"Appendix--Investment Techniques."
The INTERMEDIATE MUNICIPAL BOND FUND will invest in a portfolio of Municipal
Obligations which, under normal market conditions, will have a dollar-weighted
average maturity expected to range between three and ten years. The Fund will
purchase Municipal Obligations only if rated investment grade, or, if unrated,
determined by the Investment Adviser to be of comparable quality to the rated
securities in which the Fund may invest.
The MUNICIPAL BOND FUND will invest in a portfolio of Municipal Obligations
without regard to maturity. The Fund will purchase Municipal Obligations only if
rated at least Baa, MIG-2/VMIG-2 or Prime-1 (P-1) by Moody's, BBB, SP-2 or A-1
by S&P, BBB or F-2 by Fitch or BBB or Duff-2 by Duff or, if unrated, determined
by the Investment Adviser to be of comparable quality to the rated securities in
which the Fund may invest.
Money Market Funds
Each of the U.S. Government Money Market Fund, Money Market Fund and
Municipal Money Market Fund (the "Money Market Funds") seeks to maintain a net
asset value of $1.00 per share for purchases and redemptions. To do so, each
Money Market Fund uses the amortized cost method of valuing its securities
pursuant to Rule 2a-7 under the 1940 Act, certain requirements of which are
summarized below. In accordance with Rule 2a-7, each Money Market Fund is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 13 months or less
and invest only in U.S. dollar denominated securities determined in accordance
with procedures established by the Board to present minimal credit risks and, in
the case of the Money Market Fund and Municipal Money Market Fund, which are
rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board. The nationally recognized statistical rating
organizations currently rating instruments of the type the Money Market Fund and
Municipal Money Market Fund may purchase are Moody's, S&P, Duff, Fitch, IBCA
Limited and IBCA Inc., and Thomson BankWatch, Inc. and their rating criteria are
described in the Appendix to the Statement of Additional Information. For
further information regarding the amortized cost method of valuing securities,
see "Determination of Net Asset Value" in the Statement of Additional
Information. There can be no assurance that each Money Market Fund will be able
to maintain a stable net asset value of $1.00 per share.
The U.S. GOVERNMENT MONEY MARKET FUND will invest only in short-term
securities issued or guaranteed as to principal or interest by the U.S.
Government, its agencies or instrumentalities and may enter into repurchase
agreements. The Fund also may lend securities from its portfolio as described
under "Appendix--Investment Techniques."
The MONEY MARKET FUND will invest in short-term money market obligations,
including securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks, foreign
branches of domestic banks, foreign subsidiaries of domestic banks, domestic and
foreign branches of foreign banks and thrift institutions, repurchase
agreements, and high quality domestic and foreign commercial paper and other
short-term corporate obligations, including those with floating or variable
rates of interest. See "Risk Factors--Investing in Foreign Securities" below. In
addition, the Money Market Fund is permitted to lend portfolio securities and
enter into reverse repurchase agreements to the extent described under
"Appendix--Investment Techniques." During normal market conditions, at least 25%
of the Fund's total assets will be invested in bank obligations.
The MUNICIPAL MONEY MARKET FUND will invest at least 80% of the value of its
net assets (except when maintaining a temporary defensive position) in
short-term Municipal Obligations. Subject to the requirements of Rule 2a-7, the
Fund will engage in management policies that are substantially identical to
those of the Intermediate Municipal Bond Fund. See "Appendix--Certain Portfolio
Securities--Municipal Obligations." The Fund also may lend securities from its
portfolio as described under "Appendix--Investment Techniques."
CERTAIN FUNDAMENTAL POLICIES
Each Fund may (i) borrow money to the extent permitted under the 1940 Act,
which currently limits borrowing to no more than 33 1/3% of the value of the
Fund's total assets; and (ii) invest up to 25% of the value of its total assets
in the securities of issuers in a single industry, provided there is no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or, in the case of the Municipal
Funds, Municipal Obligations. In addition, (i) each of the Diversified Funds may
invest up to 5% of its total assets in the obligations of any one issuer, except
that up to 25% of the value of the Fund's total assets may be invested (subject,
in the case of the Money Market Funds, to the provisions of Rule 2a-7), and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities may be purchased, without regard to any such limitation; and
(ii) the Money Market Fund will invest, except when it has adopted a temporary
defensive position, at least 25% of its total assets in securities issued by
banks, including foreign banks and branches. This paragraph describes
fundamental policies that cannot be changed as to a Fund without approval by the
holders of a majority (as defined in the 1940 Act) of such Fund's outstanding
voting shares. See "Investment Objectives and Management Policies--Investment
Restrictions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Fund may (i) purchase securities of any company having less than three
years' continuous operation (including operations of any predecessors) if such
purchase does not cause the value of such Fund's investments in all such
companies to exceed 10% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% (10% in the case of the Money
Market Funds) of the value of its net assets in repurchase agreements providing
for settlement in more than seven days after notice and in other illiquid
securities. See "Investment Objectives and Management Policies--Investment
Restrictions" in the Statement of Additional Information.
RISK FACTORS
General
Since each Fund will pursue different types of investments, the risks of
investing will vary depending on the Fund selected for investment. Before
selecting a Fund in which to invest, the investor should assess the risks
associated with the types of investments made by the Fund. The net asset value
per share of each Fund, other than a Money Market Fund, is not fixed and should
be expected to fluctuate. Investors should consider each Fund as a supplement to
an overall investment program and should invest only if they are willing to
undertake the risks involved. See also the Appendix beginning on page A-1 for a
further discussion of certain considerations.
Investment Techniques
Each Fund may engage in various investment techniques to the extent
described herein. The use of investment techniques such as short-selling,
engaging in financial futures and options transactions, leverage through
borrowing, purchasing securities on a forward commitment basis, and lending
portfolio securities--techniques that are not necessarily employed by each
Fund--involves greater risk than that incurred by many other funds with similar
objectives that do not engage in such techniques. See "Appendix-- Investment
Techniques." Futures and options transactions involve derivative securities.
Using these techniques may produce higher than normal portfolio turnover and may
affect the degree to which a Fund's net asset value fluctuates. Higher portfolio
turnover rates are likely to result in comparatively greater brokerage
commissions or transaction costs. In addition, short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary gains. A Fund's
ability to engage in certain short-term transactions may be limited by the
requirement that, to qualify as a regulated investment company, it must earn
less than 30% of its gross income from the disposition of securities held for
less than three months. This 30% test limits the extent to which a Fund may sell
securities held for less than three months and invest in certain futures
contracts, among other strategies. However, portfolio turnover will not
otherwise be a limiting factor in making investment decisions. See "Portfolio
Transactions" in the Statement of Additional Information.
Equity Securities
(Asset Allocation and Equity Funds only) Investors should be aware that
Equity Securities fluctuate in value, often based on factors unrelated to the
value of the issuer of the securities, and that fluctuations can be pronounced.
Changes in the value of a Fund's portfolio securities will result in changes in
the value of such Fund's shares and thus the Fund's yield and total return to
investors. The securities of the smaller companies may be subject to more abrupt
or erratic market movements than larger, more-established companies, both
because the securities typically are traded in lower volume and because the
issuers typically are subject to a greater degree to changes in earnings and
prospects.
Fixed-Income Securities
(Asset Allocation, Equity, Bond and Municipal Bond Funds and, to a limited
extent, each Money Market Fund) Investors should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. The values of Fixed-Income Securities also may be affected by
changes in the credit rating or financial condition of the issuing entities.
Certain securities that may be purchased by these Funds, such as those rated Baa
by Moody's and BBB by S&P, Fitch and Duff, may be subject to such risk with
respect to the issuing entity and to greater market fluctuations than certain
lower yielding, higher rated Fixed-Income Securities. See "Lower Rated
Securities" below and "Appendix-- Certain Portfolio Securities--Ratings" and
Appendix in the Statement of Additional Information.
Lower Rated Securities
(Asset Allocation, Equity Income, Growth, Special Opportunities, Bond and
International Bond Funds only) Investors should carefully consider the relative
risks of investing in the higher yielding (and, therefore, higher risk) debt
securities rated below investment grade by Moody's, S&P, Fitch or Duff (commonly
known as junk bonds). Each of the Bond Fund and International Bond Fund may
invest up to 35% of its net assets in debt securities rated as low as B by
Moody's, S&P, Fitch and Duff. The Managed Assets Fund may invest up to 20% of
its net assets in debt securities, and each of the Equity Income, Growth and
Special Opportunities Funds may invest up to 35%, and the Managed Assets Income
Fund may invest up to 5%, of its net assets in convertible securities, rated as
low as the lowest rating assigned by Moody's, S&P, Fitch or Duff. The Bond Fund,
International Bond Fund, Equity Income Fund, Growth Fund and Special
Opportunities Fund each intend to invest less than 35% of the value of its net
assets in such securities. Securities rated below investment grade generally are
not meant for short-term investing and may be subject to certain risks with
respect to the issuing entity and to greater market fluctuations than certain
lower yielding, higher rated fixed-income securities. Securities rated Ba by
Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other speculative
grade debt, they face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. Securities rated C by
Moody's are regarded as having extremely poor prospects of ever attaining any
real investment standing. Securities rated D by S&P, Fitch and Duff are in
default and the payment of interest and/or repayment of principal is in arrears.
Such securities, though high yielding, are characterized by great risk. See
Appendix in the Statement of Additional Information for a general description of
securities ratings. Although these ratings may be an initial criterion for
selection of portfolio investments, the Investment Adviser also will evaluate
these securities and the ability of the issuers of such securities to pay
interest and principal. The Fund's ability to achieve its investment objectives
may be more dependent on the Investment Adviser's credit analysis than might be
the case for a fund that invested in higher rated securities. See
"Appendix--Certain Portfolio Securities--Fixed-Income Securities--Ratings." The
market price and yield of securities rated Ba or lower by Moody's and BB or
lower by S&P, Fitch or Duff are more volatile than those of higher rated
securities. Factors adversely affecting the market price and yield of these
securities will adversely affect the Fund's net asset value. In addition, the
retail secondary market for these securities may be less liquid than that of
higher rated securities; adverse conditions could make it difficult at times for
the Fund to sell certain securities or could result in lower prices than those
used in calculating such Fund's net asset value. The market values of certain
lower rated debt securities tend to reflect specific developments with respect
to the issuer to a greater extent than do higher rated securities, which react
primarily to fluctuations in the general level of interest rates, and tend to be
more sensitive to economic conditions than are higher rated securities. Issuers
of such debt securities often are highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the case
with higher rated securities.
Municipal Obligations
(Municipal Funds only) Certain provisions in the Code relating to the
issuance of Municipal Obligations may reduce the volume of Municipal Obligations
qualifying for Federal tax exemption. One effect of these provisions could be to
increase the cost of the Municipal Obligations available for purchase by the
Municipal Funds and thus reduce the available yield. Shareholders of the
Municipal Funds should consult their tax advisers concerning the effect of these
provisions on an investment in the Fund. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations may be
introduced in the future. If any such proposal were enacted that would reduce
the availability of Municipal Obligations for investment by any of these Funds
so as to adversely affect its shareholders, the Board would reevaluate the
affected Fund's investment objective and policies and submit possible changes in
the Fund's structure to shareholders for their consideration. If legislation
were enacted that would treat a type of Municipal Obligation as taxable, the
Municipal Funds would treat such security as a permissible taxable investment
within the applicable limits set forth herein. Each Municipal Fund may invest
more than 25% of the value of its total assets in Municipal Obligations which
are related in such a way that an economic, business or political development or
change affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects, or securities of issuers that are located in the same state.
As a result, each Municipal Fund may be subject to greater risk as compared to a
fund that does not follow this practice. Certain municipal lease/purchase
obligations in which the Municipal Funds may invest may contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the leased
property in the event of foreclosure might prove difficult. In evaluating the
credit quality of a municipal lease/purchase obligation that is unrated, the
Investment Adviser will consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Foreign Securities
(Asset Allocation, Growth, Special Opportunities, International Equity and
International Bond Funds and, to a limited extent, Equity Income, Bond,
Intermediate Bond and Money Market Funds only) Foreign securities markets
generally are not as developed or efficient as those in the United States.
Securities of some foreign issuers are less liquid and more volatile than
securities of comparable U.S. issuers. Similarly, volume and liquidity in most
foreign securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States. In addition, there
may be less publicly available information about a non-U.S. issuer, and non-U.S.
issuers generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers. See "Appendix--Certain Portfolio Securities--Taxable Money Market
Securities--Bank Obligations." Because evidences of ownership of such securities
usually are held outside the United States, each of these Funds will be subject
to additional risks which include possible adverse political and economic
developments, possible seizure or nationalization of foreign deposits and
possible adoption of governmental restrictions which might adversely affect the
payment of principal and interest on the foreign securities or might restrict
the payment of principal and interest to investors located outside the country
of the issuers, whether from currency blockage or otherwise. Custodial expenses
for a portfolio of non-U.S. securities generally are higher than for a portfolio
of U.S. securities. Many developing countries have experienced substantial, and
in some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
In an attempt to control inflation, wage and price controls have been imposed in
certain countries. To the extent a Fund invests in sovereign debt obligations,
the Fund will be exposed to the direct or indirect consequences of political,
social and economic changes in various developing countries. Political changes
in a country may affect the willingness of a foreign government to make or
provide for timely payments of its obligations. The country's economic status,
as reflected, among other things, in its inflation rate, the amount of its
external debt and its gross domestic product, also will affect the government's
ability to honor its obligations. Since foreign securities often are purchased
with and payable in currencies of foreign countries, the value of these assets
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. Some currency exchange costs
generally will be incurred when a Fund changes investments from one country to
another. Furthermore, some of these securities may be subject to brokerage or
stamp taxes levied by foreign governments, which have the effect of increasing
the cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by a Fund
from sources within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain countries and
the United States, however, may reduce or eliminate such taxes. All such taxes
paid by a Fund will reduce its net income available for distribution to its
shareholders.
Foreign Currency Exchange
(Asset Allocation, Growth, Special Opportunities, International Equity and
International Bond Funds only) Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or perceived changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks, or the failure to
intervene, or by currency controls or political developments in the United
States or abroad. The foreign currency market offers less protection against
defaults in the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive the Fund of unrealized profits or force such Fund to cover its
commitments for purchase or resale, if any, at the current market price.
Foreign Commodity Transactions
(Asset Allocation, Growth, Special
Opportunities, International Equity and International Bond Funds only) Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the Commodity Futures Trading Commission (the "CFTC") and
may be subject to greater risks than trading on domestic exchanges. For example,
some foreign exchanges are principal markets so that no common clearing facility
exists and an investor may look only to the broker for performance of the
contract. In addition, any profits that the Fund might realize in trading could
be eliminated by adverse changes in the exchange rate, or such Fund could incur
losses as a result of those changes. Transactions on foreign exchanges may
include both commodities which are traded on domestic exchanges and those which
are not.
Mortgage-Related Securities
(Asset Allocation, Equity and Bond Funds only) No assurance can be given as
to the liquidity of the market for certain mortgage-backed securities, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
Determination as to the liquidity of interest-only and principal-only fixed
mortgage-backed securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines established by the
Board. In accordance with such guidelines, the Investment Adviser will monitor
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. Each
of these Funds intends to treat other stripped mortgage-backed securities as
illiquid securities. Mortgage-related securities are a form of derivative
security. See "Appendix--Certain Portfolio Securities--Fixed-Income
Securities--Mortgage-Related Securities" and "--Illiquid Securities."
Zero Coupon Securities
(Asset Allocation, Equity, Bond and Municipal Bond Funds only) Federal
income tax law requires the holder of a zero coupon security or of certain
pay-in-kind bonds to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for Federal income taxes, each Fund that
invests in such securities may be required to distribute such income accrued
with respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements. Such Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may be reduced as a result.
Other Investment Considerations
The classification of each Non-Diversified Fund as a "non-diversified"
investment company means that the proportion of such Fund's assets that may be
invested in the securities of a single issuer is not limited by the 1940 Act. A
"diversified" investment company is required by the 1940 Act generally, with
respect to 75% of its total assets, to invest not more than 5% of such assets in
the securities of a single issuer and to hold not more than 10% of the voting
securities of any single issuer. However, each Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, which requires that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of its total assets be invested in cash,
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of each such Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of each Non-Diversified Fund's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry or economic sector, its portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company. Investment decisions for each Fund are made independently from those of
the other investment companies or investment advisory accounts that may be
advised by the Investment Adviser. However, if such other investment companies
or managed accounts are prepared to invest in, or desire to dispose of,
securities in which a Fund invests at the same time as the Fund, available
investments or opportunities for sales will be allocated equitably to each of
them. In some cases, this procedure may adversely affect the size of the
position obtained for, or disposed of by, a Fund or the price paid or received
by a Fund.
Alternative Purchase Methods
This Prospectus offers investors three methods of purchasing Fund shares.
Orders for purchases of Class I shares, however, may be placed only for certain
eligible investors as described below. An investor who is not eligible to
purchase Class I shares may choose from Class A and Class B the Class of shares
that best suits the investor's needs, given the amount of purchase, the length
of time the investor expects to hold the shares and any other relevant
circumstances. Each Class A, Class B and Class I share represents an identical
pro rata interest in a Fund's investment portfolio. Class A shares are sold at
net asset value per share plus, for each Fund other than a Money Market Fund, a
maximum initial sales charge of 4.50% (3.00% in the case of the Intermediate
Bond Fund and Intermediate Municipal Bond Fund) of the public offering price
imposed at the time of purchase. The initial sales charge may be reduced or
waived for certain purchases. See "How to Buy Shares-- Class A Shares." Class A
shares of each Fund are subject to an annual service fee at the rate of up to
.25% of the value of the average daily net assets of Class A. See "Distribution
Plans and Shareholder Services Plans." Class A shares held by investors who
after purchasing Class A shares establish a Fiduciary Account will convert to
Class I shares automatically upon the establishment of such Account, based on
the relative net asset values for shares of each such Class. Class B shares are
sold at net asset value per share with no initial sales charge at the time of
purchase; as a result, the entire purchase price is immediately invested in the
Fund. Class B shares are subject to a maximum 5.00% (3.00% in the case of the
Intermediate Bond Fund and Intermediate Municipal Bond Fund) CDSC, which is
assessed only if Class B shares are redeemed within six years (five years in the
case of the Intermediate Bond Fund and Intermediate Municipal Bond Fund) of
purchase. Class B shares of the Money Market Fund may be acquired only through
exchanges with Class B shares of the other Funds and are subject to the CDSC, if
any, of the shares with which the exchange is made. See "How to Buy
Shares--Class B Shares" and "How to Redeem Shares--Contingent Deferred Sales
Charge--Class B Shares." Class B shares are subject to an annual service fee and
distribution fee. See "Distribution Plans and Shareholder Services Plans."
Approximately eight years (seven years in the case of the Intermediate Bond Fund
and Intermediate Municipal Bond Fund) after the date of purchase, Class B shares
automatically will convert to Class A shares, based on the relative net asset
values for shares of each such Class, and will no longer be subject to the
distribution fee. Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted on a pro rata
basis together with other Class B shares, in the proportion that a shareholder's
Class B shares converting to Class A shares bears to the total Class B shares
not acquired through the reinvestment of dividends and distributions. Class I
shares are sold at net asset value with no sales charge. Class I shares are sold
exclusively to qualified trust, custody and/or agency account clients of FNBC,
ANB or their affiliates ("Fiduciary Accounts") and to qualified benefit plans or
other programs with assets of at least $100 million invested in shares of the
Funds or other investment companies or accounts advised by the Investment
Adviser ("Eligible Retirement Plans"). Class I shares are not subject to an
annual service fee or distribution fee. Class I shares held by investors who
after purchasing Class I shares for their Fiduciary Accounts withdraw from such
Accounts will convert to Class A shares automatically upon such withdrawal,
based on the relative net asset values for shares of each such Class, and will
be subject to the annual service fee charged Class A. Class B shares will
receive lower per share dividends and at any given time the performance of Class
B should be expected to be lower than for shares of each other Class because of
the higher expenses borne by Class B. Similarly, Class A shares will receive
lower per share dividends and the performance of Class A should be expected to
be lower than Class I shares because of the higher expenses borne by Class A.
See "Fee Table." An investor who is not eligible to purchase Class I shares
should consider whether, during the anticipated life of the investor's
investment in the Fund, the accumulated distribution fee and CDSC on Class B
shares prior to conversion would be less than the initial sales charge, if any,
on Class A shares purchased at the same time, and to what extent, if any, such
differential would be offset by the return of Class A. Additionally, investors
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution fees on Class B shares
may exceed the initial sales charge on Class A shares during the life of the
investment. Generally, Class A shares may be more appropriate for investors who
invest $500,000 or more in Fund shares.
How to Buy Shares
INFORMATION APPLICABLE TO ALL PURCHASERS
When purchasing Fund shares, an investor must specify the Class of shares
being purchased. If no Class of shares is specified, Class A shares will be
purchased.
Class A and Class B shares are offered to the general public and may be
purchased through a number of institutions, including FCIMCO, FNBC, ANB and
their affiliates, other Service Agents, and directly through the Distributor.
Class B shares of the Money Market Fund may be acquired only through the
exchange of Class B shares of the other Funds.
Orders for purchases of Class I shares may be placed only for clients of
FNBC, ANB or their affiliates for their Fiduciary Accounts maintained at FNBC,
ANB or one of their affiliates and Eligible Retirement Plans with assets of at
least $100 million invested in shares of the Funds or other investment companies
or accounts advised by the Investment Adviser. Class I shares may be purchased
for a Fiduciary Account or Eligible Retirement Plan only by a custodian,
trustee, investment manager or other entity authorized to act on behalf of such
Account or Plan.
Share certificates will not be issued. It is not recommended that any of the
Municipal Funds be used as a vehicle for Keogh, IRA or other qualified
retirement plans. The Funds reserve the right to reject any purchase order.
The minimum initial investment for each Class is $1,000. However, for IRAs
and other retirement plans, the minimum initial purchase is $250. All subsequent
investments must be at least $100. The initial investment must be accompanied by
the Account Application. FCIMCO and Service Agents may impose initial or
subsequent investment minimums which are higher or lower than those
specified above and may impose different minimums for different types of
accounts or purchase arrangements.
As to each Fund, net asset value per share of each Class is computed by
dividing the value of the Fund's net assets represented by such Class (i.e., the
value of its assets less liabilities) by the total number of shares of such
Class outstanding. See "Determination of Net Asset Value" in the Statement of
Additional Information.
Each Money Market Fund's net asset value per share is determined as of 12:00
Noon, New York time, on each business day (which, as used herein, shall include
each day the New York Stock Exchange is open for business, except Martin Luther
King, Jr. Day, Columbus Day and Veterans Day).
Shares of each Money Market Fund are sold on a continuous basis at the net
asset value per share next determined after an order in proper form and Federal
Funds (moneys of member banks within the Federal Reserve System which are held
on deposit at a Federal Reserve Bank) are received by the Transfer Agent. If an
investor does not remit Federal Funds, his payment must be converted into
Federal Funds. This usually occurs within one business day of receipt of a bank
wire and within two business days of receipt of a check drawn on a member bank
of the Federal Reserve System. Checks drawn on banks which are not members of
the Federal Reserve System may take considerably longer to convert into Federal
Funds. Prior to receipt of Federal Funds, the investor's money will not be
invested.
For each Fund, other than the Money Market Funds, shares are sold on a
continuous basis at the public offering price (i.e., net asset value plus the
applicable sales load, if any, set forth below). Net asset value per share of
these Funds is determined as of the close of trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time), on each business day.
For purposes of determining net asset value per share, options and futures
contracts will be valued 15 minutes after the close of trading on the New York
Stock Exchange. Each of these Funds' investments are valued each business day by
one or more independent pricing services approved by the Board and are valued at
fair value as determined by the pricing service. Each pricing service's
procedures are reviewed under the general supervision of the Board.
For each Fund, other than the Money Market Funds, if an order is received by
the Transfer Agent by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time) on any business day, shares will
be purchased at the public offering price determined as of the close of trading
on the floor of the New York Stock Exchange on that day. Otherwise, shares will
be purchased at the public offering price determined as of the close of trading
on the floor of the New York Stock Exchange on the next business day.
Federal regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" and the Account Application for further
information concerning this requirement. Failure to furnish a certified TIN to
the Fund could subject an investor to a $50 penalty imposed by the Internal
Revenue Service (the "IRS").
Class A Shares
The public offering price for Class A shares of each Fund, other than the
Money Market Funds, is the net asset value per share of that Class plus a sales
load as shown below:
ASSET ALLOCATION FUNDS, EQUITY FUNDS, BOND FUND,
INTERNATIONAL BOND FUND AND MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Total Sales Load
--------------------------------- Dealers'
As a % of As a % of Reallowance
offering price net asset value as a % of
AMOUNT OF TRANSACTION per share per share offering price
<S> <C> <C> <C>
Less than $50,000 4.50 4.70 4.00
$50,000 to less than $100,000 4.00 4.20 3.50
$100,000 to less than $250,000 3.00 3.10 2.50
$250,000 to less than $500,000 2.00 2.00 1.50
$500,000 to less than $1,000,000 1.50 1.50 1.25
$1,000,000 and above none none none
<CAPTION>
INTERMEDIATE BOND FUND AND
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
Total Sales Load
--------------------------------- Dealers'
As a % of As a % of Reallowance
offering price net asset value as a % of
AMOUNT OF TRANSACTION per share per share offering price
<S> <C> <C> <C>
Less than $50,000 3.00 3.10 2.75
$50,000 to less than $100,000 2.50 2.60 2.25
$100,000 to less than $250,000 2.00 2.00 1.75
$250,000 to less than $500,000 1.50 1.50 1.25
$500,000 to less than $1,000,000 1.00 1.00 0.75
$1,000,000 and above none none none
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more of
Class A shares. However, if an investor purchases Class A shares without an
initial sales charge as part of an investment of at least $1,000,000 and redeems
those shares within a certain period after purchase, a CDSC will be imposed at
the time of redemption as described below. The terms set forth under "How to
Redeem Fund Shares--Contingent Deferred Sales Charge--Class B" (other than the
amount of the CDSC and its time periods) are applicable to the Class A shares
subject to a CDSC. Letter of Intent and Right of Accumulation apply to such
purchases of Class A shares. The following table sets forth the rates of such
CDSC for the indicated time periods:
<TABLE>
<CAPTION>
AMOUNT OF CDSC as a % of
TRANSACTION AT Amount Invested or Year Since Purchase
OFFERING PRICE Redemption Proceeds Payment Was Made
<S> <C> <C>
$1,000,000 to
less than $2,500,000 1.00% First or Second
$2,500,000 to
less than $5,000,000 0.50% First
$5,000,000 and above 0.25% First
</TABLE>
The dealer reallowance may be changed from time to time but will remain the
same for all dealers. With respect to purchases of $1,000,000 or more of Class A
shares made through Service Agents, the Distributor may pay such Service Agents
from its own funds a fee of up to .75% for the Intermediate Bond Fund and
Intermediate Municipal Bond Fund and 1.00% for each other Fund of the amount
invested to compensate such Service Agents for their distribution assistance in
connection with such purchases.
Full-time employees of NASD member firms and full-time employees of other
financial institutions which have entered into an agreement with the Distributor
pertaining to the sale of Fund shares (or which otherwise have a
brokerage-related or clearing arrangement with an NASD member firm or other
financial institution with respect to sales of Fund shares), their spouses and
minor children, and accounts opened by a bank, trust company or thrift
institution, acting as a fiduciary or custodian, may purchase Class A shares for
themselves or itself, as the case may be, at net asset value, provided that they
have furnished the Distributor appropriate notification of such status at the
time of the investment and such other information as it may request from time to
time in order to verify eligibility for this privilege. This privilege also
applies to full-time employees of financial institutions affiliated with NASD
member firms whose employees are eligible to purchase Class A shares at net
asset value. In addition, Class A shares may be purchased at net asset value for
accounts registered under the Uniform Gifts to Minors Act or Uniform Transfers
to Minors Act which are opened through FCIS and 401(k) and other defined
contribution or qualified retirement plan accounts for which FNBC or ANB, since
at least June 1, 1995, or any of their affiliates, since at least January 1,
1996, has served as administrator or trustee. Class A shares are also offered at
net asset value to directors and full-time or part-time employees of First
Chicago Corporation, or any of its affiliates and subsidiaries, retired
employees of First Chicago Corporation, or any of its affiliates and
subsidiaries, Board members of a fund advised by the Investment Adviser,
including members of the Funds' Board, or the spouse or minor child of any of
the foregoing.
Class A shares may be purchased at net asset value through certain
broker-dealers, registered investment advisers and other financial institutions
which have entered into an agreement with the Distributor, which includes a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker-dealer, registered investment adviser or other financial institution.
FCIMCO will pay a fee of up to 1% of the amount invested by a participant in its
Investment Architect Account, or any other wrap account, to FCIS, FNBC or other
third-parties.
Class A shares also may be purchased at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an investment company
sold with a sales charge or commission and not distributed by the Distributor or
annuity contract or guaranteed investment contract subject to a surrender
charge. This also includes shares of an investment company that were or would be
subject to a contingent deferred sales charge upon redemption. The purchase must
be made within 60 days of the redemption, and the Distributor must be notified
in writing by the investor, or by the investor's investment professional, at the
time the purchase is made.
Class A shares also will be offered at net asset value without a sales load
to employees participating in qualified or nonqualified employee benefit plans
or other programs where (i) the employers or affiliated employers maintaining
such plans or programs have a minimum of 200 employees eligible for
participation in such plans or programs or (ii) such plan's or program's assets
exceed one million dollars ("Eligible Benefit Plans").
Class B Shares
The public offering price for Class B shares is the net asset value per
share of that Class. No initial sales charge is imposed at the time of purchase.
A CDSC is imposed, however, on certain redemptions of Class B shares, as
described under "How to Redeem Shares." The Distributor may compensate certain
Service Agents for selling Class B shares at the time of purchase from its own
assets. Proceeds of the CDSC and distribution fees payable to the Distributor,
in part, would be used to defray these expenses.
Class I Shares
The public offering price for Class I shares is the net asset value per
share of that Class. No sales charge is imposed for Class I shares.
Purchasing Shares Through Accounts with FCIMCO, FNBC, ANB or a Service
Agent Investors who desire to purchase shares through their accounts at FCIMCO,
FNBC, ANB or their affiliates or a Service Agent should contact such entity
directly for appropriate instructions, as well as for information about
conditions pertaining to the account and any related fees. Service Agents,
FCIMCO, FNBC and ANB may charge clients direct fees for effecting transactions
in shares, as well as fees for other services provided to clients in connection
with accounts through which shares are purchased. These fees, if any, would be
in addition to fees received by a Service Agent under a Shareholder Services
Plan or fees received by FCIMCO under an Investment Advisory Agreement or
Administration Agreement. Each Service Agent has agreed to transmit to its
clients a schedule of such fees. In addition, Service Agents, FCIMCO, FNBC and
ANB may receive different levels of compensation for selling different Classes
of shares and may impose minimum account and other conditions, including
conditions which might affect the availability of certain shareholder privileges
described in this Prospectus. Certain investor accounts with FNBC, ANB and their
affiliates and certain Service Agents may be eligible for an automatic
investment privilege, commonly called a "sweep," under which amounts in excess
of a certain minimum held in these accounts will be invested automatically in
shares at predetermined intervals. Each investor desiring to use this privilege
should consult FNBC, ANB or his Service Agent for details. It is the
responsibility of FNBC, ANB and Service Agents to transmit orders on a timely
basis.
Copies of the Prospectus and Statement of Additional Information may be
obtained from the Distributor, FCIMCO, certain affiliates of FCIMCO or certain
Service Agents, as well as from the Funds.
Right of Accumulation--Class A Shares
Reduced sales loads apply to any purchase of Class A shares where the
dollar amount of shares being purchased, plus the value of shares of such Fund,
shares of other Funds, and shares of certain other investment companies advised
by the Investment Adviser purchased with a sales load or acquired by a previous
exchange of shares purchased with a sales load (hereinafter referred to as
"Eligible Funds") held by an investor and any related "purchaser" as defined in
the Statement of Additional Information, is $50,000 or more. If, for example, an
investor previously purchased and still holds Class A shares of the Equity
Income Fund, or of any other Eligible Fund or combination thereof, with an
aggregate current market value of $40,000 and subsequently purchases Class A
shares of such Fund or an Eligible Fund having a current value of $20,000, the
sales load applicable to the subsequent purchase would be reduced to 4.00% of
the offering price (4.20% of the net asset value). All present holdings of
Eligible Funds may be combined to determine the current offering price of the
aggregate investment in ascertaining the sales load applicable to each
subsequent purchase.
To qualify for reduced sales loads, at the time of a purchase an investor or
his Service Agent must notify the Distributor if orders are made by wire, or the
Transfer Agent if orders are made by mail. The reduced sales load is subject to
confirmation of the investor's holdings through a check of appropriate records.
Shareholder Services
The Exchange Privilege and Automatic Investment Plan are available to
shareholders of any Class. The Letter of Intent and Reinstatement Privilege are
available only for Class A and Class B shareholders, respectively. In addition,
such services and privileges may not be available to clients of certain Service
Agents and some Service Agents may impose certain conditions on their clients
which are different from those described in this Prospectus. Each investor
should consult his Service Agent in this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor to purchase, in exchange for
shares of a Fund, shares of the same Class of the other Funds. This privilege
may be expanded to permit exchanges between a Fund and other funds that, in the
future, may be advised by the Investment Adviser. Exchanges may be made to the
extent the shares being received in the exchange are offered for sale in the
shareholder's state of residence.
Shares of the same Class of Funds purchased by exchange will be purchased on
the basis of relative net asset value per share as follows:
A. Shares of Funds purchased with or without a sales load may be exchanged
without a sales load for shares of other Funds sold without a sales load.
B. Shares of Funds purchased without a sales load may be exchanged for shares
of other Funds sold with a sales load, and the applicable sales load will be
deducted.
C. Shares of Funds purchased with a sales load, shares of Funds acquired by a
previous exchange from shares purchased with a sales load and additional shares
acquired through reinvestment of dividends or distributions of any such Funds
(collectively referred to herein as "Purchased Shares") may be exchanged for
shares of other Funds sold with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to the Offered Shares
exceeds the maximum sales load that could have been imposed in connection with
the Purchased Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be deducted.
D. Shares of Funds subject to a CDSC that are exchanged for shares of another
Fund will be subject to the higher applicable CDSC of the two Funds, and for
purposes of calculating CDSC rates and conversion periods, if any, will be
deemed to have been held since the date the shares being exchanged were
initially purchased.
To accomplish an exchange under item C above, shareholders must notify the
Transfer Agent of their prior ownership of Fund shares and their account number.
No fees currently are charged shareholders directly in connection with
exchanges although the Funds reserve the right, upon not less than 60 days'
written notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Funds reserve the
right to reject any exchange request in whole or in part. The Exchange Privilege
may be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one Fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
LETTER OF INTENT--CLASS A SHARES
By signing a Letter of Intent form, available from the Distributor, FCIMCO,
certain affiliates of FCIMCO, or certain Service Agents, an investor becomes
eligible for the reduced sales load applicable to the total number of Eligible
Fund shares purchased in a 13-month period (beginning up to 30 days before the
date of execution of the Letter of Intent) pursuant to the terms and conditions
set forth in the Letter of Intent. A minimum initial purchase of $5,000 is
required. To compute the applicable sales load, the offering price of shares the
investor holds (on the date of submission of the Letter of Intent) in any
Eligible Fund that may be used toward "Right of Accumulation" benefits described
above may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if the investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the total minimum
investment specified under a Letter of Intent, an adjustment will be made to
reflect any reduced sales load applicable to shares purchased during the 30-day
period before submission of the Letter of Intent. In addition, if the investor's
purchases qualify for a further sales load reduction, the sales load will be
adjusted to reflect the investor's total purchase at the end of 13 months. If
total purchases are less than the amount specified, the investor will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind the investor to purchase, or the Trust
to sell, the full amount indicated at the sales load in effect at the time of
signing, but the investor must complete the intended purchase to obtain the
reduced sales load. At the time an investor purchases Class A shares, the
investor must indicate his or her intention to do so under a Letter of Intent.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan permits an investor to purchase shares at
regular intervals selected by the investor. Provided the investor's bank or
other financial institution allows automatic withdrawals, shares may be
purchased by transferring funds from the bank account designated by the
investor. At the investor's option, the account designated will be debited in
the specified amount, and shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. To establish an Automatic Investment Plan
account, the investor must check the appropriate box and supply the necessary
information on the Account Application. Investors may obtain the necessary
applications from the Distributor. Investors should be aware that periodic
investment plans do not guarantee a profit and will not protect an investor
against loss in a declining market. An investor may cancel his or her
participation in the Plan or change the amount of purchase at any time by
mailing written notification to Primary Funds Service Corp., P.O. Box 9743,
Providence, Rhode Island 02940-9743, and such notification will be effective
three business days following receipt. The Funds may modify or terminate the
Automatic Investment Plan at any time or charge a service fee. No such fee
currently is contemplated.
REINSTATEMENT PRIVILEGE
The Reinstatement Privilege enables investors who have redeemed Class A or
Class B shares to purchase, within 30 days of such redemption, Class A shares
without the imposition of a sales load in an amount not to exceed the redemption
proceeds received. Class A shares so reinstated or purchased will be offered at
a purchase price equal to the then-current net asset value of Class A determined
after a reinstatement request and payment for Class A shares are received by the
Transfer Agent. This privilege also enables such investors to reinstate their
account for the purpose of exercising the Exchange Privilege. To use the
Reinstatement Privilege, an investor must submit a written reinstatement request
to the Transfer Agent. The reinstatement request and payment must be received
within 30 days of the trade date of the redemption. There currently are no
restrictions on the number of times an investor may use this privilege.
How to Redeem Shares
GENERAL
An investor may request redemption of his shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. An
investor who has purchased shares through his Fiduciary Account or as a
participant in an Eligible Retirement Plan must redeem shares by following
instructions pertaining to such Account or Plan. It is the responsibility of the
entity authorized to act on behalf of such Account or Plan to transmit the
redemption order to the Transfer Agent and credit the investor's account with
the redemption proceeds on a timely basis. When a request is received in proper
form, the Fund will redeem the shares at the next determined net asset value as
described below. If an investor holds Fund shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed. If an
investor fails to specify the Class of shares to be redeemed, Class A shares
will be redeemed first. If an investor owns fewer shares of the Class than
specified to be redeemed, the redemption request may be delayed until the
Transfer Agent receives further instructions from the investor or his Service
Agent.
The Funds impose no charges when shares are redeemed. However, the
Distributor may impose a CDSC as described below. Service Agents may charge a
nominal fee for effecting redemptions of Fund shares. The value of the shares
redeemed may be more or less than their original cost, depending upon the Fund's
then-current net asset value.
A Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
HOWEVER, IF AN INVESTOR HAS PURCHASED FUND SHARES BY CHECK OR THROUGH THE
AUTOMATIC INVESTMENT PLAN AND SUBSEQUENTLY SUBMITS A WRITTEN REDEMPTION REQUEST
TO THE TRANSFER AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO THE
INVESTOR PROMPTLY UPON BANK CLEARANCE OF THE INVESTOR'S PURCHASE CHECK OR
AUTOMATIC INVESTMENT PLAN ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR
MORE. IN ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK OR
AUTOMATIC INVESTMENT PLAN ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED.
THESE PROCEDURES WILL NOT APPLY IF THE INVESTOR OTHERWISE HAS A SUFFICIENT
COLLECTED BALANCE IN HIS OR HER ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR
TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE
AND BE PAYABLE, AND THE INVESTOR WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS
OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until the Transfer
Agent has received the investor's Account Application.
Each Fund reserves the right to redeem an investor's account at the Fund's
option upon not less than 45 days' written notice if the account's net asset
value is $1,000 or less ($500 or less in the case of the Municipal Bond Fund)
and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE--
CLASS B
A CDSC payable to the Distributor may be imposed on redemptions of Class B
shares depending on the number of years such shares were held by the investor.
The following tables set forth the rates of the CDSC applied for the indicated
Funds:
ASSET ALLOCATION FUNDS, EQUITY FUNDS, BOND FUND,
INTERNATIONAL BOND FUND AND MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CDSC as a % of
Amount Invested
or
Year Since Redemption
Purchase Payment Was Made Proceeds
<S> <C>
First 5.00
Second 4.00
Third 3.00
Fourth 3.00
Fifth 2.00
Sixth 1.00
Seventh None
Eighth *
</TABLE>
* Conversion to Class A shares.
INTERMEDIATE BOND FUND AND INTERMEDIATE MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CDSC as a % of
Amount Invested
or
Year Since Redemption
Purchase Payment Was Made Proceeds
<S> <C>
First 3.00
Second 3.00
Third 2.00
Fourth 2.00
Fifth 1.00
Sixth None
Seventh *
</TABLE>
* Conversion to Class A shares.
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. Class B
shares redeemed will not be subject to a CDSC to the extent that the value of
such shares represents capital appreciation or reinvestment of dividends or
distributions. It will be assumed that the redemption is made first of Class B
shares acquired pursuant to the reinvestment of dividends and distributions or
representing any capital appreciation in the value of the Class B shares held by
the investor; then of Class B shares held for the longest period of time.
WAIVER OF CDSC
The CDSC will be waived in connection with (a) redemptions made within one
year after the death of the shareholder, (b) redemptions by shareholders after
age 70-1/2 for purposes of the minimum required distribution from an IRA, Keogh
plan or custodial account pursuant to Section 403(b) of the Code, (c)
distributions from a qualified plan upon retirement or termination of
employment, (d) redemptions of shares acquired through a contribution in excess
of permitted amounts, (e) in-service withdrawals from tax qualified plans by
participants and (f) redemptions initiated by a Fund of accounts with net assets
of less than $1,000 ($500 in the case of the Municipal Bond Fund).
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares (and thus become
subject to the lower expenses borne by Class A shares) in the eighth year
(seventh year in the case of the Intermediate Bond Fund and Intermediate
Municipal Bond Fund) after the date of purchase, together with the pro rata
portion of all Class B shares representing dividends and other distributions
paid in additional Class B shares. The conversion will be effected at the
relative net asset values per share of the two Classes on the first business day
of the month following the seventh anniversary (sixth anniversary in the case of
the Intermediate Bond Fund and Intermediate Municipal Bond Fund) of the original
purchase. If any exchanges of Class B shares during the eight-year or
seven-year, as the case may be, period occurred, the holding period for the
shares exchanged will be counted toward the eight-year or seven-year, as the
case may be, period. At the time of the conversion the net asset value per share
of the Class A shares may be higher or lower than the net asset value per share
of the Class B shares; as a result, depending on the relative net asset values
per share, a shareholder may receive fewer or more Class A shares than the
number of Class B shares converted.
Each Fund reserves the right to cease offering Class B shares for sale at any
time or reject any order for the purchase of Class B shares and to cease
offering any services provided by a Service Agent.
PROCEDURES
An investor who has purchased shares through his account at FCIMCO, FNBC or
a Service Agent must redeem shares by following instructions pertaining to such
account. If an investor has given his Service Agent authority to instruct the
Transfer Agent to redeem shares and to credit the proceeds of such redemption to
a designated account at the Service Agent, the investor may redeem shares only
in this manner and in accordance with a written redemption request described
below. It is the responsibility of FCIMCO, FNBC or the Service Agent, as the
case may be, to transmit the redemption order and credit the investor's account
with the redemption proceeds on a timely basis.
An investor may redeem or exchange shares by telephone if the investor has
checked the appropriate box on the Account Application. By selecting a telephone
redemption or exchange privilege, an investor authorizes the Transfer Agent to
act on telephone instructions from any person representing himself or herself to
be the investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. The Funds will require
the Transfer Agent to employ reasonable procedures, such as requiring a form of
personal identification, to confirm that instructions are genuine and, if it
does not follow such procedures, the Fund or the Transfer Agent may be liable
for any losses due to unauthorized or fraudulent instructions. Neither the Fund
nor the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, an investor may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Fund shares. In such cases, investors should consider
using the other redemption procedures described herein. Use of these other
redemption procedures may result in the investor's redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
WRITTEN REDEMPTION REQUESTS
Investors may redeem shares by written request mailed to The Prairie Family
of Funds, P.O. Box 9743, Providence, Rhode Island 02940-9743. Redemption
requests must be signed by each shareholder, including each owner of a joint
account, and each signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP"), and the Stock Exchanges Medallion Program.
CHECK REDEMPTION PRIVILEGE
Class A of Money Market Funds only
A Money Market Fund shareholder may request on the Account Application or
by later written request to the Fund that the Money Market Fund provide
Redemption Checks drawn on the Fund's account. Redemption Checks may be made
payable to the order of any person in the amount of $500 or more. Redemption
Checks should not be used to close an account. Redemption Checks are free, but
the Transfer Agent will impose a fee for stopping payment of a Redemption Check
at the investor's request or if the Transfer Agent cannot honor the Redemption
Check due to insufficient funds or other valid reason. An investor should date
his Redemption Checks with the current date when the investor writes them.
Please do not postdate Redemption Checks. If an investor does, the Transfer
Agent will honor, upon presentment, even if presented before the date of the
check, all postdated Redemption Checks which are dated within six months of
presentment of payment, if they are otherwise in good order. This Privilege may
be modified or terminated at any time by the Fund or the Transfer Agent upon
notice to shareholders.
Management of the Funds
INVESTMENT ADVISER AND ADMINISTRATOR
First Chicago Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670, is each Fund's investment adviser and
administrator. FCIMCO is a registered investment adviser and a wholly-owned
subsidiary of The First National Bank of Chicago ("FNBC"), which in turn is a
wholly-owned subsidiary of First Chicago NBD Corporation, a registered bank
holding company. As of December 31, 1995, FCIMCO provided investment management
services to portfolios containing approximately $71 billion in assets.
FCIMCO serves as investment adviser for each Fund pursuant to an Investment
Advisory Agreement. Under the relevant Investment Advisory Agreement, FCIMCO
provides the day-to-day management of each Fund's investments, subject to the
overall authority of the Board and in conformity with applicable state law and
the stated policies of the Fund. FCIMCO is responsible for making investment
decisions for each Fund, placing purchase and sale orders (which may be
allocated to various dealers based on their sales of Fund shares) and providing
research, statistical analysis and continuous supervision of each Fund's
investment portfolio. FCIMCO has advised the Funds that in making its investment
decisions FCIMCO does not obtain or use material inside information in its or
any of its affiliate's possession.
FCIMCO has engaged ANB-IMC, located at 1 North LaSalle Street, Chicago,
Illinois 60690, to serve as the International Equity Fund's sub-investment
adviser. ANB-IMC, a registered investment adviser formed in 1973, is a
wholly-owned subsidiary of American National Bank and Trust Company, which in
turn is a wholly-owned subsidiary of FCNBD. As of December 31, 1995, ANB-IMC
managed approximately $ 21 billion in assets, including over $358 million in
international equities, primarily for pension funds. ANB-IMC, subject to the
supervision and approval of FCIMCO, provides investment advisory assistance and
the day-to-day management of the International Equity Fund's investments, as
well as investment research and statistical information, under a Sub-Investment
Advisory Agreement with FCIMCO, subject to the overall authority of the Board in
accordance with Massachusetts law.
The Funds' primary portfolio managers currently are: for Managed Assets
Income Fund and Managed Assets Fund, Claude B. Erb (since inception of the
Fund), who has been employed by FNBC since 1993 and, prior thereto, was Deputy
Chief Investment Officer and Senior Vice President for Trust Services of America
and TSA Capital Management; for Equity Income Fund, Chris M. Gassen (since March
1996), who has been employed by NBD Bank, a wholly-owned subsidiary of FCNBD,
since 1985, and F.Richard Neumann (since March 1996), who has been employed by
NBD Bank since 1981; for Growth Fund, Jeffrey C. Beard (since March 1996), who
has been employed by NBD Bank since 1982, and Gary L. Konsler (since March
1996), who has been employed by NBD Bank since 1973; for Special Opportunities
Fund, Ronald L. Doyle (since March 1996), who has been employed by NBD Bank
since 1982, and Joseph R. Gatz (since March 1996), who has been employed by NBD
Bank since 1986; for International Equity Fund, Peter M. Jankovskis (since
inception of the Fund), who has been employed by ANB-IMC since 1992 and, prior
thereto, was a faculty member of the University of California at Santa Barbara;
for Bond Fund, Douglas S. Swanson (since March 1996), who has been employed by
NBD Bank since 1983; for Intermediate Bond Fund, Ricardo F. Cipicchio (since
March 1996), who has been employed by NBD Bank since 1989; for International
Bond Fund, Claude B. Erb (since inception of the Fund); and for Intermediate
Municipal Bond Fund and Municipal Bond Fund, Robert T. Grabowski (since March
1996), who has been employed by NBD Bank since 1970.
Under the terms of the relevant Investment Advisory Agreement, FCIMCO
receives a monthly fee at the annual rate of .65% of the value of each Asset
Allocation Fund's average daily net assets; .50% of the value of the Equity
Income Fund's average daily net assets; .65% of the value of the Growth Fund's
average daily net assets; .70% of the value of the Special Opportunities Fund's
average daily net assets; .80% of the value of the International Equity Fund's
average daily net assets; .55% of the value of the Bond Fund's average daily net
assets; .70% of the value of the International Bond Fund's average daily net
assets; .40% of the value of each of the Intermediate Bond, Intermediate
Municipal Bond and Municipal Bond Fund's average daily net assets; and .40% of
the value of each Money Market Fund's average daily net assets. The investment
advisory fee payable by the International Equity Fund is higher than that paid
by most other funds. For the fiscal year ended December 31, 1995, each Fund paid
FCIMCO an investment advisory fee at the effective annual rate set forth below
pursuant to undertakings in effect:
<TABLE>
<CAPTION>
Effective Annual Rate
As a Percentage of
Name of Fund Average Daily Net Assets
<S> <C>
Managed Assets Income .30%
Managed Assets .05%
Equity Income .37%
Growth .53%
Special Opportunities .46%
International Equity .47%
Intermediate Bond .27%
Bond .38%
International Bond .10%
Intermediate Municipal Bond .28%
Municipal Bond .26%
U. S. Government Money Market .14%
Money Market .13%
Municipal Money Market .17%
</TABLE>
For the fiscal year ended December 31, 1995, FCIMCO paid ANB-IMC a
sub-investment advisory fee at the annual rate of .40% of the value of
the International Equity Fund's average daily net assets.
FCIMCO serves as each Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement, FCIMCO generally assists in all
aspects of the Funds' operations, other than providing investment advice,
subject to the overall authority of the Board in accordance with applicable
state law. Under the terms of the relevant Administration Agreement, FCIMCO
receives a monthly fee at the annual rate of .15% of the value of each Fund's
average daily net assets. For the fiscal year ended December 31, 1995, each Fund
paid FCIMCO an administrative fee at the effective annual rate set forth below
pursuant to undertakings in effect:
<TABLE>
<CAPTION>
Effective Annual Rate
As a Percentage of
Name of Fund Average Daily Net Assets
<S> <C>
Managed Assets Income .15%
Managed Assets .09%
Equity Income .15%
Growth .15%
Special Opportunities .15%
International Equity .15%
Intermediate Bond .14%
Bond .15%
International Bond .12%
Intermediate Municipal Bond .15%
Municipal Bond .15%
U. S. Government Money Market .13%
Money Market .15%
Municipal Money Market .15%
</TABLE>
FCIMCO has engaged Concord Holding Corporation, a wholly-owned subsidiary of
The BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035
(the "Sub-Administrator"), to assist it in providing certain administrative
services for the Funds pursuant to a Master Sub-Administration Agreement between
FCIMCO and the Sub-Administrator. FCIMCO, from its own funds, will pay the
Sub-Administrator for the Sub-Administrator's services.
DISTRIBUTOR
Concord Financial Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio
43219-3035, serves as principal underwriter and distributor of each Fund's
shares. The Distributor, a wholly-owned subsidiary of the Sub-Administrator, was
organized to distribute shares of mutual funds to institutional and retail
investors. The Distributor distributes the shares of other investment companies
with over $80 billion in assets.
TRANSFER AND DIVIDEND DISBURSING
AGENT AND CUSTODIAN
Primary Funds Service Corp., 100 Financial Park, Franklin, Massachusetts
02038, is the Funds' Transfer and Dividend Disbursing Agent (the "Transfer
Agent"). The Bank of New York, 90 Washington Street, New York, New York 10286,
is the Funds' Custodian.
EXPENSES
All expenses incurred in the operation of the Trust, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund are borne by such company, except to
the extent specifically assumed by FCIMCO. The expenses borne by the Trust,
Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc. include:
organizational costs, taxes, interest, loan commitment fees, interest and
distributions paid on securities sold short, brokerage fees and commissions, if
any, fees of Board members, Securities and Exchange Commission fees, state Blue
Sky qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining each
Fund's existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, and any extraordinary
expenses. In addition, Class B shares are subject to an annual distribution fee
for advertising, marketing and distributing such shares and Class A and Class B
shares are subject to an annual service fee for ongoing personal services
relating to shareholder accounts and services related to the maintenance of
shareholder accounts. See "Distribution Plans and Shareholder Services Plans."
Expenses attributable to a particular Fund, in the case of the Trust's series,
or Class are charged against the assets of that Fund or Class, respectively;
other expenses of the Trust are allocated among such Funds on the basis
determined by the Board, including, but not limited to, proportionately in
relation to the net assets of each such Fund. The imposition of the advisory
fee, as well as other operating expenses, including the fees paid under any
Distribution Plan and Shareholder Services Plan, will have the effect of
reducing the yield to investors. From time to time, FCIMCO may waive receipt of
its fees and/or voluntarily assume certain expenses of a Fund, which would have
the effect of lowering that Fund's overall expense ratio and increasing yield to
investors at the time such amounts are waived or assumed, as the case may be.
The Fund will not pay FCIMCO at a later time for any amounts which may be
waived, nor will the Fund reimburse FCIMCO for any amounts which may be assumed.
Distribution Plans and
Shareholder Services Plans
Class B shares of each Fund are subject to an annual distribution fee
pursuant to a Distribution Plan. Class A and Class B shares of each Fund are
subject to an annual service fee pursuant to a Shareholder Services Plan.
DISTRIBUTION PLANS
(Class B only) Under separate Distribution Plans, adopted pursuant to Rule
12b-1 under the 1940 Act, each of the Trust, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund has agreed to pay the Distributor for advertising,
marketing and distributing shares of the relevant Fund at an aggregate annual
rate of .75% of the value of the average daily net assets of Class B. The
Distributor may pay one or more Service Agents in respect of these services.
FCIMCO, FNBC, ANB and their affiliates may act as Service Agents and receive
fees under the relevant Distribution Plan. The Distributor determines the
amounts, if any, to be paid to Service Agents under the Distribution Plan and
the basis on which such payments are made. The fees payable under each
Distribution Plan are payable without regard to actual expenses incurred.
SHAREHOLDER SERVICES PLANS
(Class A and Class B) Under separate Shareholder Services Plans, each of
the Trust, Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund pays
the Distributor for the provision of certain services to the holders of these
shares a fee at an annual rate of .25% of the value of the average daily net
assets of Class A or Class B. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. Under each
Shareholder Services Plan, the Distributor may make payments to Service Agents
in respect of these services. FCIMCO, FNBC, ANB and their affiliates may act as
Service Agents and receive fees under the Shareholder Services Plan. The
Distributor determines the amounts to be paid to Service Agents. Each Service
Agent is required to disclose to its clients any compensation payable to it by
the Funds pursuant to the Shareholder Services Plan and any other compensation
payable by their clients in connection with the investment of their assets in
Fund shares.
Dividends, Distributions and Taxes
MANAGED ASSETS, GROWTH, SPECIAL OPPORTUNITIES AND INTERNATIONAL EQUITY FUNDS
- --Declare and pay dividends from net investment income quarterly.
MANAGED ASSETS INCOME AND EQUITY INCOME FUNDS -- Declare and pay dividends from
net investment income monthly, usually on the last calendar day of the month.
BOND, MUNICIPAL BOND AND MONEY MARKET FUNDS -- Declare dividends from net
investment income on each day the New York Stock Exchange is open for business,
except for the Money Market Fund on Martin Luther King, Jr. Day, Columbus Day
and Veterans Day. Dividends usually are paid on the last calendar day of each
month. Shares begin accruing dividends on the next business day after the
purchase order is effective. The earnings for Saturdays, Sundays and holidays
are declared as dividends on the preceding business day.
APPLICABLE TO ALL FUNDS --Each Fund will make distributions from net realized
securities gains, if any, once a year, but may make distributions on a more
frequent basis to comply with the distribution requirements of the Code, in all
events in a manner consistent with the provisions of the 1940 Act. Dividends are
automatically reinvested in additional Fund shares of the same Class from which
they were paid at net asset value, unless payment in cash is requested.
Dividends paid by each Fund, other than a Municipal Fund, derived from net
investment income and dividends paid by a Municipal Fund derived from taxable
investments, together with distributions from any net realized short-term
securities gains, will be taxable to U.S. investors as ordinary income whether
or not reinvested in additional Fund shares. Distributions from net realized
long-term securities gains, if any, will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how long
investors have held shares and whether such distributions are received in cash
or reinvested in additional shares.
Except for dividends from taxable investments, it is anticipated that
substantially all dividends paid by a Municipal Fund will not be subject to
Federal income tax. Dividends and distributions paid by a Municipal Fund may be
subject to the alternative minimum tax and to certain state and local taxes.
Notice as to the tax status of an investor's dividends and distributions will
be mailed to such investor annually. Each investor also will receive periodic
summaries of such investor's account which will include information as to
dividends and distributions from securities gains, if any, paid during the year.
Participants in a Retirement Plan should receive periodic statements from the
trustee, custodian or administrator of their Plan.
Federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return. A TIN is either the Social Security number or
employer identification number of the record owner of the account.
Management believes that each Fund has qualified as a "regulated investment
company" for the fiscal year ended December 31, 1995. Each Fund intends to
continue to so qualify, if such qualification is in the best interests of its
shareholders. Such qualification relieves the Fund of any liability for Federal
income tax to the extent its earnings are distributed in accordance with
applicable provisions of the Code. In addition, each Fund is subject to a
non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of taxable investment income and capital gains.
Each investor should consult his or her tax adviser regarding specific
questions as to Federal, state or local taxes.
Performance Information
SPECIAL OPPORTUNITIES, GROWTH AND INTERNATIONAL EQUITY FUNDS --For purposes
of advertising, performance of these Funds may be calculated on the bases of
average annual total return and/or total return. Average annual total return is
calculated pursuant to a standardized formula which assumes that an investment
in such Fund was purchased with an initial payment of $1,000 and that the
investment was redeemed at the end of a stated period of time, after giving
effect to the reinvestment of dividends and distributions during the period. The
return is expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the investment at the end
of the period. Advertisements of a Fund's performance will include such Fund's
average annual total return for one, five and ten year periods, or for shorter
time periods depending upon the length of time during which the Fund has
operated. Computations of average annual total return for periods of less than
one year represent an annualization of the Fund's actual total return for the
applicable period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percentage
rate which is calculated by combining the income and principal changes for a
specified period and dividing by the maximum offering price per share at the
beginning of the period. Advertisements may include the percentage rate of total
return or may include the value of a hypothetical investment at the end of the
period which assumes the application of the percentage rate of total return.
Total return also may be calculated by using the net asset value per share at
the beginning of the period instead of the maximum offering price per share at
the beginning of the period for Class A shares or without giving effect to any
applicable CDSC at the end of the period for Class B shares. Calculations based
on the net asset value per share do not reflect the deduction of the applicable
sales charge which, if reflected, would reduce the performance quoted.
ASSET ALLOCATION, EQUITY INCOME, BOND AND MUNICIPAL BOND FUNDS --For purposes of
advertising, performance of these Funds may be calculated on several bases,
including current yield, average annual total return and/or total return.
Current yield refers to the Fund's annualized net investment income per share
over a 30-day period, expressed as a percentage of the net asset value per share
at the end of the period. For purposes of calculating current yield, the amount
of net investment income per share during that 30-day period, computed in
accordance with regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An identical result is
then assumed to have occurred during a second six-month period which, when added
to the result for the first six months, provides an "annualized" yield for an
entire one-year period.
The Municipal Bond Funds may advertise tax equivalent yield, which is
calculated by determining the pre-tax yield which, after being taxed at a
certain rate, would be equivalent to a stated current yield calculated as
described above.
Average annual total return and total return will be calculated as described
above.
MONEY MARKET FUNDS --From time to time, each Money Market Fund may advertise its
yield and effective yield. Both yield figures are based on historical earnings
and are not intended to indicate future performance. It can be expected that
these yields will fluctuate substantially. The yield of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then annualized.
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The Municipal Money Market Fund also may advertise tax equivalent yield,
which would be calculated as described above.
APPLICABLE TO ALL FUNDS --Performance will vary from time to time and past
results are not necessarily representative of future results. Investors should
remember that performance is a function of the type and quality of portfolio
securities held by the Fund and is affected by operating expenses. Yield and
performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance. Performance for each Class will be
calculated separately.
Comparative performance information may be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Bank Rate Monitor(TM), N. Palm Beach, Fla. 33408, Bond 20-Bond
Index, Moody's Bond Survey Bond Index, Lehman Corporate Bond Index,
IBC/Donoghue's Money Fund Report(R), S&P 500 Index, Lehman Brothers
Government/Corporate Bond Index, the Dow Jones Industrial Average,
CDA/Wiesenberger Investment Companies Service, Mutual Fund Values; Mutual Fund
Forecaster, Schabacker Investment Management, Inc., Morningstar, Inc. and other
industry publications.
General Information
The Trust and Prairie Intermediate Bond Fund are organized as
unincorporated business trusts under the laws of the Commonwealth of
Massachusetts and Prairie Municipal Bond Fund, Inc. is incorporated under
Maryland law. The Trust, Prairie Intermediate Bond Fund and Prairie Municipal
Bond Fund, Inc. commenced operations on January 17, 1995, March 5, 1993 and
March 1, 1988, respectively. The Trust and Prairie Intermediate Bond Fund are
authorized to issue an unlimited number of shares of beneficial interest and
Prairie Municipal Bond Fund, Inc. is authorized to issue 10 billion shares of
common stock, each with a par value of $.001 per share. Shares of each Fund are
classified into three classes. Each share has one vote and shareholders will
vote in the aggregate and not by class except as otherwise required by law or
with respect to any matter which affects only one class.
Prior to January 17, 1995, Prairie Intermediate Bond Fund's name was First
Prairie U.S. Government Income Fund and it was required to invest at least 65%
of its assets in U.S. Government securities and was a diversified investment
company. Any reference herein and in the Statement of Additional Information to
Prairie Intermediate Bond Fund, including any financial information and
performance data, relating to such periods reflect the Fund's portfolio as
constituted prior to such revisions.
Prior to January 17, 1995, Prairie Municipal Bond Fund, Inc.'s name was First
Prairie Tax Exempt Bond Fund, Inc. and, from September 12, 1989 to January 17,
1995, its shares were offered as the Insured Series and it invested at least 65%
of the value of its total assets in Municipal Obligations insured as to timely
payment of principal and interest by recognized insurers of Municipal
Obligations. Prior to September 12, 1989, the Fund was not required to invest
such portion of its assets in insured Municipal Obligations and, under normal
market conditions, the dollar-weighted average maturity of its portfolio
exceeded ten years and it invested in Municipal Obligations rated A or better by
Moody's or S&P. Any reference herein and in the Statement of Additional
Information to Prairie Municipal Bond Fund, Inc., including any financial
information and performance data, relating to such periods reflect the Fund's
portfolio as constituted prior to such revisions.
To date, the Trust's Board has authorized the creation of 12 separate
portfolios of shares for the Trust. All consideration received by the Trust for
shares of one of the portfolios and all assets in which such consideration is
invested will belong to that portfolio (subject only to the rights of creditors
of the Trust) and will be subject to the liabilities related thereto. The income
attributable to, and the expenses of, one portfolio (and as to classes within a
portfolio) are treated separately from those of the other portfolios (and
classes). The Trust has the ability to create, from time to time, new portfolios
without shareholder approval which may be sold pursuant to other offering
documents.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a Massachusetts business trust.
However, the Trust Agreement for each of Prairie Intermediate Bond Fund and the
Trust disclaims shareholder liability for acts or obligations of such entities
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by such entities or a Trustee.
Each Trust Agreement provides for indemnification from the Fund's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Fund, the shareholder paying such liability will be entitled to reimbursement
from the general assets of the Fund. The Trustees intend to conduct the
operations of the Trust and Prairie Intermediate Bond Fund in such a way so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust or Prairie Intermediate Bond Fund, as the case may be.
The Funds ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances have the right to call a meeting of
shareholders for the purpose of voting to remove Board members.
Although each Fund is offering only its own shares, it is possible that a
Fund might become liable for any misstatement in this Prospectus about another
Fund. The Funds' Board has considered this factor in approving the use of this
single combined Prospectus.
The Transfer Agent maintains a record of each investor's ownership and sends
confirmations and statements of account.
Investor inquiries may be made by writing to the address shown on page one or
by calling the appropriate telephone number.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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Appendix
CERTAIN PORTFOLIO SECURITIES
Equity Securities
American, European and Continental Depositary Receipts-- (Asset Allocation,
Equity Income, Growth, International and Special Opportunities Funds only)
Securities of foreign issuers may be sold in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These securities
may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-United States banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in the United States securities markets and EDRs and CDRs in
bearer form are designed for use in Europe. Warrants--(Asset Allocation and
Equity Funds only) A warrant is an instrument issued by a corporation which
gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time. Each
of these Funds may invest up to 5% of its net assets in warrants, valued at the
lesser of cost or market, except that this limitation does not apply to warrants
acquired in units or attached to securities. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange.
Fixed-Income Securities
Convertible Securities--(Asset Allocation, Equity and Bond Funds only)
Convertible securities may be converted at either a stated price or stated rate
into underlying shares of common stock. Convertible securities have general
characteristics similar to both fixed-income and equity securities. Although to
a lesser extent than with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock, and,
therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that 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 prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no assurance
of current income because the issuers of the convertible securities may default
on their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to benefit
from increases in the market price of the underlying common stock. There can be
no assurance of capital appreciation, however, because securities prices
fluctuate. Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
U.S. Government Securities--These securities are described under "Taxable Money
Market Instruments-- U.S. Government Securities" below and may be purchased
without regard to maturity. Zero Coupon and Stripped Securities--(Asset
Allocation, Equity, Bond and Municipal Bond Funds only) Zero coupon U.S.
Treasury securities are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool of
underlying U.S. Treasury securities. A zero coupon security pays no interest to
its holder during its life and is sold at a discount to its face value at
maturity. The amount of the discount fluctuates with the market price of the
security. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to a greater degree to changes in interest rates than
non-zero coupon securities having similar maturities and credit qualities.
Participation Interests--(Asset Allocation, Equity, Bond and Money Market Funds
only) A participation interest gives the purchaser an undivided interest in a
security in the proportion that such purchaser's participation interest bears to
the total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest, with, in the case of the Money Market
Fund, remaining maturities of 13 months or less. If the participation interest
is unrated, or has been given a rating below that which is permissible for
purchase by a Fund, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Investment Adviser must have determined that the
instrument is of comparable quality to those instruments in which such Fund may
invest.
Mortgage-Related Securities--(Asset Allocation, Equity and Bond Funds only)
Mortgage-related securities are securities collateralized by pools of mortgage
loans assembled for sale to investors by various governmental agencies, such as
the Government National Mortgage Association and government-related
organizations such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, as well as by private issuers such as commercial
banks, savings and loan institutions, mortgage banks and private mortgage
insurance companies, and similar foreign entities. Mortgage-related securities
are a form of derivative security. The mortgage-related securities which may be
purchased include those with fixed, floating and variable interest rates, those
with interest rates that change based on multiples of changes in interest rates
and those with interest rates that change inversely to changes in interest
rates, as well as stripped mortgage-backed securities. Stripped mortgage-backed
securities usually are structured with two classes that receive different
proportions of interest and principal distributions on a pool of mortgage-backed
securities or whole loans. A common type of stripped mortgage-backed security
will have one class receiving some of the interest and most of the principal
from the mortgage collateral, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme case, one class
will receive all of the interest (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). Although certain mortgage-related securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured. If a mortgage-related security is purchased at
a premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest rates
or prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of certain of these securities are
inversely affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the security are more likely to prepay. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages, and, therefore, it is not possible to
predict accurately the security's return to a Fund. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the
securities are rated in the highest rating category by a nationally recognized
statistical rating organization. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Fund will receive when these amounts
are reinvested. For further discussion concerning the investment considerations
involved, see "Description of the Funds-- Risk Factors--Fixed-Income Securities"
and "Illiquid Securities" below and "Investment Objectives and Management
Policies--Portfolio Securities--Mortgage-Related Securities" in the Statement of
Additional Information.
Asset-Backed Securities--(Asset Allocation, Equity and Bond Funds only) The
securitization techniques used for asset-backed securities are similar to those
used for mortgage-related securities. Asset-backed securities are a form of
derivative security. These securities include debt securities and securities
with debt-like characteristics. The collateral for these securities has included
home equity loans, automobile and credit card receivables, boat loans, computer
leases, airplane leases, mobile home loans, recreational vehicle loans and
hospital account receivables. These Funds may invest in these and other types of
asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
generally are unsecured and the debtors are entitled to the protection of a
number of state and Federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
Municipal Obligations--(Asset Allocation, Equity, Bond and Municipal Funds
only) Municipal Obligations generally include debt obligations issued to obtain
funds for various public purposes as well as certain industrial development
bonds issued by or on behalf of public authorities. While in general, Municipal
Obligations are tax exempt securities having relatively low yields as compared
to taxable, non-municipal obligations of similar quality, certain issues of
Municipal Obligations, both taxable and non-taxable, offer yields comparable and
in some cases greater than the yields available on other permissible
investments. Dividends received by shareholders of a Fund, other than a
Municipal Fund, which are attributable to interest income received by it from
Municipal Obligations generally will be subject to Federal income tax. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Municipal Obligations the interest rates for which are determined by such
formulas are a form of derivative security. Each of these Funds, other than the
Municipal Funds, currently intends to invest no more than 25% of its respective
assets in Municipal Obligations. However, this percentage may be varied from
time to time without shareholder approval.
Investment Companies-- Each Fund may invest in securities issued by
investment companies which invest in securities in which the Fund invests. Under
the 1940 Act, the Fund's investment in such securities, subject to certain
exceptions, currently is limited to (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's total assets with respect to any one
investment company and (iii) 10% of the Fund's total assets in the aggregate.
Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses.
Unregistered Notes--(Asset Allocation, Equity, Bond and Money Market Funds
only) Each of these Funds may purchase unsecured promissory notes ("Notes")
which are not readily marketable and have not been registered under the
Securities Act of 1933, as amended, provided such investments are consistent
with such Fund's goal.
Foreign Government Obligations; Securities of Supranational
Entities--(Asset Allocation, International Equity, Growth, Special
Opportunities, Bond and Money Market Funds only) Each of these Funds may invest
in obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Investment Adviser to be of comparable quality to the other obligations
in which such Fund may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The percentage of a Fund's assets invested in securities issued by foreign
governments will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries.
Ratings--The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, the Investment Adviser also will evaluate
such obligations and the ability of their issuers to pay interest and principal.
Each Fund will rely on the Investment Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this evaluation,
the Investment Adviser will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
the quality of the issuer's management and regulatory matters. It also is
possible that a rating agency might not timely change the rating on a particular
issue to reflect subsequent events. Once the rating of a security held by a Fund
has been changed, the Investment Adviser will consider all circumstances deemed
relevant in determining whether such Fund should continue to hold the security.
Taxable Money Market Instruments
Each Fund may invest, in the circumstances described under "Description of
the Funds--Management Policies," in the following types of Money Market
Instruments, each of which at the time of purchase must have or be deemed to
have under the rules of the Securities and Exchange Commission remaining
maturities of 13 months or less.
U.S. Government Securities--Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury securities
that differ in their interest rates, maturities and times of issuance. Treasury
Bills have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of greater than ten years. Some obligations issued or guaranteed by
U.S. Government agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the U.S. Treasury; others, such
as those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, because it is not so obligated by law.
Bank Obligations--(each Fund, except U.S. Government Money Market Fund)
Bank obligations include certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of domestic banks, foreign
subsidiaries of domestic banks, foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic savings and loan associations
and other banking institutions. With respect to such securities issued by
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, a Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future political and economic developments,
the possible imposition of foreign withholding taxes on interest income payable
on the securities, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities and the possible
seizure or nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by each Fund will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase Agreements--Repurchase agreements involve the acquisition by a
Fund of an underlying debt instrument, subject to an obligation of the seller to
repurchase, and such Fund to resell, the instrument at a fixed price usually not
more than one week after its purchase. Certain costs may be incurred by a Fund
in connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by a Fund may be delayed or limited. Pursuant to
an order obtained from the Securities and Exchange Commission, each Fund also is
permitted to enter into overnight repurchase agreements with FNBC or an
affiliate of FNBC subject to the terms and conditions of such order.
Certain Corporate Obligations--(each Fund, except U.S. Government Money
Market Fund) Commercial paper consists of short-term, unsecured promissory notes
issued by domestic or foreign entities to finance short-term credit needs.
Floating and variable rate demand notes and bonds are obligations ordinarily
having stated maturities in excess of one year, but which permit the holder to
demand payment of principal at any time or at specified intervals. Variable rate
demand notes include variable amount master demand notes, which are obligations
that permit a Fund to invest fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Fund, as lender, and the borrower.
These notes permit daily changes in the amounts borrowed. As mutually agreed
between the parties, the Fund may increase the amount under the notes at any
time up to the full amount provided by the note agreement, or decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued interest,
at any time. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, a Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand.
Tax Exempt Money Market Instruments
Tax Exempt Participation Interests--(Municipal Funds only) A participation
interest in Municipal Obligations (such as industrial development bonds and
municipal lease/purchase agreements) gives the purchaser an undivided interest
in the Municipal Obligation in the proportion that such purchaser's
participation interest bears to the total principal amount of the Municipal
Obligation. These instruments may have fixed, floating or variable rates of
interest, with remaining maturities of 13 months or less. If the participation
interest is unrated, or has been given a rating below that which otherwise is
permissible for purchase by a Fund, the participation interest will be backed by
an irrevocable letter of credit or guarantee of a bank that the Board has
determined meets the prescribed quality standards for banks set forth above, or
the payment obligation otherwise will be collateralized by U.S. Government
securities. For certain participation interests, a Fund will have the right to
demand payment, on not more than seven days' notice, for all or any part of such
Fund's participation interest in the Municipal Obligation, plus accrued
interest. As to these instruments, each Fund intends to exercise its right to
demand payment only upon a default under the terms of the Municipal Obligation,
as needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio. No Fund will invest more than 15% (10%
in the case of the Municipal Money Market Fund) of the value of its net assets
in participation interests that do not have this demand feature, and in other
illiquid securities.
Tender Option Bonds--(Municipal Funds only) A tender option bond is a
Municipal Obligation (generally held pursuant to a custodial arrangement) having
a relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
Municipal Obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The Investment Adviser, on behalf of a
Fund, will consider on an ongoing basis the creditworthiness of the issuer of
the underlying Municipal Obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying Municipal Obligations and for other
reasons. No Fund will invest more than 15% (10% in the case of the Money Market
Funds) of the value of its net assets in securities that are illiquid, which
would include tender option bonds as to which it cannot exercise the tender
feature on not more than seven days' notice if there is no secondary market
available for these obligations.
Stand-By Commitments--(Municipal Funds only) Each Municipal Fund may
acquire "stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, the Fund obligates a broker, dealer or
bank to repurchase, at the Fund's option, specified securities at a specified
price and, in this respect, stand-by commitments are comparable to put options.
The exercise of a stand-by commitment therefore is subject to the ability of the
seller to make payment on demand. Each Municipal Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. Each Municipal Fund may pay
for stand-by commitments if such action is deemed necessary, thus increasing to
a degree the cost of the underlying Municipal Obligation and similarly
decreasing such security's yield to investors.
Illiquid Securities
Each Fund may invest up to 15% (10% in the case of the Money Market Funds)
of the value of its net assets in securities as to which a liquid trading market
does not exist, provided such investments are consistent with the Fund's
investment objective. Such securities may include securities that are not
readily marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain options traded in
the over-the-counter market and securities used to cover such options. As to
these securities, a Fund is subject to a risk that should such Fund desire to
sell them when a ready buyer is not available at a price the Fund deems
representative of their value, the value of such Fund's net assets could be
adversely affected.
INVESTMENT TECHNIQUES
Leverage Through Borrowing--(Asset Allocation, Equity, Bond and, to a
limited extent, Money Market Funds only) Borrowing for investment purposes is
known as leveraging and generally will be unsecured, except to the extent a Fund
enters into reverse repurchase agreements described below. The Money Market Fund
may borrow for investment purposes only through entering into reverse repurchase
agreements. Leveraging will exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
Among the forms of borrowing in which a Fund may engage is the entry into
reverse repurchase agreements with banks, brokers or dealers. These transactions
involve the transfer by the Fund of an underlying debt instrument in return for
cash proceeds based on a percentage of the value of the security. The Fund
retains the right to receive interest and principal payments on the security. At
an agreed upon future date, the Fund repurchases the security at principal, plus
accrued interest. In certain types of agreements, there is no agreed upon
repurchase date and interest payments are calculated daily, often based on the
prevailing overnight repurchase rate.
Short-Selling--(Asset Allocation, Equity and Bond Funds only) Each of these
Funds may make short sales, which are transactions in which the Fund sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. The Fund will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Fund replaces the borrowed security. The Fund
will realize a gain if the security declines in price between those dates.
Each Fund may purchase call options to provide a hedge against an increase in
the price of a security sold short by such Fund. When a Fund purchases a call
option it has to pay a premium to the person writing the option and a commission
to the broker selling the option. If the option is exercised by the Fund, the
premium and the commission paid may be more than the amount of the brokerage
commission charged if the security were to be purchased directly. See "Options
Transactions" below.
It is expected that the frequency of short sales on behalf of each Fund will
vary substantially under different market conditions, and it is not intended
that any specified portion of a Fund's assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold short if, after
effect is given to any such short sale, the total market value of all securities
sold short would exceed 25% of the value of the Fund's net assets. A Fund will
not sell short the securities of any single issuer listed on a national
securities exchange to the extent of more than 2% of the value of such Fund's
net assets and will not sell short the securities of any class of an issuer to
the extent, at the time of transaction, of more than 2% of the outstanding
securities of that class.
In addition to the short sales discussed above, each Fund may make short
sales "against the box," a transaction in which a Fund enters into a short sale
of a security which such Fund owns. The proceeds of the short sale will be held
by a broker until the settlement date at which time the Fund delivers the
security to close the short position. The Fund receives the net proceeds from
the short sale. At no time will a Fund have more than 15% of the value of its
net assets in deposits on short sales against the box.
Options Transactions--(Asset Allocation, Equity and Bond Funds only) Each
of these Funds is permitted to invest up to 5% of its total assets, represented
by the premium paid, in the purchase of call and put options. Options
transactions are a form of derivative security.
Each of these Funds is permitted to purchase call and put options in
respect of specific securities (or groups or "baskets" of specific securities)
in which the Fund may invest. Each Fund may write (i.e. sell) covered call
option contracts on securities owned by the Fund not exceeding 20% of the market
value of its net assets at the time such option contracts are written. Each Fund
also may purchase call options to enter into closing purchase transactions. Each
Fund also may write covered put option contracts to the extent of 20% of the
value of its net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at any time during
the option period. Conversely, a put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security at
the exercise price at any time during the option period. A covered put option
sold by a Fund exposes the Fund during the term of the option to a decline in
price of the underlying security or securities. A put option sold by a Fund is
covered when, among other things, cash or liquid securities are placed in a
segregated account with the Fund's custodian to fulfill the obligation
undertaken.
Each of these Funds also may purchase and sell call and put options on
foreign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency at
a price which is expected to be lower than the spot price of the currency at the
time the option expires. Put options convey the right to sell the underlying
currency at a price which is anticipated to be higher than the spot price of the
currency at the time the option expires.
Each of these Funds also may purchase cash-settled options on interest rate
swaps, interest rate swaps denominated in foreign currency and equity index
swaps. See "Interest Rate and Equity Index Swaps" below. A cash-settled option
on a swap gives the purchaser the right, but not the obligation, in return for
the premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are purchased
in privately negotiated transactions from financial institutions, including
securities brokerage firms.
Each of these Funds may purchase and sell call and put options on stock
indexes listed on U.S. securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the stocks
included in the index. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether a Fund will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Successful use by a Fund of options will be subject to the Investment
Adviser's ability to predict correctly movements in the direction of individual
stocks, the stock market generally, foreign currencies or interest rates. To the
extent the Investment Adviser's predictions are incorrect, the Fund may incur
losses which could adversely affect the value of a shareholder's investment.
Futures Contracts and Options on Futures Contracts--(Asset Allocation,
Equity, Bond and Municipal Bond Funds only) Each of these Funds may enter into
stock index futures contracts, interest rate futures contracts and currency
futures contracts, and options with respect thereto. See "Options Transactions"
above. These transactions will be entered into as a substitute for comparable
market positions in the underlying securities or for hedging purposes. Although
none of these Funds would be a commodity pool, each would be subject to rules of
the CFTC limiting the extent to which it could engage in these transactions.
Futures and options transactions are a form of derivative security.
Each of these Funds' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations promulgated by
the CFTC. In addition, a Fund may not engage in such transactions if the sum of
the amount of initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%. To the
extent a Fund engages in the use of futures and options on futures for other
than bona fide hedging purposes, the Fund may be subject to additional risk.
Engaging in these transactions involves risk of loss to a Fund which could
adversely affect the value of a shareholder's investment. Although each of these
Funds intends to purchase or sell futures contracts only if there is an active
market for such contracts, no assurance can be given that a liquid market will
exist for any particular contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Fund to
substantial losses. In addition, engaging in futures transactions in foreign
markets may involve greater risks than trading in domestic exchanges.
Successful use of futures by a Fund also is subject to the Investment
Adviser's ability to predict correctly movements in the direction of the market,
interest rates or foreign currencies and, to the extent the transaction is
entered into for hedging purposes, to ascertain the appropriate correlation
between the transaction being hedged and the price movements of the futures
contract. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting the value of securities held in its portfolio
and prices increase instead, the Fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, each of these Funds may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
Interest Rate and Equity Index Swaps--(Asset Allocation, Equity and Bond
Funds only) Each of these Funds may enter into interest rate swaps and equity
index swaps, to the extent described under "Description of the Funds--Management
Policies," in pursuit of their respective investment objectives. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of
floating-rate payments for fixed-rate payments). Equity index swaps involve the
exchange by a Fund with another party of cash flows based upon the performance
of an index or a portion of an index which usually includes dividends. In each
case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. Swaps are a form of derivative security.
Each of these Funds usually will enter into swaps on a net basis. In so
doing, the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. If a Fund
enters into a swap, it would maintain a segregated account in the full amount
accrued on a daily basis of the Fund's obligations with respect to the swap.
Each of these Funds will enter into swap transactions with counterparties only
if: (i) for transactions with maturities under one year, such counterparty has
outstanding short-term paper rated at least A-1 by S&P, Prime-1 by Moody's, F-1
by Fitch or Duff-1 by Duff, or (ii) for transactions with maturities greater
than one year, the counterparty has outstanding debt securities rated at least
Aa by Moody's or AA by S&P, Fitch or Duff. If there is a default by the other
party to such a transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transaction.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. There is no limit on the amount of swap transactions that
may be entered into by a Fund. These transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that a Fund
is contractually obligated to make. If the other party to a swap defaults, the
relevant Fund's risk of loss consists of the net amount of payments that such
Fund contractually is entitled to receive.
Foreign Currency Transactions--(Asset Allocation, Growth, International
Equity, Special Opportunities and International Bond Funds only) Each of these
Funds may engage in currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward contracts to purchase or sell currencies. A forward
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which must be more than two days from the date of the
contract, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(typically commercial banks or other financial institutions) and their
customers.
Each of these Funds also may combine forward currency exchange contracts with
investments in securities denominated in other currencies.
Each of these Funds also may maintain short positions in forward currency
exchange transactions, which would involve it agreeing to exchange an amount of
a currency it did not currently own for another currency at a future date in
anticipation of a decline in the value of the currency sold relative to the
currency such Fund contracted to receive in the exchange.
Future Developments--(Asset Allocation, Equity, Bond and Municipal Bond
Funds only) Each of these Funds may take advantage of opportunities in the area
of options and futures contracts, options on futures contracts and any other
derivative investments which are not presently contemplated for use by a Fund or
which are not currently available but which may be developed, to the extent such
opportunities are both consistent with a Fund's investment objective and legally
permissible for such Fund. Before entering into such transactions or making any
such investment, the Fund will provide appropriate disclosure in its prospectus.
Lending Portfolio Securities--From time to time, each Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33- 1/3% of the value of a Fund's total assets. In
connection with such loans, a Fund will receive collateral consisting of cash,
U.S. Government securities or, except in the case of the U.S. Government Money
Market Fund, irrevocable letters of credit which will be maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities. Each Fund can increase its income through the investment of such
collateral. A Fund continues to be entitled to payments in amounts equal to the
interest, dividends and other distributions payable on the loaned security and
receives interest on the amount of the loan. Such loans will be terminable at
any time upon specified notice. A Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with such Fund.
Forward Commitments--Each Fund may purchase securities on a when-issued or
forward commitment basis, which means that the price is fixed at the time of
commitment, but delivery and payment ordinarily take place a number of days
after the date of the commitment to purchase. A Fund will make commitments to
purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable. The Fund will not accrue income in respect of a security
purchased on a forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose a Fund to risk because they
may experience such fluctuations prior to their actual delivery. Purchasing
securities on a when-issued or forward commitment basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself. A
segregated account of each Fund consisting of cash or U.S. Government securities
or other high quality liquid debt securities of the type in which the Fund
invests at least equal at all times to the amount of the when-issued or forward
commitments will be established and maintained at the Fund's custodian bank.
Purchasing securities on a forward commitment basis when a Fund is fully or
almost fully invested may result in greater potential fluctuation in the value
of such Fund's net assets and its net asset value per share.
Borrowing Money--As a fundamental policy, each Fund is permitted to borrow
to the extent permitted under the 1940 Act. However, each of the Municipal Bond
Fund, Intermediate Municipal Bond Fund, Municipal Money Market Fund and U.S.
Government Money Market Fund currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of such Fund's total
assets, the Fund will not make any additional investments.
Exhibit (17)(q)
- ------------------------------------------------------------------------------
THE PRAIRIE FUNDS
CLASS A, CLASS B AND CLASS I SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
APRIL 11, 1996
- ------------------------------------------------------------------------------
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with the current
Prospectus for 14 separate funds (each, a "Fund"), dated April 11, 1996, as it
may be revised from time to time. To obtain a copy of the Prospectus, please
write to the Prairie Funds at Three First National Plaza, Chicago, Illinois
60670, or call toll free 1-800-370-9446.
First Chicago Investment Management Company (the
"Investment Adviser" or "FCIMCO") serves as each Fund's
investment adviser and administrator.
Concord Financial Group, Inc. (the "Distributor")
serves as the distributor of the Funds' shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies............................ B-2
Management of the Funds.................................................. B-23
Management Arrangements.................................................. B-25
Purchase of Shares....................................................... B-34
Distribution Plans and Shareholder Services Plans........................ B-36
Redemption of Shares..................................................... B-40
Determination of Net Asset Value......................................... B-40
Portfolio Transactions................................................... B-43
Dividends, Distributions and Taxes....................................... B-45
Yield and Performance Information..........................................B-48
Information About the Funds................................................B-53
Counsel and Independent Auditors...........................................B-63
Appendix...................................................................B-64
Financial Statements.......................................................B-73
Report of Independent Auditors.............................................B-
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "Description of the Funds" and
"Appendix."
General
The Prairie Funds are divided into five general fund types: Asset
Allocation (Managed Assets Income Fund and Managed Assets Fund); Equity (Equity
Income Fund, Growth Fund, Special Opportunities Fund and International Equity
Fund); Bond (Bond Fund, Intermediate Bond Fund and International Bond Fund);
Municipal Bond (Municipal Bond Fund and Intermediate Municipal Bond Fund); and
Money Market (U.S. Government Money Market Fund, Money Market Fund and Municipal
Money Market Fund). Each of the Intermediate Bond Fund and Municipal Bond Fund
is a separate open-end, management investment company organized under the name
Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc.,
respectively. The remaining Funds are series of Prairie Funds (the "Trust"), an
open-end, management investment company.
Portfolio Securities
Bank Obligations. (Each Fund, except the U.S. Government Money Market Fund)
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by each Fund are insured
by the FDIC (although such insurance may not be of material benefit to a Fund,
depending on the principal amount of the CDs of each bank held by such Fund) and
are subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal or state laws and regulations, domestic
branches of domestic banks whose CDs may be purchased by the Fund generally are
required, among other things, to maintain specified levels of reserves, are
limited in the amounts which they can loan to a single borrower and are subject
to other regulation designed to promote financial soundness. However, not all of
such laws and regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State Branches") may be required to:
(1) pledge to the regulator, by depositing assets with a designated bank within
the state, a certain percentage of their assets as fixed from time to time by
the appropriate regulatory authority; and (2) maintain assets within the state
in an amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Investment Adviser carefully evaluates such investments on a
case-by-case basis.
Repurchase Agreements. The Funds' custodian or sub-custodian will have
custody of, and will hold in a segregated account, securities acquired by a Fund
under a repurchase agreement. Repurchase agreements are considered by the staff
of the Securities and Exchange Commission to be loans by the Fund. In an attempt
to reduce the risk of incurring a loss on a repurchase agreement, each Fund will
enter into repurchase agreements only with domestic banks with total assets in
excess of one billion dollars, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to securities of
the type in which the Fund may invest, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Investment Adviser will monitor on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which the Fund enters into repurchase
agreements.
Commercial Paper and Other Short-Term Corporate Obligations. (Each Fund,
except the U.S. Government Money Market Fund) Variable rate demand notes include
variable amount master demand notes, which are obligations that permit a Fund to
invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. As mutually agreed between the parties,
the Fund may increase the amount under the notes at any time up to the full
amount provided by the note agreement, or decrease the amount, and the borrower
may repay up to the full amount of the note without penalty. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value, plus accrued interest, at any time.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. In connection
with floating and variable rate demand obligations, the Investment Adviser will
consider, on an ongoing basis, earning power, cash flow and other liquidity
ratios of the borrower, and the borrower's ability to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies,
and a Fund may invest in them only if at the time of an investment the borrower
meets the criteria set forth in the Prospectus for other commercial paper
issuers.
Mortgage-Related Securities (Asset Allocation, Equity and Bond
Funds only)
Government Agency Securities. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Government Related Securities. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Municipal Obligations. (Asset Allocation, Equity, Bond and Municipal Funds
only) Municipal Obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from the general taxing power. Industrial
development bonds, in most cases, are revenue bonds and generally do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Certain Municipal
Obligations are subject to redemption at a date earlier than their stated
maturity pursuant to call options, which may be separated from the related
Municipal Obligation and purchased and sold separately. Each of these Funds will
invest in Municipal Obligations, the ratings of which correspond with the
ratings of other permissible Fund investments.
For the purpose of diversification under the Investment Company Act of
1940, as amended (the "1940 Act"), the identification of the issuer of Municipal
Obligations depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guaranty would be
considered a separate security and will be treated as an issue of such
government or other entity.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation, and rating of the issue. The imposition of the
Fund's advisory and administration fees, as well as other operating expenses,
will have the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non- appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. The Municipal Money Market Fund will seek to minimize
these risks by investing only in those lease obligations that (1) are rated in
one of the two highest categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the lease obligation was rated by only one such organization);
or (2) if unrated, are purchased principally from the issuer or domestic banks
or other responsible third parties, in each case only if the seller shall have
entered into an agreement with the Municipal Money Market Fund providing the
seller or other responsible third party will either remarket or repurchase the
lease obligations within a short period after demand by the Fund. With respect
to the Intermediate Municipal Bond Fund and Municipal Bond Fund, the Board has
established guidelines for the Investment Adviser to determine the liquidity and
appropriate valuation of lease obligations based on factors which include: (1)
the frequency of trades and quotes for the lease obligation or similar
securities; (2) the number of dealers willing to purchase or sell the lease
obligation or similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the security or
similar securities; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer. Not more than 15% (10% in the case of the Municipal Money
Market Fund) of the value of the Fund's net assets will be invested in lease
obligations that are illiquid and in other illiquid securities. See "Investment
Restrictions" below.
Each of the Intermediate Municipal Bond Fund and Municipal Bond Fund will
purchase tender option bonds only when it is satisfied that the custodial and
tender option arrangements, including the fee payment arrangements, will not
adversely affect the tax exempt status of the underlying Municipal Obligations
and that payment of any tender fees will not have the effect of creating taxable
income for the Fund. Based on the tender option bond agreement, each such Fund
expects to be able to value the tender option bond at par; however, the value of
the instrument will be monitored to assure that is valued at fair value.
The Municipal Money Market Fund will not purchase tender option bonds
unless (a) the demand feature applicable thereto is exercisable by the Fund
within 13 months of the date of such purchase upon no more than 30 days' notice
and thereafter is exercisable by the Fund no less frequently than annually upon
no more than 30 days' notice and (b) at the time of such purchase, the
Investment Adviser reasonably expects (i) based upon its assessment of current
and historical interest rate trends, that prevailing short-term tax exempt rates
will not exceed the stated interest rate on the underlying Municipal Obligations
at the time of the next tender option to terminate the tender option would not
occur prior to the time of the next tender opportunity. At the time of each
tender opportunity, the Fund will exercise the tender option with respect to any
tender option bonds unless the Investment Adviser reasonably expects, (x) based
upon its assessment of current and historical interest rate trends, that
prevailing short-term tax exempt rates will not exceed the stated interest rate
on the underlying Municipal Obligations at the time of the next tender fee
adjustment, and (y) that the circumstances which might entitle the grantor of a
tender option to terminate the tender option would not occur prior to the time
of the next tender opportunity. The Municipal Money Market Fund will exercise
the tender feature with respect to tender option bonds, or otherwise dispose of
its tender option bonds, prior to the time the tender option is scheduled to
expire pursuant to the terms of the agreement under which the tender option is
granted. The Municipal Money Market Fund otherwise will comply with the
provisions of Rule 2a-7 in connection with the purchase of tender option bonds,
including, without limitation, the requisite determination by the Board that the
tender option bonds in question meet the quality standards described in Rule
2a-7, which, in the case of a tender option bond subject to a conditional demand
feature, would include a determination that the security has received both the
required short-term and long-term quality rating or is determined to be of
comparable quality. In the event of a default of the Municipal Obligation
underlying a tender option bond, or the termination of the tender option
agreement, the Municipal Money Market Fund would look to the maturity date of
the underlying security for purposes of compliance with Rule 2a-7 and, if its
remaining maturity was greater than 13 months, the Fund would sell the security
as soon as would be practicable. The Municipal Money Market Fund will purchase
tender option bonds only when it is satisfied that the custodial and tender
option arrangements, including the fee payment arrangements, will not adversely
affect the tax exempt status of the underlying Municipal Obligations and that
payment of any tender fees will not have the effect of creating taxable income
for the Fund. Based on the tender option bond agreement, the Municipal Money
Market Fund expects to be able to value the tender option bond at par; however,
the value of the instrument will be monitored to assure that it is valued at
fair value.
If, subsequent to its purchase by the Municipal Money Market Fund, (a) an
issue of rated Municipal Obligations ceases to be rated in the highest rating
category by at least two ratings organizations (or one rating organization if
the instrument was rated by only one such organization), or the Board determines
that it is no longer of comparable quality; or (b) the Investment Adviser
becomes aware that any portfolio security not so highly rated or any unrated
security has been given a rating by any rating organization below the rating
organization's second highest rating category, the Board will reassess promptly
whether such security presents minimal credit risk and will cause the Fund to
take such action as it determines is in the best interest of the Fund and its
shareholders, provided that the reassessment required by clause (b) is not
required if the portfolio security is disposed of or matures within five
business days of the Investment Adviser becoming aware of the new rating and the
Board is subsequently notified of the Investment Adviser's actions.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service,
L.P. ("Fitch") for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Municipal Funds will attempt to
use comparable ratings as standards for its investments in accordance with the
investment policies contained in the Prospectus and this Statement of Additional
Information. The ratings of Moody's, S&P and Fitch represent their opinions as
to the quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and are
not absolute standards of quality. Although these ratings may be an initial
criterion for selection of portfolio investments, the Investment Adviser will
also evaluate these securities and the creditworthiness of the issuers of such
securities.
For the Municipal Bond Fund, the average distribution of investments (at
value) in Municipal Obligations by ratings for the fiscal year ended December
31, 1995, computed on a monthly basis, was as follows:
Fitch or Moody's or S&P Percentage of Value
AAA Aaa AAA 50%
AA Aa AA 14%
A A A 20%
BBB Baa BBB 16%
---
100.0%
Convertible Securities. (Asset Allocation, Equity and Bond Funds only) In
general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Fund will endeavor to obtain the right to registration at the
expense of the issuer. Generally, there will be a lapse of time between a Fund's
decision to sell any such security and the registration of the security
permitting sale. During any such period, the price of the securities will be
subject to market fluctuations. However, where a substantial market of qualified
institutional buyers develops for certain unregistered securities purchased by a
Fund pursuant to Rule 144A under the Securities Act of 1933, as amended, such
Fund intends to treat them as liquid securities in accordance with procedures
approved by the Board. Because it is not possible to predict with assurance how
the market for restricted securities pursuant to Rule 144A will develop, the
Board has directed the Investment Adviser to monitor carefully each Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. To
the extent that, for a period of time, qualified institutional buyers cease
purchasing restricted securities pursuant to Rule 144A, a Fund's investing in
such securities may have the effect of increasing the level of illiquidity in
such Fund during such period.
Management Policies
Leveraging. (Asset Allocation, Equity, Bond and, to a limited extent, Money
Market Funds only) Each of these Funds may borrow for investment purposes. The
Money Market Fund may borrow for investment purposes only through entering into
reverse repurchase agreements. The 1940 Act requires the Fund to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Fund also may be required to maintain minimum average balances in
connection with such borrowings or to pay a commitment or other fee to maintain
a line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
With respect to repurchase agreements, the Fund will maintain in a
segregated custodial account cash or U.S. Government securities or other high
quality liquid debt securities at least equal to the aggregate amount of its
reverse repurchase obligations, plus accrued interest, in certain cases, in
accordance with releases promulgated by the Securities and Exchange Commission.
The Securities and Exchange Commission views reverse repurchase transactions as
collateralized borrowings by the Fund. These agreements, which are treated as if
reestablished each day, are expected to provide the Fund with a flexible
borrowing tool.
Short-Selling. (Asset Allocation, Equity and Bond Funds only) Each of these
Funds may engage in short-selling. Until the Fund replaces a borrowed security
in connection with a short sale, the Fund will: (a) maintain daily a segregated
account, containing cash, cash equivalents or U.S. Government securities, at
such a level that the amount deposited in the account plus the amount deposited
with the broker as collateral always equals the current value of the security
sold short; or (b) otherwise cover its short position.
Options Transactions. (Asset Allocation, Equity and Bond Funds only) Each
of these Funds may engage in options transactions, such as purchasing or writing
covered call or put options. The principal reason for writing covered call
options is to realize, through the receipt of premiums, a greater return than
would be realized on a Fund's securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that a Fund may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option- writing activities.
Options written ordinarily will have expiration dates between one and nine
months from the date written. The exercise price of the options may be below,
equal to or above the market values of the underlying securities at the time the
options are written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the- money,"
respectively. Each Fund may write (a) in-the-money call options when the
Investment Adviser expects that the price of the underlying security will remain
stable or decline moderately during the option period, (b) at-the-money call
options when the Investment Adviser expects that the price of the underlying
security will remain stable or advance moderately during the option period and
(c) out-of-the-money call options when the Investment Adviser expects that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In these
circumstances, if the market price of the underlying security declines and the
security is sold at this lower price, the amount of any realized loss will be
offset wholly or in part by the premium received. Out-of-the-money, at-the-money
and in-the-money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market environments
that such call options are used in equivalent transactions.
So long as a Fund's obligation as the writer of an option continues, such
Fund may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or a Fund
effects a closing purchase transaction. A Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice.
While it may choose to do otherwise, each Fund generally will purchase or
write only those options for which the Investment Adviser believes there is an
active secondary market so as to facilitate closing transactions. There is no
assurance that sufficient trading interest to create a liquid secondary market
on a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist. A
liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow, or other unforeseen events, at times have rendered certain clearing
facilities inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that otherwise may interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If as a covered call option
writer a Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise or it otherwise
covers its position.
Stock Index Options. (Asset Allocation and Equity Funds only) Each of these
Funds may purchase and write put and call options on stock indexes listed on a
securities exchange or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indexes are similar to options on stock except that (a)
the expiration cycles of stock index options are generally monthly, while those
of stock options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of a stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The amount of cash
received will be equal to such difference between the closing price of the index
and the exercise price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position in
stock index options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
Futures Contracts and Options on Futures Contracts. (Asset Allocation,
Equity, Bond and Municipal Bond Funds Only) Each of these Funds may trade
futures contracts and options on futures contracts in U.S. domestic markets,
such as the Chicago Board of Trade and the International Monetary Market of the
Chicago Mercantile Exchange, or, to the extent permitted under applicable law,
on exchanges located outside the United States, such as the London International
Financial Futures Exchange and the Sydney Futures Exchange Limited. Foreign
markets may offer advantages such as trading in commodities that are not
currently traded in the United States or arbitrage possibilities not available
in the United States.
Initially, when purchasing or selling futures contracts a Fund will be
required to deposit with the Fund's custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an opposite
position, at the then prevailing price, which will operate to terminate the
Fund's existing position in the contract.
Although each of these Funds intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting a Fund to
substantial losses. If it is not possible, or the Fund determines not, to close
a futures position in anticipation of adverse price movements, the Fund will be
required to make daily cash payments of variation margin. In such circumstances,
an increase in the value of the portion of the portfolio being hedged, if any,
may offset partially or completely losses on the futures contract. However, no
assurance can be given that the price of the securities being hedged will
correlate with the price movements in a futures contract and thus provide an
offset to losses on the futures contract.
In addition, to the extent a Fund is engaging in a futures transaction as a
hedging device, due to the risk of an imperfect correlation between securities
owned by the Fund that are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge will not be
fully effective in that, for example, losses on the portfolio securities may be
in excess of gains on the futures contract or losses on the futures contract may
be in excess of gains on the portfolio securities that were the subject of the
hedge. In futures contracts based on indexes, the risk of imperfect correlation
increases as the composition of a Fund's investments varies from the composition
of the index. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in the price
of futures contracts, the Fund may buy or sell futures contracts in a greater or
lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the futures contract has been less or greater than
that of the securities. Such "over hedging" or "under hedging" may adversely
affect a Fund's net investment results if market movements are not as
anticipated when the hedge is established.
Upon exercise of an option, the writer of the option will deliver to the
holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net asset value of each Fund.
Foreign Currency Transactions. (Asset Allocation, Growth, International
Equity, Special Opportunities and International Bond Funds only) If a Fund
enters into a currency transaction, it will deposit, if so required by
applicable regulations, with its custodian cash or readily marketable securities
in a segregated account of the Fund in an amount at least equal to the value of
the Fund's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to the
contract.
At or before the maturity of a forward contract, the Fund either may sell a
security and make delivery of the currency, or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency which it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, such
Fund, at the time of execution of the offsetting transaction, will incur a gain
or loss to the extent movement has occurred in forward contract prices. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Fund will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to each of these Funds of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because transactions in currency
exchange usually are conducted on a principal basis, no fees or commissions are
involved. The use of forward currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future. If a devaluation generally
is anticipated, a Fund may not be able to contract to sell the currency at a
price above the devaluation level it anticipates. The requirements for
qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), may cause the Fund to restrict the degree to
which each Fund engages in currency transactions. See "Dividends, Distributions
and Taxes."
Lending Portfolio Securities. To a limited extent, each Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, a Fund can increase its income
through the investment of the cash collateral. For purposes of this policy, each
Fund considers collateral consisting of U.S. Government securities or, except in
the case of the U.S. Government Money Market Fund, irrevocable letters of credit
issued by banks whose securities meet the standards for investment by such Fund
to be the equivalent of cash. From time to time, the Fund may return to the
borrower or a third party which is unaffiliated with the Fund, and which is
acting as a "placing broker," a part of the interest earned from the investment
of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Fund must receive at least 100% cash collateral from the borrower; (2) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable
on the loaned securities, and any increase in market value; (5) the Fund may pay
only reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Board must
terminate the loan and regain the right to vote the securities if a material
event adversely affecting the investment occurs. These conditions may be subject
to future modification.
Investment Restrictions
Applicable to Trust only. Each Fund that is a series of the Trust has
adopted investment restrictions numbered 1 through 7 as fundamental policies. In
addition, the Money Market Fund has adopted investment restrictions numbered 14
and 15, the Municipal Funds have adopted investment restriction number 16, the
Diversified Funds, other than the Money Market Fund, have adopted investment
restrictions numbered 17 and 18, and each Fund, other than the Money Market Fund
and Municipal Funds, have adopted investment restriction number 19 as additional
fundamental policies. These restrictions cannot be changed, as to a Fund,
without approval by the holders of a majority (as defined in the 1940 Act) of
such Fund's outstanding voting shares. Investment restrictions numbered 8
through 13 and 20 through 22 are not fundamental policies and may be changed by
vote of a majority of the Trust's Trustees at any time. No Fund may:
1. Invest in commodities, except that each Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
2. Purchase, hold or deal in real estate, including real estate
limited partnership interests, or oil, gas or other mineral leases or
exploration or development programs, but each Fund may purchase and sell
securities that are secured by real estate or issued by companies that
invest or deal in real estate.
3. Borrow money, except to the extent permitted under the 1940 Act.
For purposes of this investment restriction, a Fund's entry into options,
forward contracts, futures contracts, including those relating to indexes,
and options on futures contracts or indexes shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Fund
may lend its securities in an amount not to exceed 33-1/3% of the value of
its total assets. Any loans of portfolio securities will be made according
to guidelines established by the Securities and Exchange Commission and the
Trust's Board of Trustees.
5. Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities, and
except that the Fund may bid separately or as part of a group for the
purchase of Municipal Obligations directly from an issuer for its own
portfolio to take advantage of the lower purchase price available.
6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted under
Investment Restriction Nos. 1, 3, 9 and 10 may be deemed to give rise to
senior securities.
7. Purchase securities on margin, but each Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
8. Invest in the securities of a company for the purpose of exercising
management or control, but each Fund will vote the securities it owns in
its portfolio as a shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when- issued or forward
commitment basis and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
10. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Prospectus and this Statement of Additional
Information.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% (10% in the case of a Money Market Fund) of
the value of the Fund's net assets would be so invested.
12. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.
13. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 10% of the value of its total assets.
The following investment restrictions numbered 14 and 15 apply only to
the Money Market Fund. The Money Market Fund may not:
14. Invest more than 5% of its assets in the obligations of any one
issuer, except that up to 25% of the value of the Money Market Fund's total
assets may be invested (subject to Rule 2a-7 under the 1940 Act) without
regard to any such limitation.
15. Invest less than 25% of its total assets in securities issued by
banks or invest more than 25% of its assets in the securities of issuers in
any other industry, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Notwithstanding the foregoing, for temporary
defensive purposes, the Money Market Fund may invest less than 25% of its
total assets in bank obligations.
The following investment restriction number 16 applies only to the
Municipal Funds. None of these Funds may:
16. Invest more than 25% of its total assets in the securities of
issuers in any single industry, provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
The following investment restrictions numbered 17 and 18 apply only to
the Diversified Funds, other than the Money Market Fund. None of these
Funds may:
17. Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of the Fund's total assets may
be invested, and securities issued or guaranteed by the U.S. Government, or
its agencies or instrumentalities may be purchased, without regard to any
such limitation.
18. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75%
of the Fund's total assets.
The following investment restriction number 19 applies to each Fund,
other than the Money Market Fund and Municipal Funds. None of these Funds
may:
19. Invest more than 25% of its assets in the securities of issuers in
any single industry, except that, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The following investment restriction number 20, which is not a
fundamental policy, applies only to the Money Market Funds. None of these
Funds may:
20. Sell securities short.
The following investment restriction number 21, which is not a
fundamental policy, applies only to the Municipal Money Market Fund. The
Municipal Money Market Fund may not:
21. Purchase securities other than municipal obligations and taxable
Money Market Instruments.
The following investment restriction number 22, which is not a
fundamental policy, applies only to the U.S. Government Money Market Fund.
The U.S. Government Money Market Fund may not:
22. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase corporate bonds (except as set forth in the
Prospectus) or debentures, state bonds, municipal bonds or industrial
revenue bonds.
For purposes of Investment Restriction No. 16, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
Applicable to Prairie Intermediate Bond Fund only. The Intermediate Bond
Fund has adopted investment restrictions numbered 1 through 7 as fundamental
policies. These restrictions cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the Intermediate Bond Fund's
outstanding voting shares. Investment restrictions numbered 8 through 11 are not
fundamental policies and may be changed by vote of a majority of the Fund's
Trustees at any time. The Intermediate Bond Fund may not:
1. Invest in commodities, except that the Fund may purchase
and sell options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
2. Purchase, hold or deal in real estate, real estate limited
partnership interests, or oil, gas or other mineral leases or
exploration or development programs, but the Fund may purchase and sell
securities that are secured by real estate and may purchase and sell
securities issued by companies that invest or deal in real estate.
3. Borrow money, except to the extent permitted under the 1940
Act. For purposes of this investment restriction, the entry into
options, forward contracts, futures contracts, including those relating
to indexes, and options on futures contracts shall not constitute
borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund
may lend its portfolio securities in an amount not to exceed 33-1/3% of
the value of its total assets. Any loans of portfolio securities will
be made according to guidelines established by the Securities and
Exchange Commission and the Fund's Board of Trustees.
5. Act as an underwriter of securities of other
issuers.
6. Invest more than 25% of its assets in the securities of
issuers in any single industry, provided that there shall be no
limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
7. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent the activities
permitted in Investment Restriction Nos. 1, 3, 8 and 9 may be deemed to
give rise to a senior security.
8. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with writing
covered put and call options and the purchase of securities on a
when-issued or delayed- delivery basis and collateral and initial or
variation margin arrangements with respect to options, forward
contracts, futures contracts, including those related to indexes, and
options on futures contracts or indexes.
9. Purchase, sell or write puts, calls or combinations
thereof, except as described in the Prospectus and this Statement of
Additional Information.
10. Enter into repurchase agreements providing for settlement
in more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 15% of the value of the
Fund's net assets would be so invested.
11. Purchase securities of other investment
companies, except to the extent permitted under the 1940
Act.
Applicable to Prairie Municipal Bond Fund, Inc. only. The Municipal Bond
Fund has adopted investment restrictions numbered 1 through 8 as fundamental
policies. These restrictions cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the Municipal Bond Fund's
outstanding voting shares. Investment restrictions numbered 9 through 13 are not
fundamental policies and may be changed by vote of a majority of the Fund's
Directors at any time. The Municipal Bond Fund may not:
1. Invest more than 25% of its assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Borrow money, except to the extent permitted under the 1940
Act. For purposes of this investment restriction, the entry into
options, forward contracts, futures contracts, including those relating
to indexes, and options on futures contracts or indexes shall not
constitute borrowing.
3. Purchase or sell real estate, or oil and gas interests, but
the Fund may invest in Municipal Obligations secured by real estate or
interests therein.
4. Underwrite the securities of other issuers, except that the
Fund may bid separately or as part of a group for the purchase of
Municipal Obligations directly from an issuer for its own portfolio to
take advantage of the lower purchase price available, and except to the
extent the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements; however, the Fund
may lend its portfolio securities in an amount not to exceed 33-1/3% of
the value of its total assets. Any loans of portfolio securities will
be made according to guidelines established by the Securities and
Exchange Commission and the Fund's Board of Directors.
6. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent that the
activities permitted in Investment Restriction Nos. 2, 7, 8 and 11 may
be deemed to give rise to a senior security.
7. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
8. Invest in commodities, except that the Fund may purchase
and sell forward contracts, futures contracts, including those relating
to indexes, and options on futures contracts or indexes.
9. Purchase securities other than Municipal Obligations and
taxable Money Market Instruments and those arising out of transactions
in futures and options or as otherwise provided in the Prospectus.
10. Invest in securities of other investment
companies, except to the extent permitted under the 1940
Act.
11. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to the extent necessary to secure permitted borrowings
and to the extent related to the deposit of assets in escrow in
connection with the purchase of securities on a when-issued or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures
contracts, including those related to indexes and options on futures
contracts, or indexes.
12. Enter into repurchase agreements providing for settlement
in more than seven days after notice or purchase securities which are
illiquid (which securities could include participation interests
(including municipal lease/purchase agreements) that are not subject to
the demand feature described in the Prospectus and floating and
variable rate demand notes and bonds as to which the Fund cannot
exercise the demand feature described in the Prospectus on less than
seven day's notice and as to which there is no secondary market), if,
in the aggregate, more than 15% of its net assets would be so invested.
13. Invest in companies for the purpose of exercising
control.
For purposes of Investment Restriction No. 1, industrial development bonds,
where the payment of principal and interest is the ultimate responsibility of
companies within the same industry, are grouped together as an "industry."
-------------------------------
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
A Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Fund shares in certain states. Should a Fund
determine that a commitment is no longer in the best interests of the Fund and
its shareholders, each Fund reserves the right to revoke the commitment by
terminating the sale of such Fund's shares in the state involved.
MANAGEMENT OF THE FUNDS
Board members and officers of each Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below.
Board Members of the Funds
JOHN P. GOULD, Board Member. Distinguished Service Professor of
Economics of the University of Chicago Graduate School of
Business. From 1983 to 1993, Dean of the University of
Chicago Graduate School of Business. Dean Gould also
serves as Director of Harpor Capital Advisors. Mr. Gould
is also a Board member of The Woodward Funds and all four
funds in the Prairie Family of Funds. He is 57 years old
and his address is 1101 East 58th Street, Chicago, Illinois
60637.
MARILYN McCOY, Board Member. Vice President of Administration and Planning of
Northwestern University. From 1981 to 1985, she was the Director of
Planning and Policy Development for the University of Colorado. She
also serves on the Board of Directors of Evanston Hospital, the Chicago
Metropolitan YMCA, the Chicago Network and United Charities. Mrs. McCoy
is a member of the Chicago Economics Club. Mrs. McCoy is also a Board
member of The Woodward Funds and all four funds in the Prairie Family
of Funds. She is 47 years old and her address is 1100 North Lake Shore
Drive, Chicago, Illinois 60611.
RAYMOND D. ODDI, Board Member. Private consultant. A Director
of Caremark International, Inc. and Medisense, Inc.,
companies in the health care industry, and Baxter Credit
Union. From 1978 to 1986, Senior Vice President of Baxter
Inter- national, Inc., a company engaged in the production
of medical care products. He also is a member of the
Illinois Society of Certified Public Accountants. Mr. Oddi
is a Board member of all four funds in the Prairie Family
of Funds. He is 68 years old and his address is 1181 Loch
Lane, Lake Forest, Illinois 60045.
For so long as a plan described in the section captioned "Distribution
Plans and Shareholder Services Plans" remains in effect, the Board members who
are not "interested persons" of the Fund, as defined in the 1940 Act, will be
selected and nominated by the Board members who are not "interested persons" of
the Fund.
Officers of the Funds
MARK A. DILLON, President. An employee of BISYS Fund Services, which is a
affiliate of Concord Holding Corporation, the Funds' sub-administrator
(the "Sub-Administrator"). He is 33 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219.
ANN E. BERGIN, Vice President. An employee of the Sub-
Administrator and an officer of other investment companies
administered by the Sub-Administrator. She is 35 years old
and her address is 125 West 55th Street, New York, New York
10019.
D'RAY BREWER, Vice President. An employee of BISYS Fund Services, and an
officer of other investment companies administered by the
Sub-Administrator. She is 36 years old and her address is 3435 Stelzer
Road, Columbus, Ohio 43219.
MARTIN R. DEAN, Treasurer. An employee of BISYS Fund Services, since May 1994,
and an officer of other investment companies administered by the
Sub-Administrator. Prior thereto, he was a Senior Manager at KPMG Peat
Marwick LLP. He is 32 years old and his address is 3435 Stelzer Road,
Columbus, Ohio 43219.
GEORGE O. MARTINEZ, Secretary. Senior Vice President and Director of Legal and
Compliance Services with BISYS Fund Services, since April 1995, and an
officer of other investment companies administered by the
Sub-Administrator. Prior thereto, he was Vice President and Associate
General Counsel with Alliance Capital Management L.P. He is 36 years
old and his address is 3435 Stelzer Road, Columbus, Ohio 43219.
ROBERT L.TUCH, Assistant Secretary. An employee of BISYS Fund Services, since
June 1991, and an officer of other investment companies administered by
the Sub-Administrator. From July 1990 to June 1991, he was Vice
President and Associate General Counsel with National Securities
Research Corp. Prior thereto, he was an Attorney with the Securities
and Exchange Commission. He is 44 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219.
Each Fund pays the Board members its allocable share of the aggregate of a
fixed fee of $25,000 per annum and a per meeting fee of $1,000 for all funds in
the Prairie Family of Funds. The aggregate amount of compensation payable to
each Board member by the Trust, Prairie Intermediate Bond Fund and Prairie
Municipal Bond Fund, Inc. and all other funds in the Prairie Family of Funds for
which such person is a Board member for the fiscal year ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
(3) (5)
(2) Pension or (4) Total Compensation
(1) Aggregate Retirement Benefits Estimated Annual From Fund and
Name of Board Compensation from Accrued as Part of Benefits Upon Fund Complex Paid
Member Fund Fund's Expenses Retirement to Board Member
<S> <C> <C> <C> <C>
John P. Gould
Trust $21,175 None None $30,000
Prairie Intermediate Bond Fund $ 1,765 None None
Prairie Municipal Bond Fund,
Inc. $ 1,765 None None
Marilyn McCoy $30,000
Trust $21,175 None None
Prairie Intermediate Bond Fund $ 1,765 None None
Prairie Municipal Bond Fund,
Inc. $ 1,765 None None
Raymond D. Oddi $30,000
Trust $21,175 None None
Prairie Intermediate Bond Fund $ 1,765 None None
Prairie Municipal Bond Fund,
Inc. $ 1,765 None None
</TABLE>
Board members and officers of the Funds, as a group, owned less than 1% of
any Fund's shares outstanding on March 27, 1996.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management of the Funds."
Investment Advisory Agreements. FCIMCO provides investment advisory
services pursuant to separate Investment Advisory Agreements (each, an
"Agreement") dated as of November 30, 1995 with the Trust, Prairie Intermediate
Bond Fund and Prairie Municipal Bond Fund, Inc. As to each Fund, the Agreement
is subject to annual approval by (i) the Board or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Fund,
provided that in either event the continuance also is approved by a majority of
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Fund or FCIMCO, by vote cast in person at a meeting called for the
purpose of voting on such approval. Shareholders of each Fund approved the
respective Agreement on November 28, 1995. The Board, including a majority of
the Board members who are not "interested persons" of any party to the
Agreement, last approved the Agreement at a meeting held on September 19, 1995.
As to each Fund, the Agreement is terminable without penalty, on 60 days'
notice, by the Board or by vote of the holders of a majority of such Fund's
shares, or, on not less than 90 days' notice, by FCIMCO. The Agreement will
terminate automatically, as to the relevant Fund, in the event of its assignment
(as defined in the 1940 Act).
FCIMCO is responsible for investment decisions for each Fund in accordance
with the stated policies of such Fund, subject to the approval of the Board. All
purchases and sales are reported for the Board member's review at the meeting
subsequent to such transactions.
The following persons are officers and/or directors of FCIMCO: J. Stephen
Baine, Chairman of the Board of Directors, Chief Executive Officer and
President; Alan F. Delp, William G. Jurgensen, Thomas H. Hodges and David J.
Vitale, Directors; Terrall J. Janeway, Treasurer, Chief Financial and Accounting
Officer and Managing Director; Bradford M. Markham, Secretary and Chief Legal
Officer; and George Abel, Timothy Kerr, Ronald Doyle, Deborah L. Edwards, Marco
Hanig, David R. Kling and Stephen P. Manus, Managing Directors.
Sub-Investment Advisory Agreement. ANB Investment Management and Trust
Company ("ANB-IMC") provides investment advisory assistance and day-to-day
management of the International Equity Fund's investments pursuant to the Sub-
Investment Advisory Agreement dated as of November 30, 1995 between ANB-IMC and
FCIMCO. The Sub-Investment Advisory Agreement is subject to annual approval by
(i) the Board or (ii) vote of a majority (as defined in the 1940 Act) of the
International Equity Fund's outstanding voting securities, provided that in
either event the continuance also is approved by a majority of the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Trust or
ANB-IMC, by vote cast in person at a meeting called for the purpose of voting on
such approval. Shareholders of the International Equity Fund approved the
Sub-Investment Advisory Agreement on November 28, 1995. The Board, including a
majority of the Board members who are not "interested persons" of any party to
the Sub-Investment Advisory Agreement last approved the Sub- Investment Advisory
Agreement at a meeting held on September 19, 1995. The Sub-Investment Advisory
Agreement is terminable without penalty, (i) by FCIMCO on 60 days' notice, (ii)
by the Board or by vote of the holders of a majority of the Fund's outstanding
voting securities on 60 days' notice, or (iii) upon not less than 90 days'
notice, by ANB-IMC. The Sub-Investment Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
ANB-IMC provides day-to-day management of the International Equity Fund's
investments, subject to the supervision of FCIMCO and the Board. As compensation
for ANB- IMC's services, FCIMCO has agreed to pay ANB-IMC a sub- investment
advisory fee, computed daily and paid monthly, at an annual rate of .40 of 1% of
the value of the International Equity Fund's average daily net assets. For the
period March 3, 1995 (commencement of operations of International Equity Fund)
through December 31, 1995, the sub-investment advisory fee payable by FCIMCO to
ANB-IMC amounted to $254,628.
The following persons are officers and/or directors of ANB-IMC: Terrall J.
Janeway, Neil R. Wright, Stephen P. Manus, Alan F. Delp, David P. Bolger, Thomas
P. Michaels and J. Stephen Baine.
Administration and Sub-Administration Agreements. Pursuant to separate
Administration Agreements dated November 30, 1995 with the Trust, Prairie
Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc., FCIMCO assists in
all aspects of the Funds' operations, other than providing investment advice,
subject to the overall authority of the Board in accordance with applicable
state law. FCIMCO has engaged the Sub-Administrator to assist it in providing
certain administrative services to the Funds. Pursuant to its agreement with
FCIMCO (the "Sub-Administration Agreement"), the Sub- Administrator assists
FCIMCO in furnishing the Funds clerical help and accounting, data processing,
bookkeeping, internal auditing and legal services and certain other services
required by the Funds, preparing reports to the Funds' shareholders, tax
returns, reports to and filings with the Securities and Exchange Commission and
state Blue Sky authorities, calculating the net asset value of each Fund's
shares and generally in providing for all aspects of operation, other than
providing investment advice. The fees payable to the Sub-Administrator for its
services are paid by FCIMCO.
Each Fund has agreed that FCIMCO, ANB-IMC and the Sub-Administrator will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which respective
agreements relate, except for a loss resulting from wilful misfeasance, bad
faith or gross negligence on the part of FCIMCO in the performance of its
obligations or from reckless disregard by it of its obligations and duties under
its agreements or on the part of ANB-IMC or the Sub-Administrator in the
performance of their respective obligations or from reckless disregard by either
of its obligations and duties under its agreement.
Expenses and Expense Information. All expenses incurred in the operation of
the Trust, Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc.
are borne by such company, except to the extent specifically assumed by FCIMCO.
The expenses borne by the Trust, Prairie Intermediate Bond Fund and Prairie
Municipal Bond Fund, Inc. include: organizational costs, taxes, interest,
brokerage fees and commissions, if any, fees of Board members, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses. In addition, Class A and Class B
are subject to an annual distribution and/or service fee. Expenses attributable
to a particular Fund or Class are charged against the assets of that Fund or
Class, respectively; other expenses of the Trust are allocated among the Funds
that are series of the Trust on the basis determined by the Board, including,
but not limited to, proportionately in relation to the net assets of each such
Fund.
The Agreement provides that if, in any fiscal year, the aggregate expenses
of a Fund, exclusive of taxes, brokerage, interest on borrowings and (with the
prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the advisory fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may deduct
from the payment to be made to FCIMCO under the Agreement, or FCIMCO will bear,
such excess expense to the extent required by state law. Such deduction or
payment, if any, will be estimated daily, and reconciled and effected or paid,
as the case may be, on a monthly basis.
The aggregate of the fees payable to FCIMCO is not subject to reduction as
the value of a Fund's net assets increases.
As compensation for FCIMCO's investment advisory services, each Fund has
agreed to pay FCIMCO an advisory fee, computed daily and paid monthly, at an
annual rate as set forth below. Except as otherwise noted, for the period
January 17, 1995 (effective date of the Investment Advisory Agreement) through
December 31, 1995, the advisory fee payable, the reduction in the fee payable
pursuant to undertakings and the net fee paid were as follows:
<TABLE>
<CAPTION>
Annual Fee
Payable As a % Reduction Net
of Average Amount of In Fee Fee
Name of Fund Daily Net Assets Fee Payable Payable Paid
- ------------ ---------------- ----------- --------- ----
<S> <C> <C> <C> <C>
Managed Assets Income .65% $ 321,175 $178,658 $ 142,517
Managed Assets .65% $ 25,214(1) $ 23,352 $ 1,862
Equity Income .50% $1,106,755(2) $277,716 $ 829,039
Growth .65% $1,714,489(2) $314,740 $1,399,749
Special Opportunities .70% $ 487,653(2) $168,733 $ 318,920
International Equity .80% $ 506,306(3) $213,520 $ 292,786
Intermediate Bond .40% $ 612,316 $185,678 $ 426,638
Bond .55% $ 571,383(4) $178,730 $ 392,653
International Bond .70% $ 79,134(2) $ 68,517 $ 10,617
Intermediate Municipal
Bond .40% $1,368,542 $429,888 $ 938,654
Municipal Bond .40% $ 870,774 $304,953 $ 565,821
U.S. Government Money
Market .40% $ 281,056 $187,035 $ 94,021
Money Market .40% $ 616,814 $429,314 $ 187,527
Municipal Money Market .40% $ 826,343 $489,926 $ 336,417
- ------------------------------
(1) For the period April 3, 1995 (commencement of operations)
through December 31, 1995.
(2) For the period January 27, 1995 (commencement of
operations) through December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations)
through December 31, 1995.
(4) For the period February 10, 1995 (commencement of
operations) through December 31, 1995.
</TABLE>
As compensation for FCIMCO's administrative services, each Fund has agreed
to pay FCIMCO an administrative fee, computed daily and paid monthly, at an
annual rate of .15 of 1% of the value of the Fund's average daily net assets.
Except as otherwise noted, for the period January 17, 1995 (effective date of
the Administration Agreement) through December 31, 1995, the administrative fee
payable, the reduction in the fee payable pursuant to undertakings and the net
fee paid were as follows:
<TABLE>
<CAPTION>
Reduction Net
Amount of In Fee Fee
Name of Fund Fee Payable Payable Paid
<S> <C> <C> <C>
Managed Assets Income $ 70,857 $ 0 $ 70,857
Managed Assets $ 5,818(1) $2,274 $ 3,544
Equity Income $332,027(2) $ 0 $332,027
Growth $395,652(2) $ 0 $395,652
Special Opportunities $104,497(2) $ 0 $104,497
International Equity $ 94,410(3) $ 0 $ 94,410
Intermediate Bond $229,619 $ 0 $229,619
Bond $155,832(4) $ 0 $155,832
International Bond $ 16,958(2) $4,407 $ 12,551
Intermediate Municipal Bond $475,635 $ 0 $475,635
Municipal Bond $310,972 $ 0 $310,972
U.S. Government Money Market $ 94,631 $8,954 $ 85,677
Money Market $220,431 $ 0 $220,431
Municipal Money Market $292,778 $ 0 $292,778
- ------------------------------
(1) For the period April 3, 1995 (commencement of operations)
through December 31, 1995.
(2) For the period January 27, 1995 (commencement of
operations) through December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations)
through December 31, 1995.
(4) For the period February 10, 1995 (commencement of
operations) through December 31, 1995.
</TABLE>
Prairie Intermediate Bond Fund only. Prior to January 17, 1995, The First
National Bank of Chicago ("FNBC") provided management services to the Fund
pursuant to a management agreement (the "Prior Management Agreement"). Under the
terms of the Prior Management Agreement, Prairie Intermediate Bond Fund agreed
to pay FNBC a monthly fee at the annual rate of .60 of 1% of the value of the
Fund's average daily net assets. For the fiscal years ended January 31, 1993 and
1994 and the period from February 1, 1994 through January 17, 1995, no fees were
paid by the Fund to FNBC pursuant to various undertakings by FNBC.
Prior to January 17, 1995, The Dreyfus Corporation ("Dreyfus") provided the
Fund administrative services pursuant to an administration agreement between
FNBC and Dreyfus. FNBC paid Dreyfus for Dreyfus' services.
Prairie Municipal Bond Fund, Inc. only. Prior to January 17, 1995, FNBC
provided advisory services to the Fund pursuant to an investment advisory
agreement (the "Prior Advisory Agreement"). Under the terms of the Prior
Advisory Agreement, Prairie Municipal Bond Fund, Inc. agreed to pay FNBC a
monthly fee at the annual rate of .40 of 1% of the value of the Fund's average
daily net assets. For the fiscal years ended February 28/29, 1993 and 1994 and
for the period from March 1, 1994 through January 17, 1995, no fees were paid by
the Fund to FNBC pursuant to various undertakings by FNBC.
Prior to January 17, 1995, Dreyfus provided the Fund administrative
services pursuant to an administration agreement (the "Prior Administration
Agreement"). As compensation for Dreyfus' services to the Fund, the Fund agreed
to pay Dreyfus pursuant to the Prior Administration Agreement a fee, computed
daily and paid monthly, at an annual rate of .20 of 1% of the value of the
Fund's average daily net assets. For the fiscal years ended February 28/29, 1993
and 1994, no administration fees were paid by the Fund to Dreyfus pursuant to
various undertakings by Dreyfus. For the period March 1, 1994 through January
17, 1995, the Fund paid Dreyfus $25,853 pursuant to the Prior Administration
Agreement.
Intermediate Municipal Bond Fund only. Prior to January 17, 1995, FNBC
provided advisory services to the Intermediate Series of First Prairie Municipal
Bond Fund, Inc. (the predecessor fund of the Intermediate Municipal Bond Fund)
pursuant to an investment advisory agreement (the "Prior Advisory Agreement").
Under the terms of the Prior Advisory Agreement, the Intermediate Series agreed
to pay FNBC a monthly fee at the annual rate of .40 of 1% of the value of the
Intermediate Series' average daily net assets. For the fiscal years ended
February 28/29, 1993 and 1994 and for the period from March 1, 1994 through
January 17, 1995, no fees were paid by the Intermediate Series to FNBC pursuant
to various undertakings by FNBC.
Prior to January 17, 1995, Dreyfus provided the Intermediate Series of
First Prairie Municipal Bond Fund, Inc. administrative services pursuant to an
administration agreement (the "Prior Administration Agreement"). As compensation
for Dreyfus' services to the Intermediate Series, the Intermediate Series agreed
to pay Dreyfus pursuant to the Prior Administration Agreement a fee, computed
daily and paid monthly, at an annual rate of .20 of 1% of the value of the
Intermediate Series' average daily net assets. For the fiscal years ended
February 28/29, 1993 and 1994, no administration fees were paid by the
Intermediate Series to Dreyfus pursuant to various undertakings by Dreyfus. For
the period March 1, 1994 through January 17, 1995, the Intermediate Series paid
Dreyfus $46,815 pursuant to the Prior Administration Agreement.
Managed Assets Income Fund only. Prior to January 17, 1995, FNBC provided
advisory services to First Prairie Diversified Asset Fund (the predecessor fund
of the Managed Assets Income Fund) pursuant to an investment advisory agreement
(the "Prior Advisory Agreement"). Under the terms of the Prior Advisory
Agreement, First Prairie Diversified Asset Fund agreed to pay FNBC a monthly fee
at the annual rate of .65 of 1% of the value of the fund's average daily net
assets. For the fiscal years ended December 31, 1992, 1993 and 1994, no fees
were paid by First Prairie Diversified Asset Fund to FNBC pursuant to various
undertakings by FNBC.
Prior to January 17, 1995, Dreyfus provided First Prairie Diversified Asset
Fund administrative services pursuant to an administration agreement (the "Prior
Administration Agreement"). As compensation for Dreyfus' services to First
Prairie Diversified Asset Fund, the fund agreed to pay Dreyfus pursuant to the
Prior Administration Agreement a fee, computed daily and paid monthly, at an
annual rate of .30 of 1% of the value of the fund's average daily net assets.
For the fiscal years ended December 31, 1992 and 1993, no administration fees
were paid by First Prairie Diversified Asset Fund to Dreyfus pursuant to various
undertakings by Dreyfus. For the period January 1, 1994 through December 31,
1994, First Prairie Diversified Asset Fund paid Dreyfus $26,667 pursuant to the
Prior Administration Agreement.
Municipal Money Market Fund only. From May 1, 1993 to January 17, 1995,
FNBC provided management services to First Prairie Municipal Money Market Fund
(the predecessor fund of the Municipal Money Market Fund) pursuant to a
management agreement (the "Prior Agreement") with the fund and engaged Dreyfus
to provide administrative services. Pursuant to the Prior Agreement, First
Prairie Municipal Money Market Fund agreed to pay FNBC a management fee at the
annual rate of .55 of 1% of the value of the fund's average daily net assets.
Prior to April 30, 1993, FNBC provided investment advisory services to First
Prairie Municipal Money Market Fund pursuant to an investment advisory agreement
(the "Prior Advisory Agreement") with the fund and Dreyfus provided
administrative services to the fund pursuant to an administration agreement (the
"Prior Administration Agreement") with First Prairie Municipal Money Market
Fund. Pursuant to the Prior Advisory Agreement, First Prairie Municipal Money
Market Fund agreed to pay FNBC an advisory fee at the annual rate of .40 of 1%
of the value of the fund's average daily net assets. Pursuant to the Prior
Administration Agreement, First Prairie Municipal Money Market Fund agreed to
pay Dreyfus an administration fee at the annual rate of .20 of 1% of the value
of the fund's average daily net assets.
The fees paid to FNBC pursuant to the Prior Advisory Agreement for the
fiscal year ended December 31, 1992 was $914,834. For the period January 1, 1993
through April 29, 1993, the fee payable to FNBC pursuant to the Prior Advisory
Agreement was $266,582. For the period from April 30, 1993 (effective date of
the Prior Agreement) through December 31, 1993 and for the fiscal year ended
December 31, 1994, the fees payable to FNBC were $699,072 and $1,069,636,
respectively. For the fiscal years ended December 31, 1992, 1993 and 1994, the
fees payable to FNBC were reduced pursuant to undertakings in effect resulting
in net fees paid of $895,911 in fiscal 1992, $647,661 in fiscal 1993 and
$485,987 in fiscal 1994.
The fee paid to Dreyfus pursuant to the Prior Administration Agreement for
the fiscal year ended December 31, 1992 was $457,417. For the period January 1,
1993 through April 29, 1993, the fee payable to Dreyfus pursuant to the Prior
Administration Agreement was $133,291.
Money Market Fund only. From May 1, 1993 to January 17, 1995, FNBC provided
management services to the Money Market Series of First Prairie Money Market
Fund (the predecessor fund of the Money Market Fund) pursuant to a management
agreement (the "Prior Agreement") with the fund and engaged Dreyfus to provide
administrative services. Pursuant to the Prior Agreement, the Money Market
Series agreed to pay FNBC a fee at the annual rate of .55 of 1% of the value of
the Money Market Series' average daily net assets. Prior to April 30, 1993, FNBC
provided investment advisory services to the Money Market Series pursuant to an
investment advisory agreement (the "Prior Advisory Agreement") with the fund and
Dreyfus provided administrative services to the Money Market Series pursuant to
an administration agreement (the "Prior Administration Agreement") with the
fund. Pursuant to the Prior Advisory Agreement, the Money Market Series agreed
to pay FNBC an advisory fee at the annual rate of .40 of 1% of the value of the
Money Market Series' average daily net assets. Pursuant to the Prior
Administration Agreement, the Money Market Series agreed to pay Dreyfus an
administration fee at the annual rate of .20 of 1% of the value of the Money
Market Series' average daily net assets.
The fees paid to FNBC pursuant to the Prior Advisory Agreement with respect
to the Money Market Series for the fiscal year ended December 31, 1992 was
$1,565,674. For the period January 1, 1993 through April 29, 1993, the fee
payable to FNBC pursuant to the Prior Advisory Agreement was $345,615. For the
period from April 30, 1993 (effective date of the Prior Agreement) through
December 31, 1993 and for the fiscal year ended December 31, 1994, the fees
payable to FNBC were $649,937 and $859,905, respectively. For the fiscal year
ended December 31, 1993, the fee payable to FNBC was reduced by $70,345,
pursuant to an undertaking in effect resulting in net fees paid of $925,207.
The fee paid to Dreyfus pursuant to the Prior Administration Agreement with
respect to the Money Market Series for the fiscal year ended December 31, 1992
was $782,837. For the period January 1, 1993 through April 29, 1993, the fee
payable to Dreyfus pursuant to the Prior Administration Agreement was $172,808;
however, pursuant to an undertaking in effect, Dreyfus reduced its fee by
$32,272, resulting in a net fee of $140,536.
Government Money Market Fund only. From May 1, 1993 to January 17, 1995,
FNBC provided management services to the Government Money Market Series of First
Prairie Money Market Fund (the predecessor fund of the Government Money Market
Fund) pursuant to a management agreement (the "Prior Agreement") with the fund
and engaged Dreyfus to provide administrative services. Pursuant to the Prior
Agreement, the Government Money Market Series agreed to pay FNBC a fee at the
annual rate of .55 of 1% of the value of the Government Money Market Series'
average daily net assets. Prior to April 30, 1993, FNBC provided investment
advisory services to the Government Money Market Series pursuant to an
investment advisory agreement (the "Prior Advisory Agreement") with the fund and
Dreyfus provided administrative services to the Government Money Market Series
pursuant to an administration agreement (the "Prior Administration Agreement")
with the fund. Pursuant to the Prior Advisory Agreement, the Government Money
Market Series agreed to pay FNBC an advisory fee at the annual rate of .40 of 1%
of the value of the Government Money Market Series' average daily net assets.
Pursuant to the Prior Administration Agreement, the Government Money Market
Series agreed to pay Dreyfus an administration fee at the annual rate of .20 of
1% of the value of the Government Money Market Series' average daily net assets.
The fees paid to FNBC pursuant to the Prior Advisory Agreement
with respect to the Government Money Market Series for the fiscal year ended
December 31, 1992 was $2,661,832. For the period January 1, 1993 through April
29, 1993, the fee payable to FNBC pursuant to the Prior Advisory Agreement was
$730,686. For the period from April 30, 1993 (effective date of the Prior
Agreement) through December 31, 1993 and for the fiscal year ended December 31,
1994 the fees payable to FNBC were $1,635,057 and $692,452, respectively. For
the fiscal years ended December 31, 1993 and 1994, the fees payable to FNBC were
reduced by $567,879 and $29,785, respectively, pursuant to an undertaking in
effect resulting in net fees paid of $1,797,864 in fiscal 1993 and $662,667 in
fiscal 1994.
The fee paid to Dreyfus pursuant to the Prior Administration Agreement with
respect to the Government Money Market Series for the fiscal year ended December
31, 1992 was $1,330,916. For the period January 1, 1993 through April 29, 1993,
the fee payable to Dreyfus pursuant to the Prior Administration Agreement was
$365,343; however, pursuant to an undertaking in effect, Dreyfus reduced its fee
by $103,746, resulting in a net fee of $261,597.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves on a best efforts basis as each
Fund's distributor pursuant to an agreement which is renewable annually.
For the fiscal year ended December 31, 1995, the Distributor retained
$10,669 from sales loads on Fund shares.
Sales Loads--Class A. The scale of sales loads applies to purchases of
Class A shares made by any "purchaser," which term includes an individual and/or
spouse purchasing securities for his, her or their own account or for the
account of any minor children, or a trustee or other fiduciary purchasing
securities for a single trust estate or a single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code) although more than one beneficiary
is involved; or a group of accounts established by or on behalf of the employees
of an employer or affiliated employers pursuant to an employee benefit plan or
other program (including accounts established pursuant to Sections 403(b),
408(k), and 457 of the Code); or an organized group which has been in existence
for more than six months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company and provided
that the purchases are made through a central administration or a single dealer,
or by other means which result in economy of sales effort or expense.
Set forth below is an example of the method of computing the offering price
of the Class A shares of the Managed Assets Income Fund. The example assumes a
purchase of Class A shares of the Fund aggregating less than $50,000 subject to
the current schedule of sales charges set forth in the Funds' Prospectus at a
price based upon the net asset value of the Managed Assets Income Fund's Class A
shares on December 31, 1995:
Net Asset Value per Share $ 14.54
Per Share Sales Charge - 4.5%
of offering price (4.7% of
net asset value per share) $ .69
-------
Per Share Offering Price to
the Public $ 15.23
=======
Using Federal Funds. Primary Funds Service Corp., the Funds' transfer and
dividend disbursing agent (the "Transfer Agent"), or the Fund may attempt to
notify the investor upon receipt of checks drawn on banks that are not members
of the Federal Reserve System as to the possible delay in conversion into
Federal Funds and may attempt to arrange for a better means of transmitting the
money. If the investor is a customer of a securities dealer, bank or other
financial institution and his order to purchase Fund shares is paid for other
than in Federal Funds, the securities dealer, bank or other financial
institution, acting on behalf of its customer, generally will complete the
conversion into, or itself advance, Federal Funds on the business day following
receipt of the customer order. The order is effective only when so converted and
received by the Transfer Agent. An order for the purchase of Fund shares placed
by an investor with a sufficient Federal Funds or cash balance in his brokerage
account with a securities dealer, bank or other financial institution will
become effective on the day that the order, including Federal Funds, is received
by the Transfer Agent.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICES PLANS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Distribution Plans and Shareholder
Services Plans."
Distribution Plans. Rule 12b-1 (the "Rule") adopted by the Securities and
Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. The Board has adopted such a plan
for each of the Trust, Prairie Intermediate Bond Fund and Prairie Municipal Bond
Fund, Inc. with respect to Class B shares of each Fund (the "Distribution
Plan"), pursuant to which the Fund pays the Distributor for advertising,
marketing and distributing Class B shares of the relevant Fund. The Distributor
may pay one or more banks, securities dealers and other industry professionals
such as investment advisers, accountants and estate planning firms
(collectively, "Service Agents"), in respect of these services. In some states,
banks or other institutions effecting transactions in Fund shares may be
required to register as dealers pursuant to state law. The Board believes that
there is a reasonable likelihood that the Distribution Plan will benefit each
Fund and the holders of its Class B shares.
A quarterly report of the amounts expended under each Distribution Plan,
and the purposes for which such expenditures were incurred, must be made to the
Board members for their review. In addition, the Distribution Plan provides that
it may not be amended to increase materially the cost which holders of Class B
shares of the Fund may bear pursuant to the Distribution Plan without the
approval of the shareholders of such Class and that other material amendments of
the Distribution Plan must be approved by the Board and by the Board members who
are not "interested persons" (as defined in the 1940 Act) of the Fund and have
no direct or indirect financial interest in the operation of the Distribution
Plan or in any agreements entered into in connection with the Distribution Plan,
by vote cast in person at a meeting called for the purpose of considering such
amendments. The Distribution Plan is subject to annual approval by such vote of
the Board members cast in person at a meeting called for the purpose of voting
on the Distribution Plan. Each Distribution Plan was last so approved on
December 6, 1995. The Distribution Plan may be terminated at any time by vote of
a majority of the Board members who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan or by
vote of the holders of a majority of Class B shares of the Fund.
Except as otherwise noted, for the period January 17, 1995
(effective date of Distribution Plan) through December 31, 1995, the fee
payable, the reduction in the fee payable pursuant to undertakings and the net
fee paid pursuant to the Distribution Plan with respect to Class B of the
indicated Fund were as follows:
<TABLE>
<CAPTION>
Reduction Net
Amount of In Fee Fee
Name of Fund Fee Payable Payable Paid
<S> <C> <C> <C>
Managed Assets Income $5,831 $ 0 $5,831
Managed Assets $3,325(1) $ 0 $3,325
Equity Income $1,283(2) $ 0 $1,283
Growth $ 670(2) $ 0 $ 670
Special Opportunities $ 56(2) $ 0 $ 56
International Equity $ 379(3) $ 0 $ 379
Intermediate Bond $ 563 $ 0 $ 563
Bond $ 116(4) $ 0 $ 116
International Bond $ 30(2) $ 0 $ 30
Reduction Net
Amount of In Fee Fee
Name of Fund Fee Payable Payable Paid
Intermediate Municipal Bond $ 824 $ 0 $ 824
Municipal Bond $ 600 $ 0 $ 600
Money Market $ 154 $ 0 $ 154
- ------------------------------
(1) For the period April 3, 1995 (commencement of operations)
through December 31, 1995.
(2) For the period January 27, 1995 (commencement of
operations) through December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations)
through December 31, 1995.
(4) For the period February 10, 1995 (commencement of
operations) through December 31, 1995.
</TABLE>
Shareholder Services Plans. The Trust, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc. have adopted separate Shareholder Services
Plans, pursuant to which each Fund pays the Distributor for the provision of
certain services to the holders of Class A and Class B shares of such Fund. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the maintenance
of shareholder accounts. Under each Shareholder Services Plan, the Distributor
may make payments to Service Agents in respect of these services. FCIMCO, FNBC,
ANB and their affiliates may act as Service Agents and receive fees under the
Shareholder Services Plan.
A quarterly report of the amounts expended under the Shareholder Services
Plan, and the purposes for which such expenditures were incurred, must be made
to the Board members for their review. In addition, the Shareholder Services
Plan provides that it may not be amended without approval of the Board, and by
the Board members who are neither "interested persons" (as defined in the 1940
Act) of the Fund nor have any direct or indirect financial interest in the
operation of the Shareholder Services Plan or in any agreements entered into in
connection with the Shareholder Services Plan, by vote cast in person at a
meeting called for the purpose of considering such amendments. The Shareholder
Services Plan is subject to annual approval by such vote of the Board members
cast in person at a meeting called for the purpose of voting on the Shareholder
Services Plan. Each Shareholder Services Plan was so approved on December 6,
1995. The Shareholder Services Plan is terminable at any time by vote of a
majority of the Board members who are not "interested persons" and who have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan.
Except as otherwise noted, for the period January 17, 1995
(effective date of Shareholder Services Plan) through December 31, 1995, the fee
payable under the Shareholder Services Plan with respect to Class A and Class B
of the indicated Fund was as follows:
<TABLE>
<CAPTION>
Name of Fund Amount of Fee Payable
Class A Class B
<S> <C> <C>
Managed Assets Income $112,993 $ 1,837
Managed Assets(1) $ 7,918 $ 1,092
Equity Income(2) $ 2,475 $ 407
Growth(2) $ 4,568 $ 219
Special Opportunities(2) $ 741 $ 18
International Equity(3) $ 3,057 $ 109
Intermediate Bond $ 5,960 $ 198
Bond(4) $ 2,105 $ 36
International Bond(2) $ 632 $ 39
Intermediate Municipal Bond $ 38,833 $ 3,950
Municipal Bond $ 16,461 $ 2,240
U.S. Government Money Market $156,897 N/A
Money Market $365,201 $ 50
Municipal Money Market $485,617 N/A
- ------------------------------
(1) For the period April 3, 1995 (commencement of operations)
through December 31, 1995.
(2) For the period January 27, 1995 (commencement of
operations) through December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations)
through December 31, 1995.
(4) For the period February 10, 1995 (commencement of
operations) through December 31, 1995.
</TABLE>
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "How to Redeem Fund Shares."
Redemption Commitment. Each of the Trust, Prairie Intermediate Bond Fund
and Prairie Municipal Bond Fund, Inc. has committed itself to pay in cash all
redemption requests by any shareholder of record of the Fund, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of such
Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount, the
Board reserves the right to make payments in whole or in part in securities or
other assets in case of an emergency or any time a cash distribution would
impair the liquidity of the Fund to the detriment of the existing shareholders.
In such event, the securities would be valued in the same manner as the Fund's
securities are valued. If the recipient sold such securities, brokerage charges
would be incurred.
Suspension of Redemptions. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closing), (b) when trading
in the markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "How to Buy Shares."
Applicable to each Fund, other than the Money Market Funds--Equity
Securities and covered call options written by a Fund are valued at the last
sale price on the securities exchange or national securities market on which
such securities primarily are traded. Equity Securities not listed on an
exchange or national securities market, or securities in which there were no
transactions, are valued at the most recent bid prices. Any securities or other
assets for which recent market quotations are not readily available are valued
at fair value as determined in good faith by the Board.
Fixed-Income Securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Service") approved by the Board. The Service may
use available market quotations, employ electronic data processing techniques
and/or a matrix system to determine valuations. The Service's procedures are
reviewed by the Fund's officers under the general supervision of the Board.
Municipal Obligations are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices of
municipal bonds of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The Service also may
employ electronic data processing techniques and/or a matrix system to determine
valuations. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for such
securities).
Short-term investments are carried at amortized cost, which approximates
value.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board, are valued at fair value as determined in good
faith by the Board. The Board will review the method of valuation on a current
basis. In making its good faith valuation of restricted securities, the Board
generally will take the following factors into consideration: restricted
securities which are, or are convertible into, securities of the same class of
securities for which a public market exists usually will be valued at market
value less the same percentage discount at which purchased. This discount will
be revised periodically by the Board if its members believe that the discount no
longer reflects the value of the restricted securities. Restricted securities
not of the same class as securities for which a public market exists usually
will be valued initially at cost. Any subsequent adjustment from cost will be
based upon considerations deemed relevant by the Board.
Any assets or liabilities initially expressed in terms of foreign currency
will be translated into dollars at the midpoint of the New York interbank market
spot exchange rate as quoted on the day of such translation by the Federal
Reserve Bank of New York or if no such rate is quoted on such date, at the
exchange rate previously quoted by the Federal Reserve Bank of New York or at
such other quoted market exchange rate as may be determined to be appropriate by
the Investment Adviser. Forward currency contracts will be valued at the current
cost of offsetting the contract. Because of the need to obtain prices as of the
close of trading on various exchanges throughout the world, the calculation of
net asset value for the International Equity and International Bond Funds does
not take place contemporaneously with the determination of prices of such
securities. In addition, portfolio securities held by such Funds may be traded
actively in securities markets which are open for trading on days when the Fund
will not be determining its net asset value. Accordingly, there may be occasions
when these Funds will not calculate it net asset value but when the value of the
Fund's portfolio securities will be affected by such trading activity.
Expenses and fees of a Fund, including the advisory fee, are accrued daily
and taken into account for the purpose of determining the net asset value of
that Fund's shares.
Money Market Funds. The valuation of each Money Market Fund's investment
securities is based upon their amortized cost which does not take into account
unrealized capital gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
The Board has established procedures, as a particular responsibility within
the overall duty of care owed to the Money Market Fund's investors, reasonably
designed to stabilize the Money Market Fund's price per share as computed for
purposes of purchases and redemptions at $1.00. Such procedures include review
of each Money Market Fund's portfolio holdings by the Board, at such intervals
as it deems appropriate, to determine whether the Money Market Fund's net asset
value calculated by using available market quotations or market equivalents
deviates from $1.00 per share based on amortized cost. In such review of the
portfolio of the Money Market Fund and U.S. Government Money Market Fund,
investments for which market quotations are readily available will be valued at
the most recent bid price or yield equivalent for such securities or for
securities of comparable maturity, quality and type, as obtained from one or
more of the major market makers for the securities to be valued. Other
investments and assets of these Money Market Funds will be valued at fair value
as determined in good faith by the Board. Market quotations and market
equivalents used in such review of the Municipal Money Market Fund are obtained
from an independent pricing service (the "Service") approved by the Board. The
Service will value the Municipal Money Market Fund's investments based on
methods which include consideration of: yields or prices of municipal
obligations of comparable quality, coupon, maturity and type; indications of
values from dealers; and general market conditions. The Service also may employ
electronic data processing techniques and/or a matrix system to determine
valuations.
The extent of any deviation between a Money Market Fund's net asset value
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost will be examined by the Board. If such deviation exceeds
1/2 of 1%, the Board will consider what actions, if any, will be initiated. In
the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
it has agreed to take such corrective action as it regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations or market equivalents.
New York Stock Exchange Closings. The holidays (as observed) on which the
New York Stock Exchange is closed currently are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
PORTFOLIO TRANSACTIONS
Transactions for a Fund are allocated to various dealers by the Fund's
investment personnel in their best judgment. The primary consideration is prompt
and effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected to act on an agency basis for
research, statistical or other services to enable the Investment Adviser to
supplement its own research and analysis with the views and information of other
securities firms.
Research services furnished by brokers through which the Funds effect
securities transactions may be used by the Investment Adviser in advising other
funds or accounts it advises and, conversely, research services furnished to the
Investment Adviser by brokers in connection with other funds or accounts the
Investment Adviser advises may be used by the Investment Adviser in advising the
Funds. Although it is not possible to place a dollar value on these services, it
is the opinion of the Investment Adviser that the receipt and study of such
services should not reduce the overall expenses of its research department.
Brokers also are selected because of their ability to handle special
executions such as are involved in large block trades or broad distributions,
provided the primary consideration is met. Large block trades may, in certain
cases, result from two or more clients the Investment Adviser might advise being
engaged simultaneously in the purchase or sale of the same security.
When transactions are executed in the over-the-counter market, the
Investment Adviser will deal with the primary market makers unless a more
favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year, as well as within a year.
Higher turnover rates are likely to result in comparatively greater brokerage
expenses. The overall reasonableness of brokerage commissions paid is evaluated
by the Investment Adviser based upon its knowledge of available information as
to the general level of commissions paid by other institutional investors for
comparable services.
Under normal market conditions, the portfolio turnover rate of each Fund,
other than the Money Market Funds, generally will not exceed 100%.
Purchases and sales of Fixed-Income Securities and Money Market Instruments
usually are principal transactions. These portfolio securities ordinarily are
purchased directly from the issuer or from an underwriter or market maker.
Usually no brokerage commissions are paid by the Fund for such purchases and
sales. The prices paid to the underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and purchases of
securities from market makers may include the spread between the bid and asked
price.
For the fiscal year ended December 31, 1995, the amount of brokerage
commissions paid by each Fund indicated below, none of which was paid to the
Distributor, were as follows:
<TABLE>
<CAPTION>
Total Brokerage
Name of Fund Commissions Paid
<S> <C>
Managed Assets Income $ 13,601
Managed Assets $ 10,462
Equity Income $379,012
Growth $929,747
Special Opportunities $178,632
International Equity $ 89,528
</TABLE>
There were no spreads or concessions on principal transactions. No other
Fund paid brokerage commissions.
Managed Assets Income Fund only. For its portfolio securities transactions
during the fiscal years ended December 31, 1993 and 1994, First Prairie
Diversified Asset Fund (the predecessor fund of the Managed Assets Income Fund)
paid total brokerage commissions of $29,826 and $47,110, respectively, none of
which was paid to the fund's former distributors. There were no spreads or
concessions on principal transactions in fiscal 1993 and 1994.
DIVIDENDS, DISTRIBUTION AND TAXES
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
Management believes that each Fund has qualified for the fiscal year ended
December 31, 1995 as a "regulated investment company" under the Code. Each Fund
intends to continue to so qualify if such qualification is in the best interests
of its shareholders. To qualify as a regulated investment company, a Fund must
pay out to its shareholders at least 90% of its net income (consisting of net
investment income from tax exempt obligations and net short-term capital gain),
must derive less than 30% of its annual gross income from gain on the sale of
securities held for less than three months, and must meet certain asset
diversification and other requirements. Qualification as a regulated investment
company relieves the Fund from any liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any government
agency.
Any dividend or distribution paid shortly after an investor's purchase may
have the effect of reducing the aggregate net asset value of his shares below
the cost of his investment. Such a distribution would be a return on investment
in an economic sense although taxable as stated in "Dividends, Distributions and
Taxes" in the Prospectus. In addition, the Code provides that if a shareholder
holds shares for six months or less and has received a capital gain dividend
with respect to such shares, any loss incurred on the sale of such shares will
be treated as a long-term capital loss to the extent of the capital gain
dividend received.
Except for dividends from taxable investments, the Fund anticipates that
substantially all dividends paid by a Municipal Fund will not be subject to
Federal income tax. Dividends and distributions paid by a Municipal Fund may be
subject to certain state and local taxes. Although all or a substantial portion
of the dividends paid by a Municipal Fund may be excluded by shareholders of the
Fund from their gross income for Federal income tax purposes, each Municipal
Fund may purchase specified private activity bonds, the interest from which may
be (i) a preference item for purposes of the alternative minimum tax, (ii) a
component of the "adjusted current earnings" preference item for purposes of the
corporate alternative minimum tax as well as a component in computing the
corporate environmental tax or (iii) a factor in determining the extent to which
a shareholder's Social Security benefits are taxable. If a Municipal Fund
purchases such securities, the portion of its dividends related thereto will not
necessarily be tax exempt to shareholders subject to the alternative minimum tax
and/or tax on Social Security benefits and may cause such shareholders to be
subject to such taxes.
Dividends paid by a Fund to qualified Retirement Plans or certain
non-qualified deferred compensation plans ordinarily will not be subject to
taxation until the proceeds are distributed from the Retirement Plan. The Funds
will not report dividends paid by a Fund to such Plans to the IRS. Generally,
distributions from such Retirement Plans, except those representing returns of
non-deductible contributions thereto, will be taxable as ordinary income and, if
made prior to the time the participant reaches age 59-1/2, generally will be
subject to an additional tax equal to 10% of the taxable portion of the
distribution. If the distribution from such a Retirement Plan (other than
certain governmental or church plans) for any taxable year following the year in
which the participant reaches age 70-1/2 is less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed by the IRS. The administrator, trustee or custodian of
such a Retirement Plan will be responsible for reporting distributions from such
Plans to the IRS. Participants in qualified Retirement Plans will receive a
disclosure statement describing the consequences of a distribution from such a
Plan from the administrator, trustee or custodian of the Plan prior to receiving
the distribution. Moreover, certain contributions to a qualified Retirement Plan
in excess of the amounts permitted by law may be subject to an excise tax.
Taxable dividends derived from net investment income and distributions from
net realized short-term securities gains paid by a Fund to a foreign investor
generally are subject to U.S. nonresident withholding taxes at the rate of 30%,
unless the foreign investor claims the benefits of a lower rate specified in a
tax treaty. Distributions from net realized long-term securities gains paid by a
Fund to a foreign investor, as well as the proceeds of any redemptions from a
foreign investor's account, regardless of the extent to which gain or loss may
be realized, will not be subject to U.S. nonresident withholding tax. However,
such distributions may be subject to backup withholding, as described below,
unless the foreign investor certifies his non-U.S. residency status.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code.
Under Section 1256 of the Code, gain or loss realized by a Fund from
certain financial futures and options transactions (other than those taxed under
Section 988 of the Code) will be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund characterized in
the manner described above.
Offsetting positions held by a Fund involving certain contracts or options
may constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Sections 1256 and 988 of
the Code. As such, all or a portion of any short-term or long-term capital gain
from certain "straddle" transactions may be recharacterized to ordinary income.
If the Fund were treated as entering into "straddles" by reason of its engaging
in certain forward contracts or options transactions, such "straddles" would be
characterized as "mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section 1256
of the Code. A Fund may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to the Fund
may differ. If no election is made to the extent the "straddle" and conversion
transactions rules apply to positions established by the Fund, losses realized
by the Fund will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the "straddle" rules, short-term capital loss
on "straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains or ordinary
income.
Investment by a Fund in securities issued or acquired at a discount, or
providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing the Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required to accrue a portion of the discount (or deemed discount) at which the
securities were issued and to distribute such income in order to maintain its
qualification as a regulated investment company. In such case, the Fund may have
to dispose of securities which it might otherwise have continued to hold in
order to generate cash to satisfy these distribution requirements.
If a Fund invests in an entity that is classified as a
"passive foreign investment company" ("PFIC") for federal income tax purposes,
the operation of certain provisions of the Code applying to PFICs could result
in the imposition of certain federal income taxes on the Fund. In addition, gain
realized from the sale or other disposition of PFIC securities may be treated as
ordinary income under Section 1291 of the Code.
YIELD AND PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Performance Information."
Special Opportunities, Growth and International Equity Funds. Average
annual total return is calculated by determining the ending redeemable value of
an investment purchased with a hypothetical $1,000 payment made at the beginning
of the period (assuming the reinvestment of dividends and distributions),
dividing by the amount of the initial investment, taking the "n"th root of the
quotient (where "n" is the number of years in the period) and subtracting 1 from
the result. A Class's average annual total return figures calculated in
accordance with such formula assume that in the case of Class A the maximum
sales load has been deducted from the hypothetical initial investment at the
time of purchase or in the case of Class B the maximum applicable contingent
deferred sales charge ("CDSC") has been paid upon redemption at the end of the
period.
Total return is calculated by subtracting the amount of the Fund's maximum
offering price per share in the case of Class A or the net asset value per share
in the case of Class B or Class I at the beginning of a stated period from the
net asset value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period and, in the case
of Class B, any applicable CDSC, and dividing the result by the maximum offering
price per share in the case of Class A or the net asset value per share in the
case of Class B or Class I at the beginning of the period. Total return also may
be calculated based on the net asset value per share at the beginning of the
period instead of the maximum offering price per share at the beginning of the
period for Class A shares or without giving effect to any applicable CDSC at the
end of the period for Class B shares. In such cases, the calculation would not
reflect the deduction of the sales load with respect to Class A shares or any
applicable CDSC with respect to Class B shares which, if reflected, would reduce
the performance quoted.
The total return for each of these Funds for the period from
inception of the Fund through December 31, 1995 for each Class was as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
Based on Maximum Based on Net Based on Net Based on
Name of Fund Offering Price Asset Value Asset Value Maximum CDSC
- ------------ ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Special 19.20% 24.80% 23.76% 18.76% 25.08%
Opportunities(1)
Growth(1) 24.14% 29.98% 29.15% 24.15% 30.38%
International 9.99% 15.16% 14.52% 9.52% 15.62%
Equity(2)
- ---------------------
(1) For the period January 27, 1995 (commencement of operations) through December 31, 1995.
(2) For the period March 3, 1995 (commencement of operations) through December 31, 1995.
</TABLE>
Asset Allocation, Equity Income, Bond and Municipal Bond Funds. Current
yield is computed pursuant to a formula which operates as follows: The amount of
the Fund's expenses accrued for the 30-day period (net of reimbursements) is
subtracted from the amount of the dividends and interest earned by the Fund
during the period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period that were entitled
to receive dividends, and (b) the net asset value per share on the last day of
the period less any undistributed earned income per share reasonably expected to
be declared as a dividend shortly thereafter. The quotient is then added to 1,
and that sum is raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
With respect to the Municipal Funds, tax equivalent yield is computed by
dividing that portion of the current yield (calculated as described above) which
is tax-exempt by 1 minus a stated tax rate and adding the quotient to that
portion, if any, of the yield of the Fund that is not tax-exempt. The tax
equivalent yields noted below represent the application of the highest Federal
marginal personal income tax rate presently in effect. The tax equivalent yield
figures, however, do not reflect the potential effect of any state or local
(including, but not limited to, county, district or city) taxes, including
applicable surcharges. In addition, there may be pending legislation which could
affect such stated tax rate or yields. Each investor should consult its tax
adviser, and consider its own factual circumstances and applicable tax laws, in
order to ascertain the relevant tax equivalent yield.
The current yield for each of these Funds for the 30- day period ended
December 31 1995, for each Class outstanding was as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
Net of Net of Net of
Current Absorbed Current Absorbed Current Absorbed
Name of Fund Yield Expenses Yield Expenses Yield Expenses
- ------------ ------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Managed Assets 3.01% 3.01% 2.45% 2.45% 3.59% 3.18%
Income
Managed Assets 1.97% 1.54% 1.32% .91% 2.59% 1.90%
Equity Income 3.11% 3.11% 2.45% .99% 3.74% 3.57%
Intermediate Bond 5.06% 5.06% 4.43% 4.43% 5.55% 5.47%
Bond 5.13% 5.13% 4.47% 1.66% 5.78% 5.63%
International Bond 3.60% 1.09% 2.98% (21.76)% 4.33% 4.05%
Intermediate 3.65% 3.54% 2.83% 2.05% 4.12% 3.90%
Municipal Bond
Municipal Bond 4.02% 4.02% 3.33% 2.81% 4.63% 4.46%
</TABLE>
Based upon a 1995 Federal income tax rate of 39.6%, the tax equivalent
yield for the Municipal Funds for the 30-day period ended December 31, 1995 for
each Class was as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
Tax Net of Tax Net of Tax Net of
Equivalent Absorbed Equivalent Absorbed Equivalent Absorbed
Name of Fund Yield Expenses Yield Expenses Yield Expenses
- ------------ ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Intermediate 6.04% 5.86% 4.69% 3.39% 6.82% 6.46%
Municipal Bond
Municipal Bond 6.66% 6.66% 5.51% 4.65% 7.67% 7.38%
</TABLE>
Average annual total return and total return is calculated as described
above.
The average annual total return for the indicated Funds and periods ended
December 31, 1995 for each Class outstanding was as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
Name of Fund 1-Year 5-Year 10-Year 1-Year 5-Year 10-Year 1-Year 5-Year 10-Year
- ------------ ------ ------ ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managed Assets 20.83% 11.94% 11.10%(1) 21.69%(2) N/A N/A N/A N/A N/A
Income
Intermediate Bond 13.61% 5.65%(3) N/A 13.68%(2) N/A N/A 17.53% 6.91%(3) N/A
Intermediate 9.21% 7.08% 7.46%(4) 5.40% 2.68%(2) N/A N/A N/A N/A
Municipal Bond
Municipal Bond 11.67% 8.21% 8.30%(4) 12.22% 4.64%(2) N/A N/A N/A N/A
- ---------------------------
(1) For the period January 23, 1986 through December 31, 1995.
(2) For the period February 8, 1994 through December 31, 1995.
(3) For the period March 5, 1993 through December 31, 1995.
(4) For the period March 1, 1988 through December 31, 1995.
</TABLE>
The total return for each of these Funds for the period from inception of
the Fund through December 31, 1995, except where noted, for each Class was as
follows:
<TABLE>
<CAPTION>
Class A Class B Class I
Based on Maximum Based on Net Based on Net Based on
Name of Fund Offering Price Asset Value Asset Value Maximum CDSC
- ------------ ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Managed Assets(1) 11.25% 16.48% 15.83% 10.83% 15.62%
Managed Assets 184.94% 198.34% 22.72% 18.72% 22.55%
Income(2)
Equity Income(3) 23.95% 29.78% 28.97% 23.97% 30.27%
Intermediate 16.82% 20.45% 15.11% 12.11% 20.79%
Bond(4)
Bond(5) 12.91% 18.22% 17.41% 12.41% 18.57%
International 15.66% 21.10% 20.49% 15.49% 22.13%
Bond(3)
Intermediate 75.86% 81.22% 8.13% 5.14% 11.33%
Municipal Bond(6)
Municipal Bond(6) 86.92% 95.68% 12.98% 8.98% 14.20%
- ---------------------
(1) For the period April 3, 1995 (commencement of operations) through December 31, 1995.
(2) For the period January 23, 1986 (commencement of operations) through December 31, 1995.
(3) For the period January 30, 1995 (commencement of operations) through December 31, 1995.
(4) For the period March 5, 1993 (commencement of operations) through December 31, 1995.
(5) For the period February 16, 1995 (commencement of operations) through December 31, 1995.
(6) For the period March 1, 1988 (commencement of operations) through December 31, 1995.
</TABLE>
For purposes of advertising, calculations of average annual total return
and total return for each of the Managed Assets Income Fund and Intermediate
Municipal bond Fund will take into account the performance of its corresponding
predecessor fund--namely First Prairie Diversified Asset Fund and the
Intermediate Series of First Prairie Municipal bond Fund, Inc.--the assets and
liabilities of which were transferred to the relevant Fund in exchange for Class
A shares of such Fund on March 3, 1995 and January 31, 1995, respectively. In
addition, performance figures for the Intermediate Municipal Bond Fund for
periods prior to July 1, 1992 reflect the Intermediate Series' management policy
at the time to invest in municipal obligations rated A or better by Moody's or
S&P.
Performance figures for Prairie Municipal Bond Fund, Inc. (the Municipal
Bond Fund) reflect the fact that for the period September 12, 1989 through
January 17, 1995 the Fund's then existing management policies required it to
invest at least 65% of the value of its total assets in municipal obligations
insured as to timely payment of principal and interest by recognized insurers of
municipal obligations. In addition, prior to September 12, 1989, the Municipal
Bond Fund's management policies required the Fund to invest in municipal
obligations rated A or better by Moody's or S&P.
Performance figures for Prairie Intermediate Bond Fund (the Intermediate
Bond Fund) for periods prior to January 17, 1995 reflect the Intermediate Bond
Fund's fundamental policy at the time to invest at least 65% of the value of its
total assets in U.S. Government securities, which included U.S. Treasury
securities, agency securities and mortgage-related securities issued or
guaranteed by U.S. Government agencies or instrumentalities.
Money Market Funds. Yield will be computed in accordance with a
standardized method which involves determining the net change in the value of a
hypothetical pre-existing Fund account having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Fund's average account size, but does not include realized gains
and losses or unrealized appreciation and depreciation. Effective annualized
yield is computed by adding 1 to the base period return (calculated as described
above), raising that sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
For the seven-day period ended December 31, 1995, each Money Market Fund's
yield, effective yield and, for the Municipal Money Market Fund only, tax
equivalent yield were as follows:
Tax
Effective Equivalent
Name of Fund Yield Yield Yield
U.S. Government Money Market 4.63% 4.73% N/A
Money Market
Class A 5.03% 5.15% N/A
Class B 4.29% 4.37% N/A
Municipal Money Market 3.85% 3.92% 6.37%
Yields will fluctuate and are not necessarily representative of future
results. Investors should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in a Money Market Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which the
Money Market Fund's price per share is determined.
All Funds. From time to time, advertising materials for a Fund may refer to
or include commentary by the Fund's portfolio managers relating to investment
strategy, the investment outlook for the Fund, current or past business,
political, economic or financial conditions in general and other matters of
interest to investors. Such materials also may refer to commentary by recognized
authorities on investment strategies in general and provide risk-return
comparisons of various investments. Advertising materials for a Fund also may
provide an investor profile, biographical information on the Fund's portfolio
managers, as well as specific descriptions of the Fund's portfolio, such as its
top holdings and sectors of investment, maturity allocation, composition by
credit quality and other relevant data.
INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Shares have no
preemptive or subscription rights and are freely transferable.
As of March 27, 1996, the following shareholders were record owners of 5%
or more of the indicated Fund's outstanding shares:
Percent of Managed
Assets Income Fund
Class B Shares
Name and Address Outstanding
Donaldson Lufkin & Jenrette 21.4%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Percent of Managed Assets
Income Fund Class I
Name and Address Shares Outstanding
Eagle and Co. 99.4%
c/o American National Bank
Mutual Fund Processing Unit
1 North LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Managed
Assets Fund Class A
Name and Address Shares Outstanding
Corelink Financial, Inc. 19.1%
P.O. Box 4054
Concord, PA 94524-4054
Dr. R. Neidballa 18.1%
Dupage Internal Med Empl
Ret Plan
c/o First Chicago
218 E. Wesley, Ste. 2030
Wheaton, IL 60187-5323
First Chicago TTEE 11.4%
FBO Gottlieb Bros Profit SHR/TRU
Gottlieb Bros., Inc.
55 E. Washington Street
Suite 745
Chicago, IL 60602-2107
First Chicago as Trustee 10.9%
Brook Clinic
210 West 22nd Street
Suite 118
Oak Brook, IL 60521-1544
First Chicago TTEE 8.4%
ChemPet Employee's
2100 Clearwater Drive
Suite 102
Oak Brook, IL 60521-1941
First Chicago, as Investment Manager 5.0%
FBO Midaco Corp.
2000 E. Touhy Ave.
Elk Grove, IL 60007-5318
Percent of Managed
Assets Fund Class B
Name and Address Shares Outstanding
First Chicago, as Agent 53.7%
FBO BMC Inc.
Money Purchase PL
3N497 N. 17th Street
St. Charles, IL 60174-1658
Percent of Managed
Assets Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 98.9%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Equity Income
Fund Class A Shares
Name and Address Outstanding
Donaldson Lufkin & Jenrette 6.5%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Bank of Homewood TTEE 5.6%
Louise D. Weinberg Trust
3043 Ridge Road
Lansing, IL 60438-3068
First Chicago TTEE 5.0%
Fancy Colours & Co. Savings Plan
218 E. Wesley
Suite 2030
Wheaton, IL 60187-5323
Percent of Equity Income
Fund Class B Shares
Name and Address Outstanding
Corelink Financial, Inc. 21.1%
P.O. Box 4054
Concord, CA 94542-4054
Donaldson Lufkin & Jenrette 20.8%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Percent of Equity Income
Fund Class I Shares
Name and Address Outstanding
Eagle & Co. 81.8%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Growth Fund
Class A
Name and Address Shares Outstanding
Corelink Financial, Inc. 24.6%
P.O. Box 4054
Concord, CA 94524-4054
First Chicago, as Custodian for 7.5%
Ravenswood Medical Group
1945 West Wilson
Chicago, IL 60640-5208
First Chicago, as 5.2%
Investment Manager
for ChicagoLand Hygiene PST
37 W. 919 Tanglewood Drive
Batavia, IL 60510-9506
Percent of Growth
Fund Class B
Name and Address Shares Outstanding
Corelink Financial, Inc. 60.1%
P.O. Box 4054
Concord, CA 94524-4054
Donaldson Lufkin & Jenrette 18.4%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Percent of Growth
Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 97.5%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Special
Opportunities Fund Class
Name and Address A Shares Outstanding
The Northern Trust Company TTEE 42.3%
Henry B. Babson Trust
P.O. Box 92956
Chicago, IL 60675-0001
First Chicago, as Investment 8.4%
Manager for ChicagoLand Hygiene PST
37 W. 919 Tanglewood Drive
Batavia, IL 60510-9506
Percent of Special
Opportunities Fund Class
Name and Address B Shares Outstanding
Donaldson Lufkin & Jenrette 69.2%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Concord Holding Corporation 29.4%
125 West 55th Street
11th Floor
New York, NY 10019
Percent of Special
Opportunities Fund Class
Name and Address I Shares Outstanding
Eagle & Co. 98.2%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of International
Equity Fund Class A
Name and Address Shares Outstanding
Corelink Financial, Inc. 17.3%
P.O. Box 4054
Concord, CA 94524-4054
First Chicago, Discretionary 10.4%
Three First National Plaza
Chicago, IL 60670
First Chicago TTEE 5.1%
Hope Publishing Company
380 S. Main Place
Carol Stream, IL 60188-2448
Percent of International
Equity Fund Class B
Name and Address Shares Outstanding
Corelink Financial, Inc. 21.0%
P.O. Box 4054
Concord, CA 94524-4054
Donaldson Lufkin & Jenrette 5.4%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Percent of International
Equity Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 94.7%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Intermediate
Bond Fund Class A
Name and Address Shares Outstanding
Corelink Financial, Inc. 12.0%
P.O. Box 4054
Concord, CA 94524-4054
First Chicago TTEE 11.3%
FBO WJ Dennis & Co.
1111 Davis Road
Elgin, IL 60120
First Chicago TTEE 8.1%
McDonough Assoc.
218 E. Wesley
Suite 2030
Wheaton, IL 60187-5323
First Chicago TTEE 5.2%
Hope Publishing Company
380 S. Main Place
Carol Stream, IL 60188-2448
Percent of Intermediate
Bond Fund Class B
Name and Address Shares Outstanding
Donaldson Lufkin & Jenrette 30.0%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Corelink Financial, Inc. 26.3%
P.O. Box 4054
Concord, CA 94524-4054
Percent of Intermediate
Bond Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 96.5%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Bond Fund
Class A
Name and Address Shares Outstanding
First Chicago, Discretionary 23.2%
Three First National Plaza
Chicago, IL 60670
First Chicago, as Agent 10.7%
FBO BMC Inc.
3N497 N. 17th Street
St. Charles, IL 60174-1658
First Chicago TTEE 5.3%
Hope Publishing Company
380 S. Main Place
Carol Stream, IL 60188-2448
Percent of Bond Fund
Shares Outstanding
Donaldson Lufkin & Jenrette 89.1%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Concord Holding Corporation 8.5%
125 West 55th Street
11th Floor
New York, NY 10019
Percent of Bond Fund
Class I
Name and Address Shares Outstanding
Eagle & Co. 99.6%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of International
Bond Fund Class A
Name and Address Shares Outstanding
First Chicago TTEE 19.9%
Hope Publishing Company
380 S. Main Place
Carol Stream, IL 60188-2448
First Chicago, Discretionary 17.0%
Three First National Plaza
Chicago, IL 60670
First Chicago, as Agent 6.8%
FBO BMC Inc.
3N497 N. 17th Street
St. Charles, IL 60174-1658
First Chicago, as Investment Manager 5.3%
for ChicagoLand Hygiene PST
37 W. 919 Tanglewood Drive
Batavia, IL 60510-9506
Percent of International
Bond Fund Class B
Name and Address Shares Outstanding
Concord Holding Corporation 100.0%
125 West 55th Street
11th Floor
New York, NY 10019
Percent of International
Bond Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 96.3%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Intermediate
Municipal Bond Fund
Class A
Name and Address Shares Outstanding
Leonard Nieder & Mary Nieder 5.4%
JT TEN
6405 N. Kilbourn Avenue
Lincolnwood, IL 60646-3434
Percent of Intermediate
Municipal Bond Fund Class
Name and Address B Shares Outstanding
Donaldson Lufkin & Jenrette 66.7%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-9998
Percent of Intermediate
Municipal Bond Fund Class
Name and Address I Shares Outstanding
Eagle & Co. 98.5%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Municipal Bond
Fund Class A
Name and Address Shares Outstanding
Hardis A. Ueland 5.2%
317 Patricia Lane
Bartlett, IL 60103-3033
Percent of Municipal Bond
Fund Class B
Name and Address Shares Outstanding
Donaldson Lufkin & Jenrette 66.9%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
Percent of Municipal Bond
Fund Class I
Name and Address Shares Outstanding
Eagle & Co. 99.3%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Municipal
Money Market Fund
Name and Address Shares Outstanding
Eagle & Co. 42.7%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Craylon Corporation 9.1%
2500 W. Arthington
Chicago, IL 60612-4108
Percent of U.S.
Government Money
Market Fund
Name and Address Shares Outstanding
Potomac Corporation 9.6%
P.O. Box 67-A
100 W. Willow Road
Wheeling, IL 60090-6522
Eagle & Co. 6.0%
American National Bank
Mutual Fund Processing Unit
1 N. LaSalle Street, 3rd Floor
Chicago, IL 60690
Percent of Money Market
Fund Class B
Name and Address Shares Outstanding
Corelink Financial, Inc. 99.9%
P.O. Box 4054
Concord, CA 94524-4054
A shareholder who beneficially owns, directly or indirectly, more than 25%
of a Fund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the Fund.
The Prairie Funds may be used in conjunction with other investment products
or services offered by FCIMCO, FNBC or its affiliates. Such products and
services involve fees that differ and may be in addition to the fees charged by
the Prairie Funds. For more information about these products or services please
contact your Service Agent.
Each Fund will send annual and semi-annual financial statements to all its
shareholders.
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696,
as counsel for the Funds, has rendered its opinion as to certain legal matters
regarding the due authorization and valid issuance of the shares being sold
pursuant to the Funds' Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Funds.
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
L.P. ("Fitch"), Duff & Phelps Credit Rating Co. ("Duff"), IBCA Inc. and IBCA
Limited ("IBCA") and Thomson BankWatch, Inc. ("BankWatch"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest and/or
principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category covering 12-36 months or the DDD, DD
or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as likely
to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating within
this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds may
be in default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk can
be substantial with unfavorable economic or industry conditions and/or with
unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled principal
and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
BankWatch
Commercial Paper and Short-Term Ratings
The rating TBW-1 is the highest short-term rating assigned by BankWatch;
the rating indicates that the degree of safety regarding timely repayment of
principal and interest is very strong.
In addition to ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch examines
all segments of the organization including, where applicable, the holding
company, member banks or associations, and other subsidiaries. In those
instances where financial disclosure is incomplete or untimely, a qualified
rating (QR) is assigned to the institution. BankWatch also assigns, in the case
of foreign banks, a country rating which represents an assessment of the overall
political and economic stability of the country in which the bank is domiciled.
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--25.7%
AUTOMOBILES--LEASING--0.9%
Hertz Corp., Junior Subordinate Note.... 6.63% 7/15/00 $ 500 $ 511,596
-----------
BANKING--2.4%
Citicorp, Subordinate Capital Note...... 9.75% 8/1/99 250 281,881
Citicorp, Subordinate Debenture......... 8.63% 12/1/02 350 399,187
NationsBank Corp., Subordinate
Debenture............................. 8.13% 6/15/02 350 386,750
Westpac Banking Limited, Subordinate
Debenture............................. 9.13% 8/15/01 250 285,192
-----------
1,353,010
-----------
BEVERAGES, FOOD AND TOBACCO--4.8%
Grand Metro Investment Corp., Guaranteed
Debenture, Yankee Bond................ 9.00% 8/15/11 250 309,616
Philip Morris Cos., Inc., Corporate
Note.................................. 8.63% 3/1/99 500 539,361
Philip Morris Cos., Inc., Corporate
Note.................................. 7.13% 10/1/04 250 264,357
RJR Nabisco, Inc. ...................... 8.30% 4/15/99 750 799,769
RJR Nabisco, Inc. ...................... 8.63% 12/1/02 700 727,012
-----------
2,640,115
-----------
CONSUMER GOODS AND SERVICES--1.0%
Time Warner, Inc., Corporate Note....... 7.95% 2/1/00 500 528,668
-----------
ENERGY--3.1%
Burlington Resources, Inc., Corporate
Note.................................. 8.50% 10/1/01 250 279,853
Coastal Corp., Senior Debenture......... 10.25% 10/15/04 500 623,257
Occidental Petroleum Corp., Senior Note. 11.13% 8/1/10 400 558,388
Shell Canada Limited, Corporate Note.... 7.38% 6/1/99 250 263,587
-----------
1,725,085
-----------
FINANCIAL SERVICES--9.2%
Barclay American Corp., Senior
Debenture............................. 9.13% 12/1/97 750 796,317
Chemical Banking Corp., Subordinate
Note.................................. 7.63% 1/15/03 500 542,021
Discover Credit Corp., Medium Term Note. 8.37% 4/28/99 250 268,483
General Motors Acceptance Corp.,
Corporate Note........................ 7.75% 4/15/97 250 254,756
General Motors Acceptance Corp.,
Corporate Note........................ 7.00% 3/1/00 500 520,157
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
FINANCIAL SERVICES (CONTINUED)
General Motors Acceptance Corp.,
Medium Term Note...................... 8.65% 5/29/96 $ 400 $ 405,094
International Lease Finance,
Corporate Note........................ 8.35% 10/1/98 500 533,594
KFW International Finance, Inc.
Guaranteed Note....................... 8.85% 6/15/99 250 274,728
Progessive Corp., Ohio, Corporate Note.. 6.60% 1/15/04 500 509,013
Salomon Inc., Senior Note............... 7.50% 2/1/03 500 514,213
Wells Fargo & Co., Subordinate Note..... 8.38% 5/15/02 400 447,822
-----------
5,066,198
-----------
HEATH CARE AND HOSPITAL MANAGEMENT--0.5%
Multicare Cos., Inc.,
Subordinate Debenture*................ 7.00% 3/15/03 250 271,250
-----------
RETAIL--0.5%
May Department Stores Co.,
Medium Term Note...................... 9.45% 2/2/99 250 275,701
-----------
STEEL--0.9%
USX-Marathon Group, Corporate Note...... 6.38% 7/15/98 500 505,561
-----------
TECHNOLOGY INDUSTRIES--1.0%
Digital Equipment Corp., Debenture...... 8.63% 11/1/12 500 547,116
-----------
UTILITIES--1.4%
Commonwealth Edison Co., First Mortgage,
Series 81, Corporate Note............. 8.63% 2/1/22 250 275,250
Pacific Bell, Corporate Note............ 7.00% 7/15/04 500 525,940
-----------
801,190
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $13,587,940)..................... 14,225,490
-----------
U.S. GOVERNMENT OBLIGATIONS--3.7%
U.S. Treasury Notes..................... 8.50% 5/15/97 100 104,344
U.S. Treasury Notes..................... 8.13% 2/15/98 500 528,750
U.S. Treasury Notes..................... 6.25% 5/31/00 850 879,218
U.S. Treasury Notes..................... 8.00% 5/15/01 500 560,000
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $1,960,714)...................... 2,072,312
-----------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--1.7%
Federal National
Mortgage Association.. 7.60% 1/10/97 $ 400 $ 409,250
Federal National
Mortgage Association.. 8.35% 11/10/99 500 547,694
----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $900,628)........ 956,944
----------
<CAPTION>
Shares
------
<S> <C> <C> <C> <C>
PREFERRED CONVERTIBLE
STOCKS--7.0%
AUTOMOBILES--3.1%
Ford Motor Co., Series
A, $4.20.............. 9,000 852,750
General Motors Corp.,
Series C, $3.25....... 12,000 879,000
----------
1,731,750
----------
BANKING AND FINANCE--3.9%
Citicorp, Series 13,
$5.38................. 6,000 1,098,750
First USA, Inc., 6.25%.. 15,000 592,500
National City Corp.,
8.00%................. 6,000 472,500
----------
2,163,750
----------
TOTAL PREFERRED
CONVERTIBLE STOCKS
(COST $2,643,539)...... 3,895,500
----------
COMMON STOCKS--41.9%
AUTOMOBILES--1.7%
Ford Motor Co. ......... 4,000 116,000
General Motors Corp..... 14,886 787,097
----------
903,097
----------
BANKING AND FINANCE--5.1%
Bank of Boston Corp. ... 21,000 971,250
First Union Corp. ...... 11,000 611,875
NationsBank Corp. ...... 13,912 968,623
Citicorp................ 4,280 287,830
----------
2,839,578
----------
BEVERAGE, FOOD AND
TOBACCO--3.3%
Philip Morris Cos.,
Inc. ................. 20,000 1,810,000
----------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
ELECTRICAL AND ELECTRONIC EQUIPMENT--0.6%
Hubbell, Inc., Class B.......................... 5,000 $ 328,750
-----------
HEALTH INDUSTRIES--3.6%
National Health Investors, Inc. ................ 61,000 2,020,625
-----------
INSURANCE--3.1%
AON Corp. ...................................... 28,500 1,421,438
Exel, Ltd. ..................................... 5,200 317,200
-----------
1,738,638
-----------
OIL & GAS--3.9%
Atlantic Richfield Co. ......................... 5,000 553,750
British Petroleum PLC ADR....................... 9,000 919,125
Texaco, Inc. ................................... 9,000 706,500
-----------
2,179,375
-----------
PHARMACEUTICALS--5.8%
Bristol Myers Squibb Co. ....................... 8,000 687,000
Johnson & Johnson............................... 8,000 685,000
Pfizer, Inc. ................................... 20,000 1,260,000
Warner Lambert Co. ............................. 6,000 582,750
-----------
3,214,750
-----------
REAL ESTATE INVESTMENT TRUSTS--2.0%
Amli Residential Property Trust................. 55,000 1,100,000
-----------
TELECOMMUNICATIONS--6.0%
Brittish Telecom PLC ADR........................ 10,000 565,000
GTE Corp. ...................................... 26,000 1,144,000
Sprint Corp. ................................... 20,000 797,500
US West, Inc. .................................. 15,000 536,250
US West Media Group............................. 15,000 285,000
-----------
3,327,750
-----------
UTILITIES--6.8%
Detroit Edison Co. ............................. 20,000 690,000
Entergy Corp. .................................. 20,000 585,000
Peco Energy Co. ................................ 25,000 753,125
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES (CONTINUED)
Texas Utilities Co. ................... 30,000 $ 1,233,750
United Illuminating Co. ............... 14,000 523,250
-----------
3,785,125
-----------
TOTAL COMMON STOCKS
(COST $17,046,251).................... 23,247,688
-----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
SHORT TERM INVESTMENT--19.2%
U.S. TREASURY BILL--19.2%
U.S. Treasury Bill (cost $10,607,930).. 5.31%** 2/29/96 $10,700 10,617,075
-----------
TOTAL INVESTMENTS--99.2%
(COST $46,747,002)(A)................. 55,015,009
Other assets in excess of liabilities--
0.8%.................................. 450,318
-----------
NET ASSETS--100.0%...................... $55,465,327
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $55,465,327.
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
** Yield at purchase.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $8,452,650
Unrealized depreciation......................................... (184,643)
----------
Net unrealized appreciation..................................... $8,268,007
==========
</TABLE>
ADR--American Depository Receipts.
See Notes to Financial Statements.
28
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--61.4%
ALUMINUM--1.1%
Aluminum Co. of America...................... 1,900 $ 100,462
----------
AUTOMOBILES--0.9%
Ford Motor Co................................ 3,000 87,000
----------
AUTOMOTIVE PARTS & EQUIPMENT--0.9%
Echlin, Inc.................................. 2,400 87,600
----------
BANKING--3.7%
BankAmerica Corp............................. 1,900 123,025
NationsBank Corp............................. 1,700 118,363
State Street Bank(b)......................... 2,600 117,000
----------
358,388
----------
BEVERAGE, FOOD & TOBACCO--4.5%
Anheuser-Busch Cos., Inc..................... 1,200 80,250
Coca-Cola Co................................. 1,600 118,800
PepsiCo, Inc................................. 2,000 111,750
Philip Morris Cos., Inc...................... 1,300 117,650
----------
428,450
----------
BROKERAGE SERVICES--0.7%
Dean Witter, Discover & Co................... 1,400 65,800
----------
BUSINESS & DATA PROCESSING EQUIPMENT--1.6%
International Business Machines.............. 1,700 155,975
----------
CHEMICALS--3.6%
E. I. du Pont de Nemours & Co................ 1,100 76,863
Monsanto Co.................................. 700 85,750
Morton Int'l................................. 2,900 104,037
Praxair, Inc................................. 2,300 77,337
----------
343,987
----------
COMPUTERS-MICRO--0.9%
Compaq Computer Corp.(b)..................... 1,700 81,600
----------
COMPUTERS-SOFTWARE & PERIPHERALS--2.1%
Computer Association Int'l., Inc. ........... 1,550 88,156
Microsoft Corp.(b)........................... 1,300 114,075
----------
202,231
----------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
CONGLOMERATES--3.4%
Allied Signal, Inc........................... 1,700 $ 80,750
General Electric Co.......................... 2,500 180,000
ITT Corp..................................... 900 47,700
ITT Industries, Inc.(b)...................... 900 21,600
----------
330,050
----------
CONSUMER GOODS--1.0%
Service Corp. International.................. 2,100 92,400
----------
ELECTRONIC EQUIPMENT--2.7%
Emerson Electric Co.......................... 2,000 163,500
Motorola, Inc................................ 1,700 96,900
----------
260,400
----------
FINANCE COMPANIES--1.1%
Federal Home Loan Mortgage Corp.............. 1,300 108,550
----------
FOOD PROCESSING--0.9%
CPC Int. .................................... 1,300 89,212
----------
FOOD PRODUCTS--0.8%
Hershey Foods................................ 1,200 78,000
----------
HOUSEHOLD & PERSONAL CARE PRODUCTS--1.2%
Procter & Gamble Co. ........................ 1,400 116,200
----------
INSURANCE--1.9%
American International Group, Inc. .......... 1,500 138,750
ITT Hartford Group(b)........................ 900 43,538
----------
182,288
----------
LEISURE & ENTERTAINMENT--1.1%
Walt Disney Co............................... 1,800 106,200
----------
NEWSPAPERS AND PUBLISHING--0.7%
News Corp., Ltd. ADR......................... 3,300 70,538
----------
OIL-DOMESTIC--3.9%
Chevron Corp................................. 2,300 120,750
Mobil Corp................................... 1,200 134,400
Unocal Corp.................................. 4,100 119,413
----------
374,563
----------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
OIL-FIELD SERVICES AND EQUIPMENT--0.9%
Schlumberger, Ltd. ........................... 1,200 $ 83,100
----------
OIL & GAS--2.0%
British Petroleum Co. ADR..................... 900 91,913
Royal Dutch Petroleum Co...................... 700 98,788
----------
190,701
----------
PHARMACEUTICALS--5.5%
Bristol Myers Squibb Co....................... 1,200 103,050
Johnson & Johnson............................. 1,500 128,437
Merck & Co., Inc.............................. 1,800 118,350
Pfizer, Inc................................... 1,600 100,800
Smithkline Beecham ADR........................ 1,300 72,150
----------
522,787
----------
POLLUTION CONTROL--0.9%
WMX Technologies.............................. 3,000 89,625
----------
RAILROADS--1.1%
CSX Corp...................................... 2,400 109,500
----------
RESTAURANTS--0.8%
McDonald's Corp............................... 1,600 72,200
----------
RETAIL--3.1%
Home Depot, Inc............................... 2,400 114,900
May Department Stores Co...................... 1,500 63,375
Wal Mart Stores, Inc.......................... 5,400 120,825
----------
299,100
----------
TELECOMMUNICATIONS--6.9%
AT&T Corp..................................... 2,100 135,974
General Instrument Corp.(b)................... 1,300 30,388
GTE Corp...................................... 3,800 167,200
MCI Communications Corp....................... 2,800 73,150
NYNEX Corp.................................... 2,100 113,400
Pacific Telesis Group......................... 1,800 60,525
Telcom Corp. New Zealand ADR.................. 1,200 83,250
----------
663,887
----------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES--1.5%
FPL Group, Inc.......................... 3,200 $ 148,400
----------
TOTAL COMMON STOCKS
(COST $5,270,362)...................... 5,899,194
----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
----- -------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--26.0%
U.S. TREASURY NOTES
U.S. Treasury Note...................... 6.25% 5/31/00 $ 800 827,500
U.S. Treasury Note...................... 7.50% 11/15/01 700 771,750
U.S. Treasury Note...................... 6.38% 8/15/02 850 893,296
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $2,398,249)...................... 2,492,546
----------
SHORT TERM INVESTMENT--11.7%
U.S. TREASURY BILL
U.S. Treasury Bill (cost $1,120,308).... 5.31%* 2/29/96 1,130 1,121,243
----------
TOTAL INVESTMENTS
(COST $8,788,919)(A)--99.1% ........... 9,512,982
Other assets in excess of liabilities--
0.9%................................... 86,019
----------
NET ASSETS--100.0%....................... $9,599,001
==========
</TABLE>
- -----------
Percentages indicated are based on net assets of $9,599,001.
*Yield at purchase.
(a)Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $766,286
Unrealized depreciation........................................... (42,223)
--------
Net unrealized appreciation....................................... $724,063
========
</TABLE>
(b)Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
32
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--87.4%
AUTOMOBILES--1.4%
Ford Motor Co.............................. 140,000 $ 4,060,000
------------
AUTOMOTIVE PARTS & EQUIPMENT--1.7%
Echlin, Inc................................ 135,000 4,927,500
------------
BANKS--5.7%
Bankers Trust.............................. 115,000 7,647,500
First Union Corp. ......................... 90,000 5,006,250
NationsBank Corp........................... 55,000 3,829,375
------------
16,483,125
------------
BEVERAGES, FOOD & TOBACCO--2.8%
ConAgra, Inc............................... 81,418 3,358,492
Philip Morris Cos., Inc.................... 50,841 4,601,111
------------
7,959,603
------------
CHEMICALS--6.3%
ARCO Chemical.............................. 106,000 5,154,250
Dow Chemical............................... 93,000 6,544,875
E. I. du Pont de Nemours & Co.............. 90,000 6,288,750
------------
17,987,875
------------
COMPUTER SOFTWARE AND PERIPHERALS--1.3%
International Business Machines............ 40,000 3,670,000
------------
CONSTRUCTION--0.5%
Vulcan Materials........................... 23,000 1,325,375
------------
CONSUMER PRODUCTS--3.8%
Clorox Co. ................................ 100,000 7,162,500
Southern Co. .............................. 150,000 3,693,750
------------
10,856,250
------------
DEFENSE--1.7%
Lockheed Martin............................ 60,000 4,740,000
------------
ELECTRICAL EQUIPMENT--2.2%
Emerson Electric Co. ...................... 48,000 3,924,000
Hubbell, Inc., Class B..................... 20,000 1,315,000
Thomas & Betts Corp. ...................... 15,000 1,106,250
------------
6,345,250
------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
FOREST AND PAPER PRODUCTS--1.4%
Weyerhaeuser Co............................. 95,000 $ 4,108,750
------------
INSURANCE--5.8%
AON Corp. .................................. 137,000 6,832,875
FPL Group, Inc. ............................ 75,000 3,478,125
Lincoln National Corp. ..................... 120,000 6,450,000
------------
16,761,000
------------
METALS--1.0%
Phelps Dodge Corp. ......................... 45,000 2,801,250
------------
NATURAL GAS--3.0%
National Fuel Gas Co. ...................... 25,000 840,625
Sonat, Inc.................................. 40,000 1,425,000
Tenneco, Inc. .............................. 130,000 6,451,250
------------
8,716,875
------------
OIL & GAS--19.0%
AMOCO Corp.................................. 140,000 10,062,500
Atlantic Richfield Corp..................... 55,000 6,091,250
British Petroleum Co. PLC, ADR.............. 70,000 7,148,750
Exxon Corp.................................. 15,000 1,201,875
Mobil Corp.................................. 105,000 11,760,000
Occidental Petroleum Corp. ................. 195,000 4,168,125
Texaco, Inc................................. 125,000 9,812,500
Unocal Corp................................. 153,000 4,456,125
------------
54,701,125
------------
PHARMACEUTICALS--2.9%
Warner Lambert Co. ......................... 86,000 8,352,750
------------
REAL ESTATE INVESTMENT TRUSTS--3.8%
Amli Residential Properties Trust........... 140,000 2,800,000
Equity Residential Properties Trust ........ 80,000 2,450,000
National Health Investors, Inc. ............ 174,000 5,763,750
------------
11,013,750
------------
RETAIL STORES--2.3%
May Department Stores Co. .................. 156,938 6,630,631
------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
TELECOMMUNICATIONS--8.7%
British Telecom PLC ADR.................. 70,000 $ 3,955,000
GTE Corp. ............................... 210,000 9,240,000
Sprint Corp.............................. 156,938 6,257,903
U.S. West, Inc........................... 156,938 5,610,533
------------
25,063,436
------------
UTILITIES--12.1%
Cinergy Corp............................. 130,000 3,981,250
Detroit Edison Co. ...................... 196,173 6,767,969
Houston Industries....................... 260,000 6,305,000
Pacific Gas & Electric Co................ 54,928 1,558,582
Peco Energy Co. ......................... 129,769 3,909,291
Texas Utilities Co. ..................... 156,938 6,454,075
United Illuminating Co................... 156,938 5,865,558
------------
34,841,725
------------
TOTAL COMMON STOCKS
(COST $213,380,725)..................... 251,346,270
------------
CONVERTIBLE PREFERRED STOCKS--2.9%
AUTOMOBILES--2.2%
Ford Motor Company, Series A, $4.20...... 66,699 6,319,730
------------
STEEL--0.7%
WHX Corp., Series B, $3.00............... 45,694 1,941,995
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $7,461,465)....................... 8,261,725
------------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
CONVERTIBLE BOND--2.7%
BANKS--2.7%
Bank of New York, Inc.
Subordinate Convertible Debenture
(cost $4,984,156)...................... 7.50% 8/15/01 $ 3,139 7,816,110
------------
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--7.1%
TIME DEPOSIT--7.1%
Berlin/Frankfurt Bank
(cost $20,271,000).................... 5.81% 1/2/96 $20,271 $ 20,271,000
------------
TOTAL INVESTMENTS
(COST $246,097,346)(A)--100.1%......... 287,695,105
Liabilities in excess of other
assets--(0.1%)......................... (301,578)
------------
NET ASSETS--100.0%....................... $287,393,527
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $287,393,527.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $42,227,078
Unrealized depreciation........................................ (629,319)
-----------
Net unrealized appreciation.................................... $41,597,759
===========
</TABLE>
ADR--American Depository Receipt.
See Notes to Financial Statements.
36
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--95.5%
ADVERTISING AND MARKETING SERVICES--1.3%
Interpublic Group of Companies, Inc. ........ 55,000 $ 2,385,625
Omnicon Group................................ 40,000 1,490,000
------------
3,875,625
------------
AUTOMOTIVE PARTS & EQUIPMENT--1.0%
Echlin, Inc. ................................ 80,000 2,920,000
------------
BANKING--1.5%
State Street Bank(b)......................... 100,000 4,500,000
------------
BEVERAGES, FOOD AND TOBACCO--16.0%
Coca Cola Co. ............................... 55,000 4,083,750
ConAgra, Inc. ............................... 110,000 4,537,500
General Mills, Inc. ......................... 140,000 8,085,000
Hershey Foods Corp. ......................... 60,000 3,900,000
Hudson Foods, Inc. Class A................... 90,000 1,552,500
PepsiCo, Inc. ............................... 130,000 7,263,750
Philip Morris Cos., Inc. .................... 140,000 12,670,000
Sara Lee Corp. .............................. 170,000 5,418,750
Schweitzer-Mauduit Int'l.(b)................. 8,000 185,000
------------
47,696,250
------------
CHEMICALS--5.9%
Eastman Chemical Co. ........................ 85,000 5,323,125
Morton Int'l ................................ 150,000 5,381,250
Praxair, Inc. ............................... 145,000 4,875,625
Wellman, Inc. ............................... 90,000 2,047,500
------------
17,627,500
------------
COMPUTERS--MICRO--0.7%
Compaq Computer Corp.(b)..................... 40,000 1,920,000
------------
COMPUTER SOFTWARE AND PERIPHERALS--5.2%
Automatic Data Processing, Inc. ............. 80,000 5,940,000
Computer Associates Int'l., Inc. ............ 100,000 5,687,500
Intel Corp. ................................. 70,000 3,972,500
------------
15,600,000
------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
CONSUMER GOODS AND SERVICES--10.4%
American Home Products Corp. ................ 70,000 $ 6,790,000
Clorox Co. .................................. 75,000 5,371,875
Hillenbrand Industries, Inc. ................ 100,000 3,387,500
Kimberly-Clark Corp. ........................ 80,000 6,620,000
Service Corp. Int'l. ........................ 115,000 5,060,000
Stewart Enterprises, Inc. ................... 105,000 3,885,000
------------
31,114,375
------------
CONSUMER NON-DURABLES--0.6%
Alberto-Culver Co., Class A.................. 55,000 1,677,500
------------
ELECTRONICS--9.5%
AMP, Inc. ................................... 120,000 4,605,000
Emerson Electric............................. 80,000 6,540,000
General Electric Co. ........................ 180,000 12,960,000
Motorola, Inc. .............................. 75,000 4,275,000
------------
28,380,000
------------
ENTERTAINMENT AND LEISURE--1.5%
Time Warner, Inc. ........................... 120,000 4,545,000
------------
HEALTH INDUSTRIES--3.9%
Horizon HealthCare Corp.(b).................. 145,000 3,661,250
Procter & Gamble Co. ........................ 95,000 7,885,000
------------
11,546,250
------------
INSURANCE--5.4%
American International Group, Inc. .......... 75,000 6,937,500
Chubb Corp. ................................. 65,000 6,288,750
General RE Corp. ............................ 20,000 3,100,000
------------
16,326,250
------------
MANUFACTURING--1.1%
Corning, Inc. ............................... 100,000 3,200,000
------------
MEDICAL CARE & PRODUCTS--0.7%
Sofamor Danek Group(b)....................... 80,000 2,270,000
------------
OIL & GAS--3.4%
British Petroleum Co. ADR.................... 70,000 7,148,750
Unocal Corp. ................................ 100,000 2,912,500
------------
10,061,250
------------
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
PHARMACEUTICALS--12.0%
Elan Corp. PLC ADR(b)......................... 90,000 $ 4,376,250
Forest Labs, Inc.(b).......................... 50,000 2,262,500
Ivax Corp. ................................... 100,000 2,850,000
Johnson & Johnson............................. 95,000 8,134,375
Mylan Labs.................................... 105,000 2,467,500
Pfizer, Inc. ................................. 160,000 10,080,000
Pharmacia & Upjohn(b)......................... 75,000 2,906,250
Smithkline Beecham ADR........................ 50,000 2,775,000
------------
35,851,875
------------
POLLUTION CONTROL--4.1%
Browning-Ferris............................... 185,000 5,457,500
WMX Technologies, Inc. ....................... 230,000 6,871,250
------------
12,328,750
------------
RETAIL--4.2%
Eckerd Corp.(b)............................... 110,000 4,908,750
May Department Stores Co. .................... 110,000 4,647,500
Walgreen Co.(b)............................... 100,000 2,987,500
------------
12,543,750
------------
TELECOMMUNICATIONS--6.5%
AT&T Corp. ................................... 140,000 9,065,000
Century Telephone Enterprises, Inc. .......... 50,000 1,587,500
DSC Communications Corp.(b)................... 40,000 1,475,000
MCI Communications Corp. ..................... 275,000 7,184,375
------------
19,311,875
------------
UTILITIES--0.6%
AES Corp.(b).................................. 80,000 1,910,000
------------
TOTAL COMMON STOCKS
(COST $239,473,384).......................... 285,206,250
------------
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--3.6%
TIME DEPOSIT--3.6%
Berlin/Frankfort Bank
(cost $10,663,000).................... 5.81% 1/2/96 $10,663 $ 10,663,000
------------
TOTAL INVESTMENTS
(COST $250,136,384)(A)--99.1%.......... 295,869,250
Other assets in excess of liabilities--
0.9%................................... 2,672,096
------------
NET ASSETS--100.0%....................... $298,541,346
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $298,541,346.
(a) Represents cost for financial reporting purposes. Cost for federal income
tax purposes was $250,657,238 and differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $48,528,373
Unrealized depreciation........................................ (3,316,361)
-----------
Net unrealized appreciation.................................... $45,212,012
===========
</TABLE>
(b) Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
40
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--93.9%
ADVERTISING AND MARKETING SERVICES--1.3%
Interpublic Group of Companies, Inc. ......... 12,000 $ 520,500
Omnicon Group................................. 20,000 745,000
-----------
1,265,500
-----------
APPAREL--1.1%
Tommy Hilfiger Corp.(b)....................... 24,100 1,021,238
-----------
AUTOMOTIVE PARTS AND EQUIPMENT--3.0%
Borg Warner................................... 30,000 960,000
Simpson Industries............................ 70,000 630,000
Superior Industries Int'l, Inc. .............. 45,000 1,186,875
-----------
2,776,875
-----------
BANKS--13.0%
First of America.............................. 50,000 2,218,750
Firstar Corp.................................. 60,000 2,377,500
Northern Trust Corp. ......................... 50,000 2,800,000
Old Kent Financial............................ 60,000 2,467,500
Southern National............................. 60,000 1,575,000
Southtrust Corp. ............................. 30,000 768,750
-----------
12,207,500
-----------
BEVERAGES, FOOD AND TOBACCO--3.0%
Dean Foods Co. ............................... 35,000 962,500
Hudson Foods, Inc., Class A................... 110,000 1,897,500
-----------
2,860,000
-----------
BUSINESS EQUIPMENT AND SERVICES--1.1%
Proxima Corp.(b).............................. 45,000 995,625
-----------
CHEMICALS--2.0%
Airgas, Inc.(b)............................... 55,000 1,828,750
-----------
CONSUMER GOODS AND SERVICES--2.1%
Service Corp Int'l. .......................... 45,000 1,980,000
-----------
CONSUMER NON-DURABLES--1.8%
Alberto-Culver Co., Class A................... 55,000 1,677,500
-----------
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
ELECTRONICS--1.9%
Memec Electric Materials, Inc.(b)............. 14,000 $ 456,750
Methode Electronics, Inc., Class A............ 37,500 534,375
Molex, Inc. .................................. 25,000 793,750
-----------
1,784,875
-----------
ENTERTAINMENT AND LEISURE--1.1%
Royal Caribbean Cruise Ltd. .................. 48,000 1,056,000
-----------
HEALTH CARE PRODUCTS AND SERVICES--14.4%
American Medical Response, Inc.(b)............ 55,000 1,787,500
Amerisource Health Corp., Class A(b).......... 60,000 1,980,000
Genesis Health Ventures, Inc.(b).............. 50,000 1,825,000
Healthcare & Retirement Corp.(b).............. 55,000 1,925,000
Horizon HealthCare Corp.(b)................... 95,000 2,398,750
Multicare Cos., Inc.(b)....................... 50,000 1,200,000
OEA, Inc...................................... 42,000 1,254,750
Summit Care Corp.(b).......................... 50,000 1,143,750
-----------
13,514,750
-----------
INSURANCE--13.6%
Ace Limited................................... 40,000 1,590,000
AMBAC, Inc.................................... 60,000 2,812,500
American Re Corp.............................. 50,000 2,043,750
Integon, Corp................................. 100,000 2,062,500
National Re Corp.............................. 60,000 2,280,000
Sphere Drake Holdings Ltd..................... 68,024 952,336
Western National Corp......................... 60,000 967,500
-----------
12,708,586
-----------
INVESTMENT MANAGEMENT--0.5%
Phoenix Duff & Phelps Corp.................... 62,471 429,488
-----------
MANUFACTURING--1.0%
Holophane(b).................................. 45,000 978,750
-----------
MEDICAL CARE AND PRODUCTS--4.8%
Rural/Metro(b)................................ 80,000 1,810,000
Sofamor Danek Group(b)........................ 95,000 2,695,625
-----------
4,505,625
-----------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
NATURAL GAS--0.4%
Swift Energy Co.(b)............................ 35,000 $ 420,000
-----------
OIL & GAS--3.5%
Noble Affiliates............................... 50,000 1,493,750
Smith Intl., Inc.(b)........................... 75,000 1,762,500
-----------
3,256,250
-----------
PHARMACEUTICALS--7.6%
A.L. Pharmaceuticals, Inc...................... 85,000 2,220,625
Elan Corp. PLC ADR(b).......................... 50,000 2,431,250
Ivax Corp. .................................... 85,000 2,422,500
-----------
7,074,375
-----------
POLLUTION CONTROL--0.7%
Waste Management PLC ADR(b).................... 65,000 698,750
-----------
RAILROAD EQUIPMENT--0.3%
Johnstown America Industries, Inc.(b).......... 60,000 300,000
-----------
REAL ESTATE DEVELOPMENT--1.8%
Stewart Enterprises, Inc., Class A ............ 45,000 1,665,000
-----------
RESTAURANTS--1.9%
IHOP Corp.(b).................................. 60,000 1,560,000
Starbucks Corp................................. 10,000 210,000
-----------
1,770,000
-----------
RETAIL AND WHOLESALE DISTRIBUTION--1.0%
Corporate Express, Inc.(b)..................... 30,000 903,750
-----------
RETAIL STORES--4.1%
Eckerd Corp.(b)................................ 55,000 2,454,375
Officemax, Inc................................. 60,193 1,346,818
-----------
3,801,193
-----------
TELECOMMUNICATIONS--2.8%
Centennial Cellular Corp., Class A(b).......... 30,000 513,750
Century Telephone Enterprises, Inc. ........... 65,000 2,063,750
-----------
2,577,500
-----------
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES--4.1%
AES Corp.(b)............................ 80,000 $ 1,910,000
Public Service Co. of New Mexico(b)..... 35,000 616,875
South Industries G&E Co.(b)............. 36,800 1,278,800
-----------
3,805,675
-----------
TOTAL COMMON STOCKS
(COST $72,403,453)..................... 87,863,555
-----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--6.3%
TIME DEPOSIT
Berlin/Frankfort Bank
(cost $5,914,000)..................... 5.81% 1/2/96 $5,914 5,914,000
-----------
TOTAL INVESTMENTS
(COST $78,317,453)(A)--100.2%.......... 93,777,555
Liabilities in excess of other assets--
(0.2%)................................. (164,612)
-----------
NET ASSETS--100.0%....................... $93,612,943
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $93,612,943.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $16,914,276
Unrealized depreciation........................................ (1,454,174)
-----------
Net unrealized appreciation.................................... $15,460,102
===========
</TABLE>
(b) Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
44
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--71.2%
AUSTRALIA--3.2%
Aberfoyle................................... 2,400 $ 5,266
Adelaide Brighton Limited................... 3,800 3,392
Amcor Limited............................... 15,300 108,121
Ampolex..................................... 6,900 15,090
Ashton Mining Limited....................... 7,000 10,154
Australian National Industries Limited...... 18,800 13,983
Boral Limited............................... 27,500 69,550
Brambles Industries Limited................. 5,500 61,369
Broken Hill Proprietary Co. ................ 47,000 664,270
Burns Philip & Co. ......................... 12,200 27,316
Caltex Limited.............................. 4,300 16,985
Coca-Coca Amatil............................ 9,600 76,623
Coles Myer Limited.......................... 26,612 82,944
CRA Limited................................. 16,017 235,192
Crusader(b)................................. 2,400 2,535
CSR Limited................................. 22,700 73,959
Dominion Mining Limited(b).................. 2,160 1,125
Email Limited............................... 6,900 16,424
Emperor Mines Limited(b).................... 1,600 2,559
FAI Insurances(b)........................... 7,600 4,127
Fosters Brewing Group....................... 48,900 80,387
General Property Trust...................... 15,200 26,910
Gold Mines of Kalgoorlie.................... 23,800 22,129
Goodman Fielder Limited..................... 29,900 30,026
Hardie (James) Industries................... 9,600 16,567
ICI Australia............................... 7,400 56,697
Lend Lease Corp. ........................... 6,000 87,032
MIM Holdings Limited........................ 39,700 54,925
National Australia Bank..................... 34,900 314,124
Newcrest Mining Limited..................... 5,800 24,419
News Corporation Limited.................... 49,700 265,443
North Limited............................... 17,100 47,700
OPSM Protector Limited...................... 3,500 5,467
Pacific Dunlop Limited...................... 28,800 67,481
Pioneer International Holdings.............. 22,100 57,045
QCT Resources............................... 15,100 16,960
RGC Limited................................. 5,000 24,920
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
AUSTRALIA (CONTINUED)
Rothman's Holdings Limited................. 2,500 $ 10,228
Santos Limited............................. 21,000 61,389
Schroders Property Fund.................... 9,100 14,892
Smith Howard Limited....................... 4,200 19,839
Sons of Gwalia Limited..................... 1,800 9,908
Southcorp Holdings......................... 23,400 54,482
Stockland Trust Group...................... 7,400 17,064
TNT Limited(b)............................. 14,400 19,066
Tubemakers of Australia Limited............ 6,900 21,403
Westfield Trust............................ 23,700 42,662
Westpac Banking Corp....................... 45,500 201,720
WMC Limited................................ 27,600 177,385
------------
3,339,254
------------
FRANCE--3.5%
Accor...................................... 100 12,964
Air Liquide................................ 250 41,459
Alcatel Alsthom............................ 1,700 146,766
AXA........................................ 600 40,488
Banque Nationale de Paris.................. 4,500 203,266
BIC........................................ 100 10,183
Bouygues................................... 100 10,087
Carnaudmetalbox(b)......................... 3,300 151,154
Carrefour(b)............................... 150 91,128
Casino Guich-Perr.......................... 250 7,264
Chargeurs.................................. 50 9,969
Cie De St Gobain........................... 2,300 254,909
Cie De Suez................................ 2,400 99,133
Cie Geophysique(b)......................... 50 1,646
Club Mediterranee(b)....................... 50 3,998
Compagnie Bancaire......................... 1,210 135,589
Compagnie UAP.............................. 3,600 94,152
Comptoirs Modern........................... 50 16,256
CSF (Thomson).............................. 450 10,039
Docks de France............................ 50 7,607
Dollfus-Meig & Cie PV...................... 50 2,044
Eaux-Cie Generale.......................... 2,700 269,924
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
FRANCE (CONTINUED)
ELF-Aquitane............................... 3,300 $ 243,466
Eridania Beghin-Say........................ 100 17,177
Essilor International...................... 50 9,570
Europe 1(b)................................ 25 5,061
Groupe Danone.............................. 250 41,306
GTM Entrepose.............................. 50 3,512
Imetal..................................... 50 5,981
Lafarge-Coppee............................. 330 21,290
Lagardere Groupe........................... 350 6,441
Legrand.................................... 500 77,295
L'oreal.................................... 250 67,019
LVMH Moet Hennessy......................... 1,600 333,716
Lyonnais Des Eaux-Dumez.................... 100 9,641
Michelin, Class B.......................... 2,300 91,852
Moulinex(b)................................ 100 1,374
Nord Est................................... 50 1,159
Peugeot SA................................. 1,300 171,725
Pinault-Printemps.......................... 100 19,978
Promodes................................... 50 11,768
Rhone Poulenc, Series A.................... 1,250 26,813
Sanofi..................................... 3,300 211,818
Schneider SA............................... 500 17,115
Sefimeg.................................... 50 3,323
Seita...................................... 200 7,259
Simco...................................... 50 4,754
Societe Generale........................... 2,500 309,281
Sodexho(b)................................. 50 14,723
St. Louis.................................. 50 13,291
Total, Class B............................. 4,800 324,392
Union Immobiliere de France................ 50 4,334
------------
3,696,459
------------
GERMANY--3.1%
AMB AAchener & Muench...................... 50 36,331
BASF AG.................................... 600 135,404
Bayer AG................................... 600 159,634
Bayerische Vereinsbank..................... 3,000 90,129
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
GERMANY (CONTINUED)
Beiersdorf AG, Series ABC................... 50 $ 34,410
Bilfinger & Berger.......................... 50 19,039
Brau Und Brunnen............................ 50 7,616
Bremer Vulkan AG............................ 150 4,192
CKAG Colonial............................... 50 41,921
Commerzbank AG.............................. 500 118,950
Continental AG.............................. 1,000 14,148
Daimler Benz AG............................. 350 177,045
Degussa AG.................................. 100 33,746
Deutsche Bank AG............................ 8,000 380,639
Deutsche Lufthansa AG....................... 400 55,475
Didier-Werke AG(b).......................... 50 4,045
FAG Kugelfischer Georg(b)................... 50 6,428
Heidelberger Zement......................... 55 34,508
Hochtief AG................................. 100 42,829
Kaufhof Holding AG.......................... 300 91,597
Linde AG.................................... 100 59,388
Linotype Hell AG(b)......................... 50 5,153
MAN AG...................................... 100 27,737
Mannesmann AG............................... 450 143,526
Muenchener Ruckvers......................... 100 215,891
Preussag AG................................. 800 225,812
P.W.A. Papier Waldhof(b).................... 50 7,406
RWE AG...................................... 300 109,308
SAP AG...................................... 500 77,553
Schering AG................................. 1,000 66,584
Siemens AG(b)............................... 650 357,862
Thyssen AG(b)............................... 350 63,995
Veba AG..................................... 7,000 300,291
Volkswagon AG............................... 200 67,212
------------
3,215,804
------------
HONG KONG--1.6%
Bank of East Asia........................... 6,000 21,534
Cathay Pacific Airway....................... 23,000 35,100
Cheung Kong Holdings........................ 18,000 109,649
China Light and Power Co., Limited.......... 25,000 115,105
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
HONG KONG (CONTINUED)
Chinese Estates Holdings................... 12,000 $ 7,837
Dickson Concepts Intl. Limited............. 5,000 4,656
Giordano International Holdings............ 4,000 3,414
Hang Lung Development Co................... 10,000 15,908
Hang Seng Bank Limited..................... 21,800 195,247
Hong Kong Aircraft......................... 1,200 3,104
Hong Kong Telecom.......................... 106,400 189,903
Hopewell Holdings.......................... 35,000 20,143
Hutchison Whampoa.......................... 46,000 280,214
Hysan Development Limited.................. 8,000 21,158
Johnson Electric Holdings.................. 3,000 5,354
Kumagai Gumi............................... 3,000 2,173
Lai Sun Garment International.............. 2,000 1,940
Miramar Hotel & Investment................. 4,000 8,432
New World Development Co................... 13,000 56,661
Oriental Press Group....................... 12,000 3,647
Peregrine Investment Holdings.............. 4,000 5,173
Playmates Toys Holdings.................... 4,000 796
Regal Hotel Holdings....................... 22,000 5,177
Shangri-La Asia............................ 8,000 9,778
Shun Tak Holdings Limited.................. 12,000 8,458
South China Morning Post................... 12,000 7,333
Sun Hung Kai Properties.................... 25,000 204,508
Swire Pacific Limited...................... 20,000 155,200
Television Broadcasts Limited.............. 3,000 10,689
Wharf Holdings Limited..................... 39,000 129,882
Wing Lung Bank............................. 1,200 6,720
Winsor Industrial Corp. Limited............ 2,000 1,693
------------
1,646,586
------------
JAPAN--41.2%
Advantest Corp. ........................... 1,000 51,380
Ajinomoto Co., Inc. ....................... 10,000 111,485
Alps Electric Co.(b)....................... 3,000 34,608
Amada Co. ................................. 28,000 276,871
Aoki Corp.(b).............................. 2,000 8,394
Aoyama Trading............................. 1,000 31,991
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Asahi Bank Limited(c)....................... 41,000 $ 516,710
Asahi Breweries............................. 8,000 94,617
Asahi Chemical Industries................... 27,000 206,781
Asahi Glass Co. ............................ 33,000 367,903
Ashikaga Bank............................... 10,000 62,431
Bank of Tokyo............................... 36,000 631,687
Bank of Yokohama............................ 20,000 163,836
Banyu Pharmaceutical........................ 2,000 24,624
Bridgestone Corp. .......................... 16,000 254,382
Brother Industries Limited.................. 4,000 21,754
Canon, Inc. ................................ 24,000 435,086
Casio Computer Co. ......................... 1,000 9,791
Chiba Bank.................................. 13,000 117,205
Chichibu Onada Cement....................... 7,000 37,391
Chugai Pharmaceutical Co. .................. 2,000 19,176
Citizen Watch Co. Limited................... 19,000 145,513
Cosmo Oil Co. .............................. 3,000 16,403
Credit Saison............................... 2,000 47,697
Dai Nippon Co. Limited.(b).................. 26,000 441,098
Dai Nippon Ink & Chemical................... 8,000 37,304
Dai Nippon Screen........................... 2,000 17,566
Daicel Chemical Industries.................. 13,000 73,978
Daido Steel Co. Limited..................... 2,000 10,082
Daiei Inc. ................................. 9,000 109,062
Dai-Ichi Kangyo Bank(c)..................... 64,000 1,259,501
Dai-Ichi Pharmaceuticals Co. Limited........ 3,000 42,752
Daikin Industries........................... 27,000 264,368
Daikyo(b)................................... 3,000 22,394
Daimaru(b).................................. 2,000 15,511
Daishowa Paper(b)........................... 1,000 7,756
Daito Trust................................. 1,000 11,827
Daiwa Bank.................................. 20,000 161,896
Daiwa House Industries...................... 14,000 230,727
Daiwa Kosho Lease Co. Limited............... 3,000 29,956
Daiwa Securities............................ 24,000 367,613
Denid Kagaku Kogyo.......................... 3,000 10,906
Ebara Corp. ................................ 2,000 29,277
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Eisai Co. ................................. 3,000 $ 52,641
Ezaki Glico Co. ........................... 2,000 19,350
Fanuc Co. ................................. 7,000 303,339
Fuji Bank(c)............................... 56,000 1,237,785
Fuji Photo Film Limited(c)................. 11,000 317,783
Fujita Corp. .............................. 3,000 13,553
Fujita Kanko............................... 2,000 44,207
Fujitsu Limited............................ 43,000 479,390
Furukawa Electric.......................... 3,000 14,687
Gakken Co.(b).............................. 2,000 13,184
Gunma Bank................................. 9,000 96,847
Gunze Limited(b)........................... 4,000 24,236
Hankyu Corp.(b)............................ 12,000 65,728
Hanyu Department Stores.................... 1,000 14,833
Haseko Corp.(b)............................ 2,000 8,085
Hazama Corp.(b)............................ 2,000 8,531
Higo Bank.................................. 3,000 24,139
Hitachi Limited(c)......................... 81,000 816,658
Hokkaido Bank.............................. 5,000 16,965
Hokuriku Bank.............................. 11,000 68,995
Honda Motor Co. ........................... 19,000 392,335
Honshu Paper Co. .......................... 2,000 12,254
House Foods Corp.(b)....................... 2,000 36,063
Hoya Corp. ................................ 1,000 34,415
Inax Corp. ................................ 26,000 247,013
Industrial Bank of Japan(c)................ 47,000 1,426,149
Isetan Co. ................................ 2,000 32,961
Ishihara Sangyo Kaisha(b).................. 2,000 6,495
Ito Yokado Co.(c).......................... 13,000 801,537
Itochu Corp. .............................. 26,000 175,178
Itoham Foods............................... 3,000 22,685
Iwantani International Corp.(b)............ 3,000 15,996
Jaccs...................................... 2,000 20,746
Japan Air Lines Co.(b)..................... 33,000 219,143
Japan Energy Corp. ........................ 5,000 16,771
Jeol....................................... 1,000 8,512
JGC Corp.(b)............................... 1,000 10,567
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Joyo Bank.................................. 14,000 $ 112,650
Jusco Co.(b)............................... 4,000 104,312
Kajima Corp. .............................. 12,000 118,660
Kaken Pharmaceutical....................... 1,000 9,016
Kandenko Limited........................... 1,000 12,506
Kanebo Corp.(b)............................ 9,000 22,335
Kaneka Corp. .............................. 3,000 18,933
Kansai Electric Power(c)................... 20,100 487,146
Kansai Paint Co. Limited................... 2,000 9,307
Kao Corp. ................................. 9,000 111,680
Katokichi.................................. 1,000 20,843
Kawasaki Kisen Kaisha(b)................... 11,000 34,977
Kawasaki Steel Corp........................ 39,000 136,110
Keihin Electric............................ 6,000 36,005
Keio Teito Electric Railway................ 16,000 93,221
Kikkoman Corp.............................. 3,150 23,208
Kinden Corp................................ 2,000 34,124
Kinki Nippon Railway....................... 31,000 234,410
Kirin Brewery Co........................... 19,000 224,717
Kobe Steel(b).............................. 30,000 92,775
Komatsu Limited(c)......................... 9,000 74,162
Konica Corp................................ 1,000 7,251
Kubota Corp................................ 13,000 83,808
Kumagai Gumi Co............................ 5,000 20,116
Kurabo Industries.......................... 5,000 19,147
Kuraray Co. Limited........................ 8,000 87,638
Kureha Chemical Industries Co.(b).......... 2,000 9,404
Kyocera Corp............................... 3,000 223,070
Kyowa Hakko Kogyo.......................... 5,000 47,212
Lion Corp.................................. 2,000 11,808
Maeda Road Construction.................... 6,000 111,098
Makita Corp................................ 2,000 31,992
Marubeni Corp.............................. 28,000 151,738
Marudai Food Co............................ 2,000 14,348
Maruha Co.(b).............................. 4,000 13,533
Marui Co.(b)............................... 5,000 104,215
Matsushita Electric Industries............. 40,000 651,464
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Meija Milk Products......................... 4,000 $ 23,964
Meiji Seika Kaisha.......................... 5,000 30,150
Misawa Homes................................ 1,000 8,803
Mitsubishi Bank............................. 12,000 282,690
Mitsubishi Chemical Corp.................... 29,000 141,131
Mitsubishi Corp............................. 29,000 357,045
Mitsubishi Electric Corp.................... 32,000 230,493
Mitsubishi Estate........................... 24,000 300,139
Mitsubishi Gas(b)........................... 3,000 13,524
Mitsubishi Heavy Industries Limited......... 68,000 542,538
Mitsubishi Materials........................ 21,000 108,917
Mitsubishi Oil Co........................... 2,000 17,780
Mitsubishi Paper............................ 34,000 204,687
Mitsubishi Steel Manufacturing(b)........... 1,000 5,235
Mitsubishi Trust and Banking Limited........ 24,000 400,186
Mitsui Engine & Shipbuilding(b)............. 1,000 2,782
Mitsui Fire & Marine Insurance.............. 13,000 92,756
Mitsui Fudosan Co. ......................... 15,000 184,679
Mitsui Mining and Smelting(b)............... 9,000 36,122
Mitsui O.S.K. Lines(b)...................... 20,000 64,176
Mitsui Toatsu Chemical...................... 6,000 24,139
Mitsui Trust and Banking Co................. 22,000 241,003
Mitsui & Co. Limited........................ 29,000 254,710
Mitsukoshi Limited(b)....................... 6,000 56,422
Mochida Pharmaceuticals..................... 1,000 13,863
Murata Manufacturing Co..................... 4,000 147,356
Nagase & Co.(b)............................. 1,000 8,609
Nagoya Railroad Co.......................... 11,000 55,452
Nankai Electric Railway..................... 6,000 40,717
NEC Corp. .................................. 30,000 366,450
New Oji Paper............................... 8,000 72,437
NGK Insulators.............................. 44,000 439,349
Nichido Fire and Marine Insurance........... 8,000 64,371
Nichii Co. Limited.......................... 22,000 292,191
Nichirei Corp............................... 5,000 32,476
Nihon Cement Co............................. 4,000 26,756
Nintendo Co................................. 2,600 197,864
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Nippon Beet Sugar(b)........................ 2,000 $ 8,880
Nippon Communications Systems Corp.(b)...... 1,000 10,567
Nippon Denso................................ 19,000 355,496
Nippon Express Co........................... 16,000 154,179
Nippon Fire and Marine Insurance............ 11,000 74,647
Nippon Light Metal.......................... 10,000 57,391
Nippon Meat Packers......................... 16,000 232,666
Nippon Oil Co. ............................. 11,000 69,102
Nippon Paper Industries..................... 10,000 69,509
Nippon Seiko Kab Kai........................ 2,000 14,542
Nippon Shinpan Co. ......................... 5,000 37,808
Nippon Shokubai Kagaku Kogyo................ 2,000 19,583
Nippon Steel Corp. ......................... 138,000 473,588
Nippon Suisan(b)............................ 4,000 16,558
Nippon Yusen Kab Kai........................ 22,000 127,752
Nishimatsu(b)............................... 2,000 23,460
Nissan Motor Co. ........................... 46,000 353,634
Nisshinbo Industries, Inc. ................. 4,000 38,778
Nissin Food Products Co., Limited(b)........ 2,000 46,921
NKK Corp.(b)................................ 40,000 107,800
NOF Corp. .................................. 2,000 10,877
Nomura Securities........................... 36,000 785,250
NTN Corp. .................................. 1,000 6,689
Obayashi Corp. ............................. 8,000 63,595
Odakyu Electric Railway..................... 10,000 68,345
Okamoto Industries.......................... 3,000 19,486
Okumura(b).................................. 1,000 9,113
Olympus Optical Co., Limited................ 1,000 9,694
Omron Corp. ................................ 3,000 69,218
Onward Kashiyama(b)......................... 3,000 48,860
Orient Corp. ............................... 5,000 28,405
Orix Corp. ................................. 3,000 123,604
Osaka Gas Co. .............................. 117,000 404,925
Penta-Ocean(b).............................. 2,000 15,511
Pioneer Electronic.......................... 8,000 146,580
Q.P. Corp.(b)............................... 2,000 17,431
Renown, Inc. ............................... 5,000 17,402
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Ricoh Co. .................................. 5,000 $ 54,774
Rohn Company Limited........................ 2,000 113,037
Sagami...................................... 4,000 17,334
Sakura Bank................................. 61,000 774,682
Sankyo Co. ................................. 19,000 427,331
Sankyo Aluminum............................. 2,000 10,722
Sanrio Corp.(b)............................. 1,000 11,536
Sanwo Shutter Corp. ........................ 2,000 14,522
Sanyo Electric Corp......................... 32,000 184,582
Sapporo Corporation......................... 6,000 55,840
Secom Co. .................................. 7,000 487,243
Sega Enterprises............................ 1,000 55,258
Seino Transportation........................ 10,000 167,714
Seiyu(b).................................... 2,000 24,818
Sekisui Chemical............................ 8,000 117,884
Sekisui House............................... 54,000 691,016
Settsu Corp.(b)............................. 1,000 3,151
Seven-Eleven Japan NPV...................... 8,000 564,605
Sharp Corp. ................................ 18,000 287,924
Shimizu Corp. .............................. 9,000 91,612
Shin-Etsu Chemical Co. ..................... 4,000 82,984
Shinmaywa Industries........................ 16,000 132,154
Shiongoi & Co. ............................. 3,000 25,273
Shiseido Co. ............................... 4,000 47,696
Shizuoka Bank............................... 14,000 176,438
Shochiku Co.(b)............................. 1,000 10,955
Shokusan(b)................................. 1,000 3,665
Showa Denko KK(b)........................... 10,000 31,410
Skylark Co. ................................ 2,000 36,839
Snow Brand Milk(b).......................... 5,000 31,992
Sony Corp. ................................. 6,200 372,054
Sumitomo Bank............................... 63,000 1,337,540
Sumitomo Chemical........................... 20,000 99,852
Sumitomo Corp. ............................. 20,000 203,582
Sumitomo Electric Industries................ 22,000 264,464
Sumitomo Forestry........................... 2,000 30,634
Sumitomo Marine and Fire Insurance.......... 12,000 98,651
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Sumitomo Metal Industries(b)................ 36,000 $ 109,235
Sumitomo Metal Mining....................... 10,000 89,964
Sumitomo Osaka Cement....................... 5,000 23,267
Taisei Corp. ............................... 11,000 73,473
Taisho Pharmaceutical Co. .................. 4,000 79,107
Taiyo Yuden................................. 2,000 21,522
Takara(b)................................... 2,000 22,879
Takara Shuzo(b)............................. 4,000 38,274
Takashimaya Co.(b).......................... 2,000 31,992
Takeda Chemical Industries.................. 32,000 527,376
Tanabe...................................... 2,000 14,406
TDK Corp. .................................. 8,000 408,718
Teijin Limited.............................. 11,000 56,305
TOA Corp.(b)................................ 1,000 7,368
Tobu Railway Co. ........................... 12,000 75,151
Tohoku Electric Power....................... 8,080 195,045
Tokai Bank.................................. 36,000 502,560
Tokio Marine and Fire Insurance............. 29,000 379,538
Tokyo Broadcasting.......................... 3,000 49,442
Tokyo Dome Corp. ........................... 3,000 51,477
Tokyo Electric Power........................ 27,200 727,782
Tokyo Electronics........................... 3,000 116,333
Tokyo Gas Co. .............................. 43,000 151,734
Tokyo Steel Manufacturing Co. Limited....... 20,000 368,388
Tokyo Style Co.(b).......................... 2,000 34,318
Tokyo Tatemono(b)........................... 4,000 19,001
Tokyoto Keiba Co. .......................... 5,000 20,843
Tokyu Corp. ................................ 16,000 113,075
Tonen Corp. ................................ 20,000 292,772
Toppan Printing Co. ........................ 14,000 184,582
Toray Industries Inc. ...................... 90,000 593,298
Toshiba Corp.(c)............................ 88,000 690,166
Tosoh Corp.(b).............................. 5,000 24,091
Tostem Corp. ............................... 3,000 99,756
Toto Limited................................ 4,000 55,840
Toyo Engineering............................ 1,000 6,301
Toyo Kanetsu KK............................. 3,000 15,385
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Toyo Seikan Kaisha.......................... 2,000 $ 59,912
Toyobo Co.(b)............................... 13,000 46,756
Toyoda Automatic Loom Works Limited......... 2,000 35,869
Toyota Motor Corp.(c)....................... 77,000 1,634,772
UBE Industries(b)........................... 2,000 7,562
Unitika Limited(b).......................... 3,000 9,132
Yamaguchi Bank.............................. 3,000 51,187
Yamaichi Securities Co. .................... 22,000 171,261
Yamanouchi Pharmaceutical................... 4,000 86,087
Yamato Transport............................ 4,000 47,696
Yamazaki Baking Co. ........................ 3,000 55,840
Yasuda Trust and Bank....................... 20,000 118,466
Yokogawa Bridge Works Corp. ................ 7,000 105,863
Yokogawa Electric........................... 4,000 37,847
77 Bank..................................... 6,000 55,084
------------
43,005,659
------------
SINGAPORE--5.1%
Amcol Holdings.............................. 20,000 55,144
Chaun Hup Holdings.......................... 13,000 11,764
City Developments........................... 52,000 378,654
Cycle and Carriage.......................... 16,000 159,494
DBS Land Limited............................ 61,000 206,137
Development Bank Singapore.................. 45,000 559,926
First Capital Corp. ........................ 16,000 44,341
Fraser and Neave Limited.................... 16,000 203,610
Hai Sun Hup Group........................... 29,000 19,476
Haw Par Brothers International.............. 12,000 25,620
Hotel Properties Limited.................... 27,000 41,801
Inchcape Berhad............................. 11,000 35,306
Jurong Shipyard............................. 7,000 53,942
Keppel Corp. ............................... 34,000 302,869
Low Keng Huat Limited....................... 4,000 2,234
Lum Chang Holdings Limited.................. 22,000 18,352
Metro Holdings.............................. 7,000 27,218
Natsteel Limited............................ 22,000 45,104
Neptune Orient Lines........................ 46,000 51,704
Overseas Chinese Banking Corp. ............. 61,000 763,324
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
SINGAPORE (CONTINUED)
Overseas Union Enterprises................. 8,000 $ 40,439
Parkway Holdings Limited................... 19,000 51,581
Prima Limited.............................. 3,000 11,453
Robinson and Company....................... 4,000 16,684
Shangri-La Hotel........................... 10,000 38,883
Sia Limited Foreign........................ 86,000 802,561
Singapore Press Holdings................... 22,800 402,979
Straits Steamship.......................... 40,000 135,172
Straits Trading Co. ....................... 20,000 46,942
United Industrial Corp. ................... 90,000 88,443
United Overseas Bank....................... 60,600 582,663
United Overseas Land....................... 33,000 62,756
------------
5,286,576
------------
UNITED KINGDOM--13.5%
Abbey National PLC(b)...................... 21,900 216,252
Anglian Water PLC.......................... 3,000 28,180
Argos PLC.................................. 2,900 26,835
Argyll Group............................... 11,000 58,067
Arjo Wiggins............................... 11,100 28,435
Associated British FDS..................... 2,400 13,750
Barclays PLC(b)............................ 26,900 308,643
Bass(b).................................... 27,900 311,450
Bat Industries............................. 35,500 312,791
BBA Group.................................. 3,200 14,383
Bet Pub Limited............................ 48,400 95,435
BICC PLC................................... 2,800 11,998
Blue Circle Industries..................... 9,900 52,644
BOC Group.................................. 6,500 90,928
Boots Co. PLC.............................. 9,300 84,613
BPB Industries............................. 6,800 31,884
British Aerospace.......................... 2,200 27,223
British Airways............................ 13,000 94,056
British Gas................................ 116,800 460,612
British Land Co.(b)........................ 5,000 29,577
British Petroleum.......................... 61,800 517,173
British Steel.............................. 27,500 69,487
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
British Telecom............................ 131,700 $ 723,850
BTR PLC.................................... 61,600 314,653
Cable & Wireless........................... 18,900 134,982
Cadbury Schweppes PLC...................... 16,400 135,461
Carlton Communities PLC(b)................. 2,300 34,496
Chubb Security(b).......................... 2,800 13,846
Coats Viyella.............................. 15,600 42,385
Commercial Union........................... 11,100 108,228
Courtaulds PLC............................. 5,500 34,755
De La Rue PLC(b)........................... 2,200 22,236
Delta PLC.................................. 1,200 7,434
Electrocomponent PLC....................... 5,800 32,418
English China Clays........................ 4,200 20,671
Forte PLC.................................. 15,800 81,075
General Accident........................... 3,400 34,365
General Electric........................... 46,000 253,538
GKN PLC.................................... 4,700 56,845
Glaxo Holdings PLC......................... 46,900 666,271
Grand Metropolitan......................... 39,300 283,117
Great Universe Stores PLC.................. 9,800 104,226
Guardian Royal Exchange PLC................ 6,600 28,282
Guinness................................... 43,200 317,922
Hammerson PLC.............................. 3,900 21,344
Hanson..................................... 75,200 224,750
Harrison & Crossfield PLC.................. 9,600 23,847
Hepworth Ceramic........................... 3,300 16,344
HSBC Holdings.............................. 43,800 684,117
IMI PLC.................................... 4,400 22,441
Imperial Chemical Industries............... 9,900 117,278
Kingfisher PLC............................. 6,500 54,698
Ladbroke Group PLC(b)...................... 19,400 44,125
Land Securities PLC........................ 6,900 66,099
Lasmo PLC.................................. 74,200 201,601
Legal and General.......................... 9,700 100,903
Lloyds TSB Group........................... 180,086 926,867
London Electricity PLC..................... 3,300 29,409
Lonrho PLC(b).............................. 9,000 24,593
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Lucas Industries PLC....................... 28,300 $ 79,529
Marks & Spencer PLC........................ 46,700 326,279
Metal Box-Caradon(b)....................... 8,200 24,889
MEPC....................................... 5,500 33,730
National Grid Group(b)..................... 2,910 9,013
National Power............................. 13,000 90,726
Next PLC................................... 3,700 26,195
Northwest Water Group(b)................... 3,800 36,343
P & O Stream Nav(b)........................ 10,100 74,642
Pearson PLC................................ 6,500 62,973
Pilkington Ord PLC......................... 10,800 33,871
Prudential Corp. .......................... 31,700 204,249
Rank Organisation PLC...................... 11,300 81,757
Reckitt and Coleman........................ 22,600 250,182
Redland PLC................................ 7,100 42,881
Reed International......................... 9,400 143,317
Reuters Holdings PLC(b).................... 27,800 254,656
Rexam PLC.................................. 6,800 37,374
RMC Group.................................. 2,700 41,543
Rolls Royce................................ 39,300 115,322
Royal Bank of Scotland PLC................. 13,300 121,006
Royal Insurance PLC........................ 24,200 143,528
RTZ Corp................................... 17,800 258,675
Rugby...................................... 8,700 14,858
Sainsbury (J) PLC.......................... 17,600 107,390
Schroders PLC.............................. 3,200 67,966
Scottish & New Castle PLC(b)............... 1,000 9,517
Scottish Power PLC(b)...................... 13,600 78,127
Sears...................................... 88,800 143,385
Sedgwick Group............................. 24,700 46,401
Seeboard PLC(b)............................ 200 1,633
Slough Estate PLC.......................... 5,300 18,021
Smith Industries........................... 4,100 40,485
Smithkline Beecham, Class A................ 12,900 142,202
Smithkline Beecham......................... 50,400 549,320
Southern Electric PLC(b)................... 200 2,807
Southern Water PLC......................... 1,700 18,159
</TABLE>
See Notes to Financial Statements.
60
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
T & N PLC.................................. 4,200 $ 10,564
Tarmac PLC................................. 12,600 20,148
Tate & Lyle PLC............................ 1,000 7,328
Taylor Woodrow PLC......................... 5,200 9,486
Tesco...................................... 77,700 358,290
Thames Water PLC........................... 22,800 198,944
Thorn EMI PLC(b)........................... 7,100 167,226
TI Group PLC(b)............................ 5,500 39,195
Trafalgar House PLC(b)..................... 12,600 5,428
Unigate Limited............................ 600 3,829
Unilever PLC............................... 13,500 277,301
United Biscuits PLC........................ 1,400 5,564
Vodafone Group............................. 26,200 93,762
Williams Holdings.......................... 7,900 40,231
Willis Corroon PLC......................... 3,200 7,005
Wimpey George PLC.......................... 4,900 10,955
Wolseley................................... 7,500 52,517
Zeneca Group............................... 8,900 172,172
------------
14,106,784
------------
TOTAL COMMON STOCKS
(COST $68,762,442)........................ 74,297,122
------------
PREFERRED STOCKS--0.6%
AUSTRALIA--0.1%
News Corp., Limited Voting Preferred Voting
Shares................................... 24,100 112,761
------------
FRANCE--0.0%
Casino Guich-Perr, Preferred Shares........ 50 1,135
------------
GERMANY--0.5%
Allianz AG, Preferred Shares Nonvoting..... 200 393,495
Kloeckner AG, Preferred Shares Nonvoting... 500 3,022
Lufthansa AG, Preferred Shares Nonvoting... 50 6,550
Man AG, Preferred Shares Nonvoting......... 50 10,753
RWE AG, Preferred Shares Nonvoting......... 150 41,921
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
GERMANY (CONTINUED)
SAP AG, Preferred Nonvoting........... 500 $ 76,085
Volkswagon AG, Preferred Shares
Nonvoting........................... 50 12,150
------------
543,976
------------
TOTAL PREFERRED STOCKS
(COST $580,168)...................... 657,872
------------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE OBLIGATION--12.6%
GERMANY--12.6%
Bundeslaender Versicher
(cost $12,896,203).................. 8.63% 2/20/96 18,700** 13,143,650
------------
SHORT-TERM INVESTMENTS--13.4%
U.S. TREASURY BILLS--13.4%
U.S. Treasury Bill.................... 5.61%* 2/8/96 1,000 994,320
U.S. Treasury Bill.................... 5.48%* 2/15/96 2,000 1,986,675
U.S. Treasury Bill.................... 5.54%* 3/7/96 2,500 2,478,150
U.S. Treasury Bill.................... 5.07%* 3/28/96 1,600 1,581,232
U.S. Treasury Bill(c)................. 5.35%* 5/2/96 3,500 3,441,883
U.S. Treasury Bill.................... 5.65%* 7/25/96 1,500 1,457,802
U.S. Treasury Bill.................... 5.61%* 8/22/96 1,150 1,113,305
U.S. Treasury Bill(c)................. 5.61%* 9/19/96 1,000 964,475
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $14,002,418)................... 14,017,842
------------
TOTAL INVESTMENTS
(COST $96,241,231)(A)--97.8%......... 102,116,486
Other assets in excess of liabilities--
2.2%................................. 2,272,891
------------
NET ASSETS--100.0%..................... $104,389,377
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $104,389,377.
* Yield at purchase.
** Denominated in local currency.
See Notes to Financial Statements.
62
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $ 7,077,639
Unrealized depreciation........................................ (1,202,384)
-----------
Net unrealized appreciation.................................... $ 5,875,255
===========
</TABLE>
(b) Represents non-income producing security.
(c) Securities partially or fully pledged as collateral to cover open futures
positions.
<TABLE>
<CAPTION>
Contract Contract Unrealized
Price Value (Depreciation)
-------- -------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY INVESTMENTS
CURRENCY PURCHASED:
German Deutsche Mark......................... $0.698600 $328,907 $ (3,032)
Japanese Yen(d).............................. $0.960000 504,385 (69,326)
U.K. Pound Sterling.......................... $1.552600 115,183 (1,442)
-------- --------
TOTAL FOREIGN CURRENCY INVESTMENTS
(COST $1,022,275)........................... $948,475 $(73,800)
======== ========
</TABLE>
(d) Pledged to cover margin requirements for open futures positions.
<TABLE>
<S> <C> <C> <C> <C>
FINANCIAL FUTURES
<CAPTION>
UNREALIZED
MARKET VALUE APPRECIATION
NUMBER OF COVERED (DEPRECIATION)
CONTRACTS BY CONTRACTS EXPIRATION AT 12/31/95
--------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Financial Futures Purchased
Long:
British Pound--FTSE(1)...... 57 $ 8,134,087 March 1996 $ 54,862
German Deutsche Marks--
DAX(1).................... 3 447,415 March 1996 12,404
Japanese Yen--TOPIX(1)...... 120 18,426,486 March 1996 851,509
Financial Futures Sold Short:
German Deutsche Marks(2).... 130 $11,340,875 March 1996 (71,500)
Japanese Yen(2) 69 8,491,312 March 1996 101,775
--------
$949,050
========
</TABLE>
(1) Exchange traded local currency denominated futures contracts.
(2) U.S. Dollar denominated futures contracts.
See Notes to Financial Statements.
63
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--33.6%
ASSET-BACKED SECURITIES--7.0%
Advanta Mortgage Loan Trust,
Series 1994-3, Class A2............... 7.60% 7/25/10 $ 3,915 $ 4,045,170
First Federal Savings & Loan
Association, Chicago, Mortgage Backed
Certificates, Series A, Passthrough
Notes(b).............................. 8.75% 6/1/06 7 7,113
Green Tree Home Improvement Loan Trust,
Series 1994-B1, Class A1.............. 7.15% 7/15/14 1,045 1,071,326
MBNA Master Credit Card Trust,
Series 1994-C, Class A................ 6.25% 3/15/04 1,655 1,661,206
Midlantic Auto Grantor Trust,
Series 1992-1, Class A................ 4.30% 9/15/97 125 124,509
Olympic Automobiles Receivables Trust,
Series 1995-D......................... 6.15% 7/15/01 2,300 2,333,781
People's Bank Credit Card Master Trust,
Series 1993-1, Class A................ 4.80% 12/15/99 2,480 2,476,352
Security Pacific Acceptance Corp.,
Series 1995-1......................... 7.25% 4/10/20 2,000 2,119,118
------------
13,838,575
------------
BANKING--11.3%
AAB, Global Bond, Bank Guaranteed....... 7.25% 5/31/05 2,800 2,998,192
Chase Manhattan Corp., Subordinate Note. 9.75% 11/1/01 2,500 2,949,827
Chevy Chase Auto Receivables Trust
Class A............................... 5.80% 6/15/02 3,000 3,015,687
First Union Corp., Subordinate Note..... 6.88% 9/15/05 3,000 3,129,951
Mellon Financial Co., Senior Notes...... 7.63% 11/15/99 2,310 2,449,360
Midland Bank PLC, Subordinate Notes..... 8.63% 12/15/04 2,230 2,568,289
Norwest Corp., Medium Term Note......... 7.75% 3/1/02 1,500 1,639,203
Saloman, Inc. Senior Notes.............. 6.70% 12/1/98 3,700 3,724,901
------------
22,475,410
------------
ENTERTAINMENT--3.2%
News America Holdings................... 8.50% 2/15/05 2,500 2,821,893
Time Warner Entertainment............... 9.63% 5/1/02 3,000 3,476,898
------------
6,298,791
------------
FINANCE--2.2%
Associates Corp., North America,
Corporate Notes....................... 6.63% 6/15/05 1,700 1,757,470
Chemical Master Credit Card Trust,
Series 1995-3, Class A................ 6.23% 4/15/02 2,500 2,556,748
------------
4,314,218
------------
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
HEALTH CARE & HOSPITAL MANAGEMENT--2.2%
Columbia HCA/Health, Medium Term Note... 6.87% 9/15/03 $ 4,250 $ 4,421,896
------------
HOTELS AND GAMING--1.4%
Marriot International, Inc., Senior
Note.................................. 7.88% 4/15/05 2,500 2,718,953
------------
INDUSTRIAL--3.9%
ITT Corp., Debentures................... 7.38% 11/15/15 5,000 5,132,450
TCI Communications, Senior Notes........ 8.00% 8/1/05 2,500 2,672,875
------------
7,805,325
------------
RETAIL STORES--1.3%
Dayton Hudson Credit Card Master Trust,
Series 1995-1, Class A................ 6.10% 2/25/02 2,500 2,543,247
------------
SUPRANATIONALS--0.6%
European Investment Bank................ 8.88% 3/1/01 1,000 1,143,335
------------
UTILITIES--0.5%
West Texas Utilities.................... 6.38% 10/1/05 1,000 1,017,028
------------
TOTAL CORPORATE OBLIGATIONS
(COST $64,213,422)..................... 66,576,778
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--7.5%
Federal Farm Credit Bank,
Medium Term Note...................... 7.00% 4/18/97 6,000 6,032,004
Federal Home Loan Mortgage Corporation,
Debenture............................. 7.35% 3/22/05 8,000 8,807,624
Federal Home Loan Mortgage Corporation,
Pool #555124 ......................... 9.50% 12/1/18 1 1,010
Government National Mortgage
Association, Pool #304382............. 8.50% 3/15/23 64 67,206
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $14,201,890)..................... 14,907,844
------------
U.S. GOVERNMENT OBLIGATIONS--47.5%
U.S. TREASURY BOND--0.6%
U.S. Treasury Bond...................... 8.13% 8/15/19 1,000 1,257,812
------------
U.S. TREASURY NOTES--46.9%
U.S. Treasury Note...................... 5.88% 5/31/96 2,650 2,657,449
U.S. Treasury Note...................... 7.88% 1/15/98 2,900 3,048,625
U.S. Treasury Note...................... 5.38% 5/31/98 375 376,288
U.S. Treasury Note...................... 5.13% 6/30/98 400 399,125
U.S. Treasury Note...................... 4.75% 10/31/98 19,000 18,750,625
U.S. Treasury Note...................... 5.00% 1/31/99 550 546,046
U.S. Treasury Note...................... 6.88% 8/31/99 1,785 1,875,921
U.S. Treasury Note...................... 7.13% 9/30/99 165 174,900
U.S. Treasury Note...................... 7.88% 11/15/99 990 1,076,625
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
U.S. Treasury Note...................... 7.75% 11/30/99 $ 2,440 $ 2,644,350
U.S. Treasury Note...................... 7.75% 1/31/00 12,100 13,151,187
U.S. Treasury Note...................... 8.50% 2/15/00 830 925,708
U.S. Treasury Note...................... 6.88% 3/31/00 800 846,250
U.S. Treasury Note...................... 6.13% 7/31/00 5,000 5,150,000
U.S. Treasury Note...................... 8.75% 8/15/00 1,870 2,125,369
U.S. Treasury Note...................... 7.50% 11/15/01 18,050 19,900,125
U.S. Treasury Note...................... 7.50% 5/15/02 150 166,500
U.S. Treasury Note...................... 7.25% 5/15/04 1,500 1,669,217
U.S. Treasury Note...................... 7.25% 8/15/04 2,365 2,631,063
U.S. Treasury Note...................... 7.88% 11/15/04 9,700 11,236,829
U.S. Treasury Note...................... 7.63% 2/15/25 3,000 3,666,558
------------
93,018,760
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $90,128,484)..................... 94,276,572
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $168,543,796).................... 175,761,194
------------
SHORT-TERM INVESTMENT--10.5%
REPURCHASE AGREEMENT--10.5%
Repurchase Agreement with National
Westminster Bank dated 12/29/95, with
a maturity value of $20,870,094 (See
Footnote A)........................... 5.65% 1/2/96 20,857 20,857,000
------------
TOTAL SHORT-TERM INVESTMENT (COST
$20,857,000)........................... 20,857,000
------------
TOTAL INVESTMENTS--99.1%
(COST $189,400,796)(A)................. 196,618,194
Other assets in excess of liabilities--
0.9%................................... 1,665,477
------------
NET ASSETS--100.0%....................... $198,283,671
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $198,283,671.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $7,224,889
Unrealized depreciation......................................... (7,491)
----------
Net unrealized appreciation..................................... $7,217,398
==========
</TABLE>
(b) Illiquid security.
Footnote A: Collateralized by $22,100,000 U.S. Treasury Bill due 9/19/96, with
a value of $21,293,129.
See Notes to Financial Statements.
66
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--50.2%
ASSET-BACKED SECURITIES--7.7%
Advanta Mortgage Loan Trust,
Series 1994-3, Class A2............... 7.60% 7/25/10 $ 1,625 $ 1,679,030
First U.S.A. Credit Card Master Trust,
Series 1992-1, Class A................ 5.20% 6/15/98 833 832,116
Green Tree Financial Corporation,
Manufactured Housing Senior
Subordinate Passthrough,
Series 1995-4, Class A6............... 7.30% 7/15/25 3,000 3,169,227
Security Pacific Acceptance Corp.
Manufactured Housing Contract
Senior Subordinate, Series 1995-1,
Class A3.............................. 7.25% 4/10/20 2,000 2,119,118
Standard Credit Card Master Trust I,
Participation Certificates,
Series 1994-2, Class A................ 7.25% 4/7/06 1,800 1,945,636
------------
9,745,127
------------
BANKING--15.8%
ABN-AMRO Bank N.V., Chicago Subordinate
Note.................................. 7.25% 5/31/05 2,000 2,141,566
Chase Manhattan Corp.,
Subordinate Note...................... 9.75% 11/1/01 2,000 2,359,862
Chemical Master Credit Card Trust I,
Series 1995-3, Asset-Backed CTF, Class
A..................................... 6.23% 4/15/05 1,000 1,022,699
Chevy Chase Auto Receivables Trust,
Series 1995-2 Class A................. 5.80% 6/15/02 2,000 2,010,458
First Union Corp., Subordinate Note..... 6.88% 9/15/05 2,000 2,086,634
Interamerican Development Bank,
Debentures............................ 8.50% 3/15/11 1,800 2,152,114
Interamerican Development Bank,
Debentures............................ 7.00% 6/15/25 2,200 2,347,633
International Bank for Reconstruction
and Development Debentures............ 9.64% 4/30/99 1,500 1,685,392
Midland Bank PLC, Subordinate Note...... 8.63% 12/15/04 1,500 1,727,549
Solomon, Inc., Senior Notes............. 6.70% 12/1/98 2,500 2,516,825
------------
20,050,732
------------
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
BEVERAGE, FOOD AND TOBACCO--0.7%
Grand Metro Investment Corp.,
Guaranteed Note....................... 7.13% 9/15/04 $ 800 $ 854,929
------------
CABLE TV SYSTEMS--3.0%
Cablevision Industries Corp., Senior
Debentures............................ 9.25% 4/1/08 3,500 3,797,500
------------
CHEMICALS--1.4%
Monsanto Co., Debenture................. 8.20% 4/15/25 1,500 1,725,809
------------
ENTERTAINMENT--2.2%
News America Holdings, Senior Note...... 8.50% 2/15/05 2,500 2,821,893
------------
FINANCE--2.0%
American Express Co., Debentures........ 8.63% 5/15/22 800 911,707
Sears Credit Master Trust II,
Series 1995-3, Class A................ 7.00% 10/15/04 1,600 1,679,742
------------
2,591,449
------------
FOREST AND PAPER PRODUCTS--0.7%
Weyerhaeuser Co., Debentures............ 8.38% 2/15/07 800 943,652
------------
HEALTH CARE & HOSPITAL MANAGEMENT--3.8%
Coastal Corp. .......................... 7.75% 10/15/35 2,000 2,136,354
Columbia/HCA Healthcare Corp. .......... 7.58% 9/15/25 2,500 2,723,243
------------
4,859,597
------------
HOTELS AND GAMING--1.7%
Marriott International, Inc., Senior
Note, Series B........................ 7.88% 4/15/05 2,000 2,175,162
------------
RETAIL STORES--5.8%
Dayton Hudson Credit Card Master Trust
Series 95-1, Class A.................. 6.10% 2/25/02 1,500 1,525,948
Dayton Hudson Corp., Debenture.......... 7.88% 6/15/23 1,800 1,867,500
Federated Department Stores, Senior
Notes................................. 8.13% 10/15/02 4,000 4,040,000
------------
7,433,448
------------
TELECOMMUNICATIONS--4.6%
ITT Corp................................ 7.75% 11/15/25 2,000 2,052,980
TCI Communications, Inc. ............... 8.75% 8/1/15 3,500 3,862,891
------------
5,915,871
------------
</TABLE>
See Notes to Financial Statements.
68
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
UTILITIES--0.8%
West Texas Utilities First Mortgage,
Series U............................. 6.38% 10/1/05 $ 1,000 $ 1,017,028
------------
TOTAL CORPORATE OBLIGATIONS
(COST $60,247,885).................... 63,932,197
------------
U.S. GOVERNMENT OBLIGATIONS--40.1%
U.S. TREASURY BONDS--8.0%
U.S. Treasury Bond..................... 10.75% 5/15/03 1,000 1,314,686
U.S. Treasury Bond..................... 11.13% 8/15/03 3,500 4,702,026
U.S. Treasury Bond..................... 12.00% 8/15/13 1,760 2,717,000
U.S. Treasury Bond..................... 9.88% 11/15/15 1,000 1,448,125
------------
10,181,837
------------
U.S. TREASURY NOTES--32.1%
U.S. Treasury Note..................... 5.88% 5/31/96 3,850 3,860,822
U.S. Treasury Note..................... 4.75% 2/15/97 3,500 3,483,588
U.S. Treasury Note..................... 7.88% 1/15/98 700 735,875
U.S. Treasury Note..................... 5.00% 1/31/99 6,450 6,403,631
U.S. Treasury Note..................... 7.75% 11/30/99 1,500 1,625,625
U.S. Treasury Note..................... 6.75% 4/30/00 6,200 6,527,428
U.S. Treasury Note..................... 7.75% 2/15/01 2,000 2,210,000
U.S. Treasury Note..................... 7.50% 11/15/01 6,000 6,615,000
U.S. Treasury Note..................... 7.25% 5/15/04 8,500 9,458,894
------------
40,920,863
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $48,518,853).................... 51,102,700
------------
U.S. GOVERNMENT AGENCY
OBLIGATION--0.1%
Government National Mortgage
Association, Pool #201299 (cost
$77,388).............................. 8.50% 2/15/17 77 81,023
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $108,844,126)................... $115,115,920
------------
</TABLE>
See Notes to Financial Statements.
69
<PAGE>
PRAIRIE FUNDS
BOND FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--8.8%
REPURCHASE AGREEMENT--8.8%
Repurchase agreement with National
Westminster Bank dated 12/29/95, with a
maturity value of $11,174,010 (see
Footnote A)............................ 5.65% 1/2/96 $11,167 $ 11,167,000
------------
TOTAL SHORT-TERM INVESTMENT
(COST $11,167,000)...................... 11,167,000
------------
TOTAL INVESTMENTS
(COST $120,011,126)(A)--99.2%........... 126,282,920
Other assets in excess of liabilities--
0.8%.................................... 1,025,749
------------
NET ASSETS--100.0%........................ $127,308,669
============
</TABLE>
- -----------
Percentages are based on net assets of $127,308,669.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $6,271,794
Unrealized depreciation......................................... --
----------
Net unrealized appreciation..................................... $6,271,794
==========
</TABLE>
Footnote A: Collateralized by $11,300,000 U.S. Treasury Note, 5.63%, due
10/31/97; with a value of $11,480,710.
See Notes to Financial Statements.
70
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000)* (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--5.3%
BRITISH POUNDS STERLING--1.3%
Barclays Bank........................... 10.25% 12/10/97 120 $ 197,956
-----------
FRENCH FRANCS--1.9%
Unilever NV............................. 9.88% 9/4/97 1,300 284,768
-----------
JAPANESE YEN--2.1%
Export-Import Bank of Japan............. 4.38% 10/1/03 30,000 319,530
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $456,789)........................ 802,254
-----------
FOREIGN GOVERNMENT
OBLIGATIONS--50.0%
BELGIUM FRANCS--3.6%
Belgium Government, Series 19........... 6.50% 3/31/05 16,000 536,496
-----------
BRITISH POUNDS STERLING--3.0%
United Kingdom Exchequer................ 12.25% 3/26/99 250 451,346
-----------
CANADIAN DOLLARS--3.7%
Canadian Government..................... 9.75% 10/1/97 200 156,206
Canadian Government..................... 10.75% 3/15/98 500 402,832
-----------
559,038
-----------
DANISH KRONE--2.6%
Kingdom of Denmark...................... 9.00% 11/15/98 2,000 393,120
-----------
FINLAND--2.3%
Republic of Finland..................... 6.00% 1/29/02 30,000 346,800
-----------
FRENCH FRANCS--5.4%
France O.A.T............................ 8.50% 6/25/97 2,800 599,348
France O.A.T............................ 5.50% 4/25/04 1,100 210,265
-----------
809,613
-----------
GERMAN DEUTSCHEMARKS--9.2%
Austria Republic........................ 6.00% 4/1/98 600 435,555
Bundesrepublic.......................... 9.00% 10/20/00 600 488,375
Deutsche Bundespost..................... 7.50% 8/2/04 600 453,497
-----------
1,377,427
-----------
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000)* (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
ITALIAN LIRA--6.1%
Italy Government.............. 8.50% 1/1/99 15,000,000 $ 910,500
-----------
JAPANESE YEN--5.6%
Japan Development Bank........ 6.50% 9/20/01 35,000 414,155
Japan Government Bank, Series
175......................... 4.50% 12/20/04 40,000 430,240
-----------
844,395
-----------
NETHERLAND GUILDERS--5.0%
Netherland Government......... 5.75% 1/15/04 1,200 744,109
-----------
SPANISH PESETAS--3.5%
Spanish Government............ 8.00% 5/30/04 70,000 523,040
-----------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS
(COST $7,387,364)............ 7,495,884
-----------
SUPRANATIONAL OBLIGATIONS--13.4%
GERMAN DEUTSCHEMARKS--3.1%
European Investment Bank...... 7.50% 11/4/02 600 457,982
-----------
JAPANESE YEN--10.3%
Asian Development Bank........ 5.00% 2/5/03 40,000 441,080
Council of Europe............. 6.88% 3/5/01 30,000 356,250
IBRD.......................... 5.25% 3/20/02 30,000 337,890
Interamerican Development
Bank........................ 7.25% 5/15/00 35,000 415,625
-----------
1,550,845
-----------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST $2,035,096)............ 2,008,827
-----------
SHORT-TERM INVESTMENT--32.1%
U.S. TREASURY BILL--32.1%
U.S. Treasury Bill............ 5.18%** 1/4/96 4,815(b) 4,812,922
-----------
TOTAL SHORT-TERM INVESTMENT
(COST $4,812,922)............ 4,812,922
-----------
TOTAL INVESTMENTS
(COST $14,692,171)(A)--
100.8%....................... 15,119,887
Liabilities in excess of
assets--(0.8%)............... (124,599)
-----------
TOTAL NET ASSETS--100.0%....... $14,995,288
===========
</TABLE>
See Notes to Financial Statements.
72
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
- -----------
Percentages indicated are based on net assets of $14,995,288.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $427,716
Unrealized depreciation........................................... --
--------
Net unrealized appreciation....................................... $427,716
========
</TABLE>
(b) Denominated in U.S. dollars.
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACT
Principal Market
Amount in Value
Local in U.S. Unrealized
Currency Proceeds Dollars Appreciation
--------- -------- ------- ------------
<S> <C> <C> <C> <C>
Japanese Yen, expiring 2/10/96 300,000,000 $3,036,130 $2,928,038 $108,092
========
</TABLE>
* Numbers are presented in local currency unless otherwise indicated.
** Yield at purchase.
See Notes to Financial Statements.
73
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS--98.9%
ALASKA--0.7%
Alaska Student Loan Corp.,
Student Loan Revenue,
State Assisted, Series A
(A.M.T.)................. A/A 5.50% 7/1/04 $ 1,000 $ 1,007,940
North Slope Boro Refunding,
Series G (FSA Insured)... Aaa/AAA 8.35% 6/30/98 1,500 1,650,360
------------
2,658,300
------------
ARIZONA--1.3%
Maricopa County University
School District No. 41,
Series C, Collateralized
by U.S. Government
Securities (Pre-refunded
at 100 on 7/1/04)(FGIC
Insured)................. Aaa/AAA 6.10% 7/1/14 2,000 2,219,600
Pima County Refunding,
Series A................. Aa/A+ 5.00% 7/1/02 3,000 3,103,440
------------
5,323,040
------------
CALIFORNIA--12.5%
California Health
Facilities Financing
Authority Revenue
Refunding, Catholic
Health Facilities
Insured, Series B (AMBAC
Insured)................. Aaa/AAA 4.50% 7/1/02 2,500 2,506,275
California Health
Facilities Financing, St.
Joseph's Health Systems,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
7/1/99).................. NR/AA- 6.90% 7/1/14 6,750 7,490,137
</TABLE>
See Notes to Financial Statements.
74
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Central Valley Financing
Authority,
Califcogeneration Project
Revenue, Carson Ice
Generation Project....... NR/BBB- 5.50% 7/1/01 $ 975 $ 993,515
Central Valley Financing
Authority,
Califcogeneration Project
Revenue, Carson Ice
Generation Project....... NR/BBB- 5.40% 7/1/00 2,550 2,598,909
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.10% 12/1/03 1,570 1,626,834
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.10% 12/1/03 635 657,987
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.00% 12/1/02 1,500 1,548,900
Los Angeles Wastewater
Systems Revenue, Series A
(MBIA Insured)........... Aaa/AAA 8.50% 6/1/00 1,360 1,592,519
MSR Public Power Agency
California, San Juan
Project
Revenue Refunding, Series F
(AMBAC Insured).......... Aaa/AAA 5.55% 7/1/02 1,615 1,721,429
Northern California Power
Agency, Public Power
Refunding, Geothermal
Project #3, Series A..... Aaa/AAA 5.85% 7/1/10 4,625 4,983,946
Northern California Power
Agency, Public Power
Refunding, Series B-1,
Collateralized by U.S.
Government Securities
(Pre-refunded at 100 on
7/1/98).................. NR/AAA 8.00% 7/1/24 3,000 3,291,660
</TABLE>
See Notes to Financial Statements.
75
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.90% 7/1/02 $ 1,000 $ 1,027,670
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.80% 7/1/01 1,300 1,333,800
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.60% 7/1/99 3,300 3,373,557
South Coast Air Quality
Management District
Building Corp.,
California Revenue
Institutional Sale,
Series B, (Pre-refunded
at 102 on 8/1/99)........ Aaa/AAA 7.13% 8/1/14 3,650 4,092,270
University of California
Revenue Refunding,
Multiple Purpose Projects
(MBIA Insured)........... Aaa/AAA 6.20% 9/1/01 6,675 7,312,129
University of California
Revenue Refunding,
Multiple Purpose
Projects, Series B (MBIA
Insured)................. Aaa/AAA 4.90% 9/1/08 3,140 3,064,514
------------
49,216,051
------------
COLORADO--8.3%
Adams County Single Family
Mortgage Revenue, Series
A, Collateralized by U.S.
Government Securities.... Aaa/AAA 8.88% 8/1/03 1,230 1,579,037
Denver City and County
Airport, Series A
(A.M.T.)................. Baa/BB 7.40% 11/15/04 200 224,006
Denver City and County
Airport, Series A........ Aaa/AAA 8.50% 11/15/07 2,000 2,344,740
Denver City and County
Airport, Series A........ B/BB 8.00% 11/15/17 4,215 4,505,624
Denver City and County
Airport, Series A........ NR/NR 8.00% 11/15/25 1,360 1,542,158
</TABLE>
See Notes to Financial Statements.
76
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
COLORADO (CONTINUED)
Denver City and County
Airport, Series B
(A.M.T.)................. NR/NR 7.25% 11/15/05 $ 2,000 $ 2,195,120
Denver City and County
Airport, Series C........ B/BB 6.55% 11/15/03 1,145 1,219,425
Denver City and County
Airport, Series D........ B/BB 7.30% 11/15/00 2,900 3,171,556
Denver City & County Water
Refunding................ Aa/AA 7.00% 10/1/99 8,665 9,548,137
Denver Metropolitan Major
League Baseball Stadium,
Colorado Revenue
Refunding, Sales Tax,
Baseball Stadium Project
(FGIC Insured)........... Aaa/AAA 4.60% 10/1/05 2,000 1,982,040
Poudre Valley Hospital
District Revenue,
Collateralized by U.S.
Government Securities,
(Pre-refunded at 101 on
12/1/01) (AMBAC Insured). Aaa/AAA 6.63% 12/1/01 3,750 4,243,163
------------
32,555,006
------------
DISTRICT OF COLUMBIA--4.9%
District of Columbia,
Series A, Collateralized
by U.S. Government
Securities (Pre-refunded
at 102 on 6/1/00)........ Aaa/AAA 7.25% 6/1/05 1,125 1,283,299
District of Columbia
Hospital Revenue,
Washington Hospital
Center Corp. Issue,
Series A, Collateralized
by U.S. Government
Securities (Pre-refunded
at 102 on 1/1/01)........ NR/BBB 8.75% 1/1/15 2,750 3,330,608
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia Refunding,
Series A-1 (MBIA Insured).... Aaa/AAA 4.75% 6/1/03 $ 2,960 $ 2,950,735
District of Columbia Refunding,
Series A-1 (MBIA Insured).... Aaa/AAA 4.65% 6/1/02 1,500 1,494,180
District of Columbia Refunding,
Series B-1 (AMBAC Insured)... Aaa/AAA 5.10% 6/1/03 3,000 3,055,530
District of Columbia Refunding,
Series B-1 (AMBAC Insured)... Aaa/AAA 5.40% 6/1/06 4,850 4,966,303
District of Columbia Refunding,
Series B-3 (MBIA Insured).... Aaa/AAA 5.20% 6/1/04 2,000 2,040,920
------------
19,121,575
------------
FLORIDA--3.6%
Florida State Board of
Education Capital Outlay
Refunding, Series A,
Collateralized by U.S.
Government Securities (Pre-
refunded at 102 on 6/1/00)... Aaa/AAA 7.25% 6/1/23 4,620 5,282,185
Orlando Utilities Commission
Water & Electric Revenue,
Series A..................... Aa/AA 5.25% 10/1/23 7,500 7,343,775
Orlando Utilities Commission
Water & Electric Revenue,
Series D..................... Aa/AA- 5.00% 10/1/23 1,500 1,431,705
------------
14,057,665
------------
GEORGIA--6.0%
Georgia State,
General Obligation........... Aaa/AA+ 7.25% 9/1/04 9,440 11,310,253
</TABLE>
See Notes to Financial Statements.
78
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
Georgia State,
General Obligation....... Aaa/AA+ 7.25% 9/1/05 $ 10,130 $ 12,235,014
------------
23,545,267
------------
HAWAII--2.5%
Hawaii State Department of
Budget & Finance Special
Purpose Mortgage Revenue,
Kapiolani Healthcare
System................... A/A 5.60% 7/1/02 2,065 2,130,770
Hawaii State Refunding,
Series C................. Aa/AA 4.25% 7/1/99 7,500 7,549,800
------------
9,680,570
------------
ILLINOIS--12.2%
Chicago Metropolitan Water
Reclamation District..... Aa/AA 5.00% 12/1/02 4,500 4,671,720
Chicago Public Community
Building Revenue, Series
A (MBIA Insured)......... Aaa/AAA 4.90% 12/1/01 3,000 3,087,600
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.20% 10/1/03 750 753,743
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.10% 10/1/02 1,180 1,185,263
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.00% 10/1/01 1,120 1,124,357
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 4.90% 10/1/00 825 827,714
</TABLE>
See Notes to Financial Statements.
79
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.10% 8/1/08 $ 1,000 $ 1,033,280
Illinois State Sales Tax
Revenue, Series S..... A1/AAA 4.85% 6/15/06 11,300 11,276,722
Illinios State Toll
Highway Authority,
Toll Highway Priority
Revenue, Series A..... A1/A 3.50% 1/1/05 4,000 3,630,240
Illinois Health
Facilities Authority
Revenue Refunding,
Illinois Memorial
Hospital.............. VMIG1/NR 5.60% 1/1/16 1,930 1,930,000
Metropolitan Pier &
Exposition Authority,
Illinois Dedicated
State Tax Revenue..... A/A+ 6.40% 6/1/03 10,495 11,636,226
Metropolitan Pier &
Exposition Authority,
Illinois Dedicated
State Tax Revenue..... A/A+ 6.50% 6/1/05 2,960 3,336,482
Regional Transportation
Authority, Series A
(AMBAC Insured)....... Aaa/AAA 8.00% 6/1/03 2,785 3,357,067
------------
47,850,414
------------
IOWA--0.8%
Iowa Student Loan
Liquidity Corp.
Student Loan Revenue,
Series A.............. Aa1/NR 6.00% 3/1/98 3,000 3,104,850
------------
INDIANA--3.1%
Indiana Bond Bank,
Special Program,
Series A-2............ A/NR 4.75% 11/1/02 375 374,760
Indiana Bond Bank,
Special Program,
Series A-2............ A/NR 4.65% 11/1/01 375 374,599
Indiana Bond Bank
Revenue Guarantee,
State Revolving Fund
Program, Series A..... NR/A 5.80% 2/1/02 500 527,185
</TABLE>
See Notes to Financial Statements.
80
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
INDIANA (CONTINUED)
Indiana Bond Bank Revenue
Guarantee, State Revolving
Fund Program, Series A.... NR/A 5.60% 2/1/05 $ 700 $ 727,230
Indiana Health Facility,
Funding Authority Revenue,
Capital Access Designated
Pool...................... VMIG1/NR 5.60% 12/1/10 1,000 1,000,000
Indiana State Office
Community Building Capital
Complex Revenue Refunding,
State Office Building II
Facilities, Series D...... A1/A+ 6.50% 7/1/99 3,000 3,187,590
Indianapolis Economic
Development Water
Facilities Revenue
Refunding, Indianapolis
Water Co. Project......... A1/A+ 5.20% 5/1/01 5,810 5,948,162
------------
12,139,526
------------
MASSACHUSETTS--3.9%
Massachusetts Bay
Transportation Authority,
General Transportation
Systems, Series A,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
3/1/01)................... Aaa/A+ 7.00% 3/1/22 3,500 4,000,500
Massachusetts Municipal
Wholesale Electric Company
Supply System Revenue,
Series B.................. Aaa/AAA 4.50% 7/1/04 4,215 4,163,703
Massachusetts State General
Obligation, Series B...... A/A+ 9.25% 7/1/00 2,000 2,400,240
Massachusetts State
Refunding, Series A....... A1/A+ 6.25% 7/1/02 4,500 4,949,190
------------
15,513,633
------------
</TABLE>
See Notes to Financial Statements.
81
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEVADA--3.4 %
Clark County General
Obligation................ A1/A+ 7.00% 9/1/00 $ 6,705 $ 7,482,914
Las Vegas Refunding......... A1/A 6.40% 10/1/03 2,250 2,488,680
Nevada State Municipal Bond
Bank Project No. R-5,
Series A.................. Aa/AA 6.00% 5/1/02 1,000 1,083,500
Nevada State Municipal Bond
Bank Project No. R-5,
Series A.................. Aa/AA 4.50% 11/1/02 1,020 1,026,212
Nevada State Refunding,
Series C.................. Aa/AA 5.90% 4/1/01 1,000 1,074,230
------------
13,155,536
------------
NEW YORK--8.9%
New York City, General
Obligation, Series F...... Aaa/AAA 3.00% 11/15/00 3,000 2,857,260
New York City Municipal
Water Financing Authority
Water & Sewer Systems
Revenue, Series C,
Collateralized by U.S.
Government Securities
(Pre-refunded at 101.5 on
6/15/01) (FGIC Insured)... Aaa/AAA 7.00% 6/15/16 3,805 4,369,548
New York State Local
Assistance Corp., Series
A, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.25% 4/1/18 2,000 2,319,020
New York State Local
Assistance Corp., Series
B, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.50% 4/1/20 4,255 4,983,456
</TABLE>
See Notes to Financial Statements.
82
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Local
Assistance Corp., Series
C, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.00% 4/1/21 $ 825 $ 946,960
New York State Throughway
Authority, Highway &
Bridge Traffic Fund,
Series A.................. A/A- 6.00% 4/1/99 17,025 17,736,645
Triborough Bridge & Tunnel
Authority, New York
Revenue, Series R,
Collateralized by U.S.
Government Securities
(Pre-refunded at 100 on
1/1/00)................... Aaa/AAA 6.00% 1/1/20 1,500 1,604,865
------------
34,817,754
------------
NORTH CAROLINA--0.8%
North Carolina Municipal
Power Agency No. 1,
Catawba Electric Revenue,
(MBIA Insured)............ Aaa/AAA 7.25% 1/1/07 2,500 2,989,300
------------
PENNSYLVANIA--10.7%
Geisinger Authority Health
Systems, Series A......... NR/NR 5.50% 7/1/03 2,895 3,063,489
Pennsylvania
Intergovernmental
Cooperative Authority,
Special Tax Revenue, City
of Philadelphia Funding
Program Collateralized by
U.S. Government Securities
(Pre-refunded at 100 on
6/15/02).................. Aaa/AAA 6.80% 6/15/22 9,375 10,662,094
Pennsylvania
Intergovernmental
Cooperative Authority,
Special Tax Revenue, City
of Philadelphia Funding
Program (FGIC Insured).... Aaa/AAA 6.00% 6/15/00 7,000 7,497,280
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Gas Works
Revenue, Fourteenth
Series.................... Aaa/AAA 7.00% 7/1/02 $12,090 $ 13,759,992
Philadelphia Gas Works
Revenue, Fifteenth Series
(FSA Insured)............. Aaa/AAA 4.90% 8/1/02 1,350 1,378,903
Pittsburgh Water & Sewer
Authority, Water & Sewer
System Revenue, Series A,
(Pre-refunded at 102 on
9/1/01)................... Aaa/AAA 6.50% 9/1/14 5,000 5,642,850
------------
42,004,608
------------
SOUTH CAROLINA--1.3%
South Carolina State Public
SVC Authority Revenue,
Series A.................. A1/A+ 5.00% 7/1/01 5,000 5,137,900
------------
TENNESSEE--1.3%
Chattanooga-Hamilton County,
Hospital Authority
Hospital Revenue, Enlanger
Medical Center............ Aaa/AAA 5.63% 10/1/09 5,000 5,274,550
------------
TEXAS--1.2%
Dallas Independent School
District, Collateralized
by U.S. Government
Securities................ Aa/AAA 8.70% 8/1/00 1,000 1,188,280
Humble Independent School
District Refunding
(PSFG Insured)............ Aaa/AAA 6.00% 2/15/04 2,035 2,203,132
Texas State Public Financing
Authority, Series A....... Aa/AA 8.00% 10/1/99 1,000 1,134,560
------------
4,525,972
------------
VIRGINIA--1.7%
Fairfax County Refunding,
Series A.................. Aaa/AAA 5.80% 6/1/02 5,250 5,373,060
Virginia Beach Public
Improvement, Series A..... Aa/AA 6.85% 5/1/99 1,100 1,187,384
------------
6,560,444
------------
</TABLE>
See Notes to Financial Statements.
84
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
WASHINGTON--2.3%
King County General
Obligation, Series A. Aa1/AA+ 9.00% 12/1/99 $ 1,200 $ 1,407,888
Snohomish County Public
Utilities District
No. 001, Electric
Revenue Generation
System,
Series B (A.M.T.).... A1/A+ 5.15% 1/1/03 1,280 1,299,533
Washington State Health
Care Facility
Authority Revenue,
Fred Hutchinson
Cancer............... VMIG1/NR 6.00% 1/1/18 450 450,000
Washington State Health
Care Facility
Authority Revenue,
Fred Hutchinson
Cancer............... VMIG1/NR 6.00% 1/1/18 1,335 1,335,000
Washington State Public
Power Supply Systems,
Nuclear Project No. 1
Revenue, Series A,
Collateralized by
U.S. Government
Securities (Pre-
refunded at 102 on
7/1/99) (MBIA
Insured)............. Aaa/AAA 7.50% 7/1/15 1,420 1,603,279
Washington State Public
Power Supply Systems,
Nuclear Project No. 2
Revenue, Series B
(MBIA Insured)....... Aaa/AAA 5.10% 7/1/04 2,800 2,844,408
------------
8,940,108
------------
WEST VIRGINIA--1.7%
Pleasants County
Pollution Control
Revenue Refunding,
Monongahela Power
Co., Series B........ A1/NR 6.88% 4/1/98 6,105 6,502,558
------------
</TABLE>
See Notes to Financial Statements.
85
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
WISCONSIN--5.8%
Wisconsin Health
Facility Authority
Revenue, Franciscan
Health Care.......... VMIG1/A-1+ 5.50% 1/1/16 $ 235 $ 235,000
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/01 3,950 4,454,652
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/02 4,155 4,750,328
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/03 4,625 5,345,205
Wisconsin State General
Obligation, Series 2. Aa/AA 5.13% 11/1/08 3,000 3,039,270
Wisconsin State
Refunding, Series 3.. Aa/AA 4.25% 11/1/99 4,895 4,924,908
------------
22,749,363
------------
TOTAL INVESTMENTS
(COST
$370,618,759)(A)--
98.9%................. 387,423,990
Other assets in excess
of liabilities--1.1%.. 4,446,727
------------
NET ASSETS--100.0%...... $391,870,717
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $391,870,717.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from the value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $16,805,231
Unrealized depreciation........................................ --
-----------
Net unrealized appreciation.................................... $16,805,231
===========
</TABLE>
AMBAC--American Municipal Bond Assurance Corporation.
A.M.T.--Subject to Alternative Minimum Tax.
FGIC--Financial Guaranty Insurance Company.
FSA--Financial Security Assurance.
MBIA--Municipal Bond Insurance Association.
NR--No rating available.
PSFG--Permanent School Fund Guaranty.
See Notes to Financial Statements.
86
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS--98.9%
ALASKA--0.3%
Alaska Student Loan
Corp., Student Loan
Revenue State
Assisted, Series A
(AMBAC Insured),
(A.M.T.).............. Aaa/AAA 6.13% 7/1/05 $ 800 $ 832,792
------------
ARIZONA--1.1%
Maricopa County School
District No. 028,
Kyrene Elementary,
Series B
(FGIC Insured)........ Aaa/AAA 6.00% 7/1/14 2,500 2,631,675
------------
CALIFORNIA--15.9%
Central Valley Financing
Authority,
Califogeneration
Project Revenue,
Carson Ice Generation
Project............... Bbb-/BBB- 6.00% 7/1/09 5,600 5,699,344
Cupertino Certificates
of Participation, Open
Space Acquisition
Project,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102
on 4/1/01)............ NR/NR 7.13% 4/1/16 2,675 3,064,186
Fresno Health Facilities
Revenue, Holy Cross
Health System Corp.
(MBIA Insured)........ A1/AA 5.25% 12/1/05 1,850 1,922,446
Los Angeles Wastewater
Systems Revenue,
Series D,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102
on 12/1/00) (MBIA
Insured).............. Aaa/AAA 6.70% 12/1/21 10,000 11,316,500
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A..................... Aaa/AAA 5.60% 7/1/06 3,500 3,728,620
</TABLE>
See Notes to Financial Statements.
87
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A.................... Aaa/AAA 5.65% 7/1/07 $ 4,800 $ 5,115,936
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A.................... NR/NR 5.80% 7/1/09 4,000 4,309,440
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble
Project.............. NR/BBB- 7.00% 7/1/05 1,500 1,666,005
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble
Project.............. NR/BBB- 6.20% 7/1/06 2,500 2,567,950
------------
39,390,427
------------
COLORADO--12.2%
Denver City and County
Airport Revenue,
Series A (A.M.T.).... Baa/BB 8.50% 11/15/23 2,500 2,865,025
Denver City and County
Airport Revenue,
Series A (A.M.T.).... Baa/BB 8.00% 11/15/25 2,295 2,576,229
Denver City and County
Airport Revenue,
Series B (A.M.T.).... Baa/BB 7.25% 11/15/05 3,000 3,292,680
Denver City and County
Airport Revenue,
Series C (A.M.T.).... Baa/BB 6.50% 11/15/06 2,000 2,100,160
Denver City and County
Airport Revenue,
Series C (A.M.T.).... Baa/BB 6.13% 11/15/25 9,355 9,373,242
Denver City and County
Airport Revenue,
Series D (A.M.T.).... Baa/BB 7.75% 11/15/13 6,925 8,332,160
</TABLE>
See Notes to Financial Statements.
88
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
COLORADO (CONTINUED)
Denver Metropolitan
Major League Baseball
Stadium District
Revenue Refunding,
Sales Tax, Baseball
Stadium Project
(FGIC Insured)........ Aaa/AAA 4.50% 10/1/04 $ 1,600 $ 1,593,600
------------
30,133,096
------------
FLORIDA--3.7%
Broward County
Educational Facilities
Authority Revenue,
Nova Southeastern
University Project
(Connie Lee Insured).. NR/AAA 5.70% 4/1/05 1,440 1,523,678
Florida State Board,
Education Capacity
Outlay, General
Obligation, Series D.. Aa/AA 5.13% 6/1/18 5,800 5,663,758
Orlando Florida
Utilities Commision
Water & Electric
Revenue, Series D..... Aa/AA- 5.00% 10/1/23 2,000 1,908,940
------------
9,096,376
------------
GEORGIA--12.7%
Fulton County School
District, General
Obligation............ Aa/AA 6.38% 5/1/10 5,000 5,716,650
Georgia State General
Obligation............ Aaa/AA+ 7.10% 9/1/09 8,500 10,358,185
Georgia State General
Obligation............ Aaa/AA+ 6.75% 9/1/11 10,000 11,956,500
Georgia State General
Obligation, Series F.. Aaa/AA+ 6.50% 12/1/05 3,060 3,530,750
------------
31,562,085
------------
ILLINOIS--11.0%
Chicago Airport Revenue
Refunding, 2nd Lien,
O'Hare International
Airport, Series C
(MBIA Insured)........ Aaa/AAA 5.75% 1/1/09 2,490 2,665,769
</TABLE>
See Notes to Financial Statements.
89
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
Cook County Community
College, District No.
508 Lease, Series C
(MBIA Insured)........ Aaa/NR 7.70% 12/1/04 $ 5,000 $ 6,090,800
Cook County, General
Obligation, Series B.. Aaa/AAA 5.50% 11/15/22 2,535 2,511,982
Illinois Health
Facilities Authority
Revenue Refunding, Bro
Menn Healthcare (SPA--
Bankers Trust
Co.)(FGIC Insured).... Aaa/AAA 6.00% 8/15/05 1,000 1,087,560
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.10% 8/1/08 2,600 2,686,528
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.30% 8/1/13 2,375 2,446,298
Illinois State Sales Tax
Revenue Refunding,
Series Q.............. A1/AAA 5.75% 6/15/06 5,000 5,376,300
Winnebago & Boone
Counties School
District No. 205 (CGIC
Insured).............. Aaa/AAA 7.35% 2/1/04 3,600 4,280,976
------------
27,146,213
------------
INDIANA--3.5%
Indiana State Office
Building Commission,
Correctional
Facilities Revenue,
Series A.............. Aaa/AAA 5.50% 7/1/20 5,000 5,002,100
Indiana Transmission
Financing Authority
Highway Revenue,
Series A.............. A1/A+ 6.80% 12/1/16 1,200 1,411,512
</TABLE>
See Notes to Financial Statements.
90
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
INDIANA (CONTINUED)
Indiana University
Revenue, Series K..... Aa/AA- 6.50% 8/1/05 $ 1,935 $ 2,197,289
------------
8,610,901
------------
MASSACHUSETTS--12.4%
Massachusetts Municipal
Electric Co., Power
Supply Systems
Revenue, Series B..... A/BBB+ 6.63% 7/1/03 4,535 5,060,516
Massachusetts State
Refunding, Series A... A1/A+ 6.25% 7/1/02 12,000 13,197,840
Massachusetts State
Refunding, Series B... A1/A+ 5.30% 11/1/05 2,300 2,395,611
Massachusetts State
Refunding, Series B... A1/A+ 5.40% 11/1/06 1,730 1,813,075
New England Educational
Loan Marketing Corp.,
Massachusetts Student
Loan Revenue
Refunding,
Series G.............. A1/A- 5.20% 8/1/02 8,000 8,160,480
------------
30,627,522
------------
MISSOURI--1.6%
Sikeston Electric
Revenue Refunding
(MBIA Insured)........ Aaa/AAA 6.00% 6/1/05 3,710 4,069,165
------------
NEVADA--1.9%
Clark County Industrial
Development Revenue
Refunding, Nevada
Power Co. Project,
Series C (AMBAC
Insured).............. Aaa/AAA 7.20% 10/1/22 4,115 4,711,387
------------
NEW YORK--0.8%
New York City General
Obligation, Sub Series
A-9................... A1/A+ 5.10% 8/1/18 2,000 2,000,000
------------
OHIO--2.0%
Columbus School
District, 144A*....... NR/NR 9.39% 5/1/97 688 702,076
</TABLE>
See Notes to Financial Statements.
91
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
OHIO (CONTINUED)
Ohio State Highway,
Series T............. Aa/AAA 4.80% 5/15/02 $ 1,600 $ 1,644,592
Ohio State Public
Facilities
Commission, Higher
Education Capital
Facilities, Series II
A
(AMBAC Insured)...... Aaa/AAA 4.30% 12/1/08 2,890 2,676,920
------------
5,023,588
------------
OKLAHOMA--1.5%
Oklahoma State
Industrial Authority
Revenue Refunding,
Health Facilities,
Sisters of Mercy,
Series A............. Aa/AA 5.20% 6/1/05 3,600 3,719,016
------------
PENNSYLVANIA--0.5%
Philadelphia Gas Works
Revenue, Fifteenth
Series, (FSA
Insured)............. Aaa/AAA 5.13% 8/1/05 1,220 1,248,255
------------
RHODE ISLAND--2.1%
Rhode Island Depositors
Economic Protection
Corp., Series A (FSA
and MBIA Insured).... Aaa/AAA 6.30% 8/1/05 4,640 5,182,880
------------
TENNESSEE--5.0%
Knox County Health,
Educational & Housing
Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured)....... Aaa/AAA 7.25% 1/1/08 8,900 10,731,709
Knox County Health,
Educational & Housing
Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured)....... Aaa/AAA 7.25% 1/1/09 1,360 1,649,299
------------
12,381,008
------------
</TABLE>
See Notes to Financial Statements.
92
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
TEXAS--5.9%
Texas City Industrial
Development Corp.,
Marine Terminal
Revenue Refunding,
Arco Pipe Line Co.
Project.............. A1/A 7.38% 10/1/20 $ 4,650 $ 5,791,436
Texas State College
Student Loan
(A.M.T.)............. Aa/AA 6.50% 8/1/07 4,000 4,362,360
Texas State Public
Finance Authority,
Series A............. Aa/AA 8.00% 10/1/99 3,930 4,458,821
------------
14,612,617
------------
WASHINGTON--2.8%
Chelan County Public
Utilities District
No. 001, Revenue,
Series E............. A1/A+ 5.70% 7/1/08 2,150 2,199,257
Washington State Public
Power Supply System
Nuclear Project No. 2
Revenue, Series C.... NR/AAA 7.63% 7/1/10 4,000 4,673,720
------------
6,872,977
------------
WISCONSIN--1.7%
Wisconsin State General
Obligation, Series B. Aa/AA 5.50% 5/1/09 4,160 4,290,083
------------
WYOMING--0.3%
Wyoming Community
Development
Authority, Single
Family, Series D
(FHA/VA Mortgage
Insured)............. Aa/AA 7.60% 6/1/17 800 856,440
------------
TOTAL INVESTMENTS
(COST
$231,324,230)(A)--
98.9%................. 244,998,503
Other assets in excess
of liabilities--1.1%.. 2,824,647
------------
NET ASSETS--100.0%...... $247,823,150
============
</TABLE>
See Notes to Financial Statements.
93
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
- -----------
Percentages indicated are based on net assets of $247,823,150.
* Securities exempt from registration under Rule 144A of the Securities Act
of 1993. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from the value by net unrealized appreciation of the
securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $13,674,273
Unrealized depreciation......................................... --
-----------
Net unrealized appreciation..................................... $13,674,273
===========
</TABLE>
AMBAC--American Municipal Bond Assurance Corporation.
A.M.T.--Subject to Alternative Minimum Tax.
CGIC--Capital Guaranty Insurance Corporation.
FGIC--Financial Guaranty Insurance Company.
FHA/VA--Federal Housing Association/Veterans Administration.
FSA--Financial Security Assurance.
MBIA--Municipal Bond Insurance Association.
NR--No rating available.
SPA--Standby Purchase Agreement.
See Notes to Financial Statements.
94
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amortized
Maturity Amount Cost
Description Rate Date (000) (Note 2(a))
----------- ------ -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--82.5%
U.S. TREASURY BILLS--82.5%
U.S. Treasury Bill..................... 5.35%* 1/11/96 $10,000 $ 9,985,194
U.S. Treasury Bill..................... 5.32%* 1/18/96 5,000 4,987,451
U.S. Treasury Bill..................... 5.34%* 1/25/96 10,000 9,964,400
U.S. Treasury Bill..................... 5.32%* 2/15/96 7,500 7,450,125
U.S. Treasury Bill..................... 5.30%* 3/7/96 7,500 7,427,194
U.S. Treasury Bill..................... 4.82%* 3/14/96 7,500 7,426,696
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $47,241,060).................... 47,241,060
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $47,241,060).................... 47,241,060
-----------
REPURCHASE AGREEMENTS--17.8%
Repurchase agreement with National
Westminster, dated 12/29/95, with a
maturity value of $10,206,403 (see
Footnote A).......................... 5.65% 1/2/96 10,200 10,200,000
-----------
TOTAL INVESTMENTS
(COST $57,441,060)(A)--100.3%......... 57,441,060
Liabilities in excess of other assets--
(0.3%)................................ (177,000)
-----------
NET ASSETS--100.0%...................... $57,264,060
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $57,264,060.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Yield at purchase.
Footnote A: Collateralized by $10,100,000 U.S. Treasury Note, due 03/31/97;
with a value of $10,474,323.
See Notes to Financial Statements.
95
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BANKERS ACCEPTANCES--4.9%
Bank of Tokyo............... P-1/A-1 5.81% 1/8/96 $ 5,000 $ 4,994,351
Dai-Ichi Kangyo............. P-1/A-1 5.81% 2/15/96 5,000 4,963,688
------------
TOTAL BANKERS ACCEPTANCES
(COST $9,958,039).......... 9,958,039
------------
CERTIFICATES OF DEPOSIT--39.7%
U.S. BRANCHES OF FOREIGN
BANKS--39.7%
ABN Amro.................... P-1/A-1+ 5.78% 2/1/96 7,000 7,000,494
Bank of Montreal............ P-1/A-1+ 5.78% 1/17/96 5,000 5,000,060
Banque Nationale de Paris... P-1/A-1 5.75% 2/5/96 7,000 7,000,251
Canadian Imperial Bank of
Commerce.................. P-1/A-1+ 5.60% 3/12/96 7,000 7,000,000
Commerz Bank AG............. P-1/A-1+ 5.77% 1/17/96 5,000 5,000,044
Fuji Bank, Ltd. ............ P-1/A-1 6.09% 1/18/96 7,000 7,000,099
Industrial Bank of Japan.... P-1/A-1 5.82% 1/17/96 5,000 4,999,747
Mitsubishi Bank, Ltd. ...... P-1/A-1+ 5.86% 3/6/96 7,000 7,000,849
National Westminster Bank... P-1/A-1+ 5.78% 1/16/96 5,000 5,000,054
Rabobank.................... P-1/A-1+ 5.75% 1/22/96 5,000 5,000,029
Sanwa Bank, Ltd. ........... P-1/A-1+ 6.03% 1/17/96 7,000 6,999,953
Societe Generale............ P-1/A-1 5.77% 2/2/96 7,000 7,000,392
Sumitomo Bank............... P-1/A-1 6.06% 1/18/96 7,000 7,000,066
------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $81,002,038)......... 81,002,038
------------
COMMERCIAL PAPER--43.7%
DOMESTIC--34.4%
AT&T........................ P-1/A-1+ 5.54% 3/19/96 7,000 6,915,977
Barclays Funding............ P-1/A-1+ 5.67% 1/19/96 7,500 7,478,737
Ciesco L.P. ................ P-1/A-1+ 5.70% 1/19/96 7,500 7,478,625
Corporate Asset
Funding Co., Inc. ........ P-1/A-1+ 5.65% 2/9/96 7,000 6,957,154
Exxon Imperial.............. P-1/A-1+ 5.62% 1/16/96 6,000 5,985,950
Ford Motor Credit........... P-1/A-1 5.63% 2/13/96 7,500 7,449,565
Goldman Sachs............... P-1/A-1+ 5.55% 4/2/96 7,000 6,900,717
Morgan Stanley & Co. ....... P-1/A-1+ 6.00% 1/3/96 7,000 6,997,667
Nestle Capital.............. P-1/A-1+ 5.73% 1/12/96 7,000 6,987,744
Philip Morris............... P-1/A-1 5.72% 1/19/96 7,000 6,979,980
------------
70,132,116
------------
</TABLE>
See Notes to Financial Statements.
96
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
FOREIGN--9.3%
Bayerische Vereinsbank..... P-1/A-1+ 5.73% 1/8/96 $ 7,000 $ 6,992,201
Dresdner Finance........... P-1/A-1+ 5.69% 1/3/96 5,000 4,998,419
Deutsche Bank.............. P-1/A-1+ 5.74% 1/12/96 7,000 6,987,723
------------
18,978,343
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST
$89,110,459).............. 89,110,459
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--0.0%
Small Business
Administration,
Pool #500870V*............ NR/NR 7.63% 4/25/96 6 5,887
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(AMORTIZED COST $5,887)... 5,887
------------
TOTAL INVESTMENTS IN
SECURITIES (AMORTIZED COST
$180,076,423)............. 180,076,423
------------
REPURCHASE AGREEMENTS--12.3%
Repurchase agreement with
Daiwa Securities, dated
12/29/95, with a maturity
value of $15,009,166 (see
Footnote A).............. NR/NR 5.50% 1/2/96 15,000 15,000,000
Repurchase agreement with
National Westminster
Bank, dated 12/29/95,
with a maturity value of
$10,106,431 (see
Footnote B).............. NR/NR 5.65% 1/2/96 10,100 10,100,000
------------
TOTAL REPURCHASE AGREEMENTS
(AMORTIZED COST
$25,100,000).............. 25,100,000
------------
TOTAL INVESTMENTS
(AMORTIZED COST
$205,176,423)(A)--100.6%.. 205,176,423
Liabilities in excess of
other assets--(0.6%)...... (1,117,205)
------------
NET ASSETS--100.0%.......... $204,059,218
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $204,059,218.
(a) Cost for federal income tax and financial reporting purposes are the same.
NR--No rating available.
* Variable rate security. Interest rate stated is as of December 31, 1995.
Maturity date reflects the later of the next rate change or the next put
date.
Footnote A: Collateralized by $14,800,000 U.S. Treasury Note, 5.88%, due
07/31/97; with a value of $15,313,017.
Footnote B: Collateralized by $10,000,000 U.S. Treasury Note, 6.63%, due
03/31/97; with a value of $10,287,625.
See Notes to Financial Statements.
97
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ALASKA--3.3%
City of Valdez, Marine
Terminal Revenue, CP,
Refunding, ARCO
Transportation
Project, Series A..... VMIG1/A-1 3.50% 2/5/96 $ 3,500 $ 3,500,000
City of Valdez, Marine
Terminal Revenue, CP,
Refunding, ARCO
Transportation
Project, Series A,
1994 A................ VMIG1/A-1 3.55% 1/5/96 4,000 4,000,000
------------
7,500,000
------------
ALABAMA--2.6%
Phenix City Alabama
(A.M.T.)(LC
ABN Amro)............. P-1/NR 3.55% 2/7/96 6,000 6,000,000
------------
CALIFORNIA--4.2%
Southeast Resource
Recovery Facility,
Authority of
California Lease
Revision, VRDN, Series
A, (LC Industrial Bank
of Japan Ltd)......... VMIG1/A-1 5.15%* 12/1/18 9,500 9,500,000
------------
COLORADO--4.4%
Burke County
(LC Credit Swisse).... VMIG1/A-1+ 3.40% 3/7/96 5,000 5,000,000
Colorado Student
Obligation Bond
Authority, VRDN,
Student Loan Revenue,
Series 1990A (A.M.T.)
(LC Student Loan
Marketing
Association).......... VMIG1/NR 5.20%* 9/1/24 5,000 5,000,000
------------
10,000,000
------------
FLORIDA--8.4%
Florida Municipal Power
(LC First Union)...... P-1/A-1 3.50% 2/8/96 7,500 7,500,000
West Orange Hospital
(LC Rabobank)......... VMIG1/NR 3.75% 1/3/96 5,600 5,600,000
West Orange Hospital
(LC Rabobank)......... VMIG1/NR 3.80% 1/11/96 6,000 6,000,000
------------
19,100,000
------------
</TABLE>
See Notes to Financial Statements.
98
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
GEORGIA--3.2%
Georgia Municipal Gas
(LC Wachovia Bank).... A1+/NR 3.80% 2/5/96 $ 5,000 $ 5,000,000
Thomaston--Upson County,
Industrial Development
Authority, Yamaha
Music Manufacturing,
(A.M.T.) (LC Bank of
Tokyo Ltd.)........... NR/A-1 5.80%* 8/1/18 2,300 2,300,000
------------
7,300,000
------------
IOWA--2.6%
Iowa School Corps.,
Warrant Certificates,
Iowa School Cash
Anticipation Program,
Series A
(CGIC Insured)........ VMIG1/SP-1+ 4.75% 6/28/96 6,000 6,025,412
------------
ILLINOIS--2.7%
Southwestern Illinois
Development Authority,
Environmental Impact
Revenue, Shell Oil Co.
Wood River Project,
(A.M.T.).............. VMIG1/AAA 6.15% 10/1/25 6,175 6,175,000
------------
INDIANA--1.6%
Seymour Economic
Development Authority
Revenue, Kobelco Metal
Powder Project
(A.M.T.) (LC
Industrial Bank of
Japan, Limited)....... NR/A-1 5.80% 12/1/97 3,700 3,700,000
------------
KENTUCKY--4.8%
Bowling Green,
Industrial Building
Revenue, VRDN, Bando
Manufacturing America
Project (A.M.T.) (LC
Industrial Bank of
Japan, New York)...... NR/A-1 5.80%* 12/1/07 2,655 2,655,000
</TABLE>
See Notes to Financial Statements.
99
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
KENTUCKY (CONTINUED)
Bowling Green,
Industrial Building
Revenue, VRDN, Twin
Faste Inc. Project
(A.M.T.) (LC
Industrial Bank of
Japan)................ NR/A-1 5.80%* 3/1/08 $ 2,400 $ 2,400,000
Henderson County, Solid
Waste Disposal
Revenue, VRDN, Hudson
Foods Inc. Project
(A.M.T.)
(LC Rabobank
Netherland)........... VMIG1/NR 5.10%* 3/1/15 2,000 2,000,000
Kentucky Higher
Education Student Loan
Corp., Insured Student
Loan, Series E,
(A.M.T.) (LC Sumitomo
Bank, Chicago)........ VMIG1/A-1 5.60% 12/1/11 4,000 4,000,000
------------
11,055,000
------------
LOUISIANA--5.3%
New Orleans Exhibition
Hall Authority, Series
B, (A.M.T.) (LC Sanwa
Bank Ltd.)............ VMIG1/A-1 5.50% 7/1/18 5,000 5,000,000
State of Louisiana
(LC Credit Locale).... VMIG1/A-1+ 3.80% 1/3/96 7,000 7,000,000
------------
12,000,000
------------
MISSOURI--3.4%
Missouri Higher
Education Loan
Authority, VRDN,
Series A (A.M.T.) (LC
National Westminster
Place)................ VMIG1/NR 5.25%* 6/1/17 3,000 3,000,000
Burlington G&E VRDN..... P-1/A-1+ 3.65%* 3/11/96 4,800 4,800,000
------------
7,800,000
------------
</TABLE>
See Notes to Financial Statements.
100
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW HAMPSHIRE--4.4%
New Hampshire Business
Finance Authority,
Pollution Control
Revenue Refunding,
Public Service Co. of
New Hampshire Project,
VRDN, Series 1992D,
(A.M.T.) (LC Barclays
Bank PLC)............. VMIG1/A-1+ 5.15%* 5/1/21 $ 10,000 $ 10,000,000
------------
NEVADA--4.8%
Clark County Industrial
Development Revenue,
Nevada Power Co.
Project, Series A,
(A.M.T.) (LC Bank
Barcia Place)......... NR/A-1+ 5.35% 10/1/30 8,000 8,000,000
Washoe County Nevada (LC
Union Bank of
Switzerland).......... P-1/A-1+ 4.00% 1/22/96 3,000 3,000,000
------------
11,000,000
------------
NEW YORK--11.4%
New York City General
Obligation, Series F-6
(LC Noeinchukin)...... VMIG1/A-1+ 5.50% 2/15/18 4,200 4,200,000
New York City Housing
Development Corp.
Mortgage Revenue,
Multifamily 400 West
59th-A-2 (A.M.T.)
(LC Bayerische
Hypotheken)........... NR/A-1 5.00% 9/1/30 9,000 9,000,000
New York State Energy
Research & Development
Authority, Pollution
Control Revenue, New
York Electric & Gas--D
(LC Union Bank of
Switzerland).......... VMIG1/A-1+ 5.30% 10/1/29 6,000 6,000,000
</TABLE>
See Notes to Financial Statements.
101
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Energy
Research & Development
Authority, Pollution
Control Revenue,
Niagara Power Corp.
Project--B, (A.M.T.)
(LC Morgan Guaranty
New York)............. NR/A-1+ 5.60% 7/1/27 $ 2,000 $ 2,000,000
St. Lawrence County
Industrial Development
Agency, Environmental
Impact Revenue
Reynolds Metals Co.
Project, (A.M.T.) (LC
Royal Bank of Canada). VMIG1/A-1+ 5.00% 5/1/25 4,900 4,900,000
------------
26,100,000
------------
OREGON--1.8%
State of Oregon General
Obligation, VRDN,
Veterans' Welfare
Bond, Series 1973F,
(LC Mitsubishi Bank
Ltd.)................. VMIG1/A-1 5.15%* 12/1/17 4,000 4,000,000
------------
PENNSYLVANIA--6.4%
Allegheny County
Pennsylvania (LC
Norinchukin).......... P-1/A-1+ 3.70% 2/2/96 3,700 3,700,000
Carbon County
Pennsylvania (A.M.T.)
(LC NatWest).......... P-1/A-1+ 3.45% 3/6/96 7,000 7,000,000
Montgomery County (LC
Deutsche Bank)........ P-1/A-1+ 3.80% 2/7/96 3,800 3,800,000
------------
14,500,000
------------
RHODE ISLAND--1.3%
Providence Off Street
Public Parking
Facility Revenue,
VRDN, Wash Street
Garage Corp. Project,
(A.M.T.) (LC Morgan
Guaranty Trust)....... NR/A-1+ 5.10%* 12/1/22 3,000 3,000,000
------------
</TABLE>
See Notes to Financial Statements.
102
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
SOUTH CAROLINA--3.0%
South Carolina Jobs,
Economic Development
Authority, VRDN,
Hospital Facilities
Revenue, Baptist
Healthcare System (LC
Credit Local de
France)............... VMIG1/A-1+ 5.05%* 8/1/17 $ 7,000 $ 7,000,000
------------
TENNESSEE--2.8%
Memphis Shelby County
(A.M.T.) (LC Canadian
Imperial Bank of
Commerce)............. P-1/A-1+ 3.70% 2/22/96 6,405 6,405,000
------------
TEXAS--9.9%
Brazos Higher Education
Authority, Student
Loan Revenue, VRDN,
Series B-1 (A.M.T.)
(LC
Student Loan Marketing
Assoc.) .............. VMIG1/NR 5.20%* 6/1/23 6,000 6,000,000
Brazos River Texas
(A.M.T.) (LC Canadian
Imperial Bank of
Commerce)............. VMIG1/A-1+ 3.95% 1/18/96 3,000 3,000,000
Gulf Coast Industrial
Development Authority,
Texas Solid Waste
Disposal Revenue,
Citgo Petroleum Corp.
Project (A.M.T.)
(LC NationsBank of
Texas)................ VMIG1/NR 6.15% 5/1/25 2,700 2,700,000
Milam County Industrial
Development Corp.,
Pollution Control
Revenue Refunding,
Aluminum Co. of
America Project (LC
Credit Suisse)........ VMIG1/NR 4.60% 3/1/01 5,000 5,000,000
</TABLE>
See Notes to Financial Statements.
103
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
Panhandle Plains Higher
Education Authority
Revenue, VRDN,
Student Loan Revenue,
Series A, (A.M.T.)
(LC Student Loan
Marketing
Association)......... VMIG1/NR 5.20%* 6/1/21 $ 6,000 $ 6,000,000
------------
22,700,000
------------
UTAH--2.4%
Emery County (LC Credit
Suisse).............. P-1/A-1+ 3.90% 1/10/96 5,500 5,500,000
------------
WEST VIRGINIA--2.6%
West Virginia Public
Energy (A.M.T.) (LC
Swiss Bank).......... P-1/A-1+ 3.70% 2/22/96 6,000 6,000,000
------------
WYOMING--2.4%
Sweetwater City,
Wyoming (A.M.T.) (LC
West Deutsche
LandesBank).......... VMIG1/A-1+ 3.70% 2/1/96 5,400 5,400,000
------------
TOTAL INVESTMENTS--99.7%
(COST
$227,760,412)(A)...... 227,760,412
Other assets in excess
of liabilities--0.3%.. 750,866
------------
NET ASSETS--100.0%...... $228,511,278
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $228,511,278.
(a) Cost for federal income tax and financial reporting purposes are the same.
A.M.T.--Subject to Alternative Minimum Tax.
CGIC--Capital Guaranty Insurance Corporation.
CP--Commercial Paper.
LC--Letter of Credit.
NR--No rating available.
VRDN--Variable Rate Demand Note.
* Variable rate security. Interest rate stated is as of December 31, 1995.
Maturity date reflects the later of the next rate change or the next put
date.
See Notes to Financial Statements.
104
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
105
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund Assets Fund Income Fund
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $46,747,002, $8,788,919,
$246,097,346, $250,136,384,
$78,317,453, $96,241,231 and
$168,543,796, respectively).......... $55,015,009 $9,512,982 $287,695,105
Repurchase Agreements (cost $0, $0, $0,
$0, $0, $0 and $20,857,000,
respectively)........................ -- -- --
Cash................................... 23,959 27,271 --
Cash denominated in foreign currencies. -- -- --
Receivable for investment securities
sold................................. -- -- --
Receivable for Fund shares sold........ 42,814 16,051 59,398
Receivable from Adviser................ -- -- --
Dividends receivable................... 130,722 10,670 1,011,718
Interest receivable.................... 341,392 31,618 98,743
Foreign tax reclaim receivable......... -- -- --
Deferred organization expenses......... 76,450 61,278 60,637
Prepaid expenses and other assets...... 20,666 5,397 7,051
----------- ---------- ------------
Total Assets.......................... 55,651,012 9,665,267 288,932,652
----------- ---------- ------------
LIABILITIES:
Advisory fees payable.................. 32,187 1,596 80,927
Administration fees payable............ 9,160 534 33,314
Shareholder Services fees payable
(Class A Shares)..................... 30,702 4,618 1,548
Shareholder Services fees payable
(Class B Shares)..................... 1,269 486 302
12b-1 fees payable (Class B Shares).... 4,502 1,419 892
Bank overdrafts........................ -- -- 438,819
Dividends payable...................... 19,103 2,812 847,092
Payable for Fund shares redeemed....... 59,709 -- --
Payable for investment securities
purchased............................ -- 23,593 --
Payable for variation margin........... -- -- --
Other accrued expenses................. 29,053 31,208 136,231
----------- ---------- ------------
Total Liabilities..................... 185,685 66,266 1,539,125
----------- ---------- ------------
NET ASSETS.............................. $55,465,327 $9,599,001 $287,393,527
=========== ========== ============
</TABLE>
See Notes to Financial Statements.
106
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Growth Opportunities Equity Intermediate
Fund Fund Fund Bond Fund
------ ------------- ------------- ------------
<S> <C> <C> <C>
$295,869,250 $93,777,555 $102,116,486 $175,761,194
-- -- -- 20,857,000
-- 7,474 89,437 1,010
-- -- 948,475 --
5,224,933 -- -- --
103,710 13,900 447,060 56,077
-- -- -- 192,506
634,710 33,175 129,246 --
5,165 2,865 960,435 2,452,092
-- -- 55,468 --
59,746 60,194 60,697 38,759
7,172 3,042 3,482 13,068
- ------------ ----------- ------------ ------------
301,904,686 93,898,205 104,810,786 199,371,706
- ------------ ----------- ------------ ------------
139,215 39,946 31,952 53,803
42,597 11,526 10,626 25,102
2,545 359 1,592 3,312
148 10 90 136
437 28 256 451
262,146 -- -- --
844,773 180,457 203,585 929,545
326,751 -- 634 --
1,593,065 -- -- --
-- -- 72,514 --
151,663 52,936 100,160 75,686
- ------------ ----------- ------------ ------------
3,363,340 285,262 421,409 1,088,035
- ------------ ----------- ------------ ------------
$298,541,346 $93,612,943 $104,389,377 $198,283,671
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
107
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund Assets Fund Income Fund
------------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
CLASS A SHARES:
Net Assets........................... $51,996,986 $8,355,636 $ 2,872,994
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 3,576,517 726,432 235,161
----------- ---------- ------------
Net Asset Value per Share............ 14.54 11.50 12.22
Maximum Sales Charge................. 0.68* 0.54* 0.58*
----------- ---------- ------------
Maximum Offering Price............... $ 15.22 $ 12.04 $ 12.80
=========== ========== ============
CLASS B SHARES:
Net Assets........................... $ 2,174,744 $ 832,603 $ 593,200
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 149,364 72,716 48,550
----------- ---------- ------------
Net Asset Value per Share............ $ 14.56 $ 11.45 $ 12.22
=========== ========== ============
CLASS I SHARES:
Net Assets........................... $ 1,293,597 $ 410,762 $283,927,333
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 88,785 35,843 23,259,373
----------- ---------- ------------
Net Asset Value per Share............ $ 14.57 $ 11.46 $ 12.21
=========== ========== ============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at
par................................ $ 3,815 $ 835 $ 23,544
Additional paid-in-capital........... 47,372,999 8,874,025 240,515,461
Accumulated net realized gains
(losses) from investment
transactions....................... (179,714) 5 5,265,350
Undistributed net investment income
(loss)............................. 220 73 (8,587)
Net unrealized appreciation on
investments........................ 8,268,007 724,063 41,597,759
Net unrealized appreciation of assets
and liabilities denominated in
foreign currencies and financial
futures............................ -- -- --
----------- ---------- ------------
NET ASSETS, DECEMBER 31, 1995.......... $55,465,327 $9,599,001 $287,393,527
=========== ========== ============
</TABLE>
- -----------
* Sales charge is 4.50% of Maximum Offering Price.
** Sales charge is 3.00% of Maximum Offering Price.
See Notes to Financial Statements.
108
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Opportunities Equity Intermediate
Growth Fund Fund Fund Bond Fund
----------- ------------- ------------- ------------
<S> <C> <C> <C>
$ 4,329,204 $ 671,776 $ 2,749,124 $ 6,094,679
361,669 55,070 246,447 744,997
------------ ----------- ------------ ------------
11.97 12.20 11.16 8.18
0.56* 0.57* 0.53* 0.25**
------------ ----------- ------------ ------------
$ 12.53 $ 12.77 $ 11.69 $ 8.43
============ =========== ============ ============
$ 268,039 $ 15,387 $ 192,707 $ 259,384
22,438 1,269 17,292 31,701
------------ ----------- ------------ ------------
$ 11.95 $ 12.12 $ 11.14 $ 8.18
============ =========== ============ ============
$293,944,103 $92,925,780 $101,447,546 $191,929,608
24,559,453 7,623,036 9,079,890 23,455,341
------------ ----------- ------------ ------------
$ 11.97 $ 12.19 $ 11.17 $ 8.18
============ =========== ============ ============
$ 24,944 $ 7,679 $ 9,344 $ 24,232
247,530,554 78,254,290 95,968,721 188,432,293
5,249,304 (113,066) 1,502,766 2,609,748
3,678 3,938 134,091 --
45,732,866 15,460,102 5,875,255 7,217,398
-- -- 899,200 --
------------ ----------- ------------ ------------
$298,541,346 $93,612,943 $104,389,377 $198,283,671
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
109
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate
International Municipal
Bond Fund Bond Fund Bond Fund
--------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $108,844,126, $14,692,171,
$370,618,759, $231,324,230,
$47,241,060, $180,076,423 and
$227,760,412, respectively)......... $115,115,920 $15,119,887 $387,423,990
Repurchase agreements (amortized cost
$11,167,000, $0, $0, $0,
$10,200,000, $25,100,000 and $0,
respectively)....................... 11,167,000 -- --
Cash.................................. -- 20,834 --
Receivable for investment securities
sold................................ -- -- --
Receivable for Fund shares sold....... 58,546 5,713 2,889
Receivable from Adviser............... -- -- 142,179
Interest receivable................... 1,667,756 380,503 6,122,544
Unrealized appreciation on forward
foreign currency contracts.......... -- 108,092 --
Deferred organization expenses........ 57,260 56,533 45,319
Prepaid expenses and other assets..... 5,854 6,525 29,721
------------ ----------- ------------
Total Assets......................... 128,072,336 15,698,087 393,766,642
------------ ----------- ------------
LIABILITIES:
Advisory fees payable................. 46,708 4,784 65,306
Administration fees payable........... 17,390 1,942 50,362
Shareholder Services fees payable
(Class A Shares).................... 1,007 283 59,716
Shareholder Services fees payable
(Class B Shares).................... 33 4 160
12b-1 fees payable (Class B Shares)... 94 8 568
Bank overdrafts....................... 175 -- 92
Dividends payable..................... 631,870 665,559 1,447,504
Payable for Fund shares redeemed...... 2,797 -- 170,000
Other accrued expenses................ 63,593 30,219 102,217
------------ ----------- ------------
Total Liabilities.................... 763,667 702,799 1,895,925
------------ ----------- ------------
NET ASSETS............................. $127,308,669 $14,995,288 $391,870,717
============ =========== ============
</TABLE>
See Notes to Financial Statements.
110
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Money Market Money Market Money Market
Bond Fund Fund Fund Fund
--------- --------------- ------------ ------------
<S> <C> <C> <C>
$244,998,503 $47,241,060 $180,076,423 $227,760,412
-- 10,200,000 25,100,000 --
-- -- -- 234,790
-- -- 1,938 --
39,250 -- --
108,845 -- -- --
4,307,370 3,973 496,734 1,016,229
-- -- -- --
4,453 57,957 61,354 83,300
21,770 60,156 110,035 122,258
- ------------ ----------- ------------ ------------
249,480,191 57,563,146 205,846,484 229,216,989
- ------------ ----------- ------------ ------------
51,660 13,690 41,802 30,811
31,720 19,610 31,447 45,718
22,133 117,924 227,761 283,674
123 -- 36 --
462 -- -- --
198,527 111,239 1,334,167 --
991,881 20,092 58,489 304,350
306,469 -- -- --
54,066 16,531 93,564 41,158
- ------------ ----------- ------------ ------------
1,657,041 299,086 1,787,266 705,711
- ------------ ----------- ------------ ------------
$247,823,150 $57,264,060 $204,059,218 $228,511,278
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
111
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate
Bond International Municipal
Fund Bond Fund Bond Fund
---- ------------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
CLASS A SHARES:
Net Assets........................ $ 1,846,532 $ 486,840 $ 17,776,872
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 170,875 45,289 1,451,741
------------ ----------- ------------
Net Asset Value per Share......... 10.81 10.75 12.25
Maximum Sales Charge.............. 0.51* 0.51* 0.38**
------------ ----------- ------------
Maximum Offering Price............ $ 11.32 $ 11.26 $ 12.63
============ =========== ============
CLASS B SHARES:
Net Assets........................ $ 61,260 $ 4,478 $ 340,913
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 5,669 414 27,834
------------ ----------- ------------
Net Asset Value per Share......... $ 10.81 $ 10.81 $ 12.25
============ =========== ============
CLASS I SHARES:
Net Assets $125,400,877 $14,503,970 $373,752,932
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 11,598,064 1,342,032 30,509,460
------------ ----------- ------------
Net Asset Value per Share......... $ 10.81 $ 10.81 $ 12.25
============ =========== ============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at
par............................. $ 11,774 $ 1,387 $ 31,989
Additional paid-in-capital........ 118,554,093 14,473,243 375,105,416
Accumulated net realized gains
(losses) on investment
transactions.................... 2,471,008 (37,381) (71,919)
Accumulated net investment loss... -- (13,857) --
Net unrealized appreciation on
investments..................... 6,271,794 427,716 16,805,231
Net unrealized appreciation of
assets and liabilities
denominated in foreign
currencies...................... -- 144,180 --
------------ ----------- ------------
NET ASSETS, DECEMBER 31, 1995....... $127,308,669 $14,995,288 $391,870,717
============ =========== ============
</TABLE>
- -----------
*Sales charge is 4.50% of Maximum Offering Price.
**Sales charge is 3.00% of Maximum Offering Price.
(1) The Municipal Bond Fund has authorized 2.5 billion shares for Class A and
Class B and has authorized 5.0 billion shares for Class I.
See Notes to Financial Statements.
112
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Money Market Money Market Money Market
Bond Fund Fund Fund Fund
--------- --------------- ------------ ------------
<S> <C> <C> <C>
$ 7,425,897 $57,264,060 $203,994,341 $228,511,278
587,619 57,280,045 203,962,497 228,564,929
- ------------ ----------- ------------ ------------
12.64 1.00 1.00 1.00
0.60* -- -- --
- ------------ ----------- ------------ ------------
$ 13.24 $ 1.00 $ 1.00 $ 1.00
============ =========== ============ ============
$ 237,697 $ 64,877
18,797 64,867
- ------------ ------------
$ 12.65 $ 1.00
============ ============
$240,159,556
19,011,083
- ------------
$ 12.63
============
$ 19,618 $ 57,280 $ 204,027 $ 228,565
233,921,388 57,222,765 203,823,336 228,322,787
207,871 (15,985) 31,855 (40,074)
-- -- -- --
13,674,273 -- -- --
-- -- -- --
- ------------ ----------- ------------ ------------
$247,823,150 $57,264,060 $204,059,218 $228,511,278
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
113
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund(6) Assets Fund(1) Income Fund(2)
------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income (net of foreign
withholding taxes of $134,218,
for International Equity Fund).. $ 1,219,984 $ 52,630 $ 8,875,334
Interest income................... 1,726,718 91,756 1,593,621
----------- -------- -----------
2,946,702 144,386 10,468,955
----------- -------- -----------
EXPENSES:
Advisory fees..................... 331,535 25,209 1,106,473
Administration fees............... 70,850 5,818 331,942
Shareholder Services fees (Class A
Shares and Class B Shares)...... 120,334 9,051 2,981
12b-1 fees (Class B Shares)....... 5,831 3,325 1,283
Custodian fees and expenses....... 56,320 37,950 81,104
Registration fees................. 13,918 -- 74,275
Legal and audit fees.............. 31,696 22,325 45,392
Amortization of organization
expenses........................ 10,067 10,494 17,155
Transfer agent fees and expenses.. 80,641 10,246 17,960
Reports to shareholders........... 14,504 12,129 20,660
Trustees' fees.................... 1,760 2,265 5,848
Miscellaneous expenses............ 13,157 2,182 17,505
----------- -------- -----------
Total Expenses.................... 750,613 140,994 1,722,578
Less: Expense reimbursements...... (179,574) (89,978) (277,704)
----------- -------- -----------
Net Expenses..................... 571,039 51,016 1,444,874
----------- -------- -----------
NET INVESTMENT INCOME............ 2,375,663 93,370 9,024,081
----------- -------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENT AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gains (losses) on
investment transactions......... (324,052) 5 12,993,377
Net realized losses on foreign
currency transactions........... -- -- --
Net realized gains on futures
transactions.................... -- -- --
Net change in unrealized
appreciation (depreciation) on
investments..................... 9,391,499 724,063 41,597,759
Net unrealized appreciation of
assets and liabilities
denominated in foreign
currencies and financial
futures......................... -- -- --
----------- -------- -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS.. 9,067,447 724,068 54,591,136
----------- -------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS. $11,443,110 $817,438 $63,615,217
=========== ======== ===========
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 1, 1995 through December 31, 1995.
(5) For the year ended January 31, 1995.
(6) For the year ended December 31, 1995.
See Notes to Financial Statements.
114
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Growth Opportunities Equity Intermediate Intermediate
Fund(2) Fund(2) Fund(3) Bond Fund(4) Bond Fund(5)
------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 4,772,025 $ 611,057 $ 973,285
1,172,933 394,772 746,158 $10,539,377 $ 348,758
- ----------- ----------- ----------- ----------- ---------
5,944,958 1,005,829 1,719,443 10,539,377 348,758
- ----------- ----------- ----------- ----------- ---------
1,714,125 487,460 506,105 612,312 30,810
395,568 104,456 94,372 229,617 252
4,884 778 3,253 5,767 170
670 56 379 563 8
74,792 62,572 159,181 60,572 3,383
104,974 16,430 28,299 31,550 3,428
57,332 28,516 28,042 37,450 53,810
17,201 17,259 15,262 148 8,592
16,912 16,800 16,161 23,464 8,893
23,464 15,120 12,673 26,193 17,714
4,088 4,032 5,593 1,670 5,602
18,617 8,410 11,638 7,006 7,099
- ----------- ----------- ----------- ----------- ---------
2,432,627 761,889 880,958 1,036,312 139,761
(314,740) (168,733) (213,519) (185,219) (137,928)
- ----------- ----------- ----------- ----------- ---------
2,117,887 593,156 667,439 851,093 1,833
- ----------- ----------- ----------- ----------- ---------
3,827,071 412,673 1,052,004 9,688,284 346,925
- ----------- ----------- ----------- ----------- ---------
26,140,162 1,749,697 505,347 7,844,775 (63,605)
-- -- (236,752) -- --
-- -- 3,503,125 -- --
45,732,866 15,460,102 5,875,255 7,312,968 (304,664)
-- -- 899,200 -- --
- ----------- ----------- ----------- ----------- ---------
71,873,028 17,209,799 10,546,175 15,157,743 (368,269)
- ----------- ----------- ----------- ----------- ---------
$75,700,099 $17,622,472 $11,598,179 $24,846,027 $ (21,344)
=========== =========== =========== =========== =========
</TABLE>
See Notes to Financial Statements.
115
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Intermediate
International Municipal Municipal
Bond Fund(1) Bond Fund(2) Bond Fund(3) Bond Fund(4)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (net of
foreign withholding
taxes of $13,850 for
International Bond
Fund).................. $ 7,432,982 $ 717,469 $16,586,298 $2,141,819
----------- ---------- ----------- ----------
7,432,982 717,469 16,586,298 2,141,819
----------- ---------- ----------- ----------
EXPENSES:
Advisory fees............ 571,379 79,128 1,294,971 213,509
Administration fees...... 155,831 16,957 488,746 27,546
Shareholder Services fees
(Class A Shares and
Class B Shares)........ 2,161 684 38,461 60,314
12b-1 fees (Class B
Shares)................ 116 30 824 175
Custodian fees and
expenses............... 55,999 34,025 76,502 5,329
Registration fees........ 31,690 5,776 142,121 33,720
Legal and audit fees..... 29,720 24,652 41,560 59,478
Amortization of
organization expenses.. 16,042 16,769 12,943 --
Transfer agent fees and
expenses............... 15,614 16,432 22,560 17,386
Reports to shareholders.. 13,762 12,840 28,882 18,415
Trustees' fees........... 5,642 2,352 1,586 5,076
Miscellaneous expenses... 10,618 6,748 13,408 11,946
----------- ---------- ----------- ----------
Total Expenses........... 908,574 216,393 2,162,564 452,894
Less: Expense
reimbursements......... (178,732) (110,736) (403,299) (296,239)
----------- ---------- ----------- ----------
Net Expenses............ 729,842 105,657 1,759,265 156,655
----------- ---------- ----------- ----------
NET INVESTMENT INCOME... 6,703,140 611,812 14,827,033 1,985,164
----------- ---------- ----------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gains
(losses) on investment
transactions........... 6,908,795 1,020,021 3,839,621 (757,908)
Net realized gains on
foreign currency
transactions........... -- 30,644 -- --
Net change in unrealized
appreciation on
investments............ 6,271,794 427,716 13,694,976 2,898,764
Translation of assets and
liabilities denominated
in foreign currencies.. -- 144,180 -- --
----------- ---------- ----------- ----------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS.......... 13,180,589 1,622,561 17,534,597 2,140,856
----------- ---------- ----------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $19,883,729 $2,234,373 $32,361,630 $4,126,020
=========== ========== =========== ==========
</TABLE>
- -----------
(1) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 1, 1995 through December 31, 1995.
(4) For the year ended February 28, 1995.
(5) For the year ended December 31, 1995.
See Notes to Financial Statements.
116
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Municipal Money Market Money Market Money Market
Bond Fund(3) Bond Fund(4) Fund(5) Fund(5) Fund(5)
------------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 11,366,541 $ 984,395 $3,925,073 $8,980,167 $7,967,822
--------------- ---------- ---------- ---------- ----------
11,366,541 984,395 3,925,073 8,980,167 7,967,822
--------------- ---------- ---------- ---------- ----------
829,219 84,738 297,377 631,448 860,103
310,957 15,548 94,631 220,431 292,778
15,010 20,089 170,762 380,585 508,602
600 183 -- 154 --
43,173 5,356 47,037 58,917 67,687
95,405 30,271 7,824 26,695 19,626
56,450 25,959 22,236 57,347 54,617
148 -- 8,303 7,228 9,259
22,392 15,883 37,804 185,048 56,756
26,190 13,517 14,357 25,741 14,373
2,650 1,718 2,138 5,185 8,633
11,000 8,105 29,658 32,213 35,509
--------------- ---------- ---------- ---------- ----------
1,413,194 221,367 732,127 1,630,992 1,927,943
(278,552) (167,016) (198,986) (431,210) (489,926)
--------------- ---------- ---------- ---------- ----------
1,134,642 54,351 533,141 1,199,782 1,438,017
--------------- ---------- ---------- ---------- ----------
10,231,899 930,044 3,391,932 7,780,385 6,529,805
--------------- ---------- ---------- ---------- ----------
5,020,578 (260,986) 32,485 179,219 (44)
-- -- -- -- --
11,041,965 2,624,847 -- -- --
-- -- -- -- --
--------------- ---------- ---------- ---------- ----------
16,062,543 2,363,861 32,485 179,219 (44)
--------------- ---------- ---------- ---------- ----------
$ 26,294,442 $3,293,905 $3,424,417 $7,959,604 $6,529,761
=============== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
117
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
--------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income............................... $ 2,375,663 $ 2,808,997
Net realized gains (losses) on investment
transactions...................................... (324,052) 210,291
Net change in unrealized appreciation (depreciation)
on investments.................................... 9,391,499 (4,108,668)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. 11,443,110 (1,089,380)
----------- ------------
Net equalization credits............................ -- 2,562
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares..................................... (2,441,590) (2,753,670)
Class B Shares..................................... (31,089) (34,937)
Class I Shares..................................... (36,073) --
----------- ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.................... (2,508,752) (2,788,607)
----------- ------------
Net realized gains on investments:
Class A Shares..................................... (108,059) (19,340)
Class B Shares..................................... (4,560) (323)
Class I Shares..................................... (2,720) --
----------- ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................ (115,339) (19,663)
----------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold....................... 9,561,625 6,725,337
Dividends reinvested................................ 2,415,006 2,336,101
Cost of shares redeemed............................. (9,697,497) (12,384,919)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............................... 2,279,134 (3,323,481)
----------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 11,098,153 (7,218,569)
NET ASSETS:
Beginning of year................................... 44,367,174 51,585,743
----------- ------------
End of year (includes undistributed net investment
income of $220 in 1995 and $133,309 in 1994)...... $55,465,327 $ 44,367,174
=========== ============
</TABLE>
See Notes to Financial Statements.
118
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
119
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income.............. $ 93,370 $ 9,024,081 $ 3,827,071
Net realized gains on investment
transactions..................... 5 12,993,377 26,140,162
Net realized gains (losses) on
foreign currency transactions.... -- -- --
Net realized gains on futures
transactions..................... -- -- --
Net change in unrealized
appreciation on investments...... 724,063 41,597,759 45,732,866
Net unrealized appreciation of
assets and liabilities
denominated in foreign currencies
and financial futures............ -- -- --
---------- ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... 817,438 63,615,217 75,700,099
---------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares.................... (77,991) (36,341) (20,056)
Class B Shares.................... (7,493) (4,665) (128)
Class I Shares.................... (7,813) (8,991,662)(5) (3,803,209)
---------- ------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS... (93,297) (9,032,668) (3,823,393)
---------- ------------ ------------
Net realized gains on investments:
Class A Shares.................... -- (76,484) (297,846)
Class B Shares.................... -- (15,958) (18,522)
Class I Shares.................... -- (7,635,585) (20,574,490)
---------- ------------ ------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... -- (7,728,027) (20,890,858)
---------- ------------ ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold...... 9,391,817 258,157,716 300,831,887
Dividends reinvested............... 85,512 6,638,209 15,027,099
Cost of shares redeemed............ (602,469) (24,256,920) (68,303,488)
---------- ------------ ------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS......... 8,874,860 240,539,005 247,555,498
---------- ------------ ------------
TOTAL INCREASE IN NET ASSETS..... 9,599,001 287,393,527 298,541,346
NET ASSETS:
Beginning of period................ -- -- --
---------- ------------ ------------
End of period(6)................... $9,599,001 $287,393,527 $298,541,346
========== ============ ============
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(5) Includes distributions in excess of net investment income of $8,587.
(6) Includes undistributed net investment income of $73, $0, $3,678, $3,938,
$134,091, $0 and $0, respectively.
See Notes to Financial Statements.
120
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$ 412,673 $ 1,052,004 $ 6,703,140 $ 611,812
1,749,697 505,347 6,908,795 1,020,021
-- (236,752) -- 30,644
-- 3,503,125 -- --
15,460,102 5,875,255 6,271,794 427,716
-- 899,200 -- 144,180
--------------- ------------ ------------ -----------
17,622,472 11,598,179 19,883,729 2,234,373
--------------- ------------ ------------ -----------
(807) (12,465) (50,085) (13,458)
-- (174) (755) (173)
(407,928) (905,274) (6,652,300) (612,038)
--------------- ------------ ------------ -----------
(408,735) (917,913) (6,703,140) (625,669)
--------------- ------------ ------------ -----------
(13,273) (60,752) (63,549) (33,914)
(308) (4,283) (2,117) (311)
(1,849,182) (2,203,921) (4,372,121) (1,053,821)
--------------- ------------ ------------ -----------
(1,862,763) (2,268,956) (4,437,787) (1,088,046)
--------------- ------------ ------------ -----------
89,942,654 100,265,824 129,396,150 15,584,504
1,194,408 1,535,547 2,974,473 380,496
(12,875,093) (5,823,304) (13,804,756) (1,490,370)
--------------- ------------ ------------ -----------
78,261,969 95,978,067 118,565,867 14,474,630
--------------- ------------ ------------ -----------
93,612,943 104,389,377 127,308,669 14,995,288
-- -- -- --
--------------- ------------ ------------ -----------
$ 93,612,943 $104,389,377 $127,308,669 $14,995,288
=============== ============ ============ ===========
</TABLE>
See Notes to Financial Statements.
121
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
-------------------- ------------------ --------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 9,688,284 $ 346,925 $ 269,055
Net realized gains
(losses) on
investment
transactions......... 7,844,775 (63,605) 13,430
Net change in
unrealized
appreciation
(depreciation) on
investments.......... 7,312,968 (304,664) (60,015)
------------ ----------- ----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... 24,846,027 (21,344) 222,470
------------ ----------- ----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (137,077) (4,217) (1,326)
Class B Shares........ (3,518) (99) --
Class I Shares........ (9,547,689) (342,609) (267,729)
------------ ----------- ----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (9,688,284) (346,925) (269,055)
------------ ----------- ----------
Net realized gains on
investments:
Class A Shares........ (157,731) (16) (152)
Class B Shares........ (6,773) (1) --
Class I Shares........ (5,006,911) (1,196) (12,072)
------------ ----------- ----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (5,171,415) (1,213) (12,224)
------------ ----------- ----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 200,868,057 7,682,912 5,298,453
Dividends reinvested... 4,026,532 9,789 6,783
Cost of shares
redeemed............. (23,767,145) (5,345,718) (154,029)
------------ ----------- ----------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. 181,127,444 2,346,983 5,151,207
------------ ----------- ----------
TOTAL INCREASE IN NET
ASSETS............. 191,113,772 1,977,501 5,092,398
NET ASSETS:
Beginning of period.... 7,169,899 5,192,398 100,000
------------ ----------- ----------
End of period.......... $198,283,671 $ 7,169,899 $5,192,398
============ =========== ==========
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
See Notes to Financial Statements.
122
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Year Ended
December 31, February 28, February 28,
1995(1) 1995 1994(2)
-------------------- ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 14,827,033 $ 1,985,164 $ 1,394,851
Net realized gains
(losses) on
investment
transactions......... 3,839,621 (757,908) 1,275,347
Net change in
unrealized
appreciation on
investments.......... 13,694,976 2,898,764 (1,243,092)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS..... 32,361,630 4,126,020 1,427,106
------------ ------------ -----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (619,417) (1,214,913) (1,394,847)
Class B Shares........ (3,609) (17) (4)
Class I Shares........ (14,204,008) (770,234) --
------------ ------------ -----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (14,827,034) (1,985,164) (1,394,851)
------------ ------------ -----------
Net realized gains on
investments:
Class A Shares........ (143,000) (62,814) (1,471,722)
Class B Shares........ (2,501) (284) --
Class I Shares........ (3,007,029) -- --
------------ ------------ -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (3,152,530) (63,098) (1,471,722)
------------ ------------ -----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 48,746,625 367,446,983 6,646,160
Dividends reinvested... 2,914,315 851,803 1,972,931
Cost of shares
redeemed............. (57,221,370) (16,165,822) (6,226,132)
------------ ------------ -----------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. (5,560,430) 352,132,964 2,392,959
------------ ------------ -----------
TOTAL INCREASE IN NET
ASSETS............. 8,821,636 354,210,722 953,492
NET ASSETS:
Beginning of period.... 383,049,081 28,838,359 27,884,867
------------ ------------ -----------
End of period.......... $391,870,717 $383,049,081 $28,838,359
============ ============ ===========
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995.
(2) Includes Class B Shares for the period February 8, 1994 (initial offering
date of Class B Shares) through February 28, 1994.
See Notes to Financial Statements.
123
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Year Ended
December 31, February 28, February 28,
1995(1) 1995 1994(2)
-------------------- ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 10,231,899 $ 930,044 $ 497,241
Net realized gains
(losses) on
investment
transactions......... 5,020,578 (260,986) 607,250
Net change in
unrealized
appreciation on
investments.......... 11,041,965 2,624,847 (728,931)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS..... 26,294,442 3,293,905 375,560
------------ ------------ -----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (268,916) (409,080) (497,237)
Class B Shares........ (2,833) (67) (4)
Class I Shares........ (9,960,150) (520,897) --
------------ ------------ -----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (10,231,899) (930,044) (497,241)
------------ ------------ -----------
Net realized gains on
investments:
Class A Shares........ (135,418) -- (717,815)
Class B Shares........ (4,334) -- --
Class I Shares........ (4,405,351) -- --
------------ ------------ -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (4,545,103) -- (717,815)
------------ ------------ -----------
In excess of net
realized gains on
investments:
Class A Shares........ -- -- (6,618)
------------ ------------ -----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 34,482,785 222,400,536 3,588,206
Dividends reinvested... 3,928,330 323,826 956,597
Cost of shares
redeemed............. (29,087,608) (7,342,155) (5,752,746)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. 9,323,507 215,382,207 (1,207,943)
------------ ------------ -----------
TOTAL INCREASE IN NET
ASSETS............. 20,840,947 217,746,068 (2,054,057)
NET ASSETS:
Beginning of period.... 226,982,203 9,236,135 11,290,192
------------ ------------ -----------
End of period.......... $247,823,150 $226,982,203 $ 9,236,135
============ ============ ===========
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995.
(2) Includes Class B Shares for the period February 8,1994 (initial offering
date of Class B Shares) through February 28, 1994.
See Notes to Financial Statements.
124
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
---------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income........................... $ 3,391,932 $ 4,694,844
Net realized gains (losses) on investment
transactions.................................. 32,485 (961,178)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... 3,424,417 3,733,666
------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Class A Shares.................................. (3,391,932) (4,694,844)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold................... 250,085,862 677,021,399
Dividends reinvested............................ 2,488,380 1,310,332
Cost of shares redeemed......................... (311,695,323) (716,564,214)
------------- ------------
NET DECREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................. (59,121,081) (38,232,483)
------------- ------------
Increase due to capital contribution from
affiliate of investment adviser (Note 3(d)).... -- 933,054
------------- ------------
TOTAL DECREASE IN NET ASSETS................... (59,088,596) (38,260,607)
NET ASSETS:
Beginning of year............................... 116,352,656 154,613,263
------------- ------------
End of year..................................... $ 57,264,060 $116,352,656
============= ============
</TABLE>
See Notes to Financial Statements.
125
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income.......................... $ 7,780,385 $ 5,491,950
Net realized gains (losses) on investment
transactions................................. 179,219 (1,309,831)
------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 7,959,604 4,182,119
------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares................................ (7,779,495) (5,491,950)
Class B Shares................................ (890) --
------------- --------------
TOTAL DIVIDENDS TO SHAREHOLDERS............... (7,780,385) (5,491,950)
------------- --------------
Net realized gains on investments:
Class A Shares................................ (123,505) (23,361)
Class B Shares................................ (35) --
------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS........... (123,540) (23,361)
------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS................................ (7,903,925) (5,515,311)
------------- --------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.................. 803,027,143 1,724,346,455
Dividends reinvested........................... 6,873,012 2,559,069
Cost of shares redeemed........................ (725,296,634) (1,770,081,791)
------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS..................... 84,603,521 (43,176,267)
------------- --------------
Increase due to capital contribution from
affiliate of investment adviser (Note 3(d))... -- 1,286,000
------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS...... 84,659,200 (43,223,459)
NET ASSETS:
Beginning of year.............................. 119,400,018 162,623,477
------------- --------------
End of year.................................... $ 204,059,218 $ 119,400,018
============= ==============
</TABLE>
See Notes to Financial Statements.
126
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
---------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income............................. $ 6,529,805 $ 4,523,891
Net realized losses on investment transactions.... (44) (36,537)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... 6,529,761 4,487,354
------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares................................... (6,529,805) (4,523,891)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold..................... 534,326,783 428,067,086
Dividends reinvested.............................. 3,305,612 2,261,400
Cost of shares redeemed........................... (482,251,105) (434,859,851)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............................. 55,381,290 (4,531,365)
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 55,381,246 (4,567,902)
NET ASSETS:
Beginning of year................................. 173,130,032 177,697,934
------------- ------------
End of year....................................... $ 228,511,278 $173,130,032
============= ============
</TABLE>
See Notes to Financial Statements.
127
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--GENERAL
Prairie Funds (the "Trust") is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "Act"). At
December 31, 1995, the Trust consisted of twelve separate investment
portfolios. The accompanying financial statements include the results of
operations for the following portfolios of the Trust: Managed Assets Income
Fund, Managed Assets Fund, Equity Income Fund, Growth Fund, Special
Opportunities Fund, International Equity Fund, Bond Fund, International Bond
Fund, Intermediate Municipal Bond Fund, U.S. Government Money Market Fund,
Money Market Fund, and Municipal Money Market Fund. Additionally, the
accompanying financial statements include the results of operations for the
Prairie Municipal Bond Fund, Inc. and the Prairie Intermediate Bond Fund, two
open-end management investment companies registered under the Act (together
with the Trust's portfolios, the "Funds").
First Chicago Investment Management Company ("FCIMCO"), a wholly-owned
subsidiary of The First National Bank of Chicago ("FNBC"), serves as each
Fund's investment adviser and administrator. FCIMCO has engaged ANB Investment
Management and Trust Company ("ANB") to serve as sub-investment adviser for the
International Equity Fund. Additionally, FCIMCO has engaged Concord Holding
Corporation ("Concord"), a wholly-owned subsidiary of The BISYS Group, Inc., to
assist it in providing certain administrative services for the Funds. Concord
Financial Group, Inc., a wholly-owned subsidiary of Concord, serves as the
principal underwriter and distributor of each Fund's shares.
The Funds (except for the U.S. Government Money Market Fund and Municipal
Money Market Fund, which offer Class A shares only, and the Money Market Fund
which offers Class A shares and Class B shares) each offer Class A shares,
Class B shares and Class I shares. Class A shares, Class B shares and Class I
shares are substantially the same except that Class A shares are subject to a
sales charge imposed at the time of purchase and are subject to fees charged
pursuant to a Shareholder Services Plan. Class B shares are subject to a
contingent deferred sales charge imposed at the time of redemption and are
subject to fees charged pursuant to a Distribution Plan adopted pursuant to
Rule 12b-1 under the Act and fees charged pursuant to the Shareholder Services
Plan. Class I shares are not subject to any sales charge, shareholder services
fees or distribution fees.
During the period January 27, 1995 through March 3, 1995, various common
trust funds and collective trust funds managed by FNBC transferred cash and
securities to certain Funds in exchange for Class I shares of the corresponding
Fund. The following table sets forth the date on which such transfers occurred,
the transferring entity, the corresponding Fund, the market value of the
securities and cash transferred and the amount of Class I shares issued in
connection with such transfer:
128
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I
Shares
Date of Transfer Transferring Entity Fund Market Value Issued
---------------- ------------------- ---- ------------ -------
<S> <C> <C> <C> <C>
January 27, 1995........ First Chicago Personal Equity Income $198,087,162 19,808,716
Trust Equity Fund Fund
January 27, 1995........ First Chicago Personal Growth Fund 245,392,975 24,539,297
Trust Endowment Equity
Fund and First Chicago
Personal Trust Growth
Equity Fund
January 27, 1995........ First Chicago Personal Special 51,316,357 5,131,636
Trust Special Equity Opportunities
Fund Fund
January 27, 1995........ First Chicago Personal International 8,955,517 895,552
Trust International Bond Bond Fund
Fund
February 10, 1995....... First Chicago Personal Bond Fund 98,997,057 9,899,706
Trust Taxable Bond Fund
And First Chicago
Personal Trust
Endowment Bond Fund
February 10, 1995....... First Chicago Personal Intermediate 129,394,694 16,848,267
Trust Intermediate Bond Fund
Taxable Bond Fund and
Lake Shore Common
Trust Taxable Fixed
Income Fund
February 10, 1995....... First Chicago Personal Municipal Bond 213,488,376 17,910,099
Trust Tax-Exempt Bond Fund
Fund
February 10, 1995....... First Chicago Personal Intermediate 349,656,211 29,885,146
Trust Intermediate Tax- Municipal Bond
Exempt Bond Fund and Fund
Lake Shore Common
Trust Municipal Bond
Fund
March 3, 1995........... First Chicago Personal International 48,338,875 4,833,888
Trust International Equity Equity Fund
Fund
</TABLE>
At meetings of the shareholders of the First Prairie Diversified Assets Fund,
First Prairie Municipal Bond Fund--Intermediate Series, First Prairie Money
Market Fund--Money Market Series and Government Series, and First Prairie
Municipal Money Market Fund (collectively, the "First Prairie Funds") held on
January 17, 1995, shareholders of each such Fund approved an Agreement and Plan
of Exchange (the "Plan") which called for the transfer of the assets, subject
to the liabilities, of each First Prairie Fund to the Prairie Managed Assets
Income Fund,
129
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Prairie Intermediate Municipal Bond Fund, Prairie Money Market Fund, Prairie
U.S. Government Money Market Fund, and Prairie Municipal Money Market Fund,
respectively. The Plan also called for the issuance of shares by the respective
Prairie Funds to the shareholders of the corresponding First Prairie Fund, such
shares being equal in value to the net assets so transferred.
The following table sets forth the date on which this transfer took place
along with the net assets transferred and the number of shares issued:
<TABLE>
<CAPTION>
Net Assets
Fund Date of Transfer Transferred Shares Issued
---- ---------------- ----------- -------------
<S> <C> <C> <C>
Managed Assets Income Fund...... March 3, 1995 $ 43,698,653 3,518,593
Intermediate Municipal Bond
Fund........................... January 27, 1995 22,331,512 1,930,122
Money Market Fund............... May 20, 1995 127,355,807 127,197,352
U.S. Government Money Market
Fund........................... May 20, 1995 52,257,087 52,273,072
Municipal Money Market Fund..... May 20, 1995 178,386,094 178,439,745
</TABLE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. These principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses for the period. Actual results
could differ from those estimates.
(A) Portfolio Valuation: Bonds, debentures, notes, mortgage-related
securities, asset-backed securities, municipal obligations and convertible debt
obligations ("Fixed Income Securities") are valued daily using available market
quotations or at fair value as determined by one or more independent pricing
services (the "Service") approved by the Board of Trustees (or the "Board").
Fixed Income Securities for which quoted bid prices are readily available and
are representative of the bid side of the market, in the judgment of the
Service, are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities). Other
Fixed Income Securities are carried at fair value as determined by the Service,
based upon methods which include consideration of yields or prices of
securities of comparable quality, coupon rate, maturity and type, indications
as to values from dealers, and general market conditions. Fixed Income
Securities with maturities less than 60 days are carried at amortized cost,
which approximates market value.
Common stocks, preferred stocks and convertible securities, as well as
warrants to purchase such securities ("Equity Securities"), and call options
written by a Fund are valued at the last sale price on the securities exchange
or national securities market on which such securities are primarily traded.
Equity securities not
130
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
listed on an exchange or national securities market, or securities for which
there were no transactions, are valued at the most recent bid prices. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by the Board.
Restricted securities, illiquid securities and securities for which market
quotations are not readily available, if any, are valued at fair value using
methods approved by the Board.
Investments of the U.S. Government Money Market Fund, Money Market Fund and
Municipal Money Market Fund (the "money market funds") are valued at amortized
cost, which approximates market value. Under the amortized cost method,
discount or premium is amortized on a constant basis to the maturity of the
security. In addition, the money market funds may not (a) purchase any
instruments with a remaining maturity greater that thirteen months unless such
instrument is subject to a demand feature, or (b) maintain a dollar-weighted
average maturity which exceeds 90 days.
(B) Foreign currency translations: The books and records of the International
Bond Fund and the International Equity Fund are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment securities, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars at the midpoint of the New York interbank market spot exchange
rate as quoted on the day of such translation by the Federal Reserve Bank of
New York or at such other quoted market exchange rate as may be determined to
be appropriate by the investment adviser; (ii) purchases and sales of foreign
securities, income and expenses are converted into U.S. dollars based upon
currency exchange rates prevailing on the respective dates of such
transactions. The Funds generally do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized and unrealized gains and losses on foreign currency
represent: (i) foreign exchange gains and losses from the sale and holding of
foreign currencies, forward contracts and foreign currency denominated debt
obligations; (ii) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of dividends and interest
recorded and the amounts actually received.
(C) Futures contracts: The International Equity Fund may engage in futures
contracts for the purpose of hedging against changes in the value of its
portfolio securities and in the value of securities it intends to purchase.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made
131
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the value of the contract are
recorded as unrealized gains or losses. The Fund recognizes, when the contract
is closed, a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the time it was closed. Futures
contracts open at December 31, 1995 and their related unrealized market
appreciation (depreciation) are set forth in the notes to the Portfolio of
Investments of the International Equity Fund.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or indices, which may not
correlate with the change in value of the hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
(D) Forward foreign currency contracts--The International Bond Fund may enter
into forward foreign currency contracts in order to hedge its exposure to
changes in foreign currency exchange rates on its foreign portfolio holdings.
When executing forward foreign currency contracts, the Fund is obligated to buy
or sell a foreign currency at a specified rate on a certain date in the future.
With respect to sales of forward foreign currency contracts, the Fund would
incur a loss if the value of the contract increases between the date the
forward contract is opened and the date the forward contract is closed. The
Fund realizes a gain if the value of the contract decreases between those
dates. With respect to purchases of forward foreign currency contracts, the
Fund would incur a loss if the value of the contract decreases between the date
the forward contract is opened and the date the forward contract is closed. The
Fund realizes a gain if the value of the contract increases between those
dates. The Fund is also exposed to credit risk associated with counter party
nonperformance on these forward foreign currency contracts which is typically
limited to the unrealized gains on such contracts that are recognized in the
Statement of Assets and Liabilities.
(E) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, adjusted for
amortization of premiums and, when appropriate, discounts on investments, is
earned from settlement date and recognized on the accrual basis. Securities
purchased or sold on a when-issued or delayed-delivery basis may be settled a
month or more after the trade date.
Each Fund may enter into repurchase agreements with financial institutions
deemed to be creditworthy by FCIMCO, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon price. Securities purchased subject to repurchase agreements are
deposited with the Fund's custodian and, pursuant to the terms of the
repurchase agreement, must have an aggregate market value greater than or equal
to the repurchase price
132
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
plus accrued interest at all times. If the value of the underlying securities
falls below the value of the repurchase price plus accrued interest, the Fund
will require the seller to deposit additional collateral by the next business
day. If the request for additional collateral is not met, or the seller
defaults on its repurchase obligation, the Fund maintains the right to sell the
underlying securities at market value and may claim any resulting loss against
the seller.
(F) Expenses: Expenses directly attributable to a Fund are charged to that
Fund's operations; expenses which are applicable to all Funds are allocated
among them on the basis of relative net assets. Fund expenses directly
attributable to a class of shares are charged to that class; expenses which are
applicable to all classes are allocated among them.
(G) Dividends to shareholders: It is the policy of Managed Assets Income Fund
and Equity Income Fund to declare and pay dividends from net investment income
monthly while the Managed Assets Fund, Growth Fund, Special Opportunities Fund
and International Equity Fund declare and pay dividends quarterly. The Bond
Fund, Intermediate Bond Fund, International Bond Fund, Municipal Bond Fund,
Intermediate Municipal Bond Fund, U.S. Government Money Market Fund, Money
Market Fund and Municipal Money Market Fund declare dividends daily from net
investment income, payable monthly. Distributions from net realized capital
gains, if any, are normally declared and paid annually, but each Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code (the "Code"). However, to the extent
that net realized capital gains of a Fund can be reduced by capital loss
carryovers, if any, such gains will not be distributed.
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles. To
the extent these differences are permanent in nature, such amounts are
reclassified within the composition of net assets based on their federal tax-
basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as distributions in excess of net investment income or
net realized capital gains. To the extent they exceed net investment income and
net realized gains for tax purposes, they are reported as distributions of
capital.
(H) Federal income taxes: It is the policy of each Fund to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the Code,
and to make distributions of income and net realized capital gains sufficient
to relieve it from all, or substantially all, Federal income and excise taxes.
Capital losses incurred after October 31 ("Post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Municipal Money Market Fund and the Special Opportunities
Fund
133
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- -------------------------------------------------------------------------------
incurred and may elect to defer net capital losses of approximately $50 and
$113,000, respectively.
At December 31, 1995, the Managed Asset Income Fund had unused capital loss
carryovers of approximately $317,000, which are available for Federal income
tax purposes to be applied against future net capital gains, if any, realized
subsequent to December 31, 1995. If not applied, the carryover expires in
2003.
At December 31, 1995, the U.S. Government Money Market Fund had unused
capital loss carryovers of approximately $16,000, which are available for
Federal income tax purposes to be applied against future net capital gains, if
any, realized subsequent to December 31, 1995. If not applied, the carryover
expires in 2002.
At December 31, 1995, the Municipal Money Market Fund had unused capital
loss carryovers of approximately $40,000, which are available for Federal
income tax purposes to be applied against future net capital gains, if any,
realized subsequent to December 31, 1995. If not applied, $1,000 of the
carryover expires in 1999, $2,000 expires in 2001, $1,000 expires in 2002 and
$36,000 expires in 2003.
At December 31, 1995, with the exception of the Growth Fund, the cost of the
Funds' investments for Federal income tax purposes was substantially the same
as the cost for financial reporting purposes (see Portfolios of Investments).
(I) Other: Organization expenses incurred by the Funds are being amortized
to operations over the period during which it is expected that a benefit will
be realized, not to exceed five years.
(J) Concentration of risk: Investing in securities of foreign issuers and
foreign currency transactions may involve certain considerations and risks not
typically associated with investments in the United States. These risks
include revaluation of currencies, adverse fluctuations in foreign currency
values and possible adverse political, social and economic developments,
including those particular to a specific industry, country or region, which
could cause the securities and their markets to be less liquid and prices more
volatile than those of comparable U.S. securities. These risks are greater
with respect to securities of issuers located in emerging market countries in
which certain Funds are authorized to invest. The ability of the issuers of
debt securities held by the Funds to meet their obligations may be affected by
economic and political developments particular to a specific industry, country
or region.
134
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3--INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
(A) The Trust has an Investment Advisory Agreement with FCIMCO pursuant to
which FCIMCO has agreed to provide day-to-day management of each Fund's
investments at the following annual rates:
<TABLE>
<S> <C>
Managed Assets Income Fund............................................. 0.65%
Managed Assets Fund.................................................... 0.65%
Equity Income Fund..................................................... 0.50%
Growth Fund............................................................ 0.65%
Special Opportunities Fund............................................. 0.70%
International Equity Fund.............................................. 0.80%
Intermediate Bond Fund................................................. 0.40%
Bond Fund.............................................................. 0.55%
International Bond Fund................................................ 0.70%
Intermediate Municipal Bond Fund....................................... 0.40%
Municipal Bond Fund.................................................... 0.40%
U.S. Government Money Market Fund...................................... 0.40%
Money Market Fund...................................................... 0.40%
Municipal Money Market Fund............................................ 0.40%
</TABLE>
The Trust has an Administration Agreement with FCIMCO pursuant to which
FCIMCO has agreed to assist in all aspects of the Funds' operations at an
annual rate of 0.15% of each Fund's average daily net assets. FCIMCO has
engaged Concord to provide certain administrative services to the Funds
pursuant to a Master Sub-Administration Agreement between FCIMCO and Concord.
FCIMCO has agreed to pay Concord a fee for the services stipulated in the
Master Sub-Administration Agreement.
For the period ended December 31, 1995, FCIMCO voluntarily agreed to
reimburse a portion of the operating expenses of the Funds to the extent that
the Funds' expenses exceeded the following amounts, excluding shareholder
servicing fees and 12b-1 fees (as a percentage of each Fund's average net
assets):
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I
------- ------- -------
<S> <C> <C> <C>
Managed Assets Income Fund.............................. 1.31% 2.06% 0.80%
Managed Assets Fund..................................... 1.33% 2.08% 0.80%
Equity Income Fund...................................... 1.18% 1.93% 0.65%
Growth Fund............................................. 1.33% 2.08% 0.80%
Special Opportunities Fund.............................. 1.38% 2.13% 0.85%
International Equity Fund............................... 1.58% 2.33% 1.05%
Intermediate Bond Fund.................................. 1.15% 1.90% 0.55%
Bond Fund............................................... 1.23% 1.98% 0.70%
International Bond Fund................................. 1.48% 2.23% 0.95%
Intermediate Municipal Bond Fund........................ 0.90% 1.83% 0.55%
</TABLE>
135
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
<S> <C> <C> <C>
Municipal Bond Fund..................................... 1.08% 1.83% 0.55%
U.S. Government Money Market............................ 0.80% NA NA
Money Market Fund....................................... 0.80% 1.55% NA
Municipal Money Market Fund............................. 0.70% NA NA
</TABLE>
As such, FCIMCO reimbursed expenses during the period ending December 31,
1995 in the following amounts:
<TABLE>
<CAPTION>
Expense
Reimbursement
-------------
<S> <C>
Managed Assets Income Fund..................................... $179,574
Managed Assets Fund............................................ 89,978
Equity Income Fund............................................. 277,704
Growth Fund.................................................... 314,740
Special Opportunities Fund..................................... 168,733
International Equity Fund...................................... 213,519
Intermediate Bond Fund......................................... 185,219
Bond Fund...................................................... 178,732
International Bond Fund........................................ 110,736
Intermediate Municipal Bond Fund............................... 403,299
Municipal Bond Fund............................................ 278,552
U.S. Government Money Market Fund.............................. 198,986
Money Market Fund.............................................. 431,210
Municipal Money Market Fund.................................... 489,926
</TABLE>
The Distributor is not entitled to any fees pursuant to the Distribution
Agreement; however, the Distributor may receive payments of sales charges or
contingent deferred sales charges.
(B) The Funds' Class A shares and Class B shares have a Shareholder Services
Plan (the "Plan") pursuant to which the Funds pay the Distributor a fee, at an
annual rate of 0.25% of the average daily net assets of the outstanding Class A
shares and Class B shares. Pursuant to the terms of the Plan, the Distributor
has agreed to provide certain shareholder services to the holders of these
shares. Additionally, under the terms of the Plan, the Distributor may make
payments to other shareholder service agents who may include FCIMCO, FNBC and
their affiliates. For the period ended December 31, 1995, the Funds paid the
following amounts under the Plan:
<TABLE>
<CAPTION>
Amounts paid to
FCIMCO, FNBC Amounts paid to Amounts
and other service retained by
its affiliates organizations Distributor
--------------- --------------- -----------
<S> <C> <C> <C>
Managed Assets Income Fund...... $7,185 $111,163 $809
Managed Assets Fund............. 7,036 1,892 124
Equity Income Fund.............. 417 2,510 54
Growth Fund..................... 1,788 2,959 137
Special Opportunities Fund...... 304 454 19
</TABLE>
136
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amounts paid to
FCIMCO, FNBC Amounts paid to Amounts
and other service retained by
its affiliates organizations Distributor
--------------- --------------- -----------
<S> <C> <C> <C>
International Equity Fund....... $ 1,363 $ 1,791 $ 98
Intermediate Bond Fund.......... 3,487 2,209 72
Bond Fund....................... 1,230 898 33
International Bond Fund......... 415 240 29
Intermediate Municipal Bond
Fund........................... 23,617 13,617 1,227
Municipal Bond Fund............. 7,593 7,151 266
U.S. Government Money Market
Fund........................... 168,470 2,292 --
Money Market Fund............... 378,833 1,372 380
Municipal Money Market Fund..... 508,558 28 17
</TABLE>
(C) The Funds' Class B shares have a Distribution Plan adopted pursuant to
Rule 12b-1 under the Act (the "12b-1 Plan") pursuant to which the Funds have
agreed to pay the Distributor for advertising, marketing and distributing Class
B Shares of the Funds at an annual rate of .75% of the average daily net assets
of the Funds' outstanding Class B shares. Under the terms of the 12b-1 Plan,
the Distributor may make payments to FCIMCO, FNBC and their affiliates in
respect of these services. For the period ended December 31, 1995, the Funds
made the following payments under the 12b-1 Plan, all of which was retained by
the Distributor:
<TABLE>
<S> <C>
Managed Assets Income Fund........................................... $5,831
Managed Assets Fund.................................................. 3,325
Equity Income Fund................................................... 1,283
Growth Fund.......................................................... 670
Special Opportunities Fund........................................... 56
International Equity Fund............................................ 379
Intermediate Bond Fund............................................... 563
Bond Fund............................................................ 116
International Bond Fund.............................................. 30
Intermediate Municipal Bond Fund..................................... 824
Municipal Bond Fund.................................................. 600
Money Market Fund.................................................... 154
</TABLE>
(D) During the fiscal year ended December 31, 1994, an affiliate of FCIMCO
purchased securities from the Money Market Fund and the U.S. Government Money
Market Fund at an amount in excess of the securities' fair market value. These
Funds recorded a realized loss on these sales in the amount of $1,286,000 and
$933,054, respectively, and an offsetting capital contribution from the
affiliate. As a result of varying treatments for book and tax purposes, the
capital contributions were reclassified from additional paid-in-capital to
accumulated net realized losses in the Statement of Assets and Liabilities.
137
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions entered into by the
Funds, excluding short-term investments, for the period ended December 31,
1995:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Managed Assets Income Fund........................ $ 3,357,559 $ 7,795,562
Managed Assets Fund............................... 7,772,725 99,502
Equity Income Fund................................ 317,060,048 94,711,633
Growth Fund....................................... 488,008,493 274,675,271
Special Opportunities Fund........................ 96,866,413 26,212,656
International Equity Fund......................... 72,831,246 3,326,924
Intermediate Bond Fund............................ 410,895,956 256,675,480
Bond Fund......................................... 265,646,537 167,721,527
International Bond Fund........................... 14,226,845 4,749,719
Intermediate Municipal Bond Fund.................. 167,757,833 164,745,501
Municipal Bond Fund............................... 174,644,032 162,078,544
</TABLE>
At December 31, 1995, accumulated net unrealized appreciation (depreciation)
on investments was as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized Net Unrealized
Appreciation Depreciation Appreciation
------------ ------------ --------------
<S> <C> <C> <C>
Managed Assets Income Fund.......... $ 8,452,650 $ (184,643) $ 8,268,007
Managed Assets Fund................. 766,286 (42,223) 724,063
Equity Income Fund.................. 42,227,078 (629,319) 41,597,759
Growth Fund......................... 48,630,652 (2,897,786) 45,732,866
Special Opportunities Fund.......... 16,914,276 (1,454,174) 15,460,102
International Equity Fund........... 7,077,639 (1,202,384) 5,875,255
Intermediate Bond Fund.............. 7,224,889 (7,491) 7,217,398
Bond Fund........................... 6,271,794 -- 6,271,794
International Bond Fund............. 427,716 -- 427,716
Intermediate Municipal Bond Fund.... 16,805,231 -- 16,805,231
Municipal Bond Fund................. 13,674,273 -- 13,674,273
</TABLE>
138
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5--CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MANAGED ASSETS
INCOME FUND
---------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
--------------------- ---------------------- -------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares:
Shares Issued........... $ 6,191,735 463,615 $ 5,577,372 441,901
Dividends reinvested.... 2,369,623 177,490 2,307,933 185,739
Shares redeemed......... (9,494,631) (723,267) (11,257,088) (903,518)
----------- -------- ------------ --------
Net Increase (decrease). $ (933,273) (82,162) $ (3,371,783) (275,878)
=========== ======== ============ ========
Class B Shares:
Shares Issued........... $ 2,007,221 146,972 $ 1,147,965 90,904
Dividends reinvested.... 33,593 2,392 28,168 2,281
Shares redeemed......... -- -- (1,127,831) (93,185)(d)
----------- -------- ------------ --------
Net Increase............ $ 2,040,814 149,364 $ 48,302 --
=========== ======== ============ ========
Class I Shares:
Shares Issued........... $ 1,362,669 103,183 -- --
Dividends reinvested.... 11,790 865 -- --
Shares redeemed......... (202,866) (15,263) -- --
----------- -------- ------------ --------
Net Increase............ $ 1,171,593 88,785 $ -- --
=========== ======== ============ ========
Net Increase (decrease)
in Fund................ $ 2,279,134 320,311 $ (3,323,481) (275,878)
=========== ======== ============ ========
</TABLE>
139
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS EQUITY INCOME
FUND FUND
-----------------------------------------------
FOR THE PERIOD FOR THE PERIOD
APRIL 3, 1995 JANUARY 27, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(A)
-----------------------------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued........... $8,265,007 774,054 $ 3,147,813 274,126
Dividends reinvested.... 77,996 6,993 96,740 8,056
Shares redeemed......... (582,928) (54,615) (548,876) (47,021)
----------- -------- ------------ ----------
Net Increase............ $7,760,075 726,432 $ 2,695,677 235,161
=========== ======== ============ ==========
Class B Shares:
Shares Issued........... $ 763,106 73,866 $ 549,799 47,321
Dividends reinvested.... 7,435 679 20,644 1,708
Shares redeemed......... (19,541) (1,829) (5,669) (479)
----------- -------- ------------ ----------
Net Increase............ $ 751,000 72,716 $ 564,774 48,550
=========== ======== ============ ==========
Class I Shares:
Shares Issued........... $ 363,704 35,836 $254,460,104 24,853,530
Dividends reinvested.... 81 7 6,520,825 538,073
Shares redeemed......... -- -- (23,702,375) (2,132,230)
----------- -------- ------------ ----------
Net Increase............ $ 363,785 35,843 $237,278,554 23,259,373
=========== ======== ============ ==========
Net Increase in Fund.... $ 8,874,860 834,991 $240,539,005 23,543,084
=========== ======== ============ ==========
</TABLE>
140
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIAL
GROWTH OPPORTUNITIES
FUND FUND
------------------------ ------------------------
FOR THE PERIOD FOR THE PERIOD
JANUARY 27, 1995 JANUARY 27, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(A)
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued............... $ 4,175,044 365,857 $ 621,648 57,254
Dividends reinvested........ 284,304 24,056 13,920 1,177
Shares redeemed............. (339,951) (28,244) (38,190) (3,361)
------------ ---------- ------------ ----------
Net Increase................ $ 4,119,397 361,669 $ 597,378 55,070
============ ========== ============ ==========
Class B Shares:
Shares Issued............... $ 246,223 21,032 $ 13,756 1,248
Dividends reinvested........ 18,650 1,584 308 26
Shares redeemed............. (2,126) (178) (52) (5)
------------ ---------- ------------ ----------
Net Increase................ $ 262,747 22,438 $ 14,012 1,269
============ ========== ============ ==========
Class I Shares:
Shares Issued............... $296,410,620 29,238,077 $89,307,250 8,700,086
Dividends reinvested........ 14,724,145 1,243,736 1,180,180 99,691
Shares redeemed............. (67,961,411) (5,922,360) (12,836,851) (1,176,741)
------------ ---------- ------------ ----------
Net Increase................ $243,173,354 24,559,453 $77,650,579 7,623,036
============ ========== ============ ==========
Net Increase in Fund........ $247,555,498 24,943,560 $78,261,969 7,679,375
============ ========== ============ ==========
</TABLE>
141
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY INTERMEDIATE BOND
FUND FUND
---------------------- ------------------------
FOR THE PERIOD FOR THE PERIOD
MARCH 3, 1995 FEBRUARY 1, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(B)
---------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued................. $ 2,704,994 256,160 $ 7,282,071 895,627
Dividends reinvested.......... 72,968 6,664 288,362 35,401
Shares redeemed............... (171,519) (16,377) (1,588,172) (194,954)
----------- --------- ------------ ----------
Net Increase.................. $ 2,606,443 246,447 $ 5,982,261 736,074
=========== ========= ============ ==========
Class B Shares:
Shares Issued................. $ 177,315 16,903 $ 303,451 37,048
Dividends reinvested.......... 4,093 407 7,835 961
Shares redeemed............... (193) (18) (50,817) (6,308)
----------- --------- ------------ ----------
Net Increase.................. $ 181,215 17,292 $ 260,469 31,701
=========== ========= ============ ==========
Class I Shares:
Shares Issued................. $97,383,515 9,484,283 $193,282,535 24,813,641
Dividends reinvested.......... 1,458,486 131,833 3,730,335 459,341
Shares redeemed............... (5,651,592) (536,226) (22,128,156) (2,742,147)
----------- --------- ------------ ----------
Net Increase.................. $93,190,409 9,079,890 $174,884,714 22,530,835
=========== ========= ============ ==========
Net Increase in Fund.......... $95,978,067 9,343,629 $181,127,444 23,298,610
=========== ========= ============ ==========
</TABLE>
142
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND
FUND
---------------------------------------------
FOR THE PERIOD
FOR THE YEAR MARCH 5, 1993
ENDED THROUGH
JANUARY 31, 1995 JANUARY 31, 1994(A)
--------------------- ----------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued..................... $ 19,449 2,527 $ 51,267 6,185
Dividends reinvested.............. 4,153 533 1,484 180
Shares redeemed................... (15,285) (1,997) -- --
---------- --------- ----------- --------
Net Increase...................... $ 8,317 1,063 $ 52,751 6,365
========== ========= =========== ========
Class B Shares:
Shares Issued..................... $ 2,000 245 $ -- --
Dividends reinvested.............. 99 13 -- --
Shares redeemed................... (2,099) (258) -- --
---------- --------- ----------- --------
Net Increase...................... $ -- -- $ -- --
========== ========= =========== ========
Class I Shares:
Shares Issued..................... $7,661,463 1,001,211 $5,247,186 628,922
Dividends reinvested.............. 5,537 710 5,299 639
Shares redeemed................... (5,328,334) (698,958) (154,029) (18,488)
---------- --------- ----------- --------
Net Increase...................... $2,338,666 302,963 $5,098,456 611,073
========== ========= =========== ========
Net Increase in Fund.............. $2,346,983 304,026 $5,151,207 617,438
========== ========= =========== ========
</TABLE>
143
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
BOND
BOND FUND FUND
------------------------ ----------------------
FOR THE FOR THE PERIOD
PERIOD JANUARY 27, 1995
FEBRUARY 10, 1995 THROUGH
THROUGH DECEMBER 31,
DECEMBER 31, 1995(A) 1995(A)
------------------------ ----------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... $ 1,854,556 174,316 $ 480,966 42,767
Dividends reinvested.... 110,618 10,293 47,097 4,274
Shares redeemed......... (148,560) (13,734) (19,999) (1,752)
------------ ---------- ----------- ---------
Net increase............ $ 1,816,614 170,875 $ 508,064 45,289
============ ========== =========== =========
Class B Shares:
Shares issued........... $ 58,404 5,401 $ 3,704 370
Dividends reinvested.... 2,873 268 484 44
Shares redeemed......... -- -- -- --
------------ ---------- ----------- ---------
Net increase............ $ 61,277 5,669 $ 4,188 414
============ ========== =========== =========
Class I Shares:
Shares issued........... $127,483,190 12,620,870 $15,099,834 1,442,838
Dividends reinvested.... 2,860,982 267,174 332,915 29,708
Shares redeemed......... (13,656,196) (1,289,980) (1,470,371) (130,514)
------------ ---------- ----------- ---------
Net increase............ $116,687,976 11,598,064 $13,962,378 1,342,032
============ ========== =========== =========
Net increase in Fund.... $118,565,867 11,774,608 $14,474,630 1,387,735
============ ========== =========== =========
</TABLE>
144
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL
BOND FUND
--------------------------------------------------
FOR THE PERIOD
MARCH 1, 1995 FOR THE
THROUGH YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995(C) 1995
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... $ 2,036,319 167,138 $ 920,191 78,527
Dividends reinvested.... 579,220 47,958 829,334 70,747
Shares redeemed......... (2,724,405) (225,316) (12,219,977) (1,053,197)
------------ ---------- ------------ ----------
Net decrease............ $ (108,866) (10,220) $(10,470,452) (903,923)
============ ========== ============ ==========
Class B Shares:
Shares issued........... $ 348,000 28,626 $ 115,550 9,750
Dividends reinvested.... 4,876 399 1,971 169
Shares redeemed......... (20,212) (1,672) (123,958) (10,419)
------------ ---------- ------------ ----------
Net increase (decrease). $ 332,664 27,353 $ (6,437) (500)
============ ========== ============ ==========
Class I Shares:
Shares issued........... $ 46,362,306 3,850,432 $366,411,242 31,318,358
Dividends reinvested.... 2,330,219 191,337 20,498 1,737
Shares redeemed......... (54,476,753) (4,527,302) (3,821,887) (325,102)
------------ ---------- ------------ ----------
Net increase (decrease). $ (5,784,228) (485,533) $362,609,853 30,994,993
============ ========== ============ ==========
Net increase (decrease)
in Fund................ $ (5,560,430) (468,400) $352,132,964 30,090,570
============ ========== ============ ==========
</TABLE>
145
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL BOND
BOND FUND FUND
--------------------- ------------------------
FOR THE FOR THE PERIOD
YEAR ENDED MARCH 1, 1995
FEBRUARY 28, THROUGH
1994 DECEMBER 31, 1995(C)
--------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued.................. $ 6,634,160 523,996 $ 1,295,558 103,426
Dividends reinvested........... 1,972,927 158,309 346,338 27,700
Shares redeemed................ (6,226,132) (496,647) (1,377,127) (110,562)
----------- -------- ------------ ----------
Net increase................... $ 2,380,955 185,658 $ 264,769 20,564
=========== ======== ============ ==========
Class B Shares:
Shares issued.................. $ 12,000 980 $ 228,602 18,257
Dividends reinvested........... 4 1 6,838 543
Shares redeemed................ -- -- (39) (3)
----------- -------- ------------ ----------
Net increase................... $ 12,004 981 $ 235,401 18,797
=========== ======== ============ ==========
Class I Shares:
Shares issued.................. $ -- -- $ 32,958,625 2,685,708
Dividends reinvested........... -- -- 3,575,154 285,358
Shares redeemed................ -- -- (27,710,442) (2,219,888)
----------- -------- ------------ ----------
Net increase................... $ -- -- $ 8,823,337 751,178
=========== ======== ============ ==========
Net increase in Fund........... $ 2,392,959 186,639 $ 9,323,507 790,539
=========== ======== ============ ==========
</TABLE>
146
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BOND
FUND
-----------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1995 DECEMBER 31, 1994
------------------------ -----------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued................. $ 301,216 25,507 $ 3,586,206 275,363
Dividends reinvested.......... 319,837 27,236 956,593 75,829
Shares redeemed............... (2,895,171) (246,815) (5,752,746) (441,865)
------------ ---------- ----------- --------
Net decrease.................. $ (2,274,118) (194,072) $(1,209,947) (90,673)
============ ========== =========== ========
Class B Shares:
Shares issued................. $ -- -- $ 2,000 161
Dividends reinvested.......... 66 6 4 1
Shares redeemed............... (2,071) (168) -- --
------------ ---------- ----------- --------
Net increase (decrease)....... $ (2,005) (162) $ 2,004 162
============ ========== =========== ========
Class I Shares:
Shares issued................. $222,099,320 18,631,505 $ -- --
Dividends reinvested.......... 3,923 325 -- --
Shares redeemed............... (4,444,913) (371,925) -- --
------------ ---------- ----------- --------
Net increase.................. $217,658,330 18,259,905 $ -- --
============ ========== =========== ========
Net increase (decrease) in
Fund......................... $215,382,207 18,065,671 $(1,207,943) (90,511)
============ ========== =========== ========
</TABLE>
147
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------- ----------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... 250,085,862 677,021,399 802,777,063 1,724,346,455
Dividends reinvested.... 2,488,380 1,310,332 6,872,109 2,559,069
Shares redeemed......... (311,695,323) (716,564,214) (725,110,518) (1,770,081,791)
------------ ------------ ------------ --------------
Net increase (decrease). (59,121,081) (38,232,483) 84,538,654 (43,176,267)
============ ============ ============ ==============
Class B Shares:
Shares issued........... -- -- 250,080 --
Dividends reinvested.... -- -- 903 --
Shares redeemed......... -- -- (186,116) --
------------ ------------ ------------ --------------
Net increase............ -- -- 64,867 --
============ ============ ============ ==============
Net increase (decrease)
in Fund................ (59,121,081) (38,232,483) 84,603,521 (43,176,267)
============ ============ ============ ==============
</TABLE>
148
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET
FUND
------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ------------------
SHARES SHARES
------ ------
<S> <C> <C>
Class A Shares:
Shares issued.............................. 534,326,783 428,067,086
Dividends reinvested....................... 3,305,612 2,261,400
Shares redeemed............................ (482,251,105) (434,859,851)
------------ ------------
Net increase (decrease) in Fund............ 55,381,290 (4,531,365)
============ ============
</TABLE>
- -----------
(a) Period from commencement of operations.
(b) Effective February 1, 1995, the Fund changed its fiscal year end from
January 31 to December 31.
(c) Effective March 1, 1995, the Fund changed its fiscal year end from February
28 to December 31.
(d) Includes 91,228 shares converted to Class A Shares on December 2, 1994.
NOTE 6--MERGER AND SUBSEQUENT EVENT
On December 1, 1995, FCIMCO's ultimate parent company, First Chicago
Corporation, merged with NBD Bancorp., Inc., with the combined company renamed
First Chicago NBD Corporation (FCNBD). FCNBD has now begun the process of
reorganizing their proprietary mutual funds: Prairie Funds, Prairie
Institutional Funds and the Woodward Funds (whose investment adviser is NBD
Bank, a wholly owned subsidiary of FCNBD).
On February 20, 1996, the Board of Trustees of The Woodward Funds and the
Board of Trustees/Directors of the Prairie Funds, Prairie Municipal Bond Fund,
Inc. and Prairie Intermediate Bond Fund approved Reorganization Agreements,
which are subject to shareholder approval. The expenses incurred in connection
with entering into and carrying out provisions of the Reorganization
Agreements, whether or not the transactions contemplated thereby are
consummated, will be paid by FCNBD. The reorganization is intended to be
effected on a tax-free basis, so that none of the Fund's shareholders will
recognize taxable gains or losses as a result of the reorganization.
A proxy statement/prospectus describing the reorganization and the reasons
therefore will be sent to shareholders.
149
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 7--ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Trust designates the following eligible distributions for the dividends
received deduction for corporations for the year ended December 31, 1995:
<TABLE>
<CAPTION>
MANAGED
ASSETS MANAGED EQUITY
INCOME ASSETS INCOME
FUND FUND FUND
------- ------- ------
<S> <C> <C> <C>
Dividend Income................................... $1,219,984 $52,630 $8,875,334
Dividend Income Per Share--Class A Shares......... 0.28 0.05 0.32
Dividend Income Per Share--Class B Shares......... 0.22 0.05 0.26
Dividend Income Per Share--Class I Shares......... 0.28 0.08 0.36
</TABLE>
<TABLE>
<CAPTION>
GROWTH SPECIAL INTERNATIONAL
FUND OPPORTUNITIES FUND EQUITY FUND
------ ------------------ -------------
<S> <C> <C> <C>
Dividend Income.................... $4,772,025 $611,057 $973,285
Dividend Income Per Share--Class A
Shares............................ 0.10 0.01 0.05
Dividend Income Per Share--Class B
Shares............................ 0.05 0.00 0.03
Dividend Income Per Share--Class I
Shares............................ 0.12 0.04 0.07
</TABLE>
150
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of
Year.......................... $ 12.13 $ 13.11 $ 12.68 $ 12.56 $ 10.79
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERA-
TIONS:
Net investment income (loss)... 0.64 0.73 0.72 0.79 0.83
Net realized and unrealized
gains (losses) on invest-
ments........................ 2.48 (0.98) 0.61 0.26 1.77
------- ------- ------- ------- -------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS....... 3.12 (0.25) 1.33 1.05 2.60
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income..... (0.68) (0.72) (0.72) (0.77) (0.83)
From net realized gains on in-
vestments.................... (0.03) (0.01) (0.18) (0.16) --
------- ------- ------- ------- -------
TOTAL DIVIDENDS AND DISTRIBU-
TIONS....................... (0.71) (0.73) (0.90) (0.93) (0.83)
------- ------- ------- ------- -------
Net change in net asset value... 2.41 (0.98) 0.43 0.12 1.77
------- ------- ------- ------- -------
Net Asset Value, End of Year.... $ 14.54 $ 12.13 $ 13.11 $ 12.68 $ 12.56
======= ======= ======= ======= =======
- ---------------------------------
TOTAL RETURN (EXCLUDES SALES
CHARGE) 26.40% (1.92)% 10.70% 8.68% 24.87%
- ---------------------------------
- ---------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------
Ratio of expenses to average net
assets........................ 1.17% 0.63% 0.39% 0.02% --
Ratio of net investment income
to average net assets......... 4.88% 5.77% 5.54% 6.24% 7.04%
Ratio of expenses to average net
assets*....................... 1.54% 1.67% 1.65% 1.88% 2.16%
Ratio of net investment income
to average net assets*........ 4.51% 4.73% 4.28% 4.38% 4.88%
Portfolio turnover.............. 8.23% 28.69% 16.40% 22.14% 26.02%
Net assets, end of period (000's
omitted)...................... $51,997 $44,367 $51,586 $34,262 $14,038
</TABLE>
- -----------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
See Notes to Financial Statements.
151
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Period Ended
December 31, December 2,
1995(2) 1994(1)
------------ ------------
<S> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period............... $12.42 $13.05
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.45 0.51
Net realized and unrealized gains (losses) on
investments..................................... 2.17 (0.91)
------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS... 2.62 (0.40)
------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income........................ (0.45) (0.54)
From net realized gains on investments............ (0.03) (0.01)
------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (0.48) (0.55)
------ ------
Net change in net asset value...................... 2.14 (0.95)
------ ------
Conversion to Class A Shares(3).................... NA 12.10
------ ------
Net Asset Value, End of Period..................... $14.56 $ --
====== ======
- ----------------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 21.42%++ (3.13)%++
- ----------------------------------------------------
- ----------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------------
Ratio of expenses to average net assets............ 1.92%+ 1.21%+
Ratio of net investment income to average net as-
sets............................................. 3.89%+ 4.10%+
Ratio of expenses to average net assets*........... 2.12%+ 2.17%+
Ratio of net investment income to average net as-
sets*............................................ 3.70%+ 3.14%+
Portfolio turnover................................. 8.23%++ 28.69%++
Net assets, end of period (000's omitted).......... $2,175 $ --
</TABLE>
- -----------
(1) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares under the then-current sales load schedule and
such shares converted to Class A Shares.
(2) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(3) On December 2, 1994, the Fund terminated its offering of Class B shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
152
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period Ended
December 31,
1995(1)
------------
<S> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period............................. $12.42
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... 0.57
Net realized and unrealized gains on investments................ 2.18
------
TOTAL INCOME FROM INVESTMENT OPERATIONS........................ 2.75
------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income...................................... (0.57)
From net realized gains on investments.......................... (0.03)
------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............................. (0.60)
------
Net change in net asset value.................................... 2.15
------
Net Asset Value, End of Period................................... $14.57
======
- ------------------------------------------------------------------
TOTAL RETURN 22.55%++
- ------------------------------------------------------------------
- ------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------
Ratio of expenses to average net assets.......................... 0.77%+
Ratio of net investment income to average net assets............. 5.12%+
Ratio of expenses to average net assets*......................... 1.22%+
Ratio of net investment income to average net assets*............ 4.66%+
Portfolio turnover............................................... 8.23%++
Net assets, end of period (000's omitted)........................ $1,294
</TABLE>
- -----------
(1) For the period March 3, 1995, (initial offering date of Class I Shares)
through December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
153
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of Period........ $10.00 $10.00 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.14 0.36 0.11
Net realized and unrealized gains on in-
vestments................................ 1.50 2.57 2.86
------ ------ ------
TOTAL INCOME FROM INVESTMENT OPERATIONS... 1.64 2.93 2.97
------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................. (0.14) (0.36) (0.11)
In excess of net investment income......... -- (0.01) --
From net realized gains on investments and
foreign currency transactions............ -- (0.34) (0.89)
------ ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS......... (0.14) (0.71) (1.00)
------ ------ ------
Net change in net asset value............... 1.50 2.22 1.97
------ ------ ------
Net Asset Value, End of Period.............. $11.50 $12.22 $11.97
====== ====== ======
- ----------------------------------------------
TOTAL RETURN (EXCLUDES SALES CHARGE) 16.48%++ 29.78%++ 29.98%++
- ----------------------------------------------
- ----------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------
Ratio of expenses to average net assets..... 1.26%+ 1.11%+ 1.21%+
Ratio of net investment income to average
net assets................................ 2.45%+ 3.33%+ 0.86%+
Ratio of expenses to average net assets*.... 3.15%+ 1.44%+ 1.39%+
Ratio of net investment income (loss) to av-
erage net assets*......................... 0.56%+ 2.99%+ 0.68%+
Portfolio turnover.......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted)... $8,356 $2,873 $4,329
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
154
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$10.00 $10.00 $10.00 $10.00
-------- ------ ------ ------
0.02 0.10 0.57 0.98
2.45 1.40 1.20 1.10
-------- ------ ------ ------
2.47 1.50 1.77 2.08
-------- ------ ------ ------
(0.02) (0.09) (0.57) (0.98)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- ------ ------ ------
(0.27) (0.34) (0.96) (1.33)
-------- ------ ------ ------
2.20 1.16 0.81 0.75
-------- ------ ------ ------
$12.20 $11.16 $10.81 $10.75
======== ====== ====== ======
24.80%++ 15.16%++ 18.22%++ 21.10%++
1.25%+ 1.50%+ 1.02%+ 1.33%+
0.19%+ 1.19%+ 5.94%+ 4.91%+
2.56%+ 1.96%+ 1.57%+ 3.65%+
(1.12)%+ 0.72%+ 5.39%+ 2.59%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$ 672 $2,749 $1,847 $ 487
</TABLE>
See Notes to Financial Statements.
155
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
For the Period Ended December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period....... $10.00 $10.00 $ 10.00
------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. 0.13 0.29 0.06
Net realized and unrealized gains on in-
vestments............................... 1.45 2.56 2.84
------ ------ -------
TOTAL INCOME FROM INVESTMENT OPERATIONS.. 1.58 2.85 2.90
------ ------ -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................ (0.13) (0.29) (0.06)
In excess of net investment income........ -- -- --
From net realized gains on investments and
foreign currency transactions........... -- (0.34) (0.89)
------ ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS........ (0.13) (0.63) (0.95)
------ ------ -------
Net change in net asset value.............. 1.45 2.22 1.95
------ ------ -------
Net Asset Value, End of Period............. $11.45 $12.22 $ 11.95
====== ====== =======
- ---------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 15.83%++ 28.97%++ 29.15%++
- ---------------------------------------------
- ---------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------
Ratio of expenses to average net assets.... 2.00%+ 1.90%+ 2.04%+
Ratio of net investment income (loss) to
average net assets....................... 1.69%+ 2.65%+ 0.02%+
Ratio of expenses to average net assets*... 6.84%+ 2.65%+ 2.60%+
Ratio of net investment income (loss) to
average net assets*...................... (3.15)%+ 1.90%+ (0.54)%+
Portfolio turnover......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted).. $ 833 $ 593 $ 268
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. if such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
156
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$10.00 $10.00 $10.00 $10.00
-------- ------ ------ ------
(0.03) 0.05 0.50 0.91
2.40 1.39 1.20 1.16
-------- ------ ------ ------
2.37 1.44 1.70 2.07
-------- ------ ------ ------
-- (0.05) (0.50) (0.91)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- ------ ------ ------
(0.25) (0.30) (0.89) (1.26)
-------- ------ ------ ------
2.12 1.14 0.81 0.81
-------- ------ ------ ------
$12.12 $11.14 $10.81 $10.81
======== ====== ====== ======
23.76%++ 14.52%++ 17.41%++ 20.90%++
2.00%+ 2.28%+ 1.87%+ 2.03%+
(0.51)%+ 0.40%+ 5.22%+ 4.39%+
9.52%+ 3.83%+ 3.91%+ 8.69%+
(8.04)%+ (1.15)%+ 3.19%+ (2.28)%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$ 15 $ 193 $ 61 $ 4
</TABLE>
See Notes to Financial Statements.
157
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- -------- --------
<S> <C> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period........ $10.00 $ 10.00 $ 10.00
------ -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.22 0.42 0.15
Net realized and unrealized gains on in-
vestments................................ 1.46 2.55 2.86
------ -------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS... 1.68 2.97 3.01
------ -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................. (0.22) (0.42) (0.15)
In excess of net investment income......... -- -- --
From net realized gains on investments and
foreign currency transactions............ -- (0.34) (0.89)
------ -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS......... (0.22) (0.76) (1.04)
------ -------- --------
Net change in net asset value............... 1.46 2.21 1.97
------ -------- --------
Net Asset Value, End of Period.............. $11.46 $ 12.21 $ 11.97
====== ======== ========
- ---------------------------------------------
TOTAL RETURN 16.90%++ 30.27%++ 30.38%++
- ---------------------------------------------
- ---------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------
Ratio of expenses to average net assets..... 0.80%+ 0.65%+ 0.80%+
Ratio of net investment income to average
net assets................................ 3.06%+ 4.08%+ 1.46%+
Ratio of expenses to average net assets*.... 4.12%+ 0.77%+ 0.92%+
Ratio of net investment income (loss) to av-
erage net assets*......................... (0.26)%+ 3.96%+ 1.34%+
Portfolio turnover.......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted)... $ 411 $283,927 $293,944
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
158
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
- ------------- ------------- ------- -------------
<S> <C> <C> <C>
$ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------
0.06 0.14 0.61 1.02
2.44 1.40 1.20 1.16
-------- -------- -------- -------
2.50 1.54 1.81 2.18
-------- -------- -------- -------
(0.06) (0.12) (0.61) (1.02)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- -------- -------- -------
(0.31) (0.37) (1.00) (1.37)
-------- -------- -------- -------
2.19 1.17 0.81 0.81
-------- -------- -------- -------
$ 12.19 $ 11.17 $ 10.81 $ 10.81
======== ======== ======== =======
25.08%++ 15.62%++ 18.57%++ 22.13%++
0.85%+ 1.05%+ 0.70%+ 0.95%+
0.59%+ 1.70%+ 6.48%+ 5.71%+
1.09%+ 1.38%+ 0.87%+ 1.93%+
0.36%+ 1.36%+ 6.31%+ 4.73%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$92,926 $101,448 $125,401 $14,504
</TABLE>
See Notes to Financial Statements.
159
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the
Period Ended Year Ended Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of Period.... $ 7.68 $ 8.25 $ 8.36
------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income.................. 0.44 0.52 0.47
Net realized and unrealized gains
(losses) on investments.............. 0.72 (0.57) (0.09)
------ ------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS.......................... 1.16 (0.05) 0.38
------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income............. (0.44) (0.52) (0.47)
From net realized gains on investments. (0.22) -- (0.02)
------ ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS..... (0.66) (0.52) (0.49)
------ ------ ------
Net change in net asset value........... 0.50 (0.57) (0.11)
------ ------ ------
Net Asset Value, End of Period.......... $ 8.18 $ 7.68 $ 8.25
====== ====== ======
- -----------------------------------------
TOTAL RETURN (EXCLUDES SALES CHARGE) 15.55%++ (0.45)% 5.16%+
- -----------------------------------------
- -----------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------
Ratio of expenses to average net assets. 0.94%+ 0.04% --
Ratio of net investment income to
average net assets.................... 5.72%+ 6.70% 5.96%+
Ratio of expenses to average net as-
sets*................................. 1.15%+ 2.78% 3.67%+
Ratio of net investment income to
average net assets*................... 5.51%+ 3.96% 2.29%+
Portfolio turnover...................... 173.26%++ 71.65% 26.54%++
Net assets, end of period (000's omit-
ted).................................. $6,095 $ 69 $ 65
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
160
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Period Ended
December 31, December 2,
1995(1) 1994(2)
------------ ------------
<S> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period............... $ 8.13 $ 8.16
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.24 0.40
Net realized and unrealized gains (losses) on
investments..................................... 0.27 (0.55)
------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS... 0.51 (0.15)
------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income........................ (0.24) (0.40)
From net realized gains on invesments............. (0.22) --
------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (0.46) (0.40)
------ ------
Net change in net asset value...................... 0.05 (0.55)
------ ------
Conversion to Class A Shares(3).................... NA 7.61
------ ------
Net Asset Value, End of Period..................... $ 8.18 $ --
====== ======
- ----------------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 6.41%++ (1.82)%++
- ----------------------------------------------------
- ----------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------------
Ratio of expenses to average net assets............ 1.60%+ --
Ratio of net investment income to average net as-
sets............................................. 5.00%+ 6.48%+
Ratio of expenses to average net assets*........... 1.78%+ 2.58%+
Ratio of net investment income to average net as-
sets*............................................ 4.83%+ 3.90%+
Portfolio turnover................................. 173.26%++ 71.65%++
Net assets, end of period (000's omitted).......... $ 259 $ --
</TABLE>
- -----------
(1) For the period May 31, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31 to December 31.
(2) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares and such shares converted to Class A Shares.
(3) On December 2, 1994, the Fund terminated the offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
161
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the
Period Ended Year Ended Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period... $ 7.68 $ 8.25 $ 8.36
-------- ------ ------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income................. 0.47 0.52 0.47
Net realized and unrealized gains
(losses) on investments............. 0.72 (0.57) (0.09)
-------- ------ ------
TOTAL INCOME FROM INVESTMENT
OPERATIONS......................... 1.19 (0.05) 0.38
-------- ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income............ (0.47) (0.52) (0.47)
From net realized gains on invesments. (0.22) -- (0.02)
-------- ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS.... (0.69) (0.52) (0.49)
-------- ------ ------
Net change in net asset value.......... 0.50 (0.57) (0.11)
-------- ------ ------
Net Asset Value, End of Period......... $ 8.18 $ 7.68 $ 8.25
======== ====== ======
- ----------------------------------------
TOTAL RETURN 15.90%++ (0.48)% 5.16%++
- ----------------------------------------
- ----------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------
Ratio of expenses to average net as-
sets................................. 0.55%+ 0.04% --
Ratio of net investment income to
average net assets................... 6.34%+ 6.70% 6.21%+
Ratio of expenses to average net as-
sets*................................ 0.67%+ 2.78% 2.64%+
Ratio of net investment income to
average net assets*.................. 6.22%+ 3.96% 3.57%+
Portfolio turnover..................... 173.26%++ 71.65% 26.54%++
Net assets, end of period (000's omit-
ted)................................. $191,930 $7,101 $5,128
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
162
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Year Ended
Period Ended ---------------------------------------------------
December 31, February 28, February 28, February 28, February 29,
1995(1) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Begin-
ning of Period....... $ 11.79 $ 12.18 $ 12.79 $ 12.25 $ 11.95
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income. 0.44 0.55 0.61 0.64 0.76
Net realized and
unrealized gains
(losses) on invest-
ments............... 0.56 (0.36) 0.01 0.68 0.37
------- ------- ------- ------- -------
TOTAL INCOME FROM
INVESTMENT
OPERATIONS......... 1.00 0.19 0.62 1.32 1.13
------- ------- ------- ------- -------
LESS DIVIDENDS AND DIS-
TRIBUTIONS:
From net investment
income.............. (0.44) (0.55) (0.61) (0.64) (0.76)
From net realized
gains on invest-
ments............... (0.10) (0.03) (0.62) (0.14) (0.07)
------- ------- ------- ------- -------
TOTAL DIVIDENDS AND
DISTRIBUTIONS...... (0.54) (0.58) (1.23) (0.78) (0.83)
------- ------- ------- ------- -------
Net change in net asset
value................ 0.46 (0.39) (0.61) 0.54 0.30
------- ------- ------- ------- -------
Net Asset Value, End of
Period............... $ 12.25 $ 11.79 $ 12.18 $ 12.79 $ 12.25
======= ======= ======= ======= =======
- ------------------------
TOTAL RETURN (EXCLUDES
SALES CHARGE) 8.58%++ 1.64% 4.94% 11.26% 9.78%
- ------------------------
- ------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------
Ratio of expenses to
average net assets... 0.83%+ 0.29% 0.06% -- --
Ratio of net investment
income to average net
assets............... 4.30%+ 4.73% 4.78% 5.16% 6.15%
Ratio of expenses to
average net assets*.. 0.97%+ 1.38% 1.27% 1.31% 1.72%
Ratio of net investment
income to average net
assets*.............. 4.16%+ 3.64% 3.57% 3.85% 4.43%
Portfolio turnover..... 44.75%++ 128.02% 167.95% 63.67% 86.91%
Net assets, end of
period
(000's omitted)...... $17,777 $17,243 $28,826 $27,885 $18,310
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
163
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
----------------------------------------------------
December 31, February 28, December 2, February 28,
1995(1) 1995(2) 1994(3) 1994(4)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Begin-
ning of Period........ $11.80 $ 11.57 $ 12.18 $ 12.32
------ ------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 0.37 0.04 0.37 0.03
Net realized and
unrealized gains
(losses) on
investments.......... 0.55 0.23 (0.72) (0.14)
------ ------- ------- --------
TOTAL INCOME (LOSS)
FROM INVESTMENT
OPERATIONS.......... 0.92 0.27 (0.35) (0.11)
------ ------- ------- --------
LESS DIVIDENDS AND DIS-
TRIBUTIONS:
From net investment in-
come................. (0.37) (0.04) (0.37) (0.03)
From net realized gains
on investments....... (0.10) -- (0.03) --
------ ------- ------- --------
TOTAL DIVIDENDS AND
DISTRIBUTIONS....... (0.47) (0.04) (0.40) (0.03)
------ ------- ------- --------
Net change in net asset
value................. 0.45 0.23 (0.75) (0.14)
------ ------- ------- --------
Conversion to Class A
shares(3)............. NA NA 11.43 NA
------ ------- ------- --------
Net Asset Value, End of
Period................ $12.25 $ 11.80 $ -- $ 12.18
====== ======= ======= ========
- -------------------------
TOTAL RETURN (EXCLUDES
REDEMPTION CHARGE) 7.75%++ 2.30%++ (2.98)++ (0.93)%++
- -------------------------
- -------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Ratio of expenses to av-
erage net assets...... 1.71%+ 1.36%+ 0.76%+ 0.75%+
Ratio of net investment
income to average net
assets................ 3.36%+ 3.72%+ 4.03%+ 1.68%+
Ratio of expenses to
average net assets*... 2.01%+ 1.64%+ 2.00%+ 3.00%+
Ratio of net investment
income (loss) to
average net assets*... 3.06%+ 3.44%+ 2.79%+ (0.57)%+
Portfolio turnover...... 44.75%++ 128.02%++ 128.02%++ 167.95%++
Net assets, end of pe-
riod (000's omitted).. $ 341 $ 6 $ -- $ 12
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(3) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
(4) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
164
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
December 31, February 28,
1995(1) 1995(2)
------------ ------------
<S> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period.............. $ 11.80 $ 11.57
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................ 0.47 0.04
Net realized and unrealized gains on investments. 0.55 0.23
-------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS......... 1.02 0.27
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income....................... (0.47) (0.04)
From net realized gains on investments........... (0.10) --
-------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (0.57) (0.04)
-------- --------
Net change in net asset value..................... 0.45 0.23
-------- --------
Net Asset Value, End of Period.................... $ 12.25 $ 11.80
======== ========
- ---------------------------------------------------
TOTAL RETURN 8.76%++ 2.37%++
- ---------------------------------------------------
- ---------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------------
Ratio of expenses to average net assets........... 0.55%+ 0.50%+
Ratio of net investment income to average net as-
sets............................................ 4.78%+ 4.79%+
Ratio of expenses to average net assets*.......... 0.68%+ 0.60%+
Ratio of net investment income to average net as-
sets*........................................... 4.65%+ 4.69%+
Portfolio turnover................................ 44.75%++ 128.02%++
Net assets, end of period (000's omitted)......... $373,753 $365,801
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period February 1, 1995 (initial offering date of Class I Shares)
through February 28, 1995.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
165
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Year Ended
Period Ended ---------------------------------------------------
December 31, February 28, February 28, February 28, February 29,
1995(1) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value,
Beginning of Period.. $12.06 $12.13 $13.25 $ 12.49 $12.10
------ ------ ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income. 0.48 0.60 0.63 0.70 0.76
Net realized and
unrealized gains
(losses) on
investments......... 0.82 (0.07) (0.15) 1.01 0.47
------ ------ ------ ------- ------
TOTAL INCOME FROM
INVESTMENT
OPERATIONS......... 1.30 0.53 0.48 1.71 1.23
------ ------ ------ ------- ------
LESS DIVIDENDS AND
DISTRIBUTIONS:
From net investment
income.............. (0.48) (0.60) (0.63) (0.70) (0.76)
From net realized
gains on
investments......... (0.24) -- (0.96) (0.25) (0.08)
In excess of net
realized gains on
investments......... -- -- (0.01) -- --
------ ------ ------ ------- ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS...... (0.72) (0.60) (1.60) (0.95) (0.84)
------ ------ ------ ------- ------
Net change in net asset
value................ 0.58 (0.07) (1.12) 0.76 0.39
------ ------ ------ ------- ------
Net Asset Value, End of
Period............... $12.64 $12.06 $12.13 $ 13.25 $12.49
====== ====== ====== ======= ======
- ------------------------
TOTAL RETURN (EXCLUDES
SALES CHARGE) 10.95%++ 4.45% 3.70% 14.37% 10.50%
- ------------------------
- ------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------
Ratio of expenses to
average net assets... 0.89%+ 1.98% -- -- --
Ratio of net investment
income to average net
assets............... 4.57%+ 5.09% 4.85% 5.49% 5.99%
Ratio of expenses to
average net assets*.. 1.04%+ 3.89% 1.44% 1.59% 2.75%
Ratio of net investment
income to average net
assets*.............. 4.43%+ 3.18% 3.41% 3.90% 3.24%
Portfolio turnover..... 69.31%++ 60.78% 175.06% 88.53% 66.28%
Net assets, end of
period
(000's omitted)...... $7,426 $6,840 $9,234 $11,290 $6,591
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
166
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
----------------------------------------
December 31, December 2, February 28,
1995(1) 1994(2) 1994(3)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period. $ 12.17 $12.14 $ 12.37
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............... 0.34 0.41 0.03
Net realized and unrealized gains
(losses) on investments........... 0.72 (0.70) (0.23)
------- ------ -------
TOTAL INCOME FROM INVESTMENT
OPERATIONS....................... 1.06 (0.29) (0.20)
------- ------ -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income.......... (0.34) (0.41) (0.03)
From net realized gains on invest-
ments............................. (0.24)
------- ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS.. (0.58) (0.41) (0.03)
------- ------ -------
Net change in net asset value........ 0.48 (0.70) (0.23)
------- ------ -------
Conversion to Class A Shares(4)...... NA 11.44 NA
------- ------ -------
Net Asset Value, End of Period....... $ 12.65 $ NA $ 12.14
======= ====== =======
- --------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION
CHARGE) 8.81%++ (4.30)%++ (1.64)%++
- --------------------------------------
- --------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------
Ratio of expenses to average net
assets............................. 1.66%+ 3.18%+ 0.50%+
Ratio of net investment income to
average net assets................. 3.61%+ 4.51%+ 4.10%+
Ratio of expenses to average net
assets*............................ 2.04%+ 5.85%+ 2.91%+
Ratio of net investment income to
average net assets*................ 3.23%+ 1.84%+ 1.69%+
Portfolio turnover................... 69.31%++ 60.78%++ 175.06%++
Net assets, end of period (000's
omitted)........................... $ 238 $ -- $ 2
</TABLE>
- -----------
(1) For the period April 4, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective March 1, 1995, the Fund changed its fiscal
year end from February 28 to December 31.
(2) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
(3) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(4) On December 2, 1994, the Fund terminated its offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
167
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
-------------------------------
December 31, February 28,
1995(1) 1995(2)
------------ ------------
<S> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period.......... $ 12.06 $ 12.06
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.52 0.05
Net realized and unrealized gains on invest-
ments...................................... 0.81 --
-------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS..... 1.33 0.05
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................... (0.52) (0.05)
From net realized gains on investments....... (0.24) --
-------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS........... (0.76) (0.05)
-------- --------
Net change in net asset value................. 0.57 --
-------- --------
Net Asset Value, End of Period................ $ 12.63 $ 12.06
======== ========
- -----------------------------------------------
TOTAL RETURN 11.20%++ 0.39%++
- -----------------------------------------------
- -----------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------------
Ratio of expenses to average net assets....... 0.54%+ 0.65%+
Ratio of net investment income to average net
assets...................................... 4.95%+ 5.45%+
Ratio of expenses to average net assets*...... 0.67%+ 0.79%+
Ratio of net investment income to average net
assets*..................................... 4.81%+ 5.31%+
Portfolio turnover............................ 69.31%++ 60.78%++
Net assets, end of period (000's omitted)..... $240,160 $220,143
</TABLE>
- -----------
(1) For the period March 1, 1995, through December 31, 1995. Effective March
1, 1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
168
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year................... $0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income...... 0.0498 0.0379 0.0249 0.0283 0.0498
Net realized and unrealized
gains (losses) on
investments.............. 0.0001 (0.0083) (0.0001) -- --
------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS... 0.0499 0.0296 0.0248 0.0283 0.0498
------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income. (0.0498) (0.0379) (0.0249) (0.0283) (0.0498)
------- -------- -------- -------- --------
Increase due to voluntary
capital contribution from
an affiliate of the In-
vestment Adviser (Note
3(d))..................... -- 0.0080 -- -- --
------- -------- -------- -------- --------
Net change in net asset val-
ue........................ 0.0001 (0.0003) (0.0001) -- --
------- -------- -------- -------- --------
Net Asset Value, End of
Year...................... $0.9997 $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000
======= ======== ======== ======== ========
- -----------------------------
TOTAL RETURN 5.09% 3.86%* 2.52% 2.87% 5.10%
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------
Ratio of expenses to average
net assets................ 0.78% 0.86% 0.74% 0.91% 0.90%
Ratio of net investment
income to average net
assets.................... 4.97% 3.73% 2.48% 2.87% 4.97%
Ratio of expenses to average
net assets**.............. 1.07% 0.88% 0.88% 0.91% 0.90%
Ratio of net investment
income to average net
assets**.................. 4.67% 3.71% 2.34% 2.87% 4.97%
Net assets, end of period
(000's omitted)........... $57,264 $116,353 $154,613 $548,733 $990,897
</TABLE>
- -----------
* Had the Portfolio not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
2.83%.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
169
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year.................. $ 0.9998 $ 1.0001 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OP-
ERATIONS:
Net investment income..... 0.0514 0.0355 0.0274 0.0313 0.0543
Net realized and
unrealized gains (loss-
es) on investments...... 0.0100 (0.0109) 0.0001 -- --
-------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS.. 0.0524 0.0246 0.0275 0.0313 0.0543
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRI-
BUTIONS:
From net investment in-
come.................... (0.0514) (0.0355) (0.0274) (0.0313) (0.0543)
From net realized gains on
investments............. (0.0006) (0.0002) -- -- --
-------- -------- -------- -------- --------
TOTAL DIVIDENDS AND
DISTRIBUTIONS......... (0.0520) (0.0357) (0.0274) (0.0313) (0.0543)
-------- -------- -------- -------- --------
Increase due to voluntary
capital contribution from
an affiliate of the
Investment Adviser (Note
3(d)).................... -- 0.0108 -- -- --
-------- -------- -------- -------- --------
Net change in net asset
value.................... 0.0004 (0.0003) 0.0001 -- --
-------- -------- -------- -------- --------
Net Asset Value, End of
Year..................... $ 1.0002 $ 0.9998 $ 1.0001 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
- ----------------------------
TOTAL RETURN 5.33% 3.63%* 2.77% 3.18% 5.57%
- ----------------------------
- ----------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------
Ratio of expenses to
average net assets....... 0.79% 1.02% 0.94% 0.98% 0.97%
Ratio of net investment
income to average net
assets................... 5.12% 3.51% 2.76% 3.17% 5.42%
Ratio of expenses to
average net assets**..... 1.07% 1.02% 0.99% 0.98% 0.97%
Ratio of net investment
income to average net
assets**................. 4.83% 3.51% 2.71% 3.17% 5.42%
Net assets, end of period
(000's omitted).......... $203,994 $119,400 $162,623 $260,865 $456,791
</TABLE>
- -----------
* Had the Portfolio not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
2.61%.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
170
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS-- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Ended
December 31,
1995(1)
--------------
<S> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period........................... $1.0000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................................... 0.0162
Net realized and unrealized gains on investments.............. 0.0008
-------
TOTAL INCOME FROM INVESTMENT OPERATIONS...................... 0.0170
-------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income.................................... (0.0162)
From net realized gains on investments........................ (0.0006)
-------
TOTAL DIVIDENDS AND DISTRIBUTIONS........................... (0.0168)
-------
Net change in net asset value.................................. 0.0002
-------
Net Asset Value, End of Period................................. $1.0002
=======
- -----------------------------------------------------------------
TOTAL RETURN 1.69%++
- -----------------------------------------------------------------
- -----------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------------------------------
Ratio of expenses to average net assets........................ 1.51%+
Ratio of net investment income to average net assets........... 4.33%+
Ratio of expenses to average net assets*....................... 2.02%+
Ratio of net investment income to average net assets*.......... 3.82%+
Net assets, end of period (000's omitted)...................... $ 65
</TABLE>
- -----------
(1) For the period May 20, 1995 (initial offering of Class B Shares) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
171
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year................... $ 0.9997 $ 0.9999 $ 0.9999 $ 0.9999 $ 0.9999
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income...... 0.0322 0.0234 0.0174 0.0236 0.0413
Net realized and unrealized
gains (losses) on
investments.............. 0.0001 (0.0002) -- -- --
-------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS... 0.0323 0.0232 0.0174 0.0236 0.0413
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income. (0.0322) (0.0234) (0.0174) (0.0236) (0.0413)
-------- -------- -------- -------- --------
Net change in net asset val-
ue........................ 0.0001 (0.0002) -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of
Year...................... $ 0.9998 $ 0.9997 $ 0.9999 $ 0.9999 $ 0.9999
======== ======== ======== ======== ========
- -----------------------------
TOTAL RETURN 3.26% 2.36% 1.75% 2.38% 4.21%
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------
Ratio of expenses to average
net assets................ 0.70% 0.68% 0.79% 0.95% 0.98%
Ratio of net investment
income to average net
assets.................... 3.21% 2.33% 1.74% 2.38% 4.11%
Ratio of expenses to average
net assets*............... 0.94% 0.93% 0.95% 0.96% 0.98%
Ratio of net investment
income to average net
assets*................... 2.97% 2.08% 1.58% 2.37% 4.11%
Net assets, end of period
(000's omitted)........... $228,511 $173,130 $177,698 $210,000 $233,675
</TABLE>
- -----------
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
172
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
Prairie Funds
Prairie Municipal Bond Fund, Inc.
Prairie Intermediate Bond Fund
The Members of the Boards and Shareholders
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Prairie Funds (comprising,
respectively, the Managed Assets Income, Managed Assets, Equity Income,
Growth, Special Opportunities, International Equity, Bond, International Bond,
Intermediate Municipal Bond, U.S. Government Money Market, Money Market and
Municipal Money Market Funds), Prairie Municipal Bond Fund, Inc. and Prairie
Intermediate Bond Fund (collectively, the "Funds") as of December 31, 1995 and
the related statements of operations for the periods then ended, and the
statements of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1995 by correspondence with the custodians and
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Prairie Funds, Prairie Municipal Bond
Fund, Inc. and Prairie Intermediate Bond Fund at December 31, 1995, the
results of their operations for the periods then ended, and the changes in
their net assets and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 23, 1996
Exhibit (17)(r)
[ FRONT COVER ]
[ WOODWARD FUNDS LOGO ART AND LOGOTYPE ]
-----------------
Annual Report
December 31, 1995
-----------------
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
Investment Adviser
[ NBD BANK LOGOTYPE ]
24 Hour yield information:
Purchase and Redemption orders:
(800) 688-3350
<PAGE>
To Our Woodward Shareholders:
The fourth quarter of 1995 provided strong results in the equity and
bond markets with total returns of 6 percent for the Standard and Poor's (S&P)
and 4.3 percent for the Lehman Aggregate Bond Index. These results capped an
exceptional year which provided total returns of 37.5 percent for the S&P,
31.7 percent for the Russell 2500 (a proxy for smaller companies) and 18.5
percent for the Lehman Aggregate Bond Index. Foreign markets, as measured by
the EAFE Index, provided good absolute returns of 11.2 percent, but failed to
keep up with the exceptional U.S. market. In fact, S&P 500 results were the
third highest since 1948 and the highest since 1958; the overall bond results
were also the third highest, in this case since the mid 1970s.
The Woodward money market funds had an excellent year with all funds
finishing in the top quartile of their respective IBC/Donoghue's peer groups.
The funds maintained their exceptional credit quality throughout the year and
profited from a strategy of maintaining slightly longer-weighted average
maturities as compared to their peer groups.
The Woodward bond funds again exceeded their respective benchmarks in
the fourth quarter, providing exceptional 1995 results. The Bond Fund
generated a total return of 23.8 percent, while the Intermediate Bond Fund
provided results of 19.5 percent. The two funds ranked at the top of their
respective fund categories for the year. The Short Bond Fund provided a total
return of 10.1 percent, modestly below its benchmark but well above cash
alternatives.
The Woodward equity funds had a solid fourth quarter with a number of
the funds exceeding their peer groups. Generally, the results for the Woodward
equity funds for the year provided very high absolute results; they moderately
lagged peer managers and came up somewhat short of the broader indices. The
Woodward Growth/Value, Capital Growth and International Equity funds had good
fourth quarters. This helped the Growth/Value and Capital Growth Funds close
the gap with their peers for the year, while the International Equity Fund
provided good comparative returns on an annual basis. The Opportunity and
Intrinsic Value Funds lagged their respective benchmarks for the quarter and
the year. We look to 1996 to improve relative equity performance which,
coupled with our strong bond results, should provide our clients continued
success with their investments.
During the year, NBD Bancorp, Inc. merged with First Chicago
Corporation. We were pleased that the investment management effort of the
joint organization has been identified as a primary business of the Bank and
that substantial resources have been allocated to the business. We look
forward to melding the two organization's considerable strengths and providing
our clients with a measurably enhanced research and fund management group.
Thank you for your continued support and we hope you find this report
useful and informative.
Sincerely,
/s/ Earl I. Heenan, Jr.
-----------------------
Earl I. Heenan, Jr.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
ASSETS:
Investment in securities:
At cost $1,619,765,599
==============
At amortized cost (Note 2) $1,624,604,821
Cash 109
Interest receivable 16,341,428
Deferred organization costs, net (Note 2) --
Prepaids and other 298,771
--------------
TOTAL ASSETS 1,641,245,129
--------------
LIABILITIES:
Payable for securities purchased --
Accrued investment advisory fee 743,967
Accrued distribution fees 16,841
Accrued custodial fee 2,795
Dividends payable 738,061
Accounts payable and accrued expenses 48,651
--------------
TOTAL LIABILITIES 1,550,315
--------------
NET ASSETS $1,639,694,814
==============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 163,969,481
Additional paid-in capital 1,475,725,333
--------------
TOTAL NET ASSETS $1,639,694,814
==============
Net asset value and redemption price per share $ 1.00
==============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $469,488,613 $921,604,627 $566,354,408 $126,549,715
============ ============ ============ ============
At amortized cost (Note 2) $469,643,055 $921,643,450 $564,592,007 $126,237,472
Cash 320 104 52,509 1,897
Interest receivable 5,112,013 6,544,562 5,203,797 1,139,798
Deferred organization costs, net (Note 2) -- 6,063 -- --
Prepaids and other 41,286 295,486 13,394 61,485
------------ ------------ ------------ ------------
TOTAL ASSETS 474,796,674 928,489,665 569,861,707 127,440,652
------------ ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased -- -- 5,000,000 5,273,510
Accrued investment advisory fee 195,644 340,328 225,584 51,173
Accrued distribution fees 3,417 5,377 3,880 1,222
Accrued custodial fee 685 869 3,312 690
Dividends payable 210,856 413,557 190,363 39,832
Accounts payable and accrued expenses 9,217 34,032 25,092 17,283
------------ ------------ ------------ ------------
TOTAL LIABILITIES 419,819 794,163 5,448,231 5,383,710
------------ ------------ ------------ ------------
NET ASSETS $474,376,855 $927,695,502 $564,413,476 $122,056,942
============ ============ ============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 47,437,686 $ 92,769,550 $ 56,441,348 $ 12,205,694
426,939,169 834,925,952 507,972,128 109,851,248
Additional paid-in capital ------------ ------------ ------------ ------------
$474,376,855 $927,695,502 $564,413,476 $122,056,942
TOTAL NET ASSETS ============ ============ ============ ============
Net asset value and redemption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
INVESTMENT INCOME (Note 2): $98,415,963
-----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 7,225,557
Distribution fees 152,873
Professional fees 48,970
Custodial fee 60,686
Shareholder servicing agent fees 450,637
Marketing expenses 102,871
Amortization of deferred organization expenses --
Registration, filing fees and other expenses 398,210
Less:
Waived investment advisory fee --
-----------
NET EXPENSES 8,439,804
-----------
NET INVESTMENT INCOME $89,976,159
===========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6%
===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (Note 2): $26,262,034 $42,755,302 $21,196,396 $3,921,289
----------- ----------- ----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 1,987,590 3,248,535 2,458,246 496,026
Distribution fees 34,919 53,755 44,226 10,466
Professional fees 48,970 48,970 48,970 48,970
Custodial fee 8,370 12,919 41,886 11,132
Shareholder servicing agent fees 60,644 298,599 86,193 82,305
Marketing expenses 36,670 41,925 42,552 34,396
Amortization of deferred organization expenses -- 8,021 -- 8,277
Registration, filing fees and other expenses 82,327 128,542 173,183 54,166
Less:
Waived investment advisory fee -- -- -- (61,221)
----------- ----------- ----------- ----------
NET EXPENSES 2,259,490 3,841,266 2,895,256 684,517
----------- ----------- ----------- ----------
NET INVESTMENT INCOME $24,002,544 $38,914,036 $18,301,140 $3,236,772
=========== =========== =========== ==========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6% 9.0% 13.7% 17.5%
=========== =========== =========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET FUND GOVERNMENT FUND
----------------- ---------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 89,976,159 $ 54,437,913 $ 24,002,544 $ 15,570,185
Distributions to shareholders from net investment
income (89,976,159) (54,437,913) (24,002,544) (15,570,185)
---------------- ---------------- --------------- ---------------
Net increase in net assets from operations -- -- -- --
---------------- ---------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (at $1.00 per share):
Proceeds from shares sold 15,430,620,141 11,950,595,231 7,866,220,550 4,177,408,097
Net asset value of shares issued in reinvestment of
distributions to shareholders 20,938,255 15,065,218 5,511,007 3,599,166
---------------- ---------------- --------------- ---------------
15,451,558,396 11,965,660,449 7,871,731,557 4,181,007,263
Less: payments for shares redeemed (15,134,903,898) (11,969,313,007) (7,818,562,738) (4,106,464,145)
---------------- ---------------- --------------- ---------------
Net increase (decrease) in net assets from capital
share transactions 316,654,498 (3,652,558) 53,168,819 74,543,118
---------------- ---------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 316,654,498 (3,652,558) 53,168,819 74,543,118
NET ASSETS:
Beginning of year 1,323,040,316 1,326,692,874 421,208,036 346,664,918
---------------- ---------------- --------------- ---------------
End of year $ 1,639,694,814 $ 1,323,040,316 $ 474,376,855 $ 421,208,036
================ ================ =============== ===============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
TREASURY TAX-EXEMPT MICHIGAN TAX-EXEMPT
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
----------------- ----------------- -----------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- ------------- -------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 38,914,036 $ 23,209,709 $ 18,301,140 $ 12,879,849 $ 3,236,772 $ 1,621,567
Distributions to
shareholders from net
investment income (38,914,036) (23,209,709) (18,301,140) (12,879,849) (3,236,772) (1,621,567)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets from operations -- -- -- -- -- --
--------------- --------------- --------------- --------------- ------------- -------------
FROM CAPITAL SHARE
TRANSACTIONS
(at $1.00 per share):
Proceeds from
shares sold 6,284,582,300 3,163,540,997 2,777,275,094 3,097,740,398 293,836,102 229,739,020
Net asset value of
shares issued in
reinvestment of
distributions to
shareholders 5,449,979 6,513,927 2,421,757 2,353,656 2,029,545 1,022,699
--------------- --------------- --------------- --------------- ------------- -------------
6,290,032,279 3,170,054,924 2,779,696,851 3,100,094,054 295,865,647 230,761,719
Less: payments for
shares redeemed (6,148,030,955) (3,239,233,694) (2,766,019,376) (3,048,064,052) (252,448,579) (204,679,038)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
--------------- --------------- --------------- --------------- ------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
NET ASSETS:
Beginning of year 785,694,178 854,872,948 550,736,001 498,705,999 78,639,874 52,557,193
--------------- --------------- --------------- --------------- ------------- -------------
End of year $ 927,695,502 $ 785,694,178 $ 564,413,476 $ 550,736,001 $ 122,056,942 $ 78,639,874
=============== =============== =============== =============== ============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Cost
Description Face Amount (Note 2)
----------- ----------- --------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 16.98%
Allstate Life Insurance Co. Master Note, 5.93%,
1/2/96 $ 5,000,000 $ 5,000,000
American General Finance, Inc. Master Note, 5.85%,
1/2/96 15,000,000 15,000,000
Commonwealth Life Insurance Co. Master Note, 6.03%,
1/2/96 5,000,000 5,000,000
Peoples Security Life Insurance Co. Master Note,
6.03%, 1/2/96 5,000,000 5,000,000
Sun Life Insurance Co. of America Master Note,
6.13%, 1/2/96 10,000,000 10,000,000
Transamerica Finance Group, Inc. Master Note,
5.85%, 1/2/96 25,000,000 25,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 56,503,093 56,503,093
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 77,000,000 77,000,000
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) 73,407,000 73,407,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 4,000,000 4,000,000
--------------
275,910,093
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.52%
Federal Farm Credit Bank, 5.60%, 7/1/96 13,950,000 13,930,941
Federal Home Loan Bank:
5.63%, 6/26/96 12,000,000 11,992,746
5.98%, 8/14/96 5,000,000 5,000,000
Federal National Mortgage Assn. Deb., 8.75%,
6/10/96 2,000,000 2,025,084
Federal National Mortgage Assn. Medium Term Note:
5.97%, 5/16/96 4,000,000 4,002,877
5.71%, 6/10/96 9,000,000 8,994,375
Student Loan Marketing Assn., 6.05%, 6/30/96 27,500,000 27,528,471
--------------
73,474,494
--------------
COMMERCIAL PAPER -- 44.37%
Abbey National North America, 5.64%, 3/6/96 29,980,000 29,677,951
Accor, 5.74%, 2/15/96 8,000,000 7,943,000
AESOP Funding Corp., 5.82%, 1/22/96 15,000,000 14,949,250
Allomon Funding Corp.:
5.78%, 1/12/96 10,000,000 9,982,369
5.77%, 1/25/96 10,135,000 10,096,149
Alpine Securitization Corp., 5.76%, 2/13/96 8,000,000 7,945,342
American Express Credit Corp., 5.69%, 2/27/96 20,000,000 19,821,400
Avnet, Inc., 5.72%, 2/16/96 7,500,000 7,445,567
B.A.T. Capital Corp., 5.77%, 1/23/96 10,000,000 9,964,861
Barton Capital Corp., 5.80%, 1/26/96 17,000,000 16,931,764
Bass Finance (C.I.) Ltd., 5.71%, 2/14/96 10,815,000 10,740,052
BCI Funding Corp., 5.74%, 2/9/96 19,980,000 19,856,623
BEAL Cayman Ltd., 5.73%, 2/23/96 19,980,000 19,812,923
Clipper Receivables Corp., 5.76%, 1/17/96 20,000,000 19,948,889
Corporate Receivables Corp., 5.81%, 1/5/96 17,000,000 16,989,026
Echlin, Inc., 5.76%, 1/18/96 15,000,000 14,959,342
Eksportfinans A/S, 5.54%, 1/8/96 6,060,000 6,053,484
Electronic Data Systems Corp., 5.56%, 3/21/96 5,000,000 4,939,000
Engelhard Corp., 5.75%, 1/19/96 10,970,000 10,938,571
English China Clays PLC:
5.78%, 1/22/96 10,000,000 9,966,400
5.73%, 2/20/96 10,000,000 9,921,111
5.70%, 3/1/96 10,254,000 10,157,442
Enterprise Funding Corp.:
5.76%, 1/12/96 6,451,000 6,439,666
5.76%, 1/16/96 13,072,000 13,040,652
5.76%, 2/9/96 9,000,000 8,944,230
Explorer Pipeline Co.:
5.76%, 1/24/96 7,775,000 7,746,487
5.78%, 1/30/96 10,500,000 10,451,365
5.72%, 2/16/96 10,000,000 9,927,422
Franklin Resources, Inc., 5.73%, 2/20/96 8,000,000 7,936,889
Greenwich Funding Corp.:
5.76%, 1/8/96 10,000,000 9,988,819
5.78%, 1/11/96 10,000,000 9,983,972
Halifax Building Society, 5.77%, 1/3/96 10,000,000 9,996,794
Hercules, Inc., 5.60%, 6/21/96 10,000,000 9,739,611
International Lease Finance Corp., 5.76%, 1/9/96 12,730,000 12,713,734
International Securitization Corp.:
5.78%, 2/2/96 17,000,000 16,913,111
5.52%, 6/10/96 9,530,000 9,300,277
New Center Asset Trust, 5.78%, 1/31/96 20,000,000 19,904,167
Pacific Dunlop Holdings, Inc., 5.75%, 2/21/96 10,000,000 9,919,250
Pacific Dunlop Ltd., 5.67%, 1/23/96 5,000,000 4,982,736
Pooled Accounts Receivable Capital Corp.:
5.83%, 1/9/96 11,000,000 10,985,773
6.02%, 1/25/96 10,160,000 10,119,360
Preferred Receivables Funding Corp.:
5.73%, 2/2/96 15,975,000 15,894,060
5.75%, 2/21/96 8,050,000 7,984,996
Premium Funding, Inc.:
5.78%, 2/7/96 10,113,000 10,053,235
5.79%, 2/14/96 11,162,000 11,083,556
Ranger Funding Corp., 5.75%, 1/12/96 13,000,000 12,977,199
San Paolo U.S. Financial Co., 5.68%, 3/15/96 10,970,000 10,843,498
Sheffield Receivables Corp., 5.73%, 2/1/96 12,980,000 12,916,290
St. Michael Finance Ltd.:
5.75%, 2/20/96 9,272,000 9,198,597
5.64%, 3/5/96 5,694,000 5,637,516
5.64%, 3/8/96 10,000,000 9,896,150
Sunbelt-Dix, Inc.:
5.76%, 1/30/96 4,000,000 3,981,537
5.79%, 2/13/96 11,980,000 11,897,721
5.71%, 3/5/96 12,000,000 11,879,467
5.67%, 3/25/96 5,250,000 5,181,400
Sweden (Kingdom of):
5.71%, 2/16/96 15,000,000 14,891,325
5.72%, 3/1/96 6,980,000 6,914,039
5.73%, 3/12/96 10,000,000 9,888,175
TI Group, Inc., 5.70%, 3/4/96 17,000,000 16,832,210
U.S. Borax & Chemical Corp., 5.73%, 2/1/96 5,000,000 4,975,458
Windmill Funding Corp.:
6.02%, 1/16/96 10,000,000 9,975,000
5.82%, 1/24/96 15,000,000 14,944,417
WMX Technologies, Inc., 5.50%, 9/9/96 15,480,000 14,905,692
--------------
720,826,369
--------------
NOTES -- 17.27%
American Express Centurion Bank, 5.82%, A/R,
1/17/96 15,000,000 15,000,652
Associates Corp. of North America Debenture, 7.50%,
10/15/96 28,850,000 29,222,978
Associates Corp. of North America Euro Dollar
Debenture, 10.50%, 3/12/96 7,378,000 7,424,686
Boatmens National Bank of St. Louis, 6.00%, A/R,
6/12/96 20,000,000 20,000,000
Comerica Bank, 5.70%, 9/3/96 13,000,000 12,991,077
First Bank, NA, 5.96%, 3/4/96 27,500,000 27,499,558
First Union National Bank N. C., 5.76%, 2/2/96 5,000,000 5,000,000
Ford Motor Credit Co. Medium Term Notes:
6.25%, A/R, 5/10/96 12,000,000 12,013,087
14.00%, 7/5/96 5,000,000 5,198,163
9.10%, 7/18/96 5,000,000 5,083,739
Huntington National Bank, 5.67%, A/R, 8/29/96 30,000,000 29,988,082
J.P. Morgan, 5.75%, 8/7/96 29,980,000 29,986,992
PNC Bank, 5.65%, 9/18/96 20,000,000 19,996,215
Seattle First National Bank, 5.51%, 6/14/96 10,000,000 10,000,000
Smithkline Beecham Corp., 5.25%, 1/16/96 2,425,000 2,423,784
Society National Bank Cleveland Ohio Medium Term
Note, 6.875%, 10/15/96 23,500,000 23,683,821
Trust Company Bank, 6.50%, 3/21/96 25,000,000 24,994,577
-----------
280,507,411
-----------
CERTIFICATES OF DEPOSIT -- 15.44%
Bayerische Landesbank Girozentrale, 6.00%, 9/12/96 10,000,000 10,000,000
Bayerische Vereinsbank AG, 5.95%, 7/22/96 29,980,000 29,980,000
Canadian Imperial Bank of Commerce, 5.95%, 10/23/96 24,980,000 24,980,000
Dresdner Bank AG, 7.00%, 2/5/96 15,000,000 15,000,000
Harris Trust & Savings Bank, 5.72%, 2/29/96 14,975,000 14,975,000
National Westminster Bank PLC, 5.83%, 1/12/96 15,000,000 15,000,045
PNC Bank Corp., 5.74%, 9/30/96 20,000,000 19,985,384
Royal Bank of Canada:
6.60%, 4/3/96 2,980,000 2,980,399
6.55%, 4/9/96 8,000,000 8,000,000
Societe Generale:
7.05%, 2/14/96 20,000,000 20,000,000
6.80%, 3/1/96 5,000,000 5,000,000
Toronto-Dominion Bank, Euro:
6.80%, 3/11/96 24,980,000 24,987,939
5.84%, 11/7/96 30,000,000 30,000,000
Wachovia Bank of Georgia, NA, 5.85%, 1/10/96 10,000,000 10,000,000
Wachovia Bank of North Carolina, 7.13%, 1/26/96 20,000,000 19,997,687
--------------
250,886,454
--------------
TIME DEPOSIT -- 1.42%
Mitsubishi Bank, 12.00%, 1/2/96 23,000,000 23,000,000
--------------
23,000,000
--------------
TOTAL INVESTMENTS $1,624,604,821
==============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 45.05%
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) $73,569,000 $ 73,569,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00% 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 23,000,000 23,000,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 115,000,000 115,000,000
------------
211,569,000
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 54.95%
U.S. Treasury Securities -- 4.28%
U.S. Treasury Notes:
4.375%, 8/15/96 5,000,000 4,957,174
7.000%, 9/30/96 15,000,000 15,150,150
------------
20,107,324
------------
Agency Obligations -- 50.67%
Federal Farm Credit Bank:
5.78%, A/R, 2/9/96 25,000,000 24,998,664
6.61%, 4/12/96 4,000,000 4,006,934
6.39%, 4/17/96 10,000,000 10,022,719
5.59%, A/R, 6/7/96 10,000,000 9,998,338
5.60%, 11/1/96 10,000,000 10,002,747
Federal Home Loan Bank:
6.85%, 2/28/96 24,000,000 24,012,415
6.30%, 3/1/96 2,500,000 2,474,042
5.05%, 6/7/96 6,000,000 5,983,328
5.90%, 7/25/96 5,000,000 5,000,000
5.98%, 8/14/96 19,000,000 19,000,000
6.00%, 8/16/96 2,000,000 2,000,411
4.84%, 8/26/96 5,000,000 4,976,737
5.77%, 11/20/96 10,000,000 9,998,229
Federal Home Loan Mortgage Corp., 6.79%, 2/20/96 15,000,000 14,999,678
Federal National Mortgage Assn., 5.58% 2/21/96 8,400,000 8,334,074
Federal National Mortgage Assn. Medium Term Note:
5.50%, A/R, 1/26/96 25,000,000 24,998,973
5.71%, 6/10/96 5,000,000 4,998,939
5.50%, 6/12/96 18,000,000 17,969,843
Student Loan Marketing Assn.:
6.13%, A/R, 6/30/96 12,500,000 12,490,660
6.06%, A/R, 7/1/96 11,700,000 11,700,000
6.05%, A/R, 10/4/96 10,000,000 10,000,000
------------
237,966,731
------------
TOTAL INVESTMENTS $469,643,055
============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- -------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 82.74%
Aubrey Langston, Revolving Repurchase Agreement,
5.92%, 1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 8/31/97
through 11/15/05 at various interest rates
ranging from 4.75% to 13.75%, all held at
Chemical Bank) $43,000,000 $ 43,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 5.82%, 1/2/96 (secured by various U.S.
Treasury obligations with maturities ranging from
5/15/96 through 8/15/23 at various interest rates
ranging from 0.00% to 8.875%, all held at the
Custodial Trust Co.) 215,000,000 215,000,000
Daiwa Securities America, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 4/30/96 through 11/15/01 at various
interest rates ranging from 0.00% to 15.75%, all
held at the Bank of New York) 43,000,000 43,000,000
First Boston, Inc., Revolving Repurchase Agreement,
5.85%, 1/2/96 (secured by various U.S. Treasury
Notes with maturities ranging from 11/15/96
through 2/15/03 at various interest rates ranging
from 4.375% to 6.25%, all held at Chemical Bank) 36,000,000 36,000,000
Lehman Brothers, Inc., Revolving Repurchase
Agreement, 5.92%, 1/2/96 (secured by U.S.
Treasury Note, 5.875%, 7/31/97, held at Chemical
Bank) 43,000,000 43,000,000
Morgan Stanley & Co., Inc., Revolving Repurchase
Agreement, 5.87%, 1/2/96 (secured by U.S.
Treasury Note, 6.125%, 5/31/97, held at the Bank
of New York) 43,000,000 43,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 216,533,000 216,533,000
Nikko Securities Co. International, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 7/31/96 through 8/15/00 at various
interest rates ranging from 0.00% to 8.75%, all
held at the Bank of New York) 40,000,000 40,000,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 5.96%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 8/31/97 through 5/15/01 at various
interest rates ranging from 0.00% to 6.00%, all
held at the Bank of New York) 40,000,000 40,000,000
Sanwa BGK Securities Co., L.P., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
U.S. Treasury Note, 5.50%, 11/15/98, held at the
Bank of New York) 43,000,000 43,000,000
------------
762,533,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 17.26%
U.S. Treasury Securities -- 17.26%
Principal Strip from U.S. Treasury Bond due
5/15/96 5,000,000 4,897,685
U.S. Treasury Bill, 6.26%, 3/7/96 3,000,000 2,965,955
U.S. Treasury Notes:
4.000%, 1/31/96 8,000,000 7,988,924
4.625%, 2/15/96 10,000,000 9,976,935
7.875%, 2/15/96 35,000,000 35,049,857
7.500%, 2/29/96 15,000,000 15,016,012
5.500%, 4/30/96 20,000,000 19,970,088
5.875%, 5/31/96 10,000,000 10,001,983
7.875%, 7/15/96 2,000,000 2,021,778
6.125%, 7/31/96 7,000,000 7,013,918
7.875%, 7/31/96 4,000,000 4,046,593
4.375%, 8/15/96 14,000,000 13,873,585
8.000%, 10/15/96 15,000,000 15,256,312
4.375%, 11/15/96 5,000,000 4,943,974
7.250%, 11/15/96 6,000,000 6,086,851
------------
159,110,450
------------
TOTAL INVESTMENTS $921,643,450
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Alabama -- 1.05%
Alabama HFA Mulit-Family CP:
12/1/13 VMIG 1 3.50% $ 3,200,000 $ 3,200,000
12/1/13 VMIG 1 3.60% 2,700,000 2,700,000
Alaska -- 7.97%
Anchorage Electric Utilities (MBIA Insured)
12/1/15 Aaa 7.63% 11,100,000 11,423,545
Valdez Marine Terminal--Arco Transportation:
CP, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
CP, 5/1/31 VMIG 1 3.55% 3,900,000 3,900,000
CP, 5/1/31 VMIG 1 3.75% 1,700,000 1,700,000
VRDB, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
Valdez Marine Terminal--Exxon Pipeline Co. VRDB,
10/1/25 P 1 5.95% 12,000,000 12,000,000
Arizona -- 1.00%
Chandler IDR VRDB--Parsons Municipal Services,
12/15/09 A 1+ 4.25% 3,600,000 3,600,000
Maricopa Co. School District GO Unlimited Tax Series
A, 7/1/96 Aa 3.75% 2,000,000 2,000,952
Colorado -- 2.87%
Adams Co. IDR VRDB--City View Park, 12/1/15 A 1+ 5.20% 3,000,000 3,000,000
Englewood HFA Multi-Family VRDN--Mark Project,
12/15/97 A 1+ 5.25% 2,000,000 2,000,000
Lakewood Multi-Family Housing (FGIC Insured)
VRDB--St. Moritz & Diamond Head, 10/1/07 VMIG 1 4.00% 8,250,000 8,250,000
Moffat Co. PCR VRDB, 7/1/10 VMIG 1 4.65% 3,000,000 3,000,000
Delaware -- 1.35%
Delaware EDC VRDB--Hospital Billing Series B, 12/1/15 VMIG 1 5.25% 7,600,000 7,600,000
Florida -- 1.58%
Florida GO Unlimited Tax, 7/1/08 Aaa 7.20% 3,270,000 3,355,215
Florida HFA Multi-Family (MBIA Insured) VRDB--Lake
Northdale, 6/1/07 Aaa 3.75% 5,595,000 5,595,000
Georgia -- 2.56%
Cobb Co. Housing Multi-Family VRDB--Pittco Frey
Associates Project, 6/1/23 VMIG 1 5.20% 5,900,000 5,900,000
College Park IDR VRDB-- Marriott Corp., 8/1/15 Aa 3 6.10% 1,200,000 1,200,000
Fulton Co. Development IDR VRDN--Palisades West Ltd.,
9/1/96 Aaa 5.15% 2,235,000 2,235,000
Georgia Municipal Gas Authority--Southern Portfolio I
Project, 4/1/96 VMIG 1 3.75% 5,100,000 5,100,000
Hawaii -- 2.41%
Hawaii Dept. of Budget & Finance Mortgage:
VRDN--Kuakini Medical Center, 7/1/04 VMIG 1 3.75% 4,000,000 4,000,000
VRDB--Wilcox Memorial Hospital, 7/1/18 VMIG 1 5.95% 2,100,000 2,100,000
Hawaii State Housing Finance & Development Corp.
VRDB--Rental Housing Systems, 7/1/24 VMIG 1 5.15% 7,500,000 7,500,000
Illinois -- 8.50%
Chicago GO Tender Notes, 10/31/96 VMIG 1 3.75% 6,100,000 6,100,000
Chicago O'Hare International Airport--American
Airlines VRDB:
Series C, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Series D, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Illinois GO, 4/1/06 AA- 7.13% 1,000,000 1,022,317
Illinois State Sales Tax, 6/15/15 Aaa 7.63% 6,950,000 7,132,216
Illinois State Toll Highway Authority, VRDB 1/1/10 VMIG 1 5.05% 300,000 300,000
Northwest Suburban Municipal Joint Account (MBIA
Insured)--Water Agency Supply System, 5/1/03 Aaa 7.20% 3,440,000 3,490,557
Indiana -- 3.40%
Jasper Co. PCR CP--Northern Indiana Public Services,
11/1/16 VMIG 1 3.70% 2,000,000 2,000,000
Mt. Vernon PCR CP--General Electric Project,
12/1/04 P 1 3.50% 6,900,000 6,900,000
12/1/04 P 1 3.70% 2,790,000 2,790,000
Rockport Pollution Control (AMBAC Insured)
VRDB--AEP Generating Co., 7/1/25 Aaa 5.95% 5,500,000 5,500,000
VRDB--Indiana Michigan Power Co., 6/1/25 Aaa 5.00% 2,000,000 2,000,000
Kansas -- 1.18%
Olathe GO Unlimited Tax, 5/1/96 MIG 1 4.50% 6,700,000 6,700,000
<PAGE>
Kentucky -- 0.53%
Mason Co. PCR E. Kentucky Power VRDB--CFC Power
National Rural Utilities B-1, 10/15/14 P 1 4.65% 3,000,000 3,000,000
Maryland -- 1.06%
Baltimore PCR VRDN-- SCM Plants, 2/1/00 A 1+ 5.10% 6,000,000 6,000,000
Michigan -- 12.87%
Clinton Township EDC (MBIA Insured) VRDB Sisters of
Charity St. Joseph, 5/1/13 VMIG 1 5.00% 300,000 300,000
Dearborn EDC VRDB--Oakbrook Common:
3/1/23 A 1 5.10% 2,300,000 2,300,000
3/1/25 A 1 5.10% 200,000 200,000
Delta Co. EDC--Mead Escanaba Paper:
Series D, 12/1/23 P 1 6.00% 4,200,000 4,200,000
Series F, 12/1/23 P 1 6.10% 4,300,000 4,300,000
Farmington Hills EDR VRDB--Brookfield Building
Associates, 11/1/10 A 1 5.20% 2,000,000 2,000,000
Grand Rapids EDC VRDB--Amway, 12/1/06 A 1 5.10% 3,600,000 3,600,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 5,870,000 5,870,000
Kent Hospital VRDB--Butterworth Hospital, 1/15/20 VMIG 1 5.40% 2,600,000 2,600,000
Meridian Limited Obligation EDC VRDN--Service
Merchandise Co., 12/15/99 A 1+ 4.00% 500,000 500,000
Michigan State Building Authority, 10/1/96 AA- 3.75% 5,000,000 5,005,297
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 8,900,000 8,900,000
Michigan State Hospital VRDB--Mt. Clemens Hospital,
8/15/15 VMIG 1 5.00% 4,600,000 4,600,000
Michigan State HDA VRDB:
Laurel Valley, 12/1/07 VMIG 1 5.10% 400,000 400,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 2,800,000 2,800,000
Michigan State Job Development Authority
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 5,800,000 5,800,000
PCR VRDB--Mazda Motor Corp., 10/1/08 VMIG 1 5.25% 4,500,000 4,500,000
Michigan State Strategic Fund VRDB--Allen Group, Inc.
11/1/25 VMIG 1 5.00% 400,000 400,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 1,200,000 1,200,000
12/1/27 VMIG 1 5.90% 11,610,000 11,610,000
Minnesota -- 1.60%
Hennepin Co. GO, 12/1/06 VMIG 1 5.15% 5,000,000 5,000,000
Rochester GO Various Sales Tax, 11/1/99 **N/R 5.00% 100,000 100,000
St. Paul Housing & Redevelopment Authority VRDB,
12/1/12 A 1+ 3.80% 3,900,000 3,900,000
Mississippi -- 1.45%
Perry Co. PCR VRDB--Leaf River Forest, 10/1/12 P 1 5.30% 8,200,000 8,200,000
Missouri -- 1.44%
Independence Water Utility Improvements CP 11/1/16 VMIG 1 3.40% 2,400,000 2,400,000
Missouri State Environmental Improvement Energy
Research PCR--Union Electric Co.:
Series A, 6/1/14 P 1 4.00% 1,000,000 1,000,000
Series B, 6/1/14 P 1 4.00% 4,750,000 4,750,217
Nevada -- 2.64%
Clark Co. Airport Improvement (MBIA Insured) VRDB,
7/1/12 VMIG 1 5.15% 8,600,000 8,600,000
Clark Co. PCR VRDB--Nevada Power Co. 10/1/23 A 1+ 5.00% 6,300,000 6,300,000
New Hampshire -- 0.32%
New Hampshire IDR VRDB--Oerlikon-Burlhe USA, 7/1/13 A 1+ 3.75% 1,800,000 1,800,000
New Jersey -- 0.22%
Rutgers State University, 5/1/96 AA 4.25% 1,220,000 1,221,741
New York -- 1.95%
New York City GO (MBIA Insured) VRDB 8/15/22 VMIG 1 5.90% 11,000,000 11,000,000
North Carolina -- 2.67%
North Carolina Eastern Municipal Power Agency--Power
System, 1/1/15 Aaa 7.75% 15,000,000 15,000,000
Ohio -- 2.40%
Cincinnati/Hamilton Co. EDR, 8/1/15 **N/R 3.90% 3,150,000 3,150,000
Columbus Electric System VRDB, 9/1/09 A 1 3.90% 1,400,000 1,400,000
Franklin Co. IDR VRDN--Capital South Community
Redevelopment, 12/1/05 **N/R 4.10% 700,000 700,000
Ohio Environmental Improvements CP, U.S. Steel Corp.,
5/1/11 P 1 5.50% 8,300,000 8,300,000
Oregon -- 2.41%
Medford Hospital VRDB--Rogue Valley Manor, 12/1/15 VMIG 1 5.20% 4,000,000 4,000,000
Port Morrow VRDB--General Elecitric, 10/1/13 P 1 6.00% 5,700,000 5,700,000
Tualatin Hills Parks & Recreation TRAN, 6/28/96 SP 1+ 4.25% 3,875,000 3,882,320
Pennsylvania -- 5.01%
Allegheny Co. Industrial Development VRDB--United
Jewish Federation:
Series B, 10/1/25 VMIG 1 5.25% 10,000,000 10,000,000
Series C, 10/1/15 VMIG 1 5.25% 1,100,000 1,100,000
Delaware Co. IDR (FGIC Insured) CP--Philadelphia
Electric, 12/1/12 VMIG 1 3.40% 2,400,000 2,400,000
Montgomery Co. Higher Education Health Authority
VRDB--Philadelphia Presbytery 7/1/25 VMIG 1 5.25% 5,000,000 5,000,000
Schuylkill Co. IDR VRDB--Westwood Energy 11/1/09 P 1 6.25% 6,800,000 6,800,000
Upper Allegheny Joint Sanitary Authority, 9/1/26 MIG 1 4.50% 3,000,000 3,001,004
South Carolina -- 2.57%
Richland Co. Schoold District TAN GO Unlimited Tax,
4/15/96 MIG 1 4.00% 8,300,000 8,305,660
South Carolina GO State Capital Improvement, 2/1/96 Aaa 7.30% 3,500,000 3,509,443
South Dakota -- 0.48%
South Dakota HDA, 5/1/96 Aa 1 3.90% 2,715,000 2,715,000
Tennessee -- 2.13%
Knox Co. Board IDR VRDB--Service Merchandise Co.,
Inc., 12/15/08 A 1+ 4.00% 800,000 800,000
Metropolitan Government Nashville & Davidson Co.,
6/15/06 AA 6.50% 6,000,000 6,142,843
Metropolitan Government Nashville & Davidson Co.,
VRDB--Nashville Apartments 9/1/15 Aa 3 5.15% 5,100,000 5,100,000
Texas -- 10.02%
Austin Utilities System CP, 4/9/96 P 1 3.65% 5,400,000 5,400,000
Houston Water & Sewer System (MBIA Insured) 12/1/16 Aaa 7.13% 3,000,000 3,150,445
North Central HCFA VRDB--YMCA Dallas 6/1/21 VMIG 1 5.65% 5,600,000 5,600,000
Texas Hospital Equipment Finance Council (MBIA
Insured) VRDN, 4/7/05 VMIG 1 5.45% 8,045,000 8,045,000
Texas Small Business IDR VRDB--Texas Public
Facilities Capital Access, 7/1/26 VMIG 1 5.20% 2,300,000 2,300,000
Texas State Higher Education Authority (FGIC Insured)
VRDB--Educational Equipment & Improvements, 12/1/25 VMIG 1 5.15% 2,510,000 2,510,000
Texas State Public Finance Authority:
10/1/96 Aa 6.40% 3,000,000 3,061,190
CP, 8/20/96 P 1 3.75% 5,000,000 5,000,000
Texas TRAN, 8/30/96 MIG 1 4.75% 12,750,000 12,812,314
Texas Transportation CP, 8/20/96 P 1 3.65% 5,000,000 5,000,000
Tyler Health Facilities Development Corp. CP--East
Texas Medical Center Regional Health, 11/1/25 VMIG 1 3.65% 3,700,000 3,700,000
Utah -- 3.01%
Intermountain Power Agency, 7/1/17 Aaa 7.75% 4,700,000 4,889,980
Salt Lake Co. PCR--VRDB--Pacific Corp. 2/1/08 P 1 5.95% 12,100,000 12,100,000
Vermont -- 1.87%
Vermont Educational Health Agency, 11/1/27 A 1+ 3.80% 5,975,000 5,975,000
Vermont Student Assistance Corp. VRDN, 1/1/04 VMIG 1 3.75% 4,600,000 4,600,000
Virginia -- 0.48%
Loudoun Co. IDR VRDB, 11/1/24 A 1 6.45% 2,700,000 2,700,000
Washington -- 1.88%
Port Townsend IDR VRDB--Townsend Paper Corp., 3/1/09 VMIG 1 5.15% 5,100,000 5,100,000
Seattle Municipal Light & Power Co., 11/1/15 VMIG 1 3.50% 5,500,000 5,500,000
West Virginia -- 0.48%
Raleigh Co. Health Care System VRDB, 9/1/06 VMIG 1 5.25% 2,700,000 2,700,000
Wisconsin -- 5.70%
Milwaukee School Order Notes Series B, 8/22/96 MIG 1 4.50% 15,000,000 15,046,050
Waukesha School District TRAN, 8/23/96 SP 1 4.25% 14,000,000 14,020,236
Wisconsin State Transportation Transit Improvements,
7/1/02 AAA 7.90% 3,000,000 3,123,465
Wyoming -- 1.42%
Lincoln Co. PCR VRDB--Pacificorp Project, 1/1/16 VMIG 1 3.40% 8,000,000 8,000,000
------------
TOTAL INVESTMENTS $564,592,007
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
Individual Development & Export
IDA -- Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
Unit Priced Daily Adjustable Tax
UPDATE -- Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
<PAGE>
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MICHIGAN TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Michigan -- 99.24%
Ann Arbor EDC Ltd. Obligation VRDN--Webers
Industries, 5/1/00 **N/R 5.20% $ 930,000 $ 930,000
Bruce Township Hospital (MBIA Insured) VRDB--Sisters
of Charity St. Joseph:
Series A, 5/1/18 VMIG 1 3.70% 3,000,000 3,000,000
Series B, 5/1/18 VMIG 1 5.00% 800,000 800,000
Dearborn EDC Ltd. Obligation VRDB--Oakbrook Common,
3/1/25 A 1 5.10% 800,000 800,000
Delta Co. EDC--Mead Escanaba Paper Co.:
Series B, 12/1/23 P 1 3.60% 1,600,000 1,600,000
Series E, 12/1/23 P 1 6.10% 3,600,000 3,600,000
Detroit Downtown Development Authority
VRDB--Millender Center Project, 12/1/10 VMIG 1 5.30% 4,500,000 4,500,000
Detroit Sewage Disposal (MBIA Insured) Series B,
7/1/96 Aaa 5.00% 4,750,000 4,781,575
Detroit Tax Increment Revenue VRDB, 10/1/10 A 1 5.25% 4,200,000 4,200,000
Eaton Inter School District TAN, 4/4/96 **N/R 3.95% 1,245,000 1,245,299
Farmington Hills EDC Ltd. Obligation VRDB--Brookfield
Building Assn., L P, 11/1/10 A 1 5.20% 1,135,000 1,135,000
Ferndale Schools GO Unlimited Tax, 5/1/06 Aaa 7.00% 1,075,000 1,087,371
Flint Hospital Building Authority VRDB--Hurley
Medical Center, Series B, 7/1/15 VMIG 1 5.60% 5,000,000 5,000,000
Grand Traverse Hospital VRDB--Munson Medical Center
Series A, 12/1/15 Aaa 7.63% 1,000,000 1,050,748
Grosse Point Public Library TAN, 4/3/96 **N/R 3.60% 990,000 990,291
Holland EDC VRDB--Thrifty Holland, Inc., 3/1/13 A 1 3.90% 1,300,000 1,300,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 500,000 500,000
Kalamazoo Co. EDC VRDB--Industrial & Economic
Development WBC Properties Ltd., 9/1/15 **N/R 5.60% 1,000,000 1,000,000
Kalamazoo Public Library TAN, 4/1/96 **N/R 3.60% 2,190,000 2,190,358
Kent Hospital VRDB--Butterworth Hospital Series A,
1/15/20 VMIG 1 5.40% 300,000 300,000
L'Anse Creuse Public Schools GO Unlimited Tax, 5/1/96 AA 5.75% 1,000,000 1,004,629
Leelanau Co. EDC Ltd. Obligation--American Community
Mutual Insurance Co., 6/15/06 **N/R 3.90% 1,060,000 1,060,000
Livonia EDC AMT VRDB--Foodland Distributors, 12/1/11 VMIG 1 5.20% 1,000,000 1,000,000
Macomb Township EDC Ltd. Obligation AMT VRDN--ACR
Industries, 1/1/03 VMIG 1 5.10% 1,050,000 1,050,000
Meridian EDC Ltd. Obligation VRDB--Hannah
Technologies, 11/15/14 A 1+ 4.25% 2,500,000 2,500,000
Michigan Municipal Bond Authority:
Series A, 5/3/96 SP 1+ 5.00% 2,000,000 2,004,832
Series B, 7/3/96 SP 1+ 4.50% 4,000,000 4,014,133
Michigan Public Power Agency (AMBAC Insured)--Belle
River Project, 1/1/96 Aaa 7.00% 3,000,000 3,000,000
Michigan State Building Authority:
Series I, 10/1/96 AA- 3.75% 2,000,000 2,000,000
University & College Improvements, 10/1/96 AA- 4.30% 5,235,000 5,253,942
University of Michigan Hospital, 12/1/96 Aaa 7.88% 665,000 702,565
Michigan State Comprehensive Transportation, 8/1/05 AA- 7.63% 1,940,000 1,951,707
Michigan State Hospital Henry Ford Health Series A,
11/15/96 Aa 4.00% 1,070,000 1,073,510
5/1/00 Aaa 7.35% 2,055,000 2,095,912
5/1/08 Aaa 8.00% 1,310,000 1,344,864
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 400,000 400,000
Michigan State HDA VRDB, 4/1/19 A+ 1 5.00% 1,000,000 1,000,000
Michigan State HDA Ltd. Obligation VRDB--
Laurel Valley, 12/1/07 VMIG 1 5.10% 800,000 800,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 200,000 200,000
Michigan State Job Development Authority IDR:
VRDN--Sugar Sebewa, 9/1/00 Aa 3 5.15% 2,600,000 2,600,000
VRDN--Hitachi Metals, 1/1/04 Aa 3 4.00% 1,800,000 1,800,000
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 2,200,000 2,200,000
Michigan State Job Development Authority PCR
VRDB--Mazda Motors Mfg. USA Corp., 10/1/08 VMIG 1 5.25% 1,500,000 1,500,000
Michigan State Strategic Fund IDR VRDB--Allen Group,
Inc., 11/1/25 VMIG 1 5.00% 600,000 600,000
Michigan State Strategic Fund PCR VRDN--Consumers
Power Co., 9/1/00 A 1+ 5.15% 3,000,000 3,000,000
Michigan State Strategic Fund Ltd. Obligation--
Environmental Research, Series B, 6/1/11 VMIG 1 4.35% 1,280,000 1,280,000
Michigan State Strategic Fund Ltd. Obligation AMT:
VRDN--Alpha Tech, Inc., 10/1/97 P 1 5.50% 6,000,000 6,000,000
VRDN--Michigan & Wayne Disposal Inc., 4/1/99 A 1 5.35% 1,500,000 1,500,000
VRDB--West Riverbank, 11/1/06 A 1 5.20% 1,100,000 1,100,000
VRDB--Dennenlease L C, 4/1/10 **N/R 5.15% 2,395,000 2,395,000
VRDB--Ironwood Plastics, Inc., 11/1/11 **N/R 5.15% 1,275,000 1,275,000
VRDB--Molmec Inc., 12/1/14 **N/R 5.35% 1,500,000 1,500,000
VRDB--CEC Products Co., 6/1/15 **N/R 5.35% 3,300,000 3,300,000
VRDB--Detroit Edison Co., 9/1/30 P 1 6.00% 5,000,000 5,000,000
Michigan State Strategic Fund Ltd. Obligation
VRDN--Freezer Services, 10/1/97 **N/R 5.30% 760,000 760,000
Michigan State Trunk Line Highway & Transit
Improvements:
7/1/96 AA- 7.00% 500,000 508,041
11/15/96 AA- 5.25% 500,000 506,136
Michigan State Underground Storage Tank VRDN, 12/1/04 VMIG 1 5.15% 2,900,000 2,900,000
Oakland Co. EDC--Corners Shopping Center, 8/1/15 A 1+ 4.10% 530,000 530,000
Oakland Co. EDC Ltd. Obligation AMT--Orchard Maple
Project, 11/15/16 **N/R 4.00% 615,000 615,000
Plymouth Township EDC VRDN--Key International
Manufacturing, Inc., 7/1/04 **N/R 4.00% 3,750,000 3,750,000
Van Buren Township EDC AMT VRDN--Daikin Clutch USA
Inc., 3/1/97 Aa 3 5.50% 3,000,000 3,000,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 2,800,000 2,800,000
12/1/27 VMIG 1 5.90% 790,000 790,000
------------
125,275,913
------------
PUERTO RICO -- 0.76%
Commonwealth of Puerto Rico (FGIC Insured) GO
Unlimited Tax, 7/1/96 Aaa 7.80% 500,000 521,705
Puerto Rico Public Buildings Authority--Public
Education & Health Facilities, 7/1/12 Aaa 8.00% 425,000 439,854
961,559
------------
TOTAL INVESTMENTS $126,237,472
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987 and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995
Woodward consisted of seventeen separate series of which there were five money
market funds (Money Market Funds), as described below.
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
The Money Market Funds commenced operations on January 4, 1988, except
for the Michigan Tax-Exempt Money Market Fund and the Treasury Money Market
Fund, which commenced operations on January 23, 1991 and January 1, 1993,
respectively.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed
by the Money Market Funds in preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. Following generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Investments
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, the Money
Market Funds utilize the amortized cost method to determine the carrying value
of investment securities. Under this method, investment securities are valued
for both financial reporting and federal tax purposes at amortized cost and
any discount or premium is amortized from the date of acquisition to maturity.
The use of this method results in a carrying value which approximates market
value. Market value is determined based upon quoted market prices or dealer
quotes.
Investment security purchases and sales are accounted for on the trade
date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD Bank (NBD), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Woodward's investments in securities subject to
repurchase agreements: 1) the value of the underlying collateral is required
to equal or exceed 102% of the funds advanced under the repurchase agreement
including accrued interest; 2) collateral is marked to market daily by NBD to
assure its value remains at least equal to 102% of the repurchase agreement
amount; and 3) funds are not disbursed by Woodward or its agent unless
collateral is presented or acknowledged by the collateral custodian.
The Tax-Exempt and Michigan Tax-Exempt Funds invest in a majority of
instruments whose stated maturity is greater than one year, but whose rate of
interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying Financial Statements.
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), NBD or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of
record at such close. Such dividends are paid monthly.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. Woodward monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of the funds or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .025% of the aggregate average net assets invested in
the Money Market Funds' first $400 million and .005% of such assets in excess
of $400 million. Fees of FoM under the Distribution Agreement are allocated
among the Funds based on the relative net asset values. Essex is entitled to
receive a fee at the annual rate of .10% of the aggregate average net assets
of Woodward's investment portfolios, attributable to investments by clients of
Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD waived $61,221 of the
advisory fee for the Michigan Tax-Exempt Money Market Fund.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions is as follows:
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Fund Fund Fund Fund Fund
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases $58,940,462,599 $5,440,529,005 $7,317,697,881 $2,744,829,205 $388,242,330
Sales & Maturities $58,634,036,261 $5,389,053,887 $7,177,784,932 $2,723,533,379 $337,049,476
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee rates
payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each Fund's average net assets.
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Effective Date Fund Fund Fund Fund Fund
-------------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Expense Rates:
January 1 0.50% 0.51% 0.53% 0.53% 0.69%
May 11 0.52% 0.51% 0.53% 0.53% 0.69%
November 9 0.52% 0.52% 0.53% 0.53% 0.69%
December 1 0.52% 0.52% 0.55% 0.53% 0.69%
NBD Advisory Fee:
Net Assets--
Up to $1.0 billion 0.45% 0.45% 0.45% 0.45% 0.50%
$1.0 to $2.0 billion 0.425% 0.425% 0.425% 0.425% 0.50%
Over $2.0 billion 0.40% 0.40% 0.40% 0.40% 0.50%
Amounts Paid:
Advisory Fee to NBD $7,225,557 $1,987,590 $3,248,535 $2,458,246 $496,026
Distribution Fee to FoM and Essex $ 152,873 $ 34,919 $ 53,755 $ 44,226 $ 10,466
Other Fees & Out of Pocket Expenses to NBD $ 341,111 $ 55,012 $ 150,481 $ 92,713 $ 30,134
Expenses Waived:
Advisory Fee to NBD -- -- -- -- $(61,221)
</TABLE>
(6) Portfolio Composition
Although the Tax-Exempt Money Market Fund has a diversified investment
portfolio, the Fund has investments in excess of 10% of its total investments
in the states of Michigan and Texas. The Michigan Tax-Exempt Money Market Fund
does not have a diversified portfolio since 99% of its investments are within
the state of Michigan. Such concentrations within particular states may subject
the funds more significantly to economic changes occurring within those states.
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment
income and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579
Distributions From Net Investment Income $ (0.0549) $ (0.0378) $ (0.0281) $ (0.0347) $(0.0579)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.63% 3.86% 2.85% 3.58% 5.95%
Ratios to Average Net Assets:
Expenses 0.51% 0.47% 0.49% 0.52% 0.50%
Net Investment Income 5.49% 3.78% 2.81% 3.47% 5.79%
Net Assets, End of Year
(in 000's) $1,639,695 $1,323,040 $1,326,693 $1,095,354 $775,521
<CAPTION>
Government Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564
Distributions From Net Investment Income $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.57% 3.77% 2.81% 3.63% 5.79%
Ratios to Average Net Assets:
Expenses 0.51% 0.51% 0.51% 0.51% 0.50%
Net Investment Income 5.44% 3.72% 2.77% 3.57% 5.64%
Net Assets, End of Year
(in 000's) $474,377 $421,208 $346,665 $261,614 $288,369
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury
Money Market Fund
---------------------------------------------
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net Investment Income $ 0.0539 $ 0.0370 $ 0.0273
Distributions From Net Investment Income $(0.0539) $(0.0370) $(0.0273)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00
Total Return 5.53% 3.77% 2.77%
Ratios to Average Net Assets:
Expenses 0.53% 0.50% 0.50%
Net Investment Income 5.39% 3.70% 2.73%
Net Assets, End of Year
(in 000's) $927,696 $785,694 $854,873
<CAPTION>
Tax-Exempt Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422
Distributions From Net Investment Income $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.41% 2.45% 1.98% 2.70% 4.30%
Ratios to Average Net Assets:
Expenses 0.53% 0.51% 0.51% 0.53% 0.52%
Net Investment Income 3.35% 2.42% 1.96% 2.64% 4.22%
Net Assets, End of Year
(in 000's) $564,413 $550,736 $498,706 $379,431 $227,808
<CAPTION>
Michigan Tax-Exempt
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
Distributions From Net Investment Income $(0.0329) $(0.0235) $(0.0181) $(0.0237) $(0.0353)
Net Asset Value at Beginning and End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.32% 2.38% 1.83% 2.40% 3.83%(a)
Ratios to Average Net Assets:
Expenses 0.69% 0.67% 0.65% 0.64% 0.65%(a)
Net Investment Income 3.30% 2.35% 1.81% 2.37% 3.77%(a)
Expenses without fee waiver 0.76% 0.75% -- -- --
Net Investment Income without fee waiver 3.23% 2.28% -- -- --
Net Assets, End of Period
(in 000's) $122,057 $ 78,640 $ 52,557 $ 52,960 $ 38,885
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Money Market Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Money Market Funds of THE
WOODWARD FUNDS (comprising, as indicated in Note 1, the Money Market,
Government, Treasury Money Market, Tax-Exempt Money Market and Michigan
Tax-Exempt Money Market Funds) as of December 31, 1995, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended or
from inception (as indicated in Note 1) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1995, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Money Market Funds of
The Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the five
years in the period then ended or from inception (as indicated in Note 1)
through December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
[ BACK COVER ]
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107-3496 [ WOODWARD FUNDS LOGO ]
- -------------------------------------------------------------------------------
The Woodward Funds ------------
P.O. Box 7058 BULK RATE
Troy, MI 48007-7058 U.S. POSTAGE
PAID
Detroit, MI
Permit No. 2
------------
Exhibit (17)(s)
[ FRONT COVER ]
[ WOODWARD FUNDS LOGO ART AND LOGOTYPE ]
-----------------
Annual Report
December 31, 1995
-----------------
Woodward Growth/Value Fund
Woodward Opportunity Fund
Woodward Intrinsic Value Fund
Woodward Capital Growth Fund
Woodward Balanced Fund
Investment Adviser
[ NBD BANK LOGOTYPE ]
24 Hour yield information:
Purchase and Redemption orders:
(800) 688-3350
<PAGE>
To Our Woodward Shareholders:
The fourth quarter of 1995 provided strong results in the equity and
bond markets with total returns of 6 percent for the Standard and Poor's (S&P)
and 4.3 percent for the Lehman Aggregate Bond Index. These results capped an
exceptional year which provided total returns of 37.5 percent for the S&P,
31.7 percent for the Russell 2500 (a proxy for smaller companies) and 18.5
percent for the Lehman Aggregate Bond Index. Foreign markets, as measured by
the EAFE Index, provided good absolute returns of 11.2 percent, but failed to
keep up with the exceptional U.S. market. In fact, S&P 500 results were the
third highest since 1948 and the highest since 1958; the overall bond results
were also the third highest, in this case since the mid 1970s.
The Woodward money market funds had an excellent year with all funds
finishing in the top quartile of their respective IBC/Donoghue's peer groups.
The funds maintained their exceptional credit quality throughout the year and
profited from a strategy of maintaining slightly longer-weighted average
maturities as compared to their peer groups.
The Woodward bond funds again exceeded their respective benchmarks in
the fourth quarter, providing exceptional 1995 results. The Bond Fund
generated a total return of 23.8 percent, while the Intermediate Bond Fund
provided results of 19.5 percent. The two funds ranked at the top of their
respective fund categories for the year. The Short Bond Fund provided a total
return of 10.1 percent, modestly below its benchmark but well above cash
alternatives.
The Woodward equity funds had a solid fourth quarter with a number of
the funds exceeding their peer groups. Generally, the results for the Woodward
equity funds for the year provided very high absolute results; they moderately
lagged peer managers and came up somewhat short of the broader indices. The
Woodward Growth/Value, Capital Growth and International Equity funds had good
fourth quarters. This helped the Growth/Value and Capital Growth Funds close
the gap with their peers for the year, while the International Equity Fund
provided good comparative returns on an annual basis. The Opportunity and
Intrinsic Value Funds lagged their respective benchmarks for the quarter and
the year. We look to 1996 to improve relative equity performance which,
coupled with our strong bond results, should provide our clients continued
success with their investments.
During the year, NBD Bancorp, Inc. merged with First Chicago
Corporation. We were pleased that the investment management effort of the
joint organization has been identified as a primary business of the Bank and
that substantial resources have been allocated to the business. We look
forward to melding the two organization's considerable strengths and providing
our clients with a measurably enhanced research and fund management group.
Thank you for your continued support and we hope you find this report
useful and informative.
Sincerely,
/s/ Earl I. Heenan
------------------
Earl I. Heenan, Jr.
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD GROWTH/VALUE FUND
Objective:
The Woodward Growth/Value Fund (the "Fund") seeks to achieve long-term
capital appreciation and, secondarily, to produce current income approximating
that prevailing within the general equity market. The Fund strives to purchase
issues, primarily of larger domestic companies, that have superior growth
potential and are judged mispriced by the market. The Fund is broadly
diversified and has market risk similar to the S&P 500.
Performance Highlights:
The stock market ended 1995 with its third best year since 1948 and its
best year since 1958 as measured by the S&P 500 Index's 37.5% return. Mutual
funds mirrored this rise, but at a more modest rate. The average diversified
U.S. stock fund returned 31.1% for the year, as measured by Lipper Analytical
Services. The dichotomy between the S&P Index return and the Lipper 31.1%
return and the Growth/Value Fund's 28.0% return (without sales charge)
primarily reflected two points. First, in contrast to most mutual funds, the
S&P 500 Index is a cashless portfolio dominated by companies averaging over
$30 billion in market capitalization. Second, during 1995, the S&P return was
dominated by the finance, technology and healthcare sectors. To have generated
larger returns, the Growth/Value Fund would have been forced to unduly
concentrate, thereby incurring unacceptable levels of risk. Net, the Fund's
28.0% return for 1995 was nearly three times the stock market's historic
annual average return. It was a very good year to be a common stock investor.
As the technology sector continued to weaken during the fourth quarter
and the market breadth widened, the Growth/Value Fund continued the
performance rebound begun during the third quarter. The Fund recorded a 5.7%
return for the final quarter of 1995, within three-tenths of one percent of
the S&P return of 6.0%. This was good progress when compared to other mutual
funds. Lipper classifies the Growth/Value Fund as a "Growth and Income" fund.
The average fourth quarter return for Lipper Growth and Income funds was 4.5%.
The average diversified U.S. stock fund recorded a 3.1% return for the period.
If sector and foreign funds are included, the average stock fund return was
2.5%.
During the year, the net asset value of the Fund advanced from $10.67 to
$13.16. Distributions from net investment income totaled $0.22 per share and
capital gains distributed were $0.26 per share. Turnover during the year was
moderate at approximately 27%. Cash was reduced from 12.8% to 3.3% during the
year. The Fund will remain as fully invested in stocks as practicable. Cash
will not be used for market timing or asset allocation purposes.
As measured from virtually any historical perspective, the Fund provided
a very large absolute return during 1995. In addition, as the year proceeded
and the market became more broad based, the Fund's relative performance
advanced versus the market and similar funds. Although it is impossible to
predict whether 1996 will provide common stock investors with another year of
historically high returns, we are confident the Fund's balance provides the
appropriate mix of risk versus return for a long-term core equity investment.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD GROWTH/VALUE FUND (Continued)
Growth of $10,000 Invested in the
Woodward Growth/Value Fund and the
Standard & Poor's 500 Index
[ GRAPH ]
6/91 12/91 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,507 $ 9,760 $10,446 $11,124 $11,886 $11,822 $11,951 $13,546 $15,300
Fund (2) $10,000 $10,000 $10,274 $11,000 $11,709 $12,512 $12,445 $12,580 $14,259 $16,105
Index (3) $10,000 $10,901 $10,830 $11,736 $12,313 $12,924 $12,483 $13,094 $15,721 $17,991
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$15,381.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
--------------------------- ---- ---------
<S> <C> <C>
Woodward Growth/Value Fund 21.6% 9.7% (1)
(with maximum 5.0% sales charge)
Woodward Growth/Value Fund 28.0% 10.9%
(without sales charge)
S&P 500 Index* 37.5% 13.7%
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Return for shareholders who invested at the original offer
price (4.5% sales charge) was 9.8%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD OPPORTUNITY FUND
Objective:
The Woodward Opportunity Fund (the "Fund") maintains a portfolio of
stocks of smaller to mid-sized companies. The Fund's objective is to achieve
long-term capital appreciation and, secondarily, to maintain a moderate level
of dividend income. The Fund concentrates on quality companies with above
average growth potential and superior returns on investment.
Performance Highlights:
During the Fund's fiscal year ended December 31, 1995, small to
mid-capitalization company stocks returned 31.7% as measured by the Russell
2500 index. This compares to the 37.5% return for the large capitalization
oriented Standard and Poor's 500 Index. This marks the second consecutive year
that small-cap stocks have lagged their large-capitalization counterparts.
The Opportunity Fund returned 19.9% (without the sales charge) in 1995.
During the year the net asset value of the Fund increased from $13.34 to
$15.15. Distributions from net investment income were $.06 per share and
long-term capital gain distributions were $.76 per share. While the absolute
return for the Fund was strong, it lagged behind the Russell 2500 Index, which
is an unmanaged, broad based index of small to intermediate capitalization
equities. The Index has similar market capitalization characteristics as the
Fund but is not subject to the expenses of a mutual fund.
The Fund's performance relative to the Russell 2500 was primarily the
result of two factors: 1) a market environment that favored high growth,
momentum oriented investment styles; and 2) a narrow market with only the
technology and financial services sectors outperforming the overall index. As
a result of the Woodward Opportunity Fund's emphasis on companies exhibiting
above average growth with reasonable valuations and the desire to keep the
portfolio broadly diversified, the Fund has typically lagged in the type of
market environment experienced in 1995.
Over the very long-term, small capitalization stocks have provided
returns superior to their large capitalization counterparts, but with more
volatility. The Fund employs a conservative approach intended to provide
exposure to small capitalization stocks while dampening the volatility
inherent in this sector of the market. This is done by: 1) focusing on high
quality companies with above average growth prospects; 2) utilizing a
disciplined valuation approach; and 3) being well diversified among various
market sectors. We believe this strategy has produced favorable performance in
a variety of market environments, and we are optimistic our approach will
prove rewarding over the long-term.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD OPPORTUNITY FUND (Continued)
Growth of $10,000 Invested in the Woodward
Opportunity Fund and the Standard & Poor's 500
and the Russell 2500 Stock Indices
[ GRAPH ]
6/91 12/91 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,997 $10,257 $12,452 $13,714 $15,442 $14,703 $14,937 $16,896 $17,889
Fund (2) $10,000 $10,523 $10,716 $13,108 $14,435 $16,254 $15,477 $15,723 $17,786 $18,830
S&P 500 (3) $10,000 $10,901 $10,830 $11,736 $12,313 $12,924 $12,483 $13,094 $15,721 $17,991
Russell 2500 (3) $10,000 $11,204 $11,153 $13,017 $13,920 $15,170 $14,317 $15,026 $17,574 $19,787
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$17,983.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
--------------------------- ---- --------
<S> <C> <C>
Woodward Opportunity Fund 13.9% 13.5%(1)
(with maximum 5.0%
sales charge)
Woodward Opportunity Fund 19.9% 14.8%
(without sales charge)
S&P 500 Index* 37.5% 13.7%
Russell 2500 Index 31.7% 16.1%
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 13.7%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTRINSIC VALUE FUND
Objective:
The Woodward Intrinsic Value Fund (the "Fund") seeks to provide
long-term capital growth, with income a secondary consideration, by investing
primarily in equity securities of companies believed to represent a value or
potential worth which is not fully recognized by prevailing market prices. The
Fund's holdings are usually characterized by lower price/earnings, price/cash
flow and price/book value ratios and by above average current dividend yields
relative to the equity market. Equities purchased are often deemed to be
overlooked and out of favor by the marketplace. In general, the Fund's
investments are diversified among industry groups to reduce certain of the
risks inherent in common stock investments.
Performance Highlights:
Our 1995 results were both gratifying and disappointing. The Fund's
overall performance depends on how we compare it. In absolute terms we earned
a solid 24.4% return, the best year in our history as a mutual fund. Net asset
value increased from $10.48 to $11.89 per share, while dividend and capital
gain distributions totaled $0.30 and $0.82 per share, respectively. However,
compared to the S&P 500 Index we lagged considerably. Last year this market
benchmark posted a stunning 37.5% advance, fueled by a surge in a narrow group
of large capitalization stocks. We hope our investors will keep in mind that
1995 is only one lap in a very long race and that our more conservative
portfolio will typically lag in such a "hot" market environment.
What was successful for us in 1995 and what wasn't? Our best results
were in the finance sector, driven by lower interest rates and a merger mania
among banks. Our holdings in Loews, Federal National Mortgage, Old Republic,
and Allmerica Property & Casualty all rose over 60 percent last year. Another
hot area was in consumer non-durables, but specifically in larger
capitalization food and drug companies like Philip Morris, Bristol Myers,
American Home Products, and Anheuser Busch. Returns here were in the 35%-65%
range. Concerns about a slowing economy are once again making these
"defensive" stocks attractive to investors. We note, however, that they are
also getting very expensive (just as in 1990-91) and we are continuing to take
profits. An area of disappointment was clearly in retail related sectors,
where consumer spending remained weak and margins were tight. On average,
these stocks produced only modest returns for us. Our lack of "hot" technology
stocks also hurt performance. However, we don't think our longer-term results
will suffer from having missed this buying frenzy. In addition, our smaller
capitalization stocks as a group were not as popular as the larger ones,
despite fundamentals which generally met our expectations. This was especially
true in the finance sector with stocks like Financial Security Assurance, Fund
American, and Home Beneficial. Some of these lesser known stocks did not catch
investor attention during this year's buying stampede, but we're confident
they're attractive enough to eventually turn investors' heads.
How was the fundamental progress of the companies in our portfolio? In
general, we think it was good. Less than a third of our holdings did not live
up to our expectations. Examples last year include Handleman, Reebok,
Angelica, and Ashland Coal. However, we realize that mistakes are inevitable
in a portfolio with about 50 stocks. Our experience indicates that if we keep
our mistakes to less than a third of our portfolio, our longer-term results
will be fine. During the year we sold some of our poorly performing
investments but did not sell others because we continued to believe the
longer-term outlook was positive.
Finally, how does the market look today? Last year we thought it was
expensive. This year it's even more expensive. Many investors continue to pour
money into the market and buy just about any stock at any price. Why? Because
they think stocks go nowhere but up. However, we think investors lacking
discipline will eventually get an eye-opening lesson in the risk/return
characteristics of such an approach. Sensibly priced stocks continue to be
more and more difficult to find but we'll continue to search for them and
maintain a longer-term focus with a strong valuation discipline -- just as we
have always done. Thanks for your continued confidence.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTRINSIC VALUE FUND (Continued)
Growth of $10,000 Invested in the
Woodward Intrinsic Value Fund and the
Standard & Poor's 500 Index
[ GRAPH ]
6/91 12/91 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,644 $10,230 $11,048 $11,804 $12,673 $12,282 $12,597 $14,383 $15,668
Fund (2) $10,000 $10,152 $10,769 $11,629 $12,425 $13,340 $12,929 $13,260 $15,145 $16,492
Index (3) $10,000 $10,901 $10,830 $11,736 $12,313 $12,924 $12,483 $13,094 $15,721 $17,991
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$15,750.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
--------------------------- ---- ---------
<S> <C> <C>
Woodward Intrinsic Value Fund 18.2% 10.3% (1)
(with maximum 5.0% sales charge)
Woodward Intrinsic Value Fund 24.4% 11.5%
(without sales charge)
S&P 500 Index* 37.5% 13.7%
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 10.4%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD CAPITAL GROWTH FUND
Objective:
The Woodward Capital Growth Fund commenced operations at the close of
business on July 1, 1994. It invests in common stocks of primarily domestic
companies with prospects for superior, sustainable annual earnings growth,
ideally supported by strong, unit-driven revenue growth and margin expansion
as well as conservative financial leverage. The Fund is intended for the
investor whose principal objective is long-term capital appreciation and, at
the same time, is tolerant of variable dividend income. The portfolio is
managed with an average risk profile by investing in larger, better managed
companies having above average historical earnings growth and consistency. The
Fund is expected to outperform the broad market and the average of similarly
managed portfolios over time.
Performance Highlights:
During 1995, the net asset value of the Fund advanced from $10.44 to
$13.26. Distributions from net investment income totaled $0.08 per share and
realized gain distributions were $0.11 per share. Turnover during the year was
very low at 7%, but this is a distorted number because strong cash inflows
throughout the year allowed repositioning of individual stocks within the Fund
as necessary.
For all of 1995, the Fund returned 28.9% (excluding the sales charge).
Although this represents an acceptable absolute return in its own right, the
Fund lagged its benchmarks for the year as a whole: the S&P 500 total return,
which is not impacted by transaction or management fees, was 37.5%, the median
gross return for a broad universe of Fund managers was 33.9%, and the average
return for a universe of growth managers was 30.8%, net of fees, as reported
by Lipper Analytical Services. So while the Capital Growth Fund participated
in the third best market rally since 1948, it is noteworthy that its best
relative returns came in the first and fourth quarters when the market had
broadened, and its worst performance occurred in narrow leadership markets in
the second and third quarters. It is the intent of Fund management to run this
as a broadly diversified equity product, with the expectation to do well in
markets not defined by narrow leadership.
The year as a whole proved to be a difficult climate in which to excel
for broadly diversified, longer term oriented funds such as the Capital Growth
Fund. Notwithstanding the very near-term horizon, affected by modest but
slowing economic growth, a stabilization in growth expectations, and
increasingly difficult earnings comparisons in the operationally levered
cyclical industries, the outlook for equities is positive. Supportive forces
for the equity market include both a monetary policy with sufficient room for
easing due to the absence of visible inflationary pressures, and record levels
of free cash flow generation. Investing in high quality stocks is more
relevant now than has been the case all year, and we remain enthused about
growth investing in general and the prospects for the Woodward Capital Growth
Fund, in particular, as we focus on companies with superior, top-line driven
growth opportunities.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD CAPITAL GROWTH FUND (Continued)
Growth of $10,000 Invested in the
Woodward Capital Growth Fund and the
Standard & Poor's 500 Index
[ GRAPH ]
6/94 12/94 6/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,958 $11,618 $12,836
Fund (2) $10,000 $10,481 $12,229 $13,511
Index (3) $10,000 $10,442 $12,550 $14,362
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$12,903.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (7/1/94)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Capital Growth Fund 22.5% 18.1%(1)
(with maximum 5.0% sales charge)
Woodward Capital Growth Fund 28.9% 22.2%
(without sales charge)
S&P 500 Index* 37.5% 27.3%
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 18.5%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BALANCED FUND
Objective:
The Woodward Balanced Fund maintains a portfolio of equities, fixed
income and cash equivalent securities. The Fund's objective is to achieve a
long-term total return through a combination of capital appreciation and
current income. The Fund seeks to achieve its investment objective through
active management of the relative weights of stocks, bonds and cash
equivalents and by superior securities selection within each of these major
asset groups.
Performance Highlights:
During the year ended December 31, 1995, the fund's asset allocation
between stocks and bonds remained relatively constant at approximately 53
percent stocks and 38 percent bonds. Cash equivalents rose slightly from 6
percent to 9 percent as we reduced our exposure slightly to stocks and bonds.
Dividends paid in 1995 were $0.466 per share. The short and long term
capital gains distributions were .055 and .064 per share, respectively. During
the year, net asset value moved from its initial price of $9.53 to $11.24. The
Woodward Balanced Fund provided a 23.2 percent return (without sales charge)
for 1995. The Lipper Balanced Fund Index net of fee returns for 12 months
ending December 31, 1995 was 25.2 percent. Despite the fourth quarter relative
out performance, the strong equity performance throughout 1995 caused us to
lag the index for the year. The blended return of the S&P 500 and the Lehman
Aggregate Bond Index generated a one-year return of 29.7 percent. This
synthetic blend of indices has similar asset allocation characteristics but is
not subject to expenses of a mutual fund.
The stock market ended 1995 with its third best year since 1948 as
measured by the S&P 500 Index's 37.5 percent return. The year ended December
31, 1995 with our equity portfolio providing an attractive absolute annual
return from virtually any historical perspective. In addition, as the year
proceeded and the market became more broad based, our relative performance
advanced versus the market and similar funds. The dichotomy between the S&P
500 Index return and the equity portion of our return can be explained in
large part due to the continued surge in a narrow group of large
capitalization stocks. Namely, the market was dominated by finance, technology
and healthcare companies averaging over $30 billion in market capitalization.
The risk profile associated with beating the index would require a level of
concentration that would violate our discipline to remain well diversified.
The merit to our low risk approach has gained favor as the technology sector
weakened and relative performance improved in the fourth quarter.
In the fixed income markets, yields declined across the yield curve
during the second half of the year as the Federal Reserve lowered the Fed
Funds rate to 5.50 percent during the fourth quarter of 1995 and the economy
showed more signs of sluggish growth with no signs of accelerating inflation.
Our strong fixed income performance both on an absolute basis and versus the
Lehman Aggregate Bond Index was the result of a number of strategies
performing well. Our position within Mortgage Backed Securities (MBS) was a
large positive, as it has been all year. The fund benefited from declining
yields through price appreciation, particularly on discount Collateralized
Mortgage Obligations (CMOs). Also, premium CMOs backed by very seasoned high
coupon loans prepaid relatively slowly all year, thus enhancing return. The
high yield provided by Inverse Floater CMOs and the price appreciation of
discount inverse floaters and principal only CMOs made a significant
contribution to the higher return for the year. Moreover, our slightly longer
duration also helped performance. Our defensive position in longer Treasury
Strips had a slightly negative impact due to the modest steepening in the
yield curve. Our overweighting in 2-4 year Treasuries has had a positive
impact as evidenced by the modest yield curve steepening that occurred in the
fourth quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BALANCED FUND (Continued)
Growth of $10,000 Invested in the
Woodward Balanced Fund and the Lipper Balanced Universe
and a 60% S&P 500; 40% Lehman Aggregate Bond Index Blend
[ GRAPH ]
12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fund (1) $ 9,500 $ 9,226 $ 9,309 $10,531 $11,466
Fund (2) $10,000 $ 9,712 $ 9,799 $11,085 $12,069
Lipper (3) $10,000 $ 9,568 $ 9,749 $11,077 $12,184
Index Blend (3) $10,000 $ 9,643 $ 9,967 $11,624 $12,922
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
(4) Maximum sales charge of 5.0% commenced 10-1-94. A Shareholder investment
at the original offer price (4.5% sales charge) is currently valued at
$11,527.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (1/1/94)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Balanced Fund 17.0% 7.1%(1)
(with maximum 5.0% sales charge)
Woodward Balanced Fund 23.2% 9.9%
(without sales charge)
Lipper Balanced Universe 25.2% 10.4%
60% S&P 500; 40% Lehman 29.7% 13.7%
Aggregate Bond Index
<FN>
(1) Return for shareholders who invested at the original
offer price (4.5% sales charge) was 7.4%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
GROWTH/VALUE
FUND
------------
<S> <C>
ASSETS:
Investment in securities:
At cost $598,057,275
============
At value (Note 2) $738,017,171
Cash --
Receivable for shares purchased 10,466
Receivable for securities sold --
Income receivable 1,492,249
Deferred organization costs, net (Note 2) 7,429
Prepaids and other assets 5,141
------------
TOTAL ASSETS 739,532,456
------------
LIABILITIES:
Payable for securities purchased 1,109,508
Payable for shares redeemed 56,779
Accrued investment advisory fee 463,866
Accrued distribution fees 3,092
Accrued custodial fee 8,632
Dividends payable 612,601
Other payables and accrued expenses 110,911
------------
TOTAL LIABILITIES 2,365,389
------------
NET ASSETS $737,167,067
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 5,599,664
Additional paid-in capital 585,240,911
Accumulated undistributed net investment income 40,678
Accumulated undistributed net realized gains 6,325,918
Net unrealized appreciation on investments 139,959,896
------------
TOTAL NET ASSETS $737,167,067
============
Shares of capital stock outstanding 55,996,649
============
Net asset value and redemption price per share $ 13.16
============
Maximum offering price per share $ 13.85
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPPORTUNITY INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND FUND
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $544,177,289 $231,447,596 $164,013,755 $ 83,617,256
============ ============ ============ ============
At value (Note 2) $643,022,640 $258,251,034 $196,462,000 $ 93,092,772
Cash 17,377 -- -- 79,791
Receivable for shares purchased 24,818 1,900 22,908 10,020
Receivable for securities sold 8,064,596 -- -- 126,207
Income receivable 630,474 841,061 179,422 487,653
Deferred organization costs, net (Note 2) 3,243 2,323 28,388 28,315
Prepaids and other assets 5,141 5,945 43,804 35,774
------------ ------------ ------------ ------------
TOTAL ASSETS 651,768,289 259,102,263 196,736,522 93,860,532
------------ ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased -- 2,638,759 459,114 115,985
Payable for shared redeemed -- 10,509 218,571 9,057
Accrued investment advisory fee 404,734 159,538 123,751 59,011
Accrued distribution fees 2,698 1,064 825 393
Accrued custodial fee 8,431 3,766 2,805 6,415
Dividends payable 122,691 301,351 56,269 38,528
Other payables and accrued expenses 277,467 102,417 14,009 7,342
------------ ------------ ------------ ------------
TOTAL LIABILITIES 816,021 3,217,404 875,344 236,731
------------ ------------ ------------ ------------
NET ASSETS $650,952,268 $255,884,859 $195,861,178 $ 93,623,801
============ ============ ============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 4,296,018 $ 2,152,537 $ 1,476,584 $ 832,868
Additional paid-in capital 546,076,193 224,411,095 161,372,369 83,021,763
Accumulated undistributed net investment income 977 110,249 11,301 28,937
Accumulated undistributed net realized gains 1,733,729 2,407,540 552,679 264,717
Net unrealized appreciation on investments 98,845,351 26,803,438 32,448,245 9,475,516
------------ ------------ ------------ ------------
TOTAL NET ASSETS $650,952,268 $255,884,859 $195,861,178 $ 93,623,801
============ ============ ============ ============
Shares of capital stock outstanding 42,960,183 21,525,367 14,765,837 8,328,682
============ ============ ============ ============
Net asset value and redemption price per share $ 15.15 $ 11.89 $ 13.26 $ 11.24
============ ============ ============ ============
Maximum offering price per share $ 15.95 $ 12.52 $ 13.96 $ 11.83
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
GROWTH/VALUE
FUND
------------
<S> <C>
INVESTMENT INCOME (Note 2)
Interest $ 2,809,867
Dividends 14,058,482
------------
TOTAL INVESTMENT INCOME 16,868,349
------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 4,951,664
Distribution fees 67,240
Professional fees 53,872
Custodial fee 96,218
Transfer and dividend disbursing agent fees 78,475
Amortization of deferred organization costs 17,828
Marketing expenses 40,193
Registration, filing fees and other expenses 207,105
Less:
Expense reimbursement --
------------
NET EXPENSES 5,512,595
------------
NET INVESTMENT INCOME 11,355,754
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains 21,032,338
Net change in unrealized appreciation on
investments 130,722,828
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 151,755,166
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $163,110,920
============
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPPORTUNITY INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND FUND
----------- --------------- -------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME (Note 2)
Interest $ 1,558,492 $ 2,056,046 $ 436,419 $ 2,380,276
Dividends 5,940,727 6,149,838 1,676,890 806,598
------------- ------------ ------------ ------------
TOTAL INVESTMENT INCOME 7,499,219 8,205,884 2,113,309 3,186,874
------------ ------------ ------------ ------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 4,490,930 1,817,833 1,064,273 570,525
Distribution fees 80,463 24,640 9,455 11,148
Professional fees 53,872 53,872 56,031 59,307
Custodial fee 97,189 46,198 30,473 73,464
Transfer and dividend disbursing agent fees 134,736 35,266 12,933 18,045
Amortization of deferred organization costs 7,783 5,575 8,111 9,434
Marketing expenses 45,500 34,242 32,082 31,058
Registration, filing fees and other expenses 403,502 176,642 51,617 35,253
Less:
Expense reimbursement -- -- (58,424) (136,954)
------------ ------------ ------------ ------------
NET EXPENSES 5,313,975 2,194,268 1,206,551 671,280
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 2,185,244 6,011,616 906,758 2,515,594
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains 33,998,949 18,391,186 2,343,100 1,548,275
Net change in unrealized appreciation on
investments 70,828,164 28,180,120 30,092,839 11,071,176
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 104,827,113 46,571,306 32,435,939 12,619,451
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $107,012,357 $ 52,582,922 $ 33,342,697 $ 15,135,045
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH/VALUE OPPORTUNITY
FUND FUND
-------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 11,355,754 $ 10,988,308 $ 2,185,244 $ 2,549,199
Net realized gains (losses) 21,032,338 12,792,234 33,998,949 16,116,289
Net change in unrealized appreciation
(depreciation) on investments 130,722,828 (21,338,549) 70,828,164 (35,552,031)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
operations 163,110,920 2,441,993 107,012,357 (16,886,543)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (11,928,616) (10,560,126) (2,383,890) (2,336,343)
From realized gains (14,216,458) (15,490,059) (31,302,346) (18,160,909)
In excess of realized gains -- (489,962) -- (962,874)
Tax return of capital -- (1,387,986) -- (3,857,441)
------------- ------------- ------------- -------------
Total distributions (26,145,074) (27,928,133) (33,686,236) (25,317,567)
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 129,170,938 236,571,313 138,422,625 239,540,057
Net asset value of shares issued in reinvestment of
distributions to shareholders 22,736,385 25,441,184 32,652,833 24,557,678
------------- ------------- ------------- -------------
151,907,323 262,012,497 171,075,458 264,097,735
Less: payments for shares redeemed (123,076,813) (94,790,691) (118,448,431) (62,559,018)
------------- ------------- ------------- -------------
Net increase in net assets from capital share
transactions 28,830,510 167,221,806 52,627,027 201,538,717
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS 165,796,356 141,735,666 125,953,148 159,334,607
NET ASSETS:
Beginning of period 571,370,711 429,635,045 524,999,120 365,664,513
------------- ------------- ------------- -------------
End of period $ 737,167,067 $ 571,370,711 $ 650,952,268 $ 524,999,120
============= ============= ============= =============
CAPITAL SHARE TRANSACTIONS:
Shares sold 10,922,667 21,126,574 9,374,983 16,685,198
Shares issued in reinvestment of distributions to
shareholders 1,788,703 2,363,365 2,199,921 1,834,826
------------- ------------- ------------- -------------
12,711,370 23,489,939 11,574,904 18,520,024
Less: shares redeemed (10,251,504) (8,442,703) (7,969,587) (4,398,758)
------------- ------------- ------------- -------------
NET INCREASE IN SHARES OUTSTANDING 2,459,866 15,047,236 3,605,317 14,121,266
CAPITAL SHARES:
Beginning of period 53,536,783 38,489,547 39,354,866 25,233,600
------------- ------------- ------------- -------------
End of period 55,996,649 53,536,783 42,960,183 39,354,866
============= ============= ============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTRINSIC VALUE CAPITAL GROWTH BALANCED
FUND FUND FUND
----------------------------- ---------------------------- -----------------------------
Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 6,011,616 $ 6,245,776 $ 906,758 $ 418,787 $ 2,515,594 $ 1,181,465
Net realized gains (losses) 18,391,186 4,420,719 2,343,100 (174,336) 1,548,275 (295,624)
Net change in unrealized
appreciation (depreciation)
on investments 28,180,120 (11,608,354) 30,092,839 2,355,406 11,071,176 (1,595,660)
------------- ------------ ------------ ----------- ------------ ------------
Net increase (decrease) in net
assets from operations 52,582,922 (941,859) 33,342,697 2,599,857 15,135,045 (709,819)
------------- ------------ ------------ ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
(Note 2):
From net investment income (6,247,197) (6,000,928) (933,730) (380,514) (2,524,322) (1,143,800)
From realized gains (16,471,970) (4,141,890) (1,616,085) -- (987,934) --
In excess of realized gains -- -- -- -- -- --
Tax return of capital -- -- -- -- -- --
------------- ------------ ------------ ----------- ------------ ------------
Total distributions (22,719,167) (10,142,818) (2,549,815) (380,514) (3,512,256) (1,143,800)
------------- ------------ ------------ ----------- ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 39,975,498 66,411,165 116,265,186 89,598,698 47,232,261 61,358,453
Net asset value of shares issued
in reinvestment of distributions
to shareholders 21,049,306 8,927,141 2,306,069 262,019 3,343,276 1,087,022
------------- ------------ ------------ ----------- ------------ ------------
61,024,804 75,338,306 118,571,255 89,860,717 50,575,537 62,445,475
Less: payments for shares redeemed (55,031,796) (36,780,716) (34,772,563) (10,810,456) (22,741,717) (6,424,664)
------------- ------------ ------------ ----------- ------------ ------------
Net increase in net assets from
capital share transactions 5,993,008 38,557,590 83,798,692 79,050,261 27,833,820 56,020,811
------------- ------------ ------------ ----------- ------------ ------------
NET INCREASE IN NET ASSETS 35,856,763 27,472,913 114,591,574 81,269,604 39,456,609 54,167,192
NET ASSETS:
Beginning of period 220,028,096 192,555,183 81,269,604 -- 54,167,192 --
------------- ------------ ------------ ----------- ------------ ------------
End of period $ 255,884,859 $220,028,096 $195,861,178 $81,269,604 $ 93,623,801 $ 54,167,192
============= ============ ============ =========== ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 3,432,079 6,127,697 9,733,178 8,792,790 4,495,916 6,238,090
Shares issued in reinvestment
of distributions to shareholders 1,777,948 845,552 177,953 25,058 306,837 113,081
------------- ------------ ------------ ----------- ------------ ------------
5,210,027 6,973,249 9,911,131 8,817,848 4,802,753 6,351,171
Less: shares redeemed (4,687,782) (3,402,089) (2,927,524) (1,035,618) (2,160,736) (664,506)
------------- ------------ ------------ ----------- ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 522,245 3,571,160 6,983,607 7,782,230 2,642,017 5,686,665
CAPITAL SHARES:
Beginning of period 21,003,122 17,431,962 7,782,230 -- 5,686,665 --
------------- ------------ ------------ ----------- ------------ ------------
End of period 21,525,367 21,003,122 14,765,837 7,782,230 8,328,682 5,686,665
============= ============ ============ =========== ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.30%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S.
Treasury Strips with maturities ranging from
2/15/96 through 11/15/05 and U.S. Treasury
Notes, 5.50%, 11/15/98, all held at Chemical
Bank) $ 24,354,633 $ 24,354,633
------------
(Cost $24,354,633)
Shares
------------
COMMON STOCKS -- 96.70%
Aerospace -- 3.13%
Boeing Co. 295,000 23,120,625
------------
Apparel -- 1.76%
Russell Corp. 467,000 12,959,250
------------
Banks -- 4.73%
Barnett Banks, Inc. 254,000 14,986,000
Fleet Financial Group, Inc. 489,000 19,926,750
------------
34,912,750
------------
Business Machines -- 0.71%
Autodesk, Inc. 153,900 5,271,075
------------
Business Services -- 7.14%
Deluxe Corp. 454,000 13,166,000
Dun & Bradstreet Corp. 240,000 15,540,000
Interpublic Group of Companies, Inc. 227,100 9,850,463
WMX Technologies, Inc. 473,000 14,130,875
------------
52,687,338
------------
Chemicals -- 6.31%
Dow Chemical Co. 199,000 14,004,625
Great Lakes Chemical Corp. 274,000 19,728,000
Sigma-Aldrich Corp. 259,000 12,820,500
------------
46,553,125
------------
Construction -- 7.30%
Masco Corp. 489,000 15,342,375
Stanley Works 315,000 16,222,500
York International Corp. 474,000 22,278,000
------------
53,842,875
------------
Consumer Durables -- 2.21%
Rubbermaid, Inc. 640,000 16,320,000
------------
Containers -- 1.07%
Crown Cork & Seal Co., Inc. * 189,000 7,890,750
------------
Drugs and Medicine -- 12.07%
Abbott Laboratories Corp. 337,000 14,069,750
Bristol-Myers Squibb Co. 218,000 18,720,750
Merck & Co., Inc. 227,000 14,925,250
Schering-Plough Corp. 405,000 22,173,750
U.S. HealthCare, Inc. 412,000 19,158,000
------------
89,047,500
------------
Electronics -- 2.95%
General Motors Corp. Class E 419,000 21,788,000
------------
Energy and Utilities -- 3.55%
Entergy Corp. 237,000 6,932,250
MCN Corp. 830,000 19,297,500
------------
26,229,750
------------
Energy Raw Materials -- 4.88%
Burlington Resources, Inc. 310,000 12,167,500
Schlumberger Ltd. 344,000 23,822,000
------------
35,989,500
------------
Food and Agriculture -- 4.00%
ConAgra, Inc. 265,000 10,931,250
Sysco Corp. 573,000 18,622,500
------------
29,553,750
------------
Insurance -- 7.85%
American International Group, Inc. 185,000 17,112,500
Chubb Corp. 237,000 22,929,750
First Colony Corp. 706,000 17,914,750
------------
57,957,000
------------
International Oil -- 1.53%
Royal Dutch Petroleum Co., N.Y. Registry 80,000 11,290,000
------------
Liquor -- 2.31%
Anheuser-Busch Companies, Inc. 255,000 17,053,125
------------
Media -- 4.99%
Gannett Co., Inc. 310,000 19,026,250
Washington Post Co. Class B 63,000 17,766,000
------------
36,792,250
------------
Motor Vehicles -- 1.96%
General Motors Corp. 273,000 14,434,875
------------
Non-Durables and Entertainment -- 1.38%
Cracker Barrel Old Country Store, Inc. 592,000 10,212,000
------------
Producer Goods -- 4.25%
General Electric Co. 221,000 15,912,000
Stewart & Stevenson Services, Inc. 612,000 15,453,000
------------
31,365,000
------------
Retail -- 1.52%
Toys R Us * 517,000 11,244,750
------------
Telephone -- 7.04%
AT&T Corp. 211,000 13,662,250
Century Telephone Enterprises, Inc. 486,000 15,430,500
MCI Communications Corp. 874,000 22,833,250
------------
51,926,000
------------
Trucking and Freight -- 2.06%
Ryder System, Inc. 615,000 15,221,250
------------
TOTAL COMMON STOCKS 713,662,538
------------
(Cost $573,702,642)
TOTAL INVESTMENTS $738,017,171
============
(Cost $598,057,275)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.37%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2//96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $8,833,683 $ 8,833,683
-------------
(Cost $8,833,683)
Shares
------
COMMON STOCKS -- 98.63%
Air Transport -- 1.57%
Air Express International Corp. 438,500 10,085,500
-------------
Apparel -- 1.24%
Nine West Group, Inc. * 212,850 7,981,875
-------------
Banks -- 4.66%
Charter One Financial, Inc. 385,000 11,790,625
Commerce Bancshares, Inc. 139,255 5,326,511
TCF Financial Corp. 387,600 12,839,250
-------------
29,956,386
-------------
Business Machines -- 5.88%
Autodesk, Inc. 221,330 7,580,552
Diebold, Inc. 182,250 10,092,094
InterVoice, Inc. * 175,000 3,325,000
Komag, Inc. * 185,200 8,542,350
Xilinx, Inc. * 271,200 8,271,600
-------------
37,811,596
-------------
Business Services -- 8.37%
American Management Systems, Inc. * 316,700 9,501,000
CDI Corp. * 207,300 3,731,400
DST Systems, Inc. * 120,100 3,422,850
G & K Services, Inc. Class A 248,700 6,341,850
Omnicom Group, Inc. 239,220 8,910,945
SunGard Data Systems, Inc. * 335,300 9,556,050
Zilog, Inc. * 337,900 12,375,587
-------------
53,839,682
-------------
Chemicals -- 1.50%
RPM, Inc. 584,673 9,647,096
-------------
Construction -- 2.37%
Crane Co. 413,146 15,234,759
-------------
Consumer Durables -- 2.12%
Durakon Industries, Inc. * 314,892 3,936,150
Invacare Corp. 122,600 3,095,650
Leggett & Platt, Inc. 270,910 6,569,567
-------------
13,601,367
-------------
Containers -- 1.88%
AptarGroup, Inc. 323,200 12,079,600
-------------
Drugs and Medicine -- 5.90%
Community Health System, Inc. * 186,600 6,647,625
Health Care & Retirement Corp. * 189,556 6,634,460
Scherer (R.P.) Corp. * 149,464 7,342,419
Sybron International Corp. * 383,000 9,096,250
Vivra, Inc. * 326,400 8,200,800
-------------
37,921,554
-------------
Electronics -- 9.59%
Allen Group, Inc. 373,947 8,367,064
Belden, Inc. 530,000 13,647,500
Dynatech Corp. * 601,200 10,220,400
Holophane Corp. * 412,000 8,961,000
MEMC Electronic Materials * 182,600 5,957,325
Molex, Inc. Class A Non-Voting 246,607 7,552,339
3COM Corp. * 66,748 3,112,126
Vishay Intertechnology, Inc. * 121,900 3,839,850
-------------
61,657,604
-------------
Energy Raw Materials -- 2.93%
Apache Corp. 382,374 11,280,033
Southwestern Energy Co. 593,074 7,561,694
-------------
18,841,727
-------------
Food and Agriculture -- 1.19%
Universal Foods Corp. 191,001 7,663,915
-------------
Insurance -- 3.24%
Citizens Corp. 498,502 9,284,600
Transatlantic Holdings, Inc. 157,746 11,574,613
-------------
20,859,213
-------------
Media -- 1.59%
Banta Corp. 232,510 10,230,440
-------------
Miscellaneous and Conglomerates -- 11.78%
Arctco, Inc. 351,316 4,567,108
Culligan Water Technologies, Inc. * 280,000 6,790,000
DENTSPLY International, Inc. 274,200 10,968,000
Department 56, Inc. * 96,800 3,714,700
Greenfield Industries, Inc. 404,900 12,653,125
Health Management Associates, Inc. Class A * 343,075 8,962,834
Littlefuse, Inc. * 247,500 9,095,625
Minerals Technologies, Inc. 215,665 7,871,773
Wolverine Tube, Inc. * 297,000 11,137,500
-------------
75,760,665
-------------
Miscellaneous Finance -- 12.53%
A.G. Edwards, Inc. 401,580 9,587,723
CMAC Investment Corp. 186,000 8,184,000
Executive Risk, Inc. 368,300 10,680,700
FINOVA Group, Inc. 384,165 18,535,961
Idex Corp. 171,329 7,024,468
PMI Group, Inc. 235,300 10,647,325
Prudential Reinsurance Holdings 422,700 9,880,613
Scotsman Industries, Inc. 342,000 6,027,750
-------------
80,568,540
-------------
Motor Vehicles -- 5.11%
Excel Industries, Inc. 496,065 6,944,910
Harley-Davidson, Inc. 483,474 13,899,878
Myers Industries, Inc. 358,120 5,864,215
Superior Industries International 232,444 6,130,71
-------------
32,839,714
-------------
Non-Durables and Entertainment -- 1.53%
Lancaster Colony Corp. 263,796 9,826,401
-------------
Non-Ferrous Metals -- 0.86%
DT Industries, Inc. 408,500 5,514,750
-------------
Producer Goods -- 8.55%
Hubbell, Inc. Class B 234,413 15,412,655
Juno Lighting, Inc. 505,611 8,089,776
Stewart & Stevenson Services, Inc. 267,000 6,741,750
Teleflex, Inc. 108,760 4,459,160
Trimas Corp. 439,465 8,294,902
Watts Industries, Inc. Class A 515,002 11,973,796
-------------
54,972,039
-------------
Retail -- 2.80%
Cato Corp. Class A 1,019,082 7,897,885
Kohls Corp. * 122,118 6,411,195
Talbots, Inc. 128,701 3,700,154
-------------
18,009,234
-------------
Travel and Recreation -- 1.44%
Callaway Golf Co. 410,400 9,285,300
-------------
TOTAL COMMON STOCKS 634,188,957
-------------
(Cost $535,343,601)
TOTAL INVESTMENTS $643,022,640
============
(Cost $544,177,289)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTRINSIC VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 6.44%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $16,639,265 $ 16,639,265
------------
(Cost $16,639,265)
CONVERTIBLE BONDS -- 9.26%
Chubb Capital Corp., 6.00%, 5/15/98 5,650,000 6,384,500
Consolidated Natural Gas Co., 7.25%, 12/15/15 5,218,500 5,414,194
Price Co., 6.75%, 3/1/01 5,400,000 5,487,750
Unifi, Inc., 6.00%, 3/15/02 6,566,000 6,615,245
------------
(Cost $23,403,674) 23,901,689
------------
Shares
------
COMMON STOCKS -- 84.30%
Apparel -- 3.13%
Reebok International Ltd. 128,530 3,630,972
Unifi Inc. 82,900 1,834,163
V. F. Corp. 49,600 2,616,400
------------
8,081,535
------------
Banks -- 4.36%
Bancorp Hawaii, Inc. 156,400 5,610,850
First Union Corp. 101,500 5,645,938
------------
11,256,788
------------
Business Services -- 5.34%
Angelica Corp. 120,200 2,464,100
Harland (John H.) Co. 247,500 5,166,562
National Service Industries, Inc. 190,200 6,157,725
------------
13,788,387
------------
Chemicals -- 2.21%
NCH Corp. 98,800 5,705,700
------------
Consumer Durables -- 4.29%
Hillenbrand Industries, Inc. 90,800 3,075,850
National Presto Industries, Inc. 78,800 3,132,300
Thiokol Corp. 143,700 4,867,838
------------
11,075,988
------------
Domestic Oil -- 4.61%
Atlantic Richfield Co. 37,200 4,119,900
MAPCO, Inc. 142,700 7,794,988
------------
11,914,888
------------
Drugs and Medicine -- 2.84%
Block Drug, Inc. Class A 45,700 1,588,075
Bristol-Myers Squibb Co. 66,800 5,736,450
------------
7,324,525
------------
Energy and Utilities -- 5.34%
American Water Works Co., Inc. 76,435 2,971,411
Equitable Resources, Inc. 128,200 4,006,250
Sierra Pacific Resources 291,900 6,823,162
------------
13,800,823
------------
Energy Raw Materials -- 1.09%
Ashland Coal, Inc. 131,300 2,806,537
------------
Insurance -- 13.18%
Allmerica Property & Casualty Co. 129,500 3,496,500
AMBAC, Inc. 94,600 4,434,375
Financial Security Assurance Holdings 126,500 3,146,688
Home Beneficial Corp. Class B 246,900 5,925,600
Marsh & McLennan Companies, Inc. 34,200 3,035,250
Mid Ocean Ltd. 76,100 2,825,213
Old Republic International Corp. 223,900 7,948,450
SAFECO Corp. 93,600 3,229,200
------------
34,041,276
------------
International Oil -- 3.62%
Amoco Corp. 61,900 4,449,062
Texaco, Inc. 62,500 4,906,250
------------
9,355,312
------------
Liquor -- 1.44%
Anheuser-Busch Companies, Inc. 55,800 3,731,625
------------
Media -- 1.64%
Gannett Co., Inc. 69,000 4,234,875
------------
Miscellaneous Finance -- 7.91%
Federal National Mortgage Association 75,800 9,408,675
Fund American Enterprises Holdings, Inc. 112,365 8,371,192
Salomon, Inc. 74,300 2,637,650
------------
20,417,517
------------
Motor Vehicles -- 1.01%
Ford Motor Co. 89,798 2,604,142
------------
Non-Durables and Entertainment -- 3.53%
Hasbro, Inc. 181,000 5,611,000
Luby's Cafeterias, Inc. 37,800 841,050
Sbarro, Inc. 123,700 2,659,550
------------
9,111,600
------------
Railroads and Shipping -- 3.23%
Alexander & Baldwin, Inc. 252,600 5,809,800
Norfolk Southern Corp. 31,900 2,532,062
------------
8,341,862
------------
Retail -- 7.89%
May Department Stores Co. 155,900 6,586,775
Melville Corp. 201,500 6,196,125
Mercantile Stores, Inc. 62,000 2,867,500
Stanhome, Inc. Voting 162,200 4,724,075
------------
20,374,475
------------
Soaps and Cosmetics -- 2.33%
Unilever N. V. 42,800 6,024,100
------------
Tires and Rubber Goods -- 1.13%
Bandag, Inc. Class A 54,900 2,909,700
------------
Tobacco -- 4.18%
Loews Corp. 77,400 6,066,225
Philip Morris Companies, Inc. 52,400 4,742,200
------------
10,808,425
------------
TOTAL COMMON STOCKS 217,710,080
------------
(Cost $191,404,657)
TOTAL INVESTMENTS $258,251,034
============
(Cost $231,447,596)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 2.52%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96, (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $4,958,619 $ 4,958,619
------------
(Cost $4,958,619)
Shares
COMMON STOCKS -- 97.48%
Banks -- 3.67%
Banc One Corp. 80,000 3,020,000
Norwest Corp. 127,000 4,191,000
------------
7,211,000
------------
Business Machines -- 4.03%
Autodesk, Inc. 90,400 3,096,200
Microsoft Corp. * 55,000 4,826,250
------------
7,922,450
------------
Business Services -- 6.26%
Automatic Data Processing, Inc. 58,000 4,306,500
Interpublic Group of Companies, Inc. 105,000 4,554,375
WMX Technologies, Inc. 115,000 3,435,625
------------
12,296,500
------------
Chemicals -- 3.56%
Great Lakes Chemical Corp. 58,000 4,176,000
Sigma-Aldrich Corp. 57,000 2,821,500
------------
6,997,500
------------
Construction -- 4.84%
Fluor Corp. 73,000 4,818,000
York International Corp. 100,000 4,700,000
------------
9,518,000
------------
Consumer Durables -- 2.88%
Newell Co. 140,000 3,622,500
Rubbermaid, Inc. 80,000 2,040,000
------------
5,662,500
------------
Containers -- 2.13%
Crown Cork & Seal Co., Inc. * 100,000 4,175,000
------------
Drugs and Medicine -- 12.79%
Johnson & Johnson 70,000 5,993,750
Medtronic, Inc. 67,000 3,743,625
Pall Corp. 225,000 6,046,875
Stryker Corp. 83,000 4,357,500
United Healthcare Corp. 76,000 4,978,000
------------
25,119,750
------------
Electronics -- 6.26%
General Motors Corp., Class E 95,000 4,940,000
Hewlett-Packard Co. 37,000 3,098,750
Intel Corp. 75,000 4,256,250
------------
12,295,000
------------
Energy and Utilities -- 1.94%
Enron Corp. 100,000 3,812,500
------------
Energy Raw Materials -- 4.15%
Schlumberger Ltd. 52,000 3,601,000
Western Atlas, Inc. * 90,000 4,545,000
------------
8,146,000
------------
Food and Agriculture -- 3.86%
CPC International, Inc. 57,000 3,911,625
Sysco Corp. 113,000 3,672,500
------------
7,584,125
------------
Insurance -- 4.84%
AFLAC, Inc. 100,000 4,337,500
American International Group, Inc. 56,000 5,180,000
------------
9,517,500
------------
Media -- 2.20%
Donnelley (R.R.) & Sons Co. 110,000 4,331,250
------------
Miscellaneous and Conglomerates -- 2.37%
Duracell International, Inc. 90,000 4,657,500
------------
Non-Durables and Entertainment -- 6.05%
Cracker Barrel Old Country Store, Inc. 250,000 4,312,500
CUC International, Inc *. 73,650 2,513,306
Service Corp. International 115,000 5,060,000
------------
11,885,806
------------
Producer Goods -- 3.57%
Illinois Tool Works, Inc. 76,000 4,484,000
Stewart & Stevenson Services, Inc. 100,000 2,525,000
------------
7,009,000
------------
Retail -- 8.95%
Albertsons, Inc. 132,000 4,339,500
Home Depot, Inc. 135,000 6,463,125
Toys R Us * 130,000 2,827,500
Walgreen Co. 132,000 3,943,500
------------
17,573,625
------------
Telephone -- 4.77%
AirTouch Communications, Inc. * 170,000 4,802,500
MCI Communications Corp. 175,000 4,571,875
------------
9,374,375
------------
Tobacco -- 1.87%
UST, Inc. 110,000 3,671,250
------------
Travel and Recreation -- 6.49%
Carnival Corp. Class A 180,000 4,387,500
Disney (Walt) Co. 80,000 4,720,000
Gaylord Entertainment Co. Class A 131,000 3,635,250
------------
12,742,750
------------
TOTAL COMMON STOCKS 191,503,381
------------
(Cost $159,055,136)
TOTAL INVESTMENTS $196,462,000
============
(Cost $164,013,755)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 11.13%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $10,363,688 $10,363,688
-----------
(Cost $10,363,688)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 33.62%
U.S. Treasury Securities -- 15.64%
Principal Strips from U.S. Treasury Securities
due:
8/15/98 500,000 436,475
5/15/18 600,000 149,664
11/15/18 600,000 145,734
8/15/20 4,765,000 1,037,245
Strips from U.S. Treasury Securities due:
5/15/98 200,000 176,984
2/15/99 100,000 84,995
2/15/11 600,000 242,940
5/15/11 1,083,000 431,077
2/15/12 280,000 105,795
8/15/12 750,000 273,848
5/15/13 760,000 264,290
2/15/14 200,000 66,210
U.S. Treasury Bonds:
12.750%, 11/15/10 395,000 601,632
10.375%, 11/15/12 495,000 684,338
U.S. Treasury Notes:
7.375%, 5/15/96 350,000 352,681
7.250%, 11/15/96 200,000 203,312
8.500%, 4/15/97 165,000 171,626
8.625%, 8/15/97 850,000 894,625
8.750%, 10/15/97 200,000 211,968
8.875%, 11/15/97 800,000 851,496
7.875%, 1/15/98 2,400,000 2,521,872
7.875%, 4/15/98 3,870,000 4,086,488
5.375%, 5/31/98 350,000 351,148
6.875%, 7/31/99 200,000 210,000
-----------
(Cost $13,572,976) 14,556,443
-----------
Agency Obligations -- 17.98%
Federal Home Loan Mortgage Corp. Participation
Ctf.
#555238, 12.000%, 7/1/19 177,465 198,989
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 22 Class C, 9.500%, 4/15/20 138,110 156,469
Series 11 Class D, 9.500%,7/15/19 200,000 222,572
Series 99 Class Z, 9.500%, 1/15/21 109,086 117,377
Series 1051 Class D, 7.000%, 11/15/19 194,946 197,330
Series 1065 Class J, 9.000%, 4/15/21 100,000 108,781
Series 1084 Class F, AR, 5/15/21 250,000 254,990
Series 1084 Class S, IF, 5/15/21 175,000 227,500
Series 1144 Class KB, 8.500%, 9/15/21 250,000 264,635
Series 1295 Class JB, 4.500%, 3/15/07 300,000 271,701
Series 1297 Class H, 7.500%, 1/15/20 130,723 133,925
Series 1360 Class PK, 10.000%, 12/15/20 150,000 172,192
Series 1370 Class F, 6.750%, 3/15/19 260,000 262,743
Series 1378 Class H, 10.000%, 1/15/21 100,000 115,208
Series 1378 Class JZ, 7.500%, 11/15/21 253,428 257,659
Series 1456 Class G, 6.500%,12/15/18 300,000 300,315
Series 1465 Class SA, IF, 2/15/08 1,584,527 78,228
Series 1483 Class E, 6.500%, 2/15/20 367,500 367,283
Series 1489 Class L, 5.500%, 4/15/08 208,713 203,631
Series 1491 Class F, 5.000%, 8/15/19 400,000 375,472
Series 1508 Class KB, IO, IF, 5/15/23 709,793 45,689
Series 1531 Class K, 6.000%, 4/15/08 346,816 336,404
Series 1554 Class KA, PO, 8/15/08 84,308 66,971
Series 1583 Class NS, IF, 9/15/23 115,888 85,757
Series 1585 Class NB, IF, 9/15/23 144,996 117,446
Series 1586 Class A, 6.000%, 9/15/08 167,962 161,611
Series 1595 Class S, IO, IF, 10/15/13 1,582,125 64,266
Series 1604 Class SE, IF, 11/15/08 187,033 149,626
Series 1606 Class LD, IF, 5/15/08 393,649 295,358
Series 1681 Class K, 7.000%, 8/15/23 446,020 436,243
Series 1686 Class A, 5.000%, 2/15/24 92,449 82,440
Series 1689 Class SD, IF, 10/15/23 100,000 89,000
Series 1706 Class LA, 7.000%, 3/15/24 425,008 416,402
Series 1757-A, Class A, 9.500%, 5/15/23 176,610 187,868
Series 1796-A, Class S, IF, 2/15/09 100,000 75,500
Federal Housing Administration Merrill Lynch
Project Pool 170 Pass thru Ctf., 7.430%, 8/1/20 228,368 235,931
Federal National Mortgage Assn. Pass Thru
Securities Pool #116612, AR, 3/1/19 120,860 125,058
Federal National Mortgage Assn. Pass Thru
Securities Guaranteed Remic Trust:
1989 Class 34-D, 9.850%, 7/25/13 100,480 101,805
1989 Class 69-G, 7.600%, 10/25/19 800,000 825,385
1989 Class 78-H, 9.400%, 11/25/19 250,000 278,605
1990 Class 1-D, 8.800%, 1/25/20 150,000 159,384
1990 Class 140-K, HB, 652.1454%, 12/25/20 1,859 34,111
1990 Class 143-J, 8.750%, 12/25/20 125,000 134,010
1991 Class 144-PZ, 8.500%, 6/25/21 213,482 225,832
1991 Class 161-H, 7.500%, 2/25/21 195,157 198,564
1992 Class 204-B, 6.000%, 10/25/20 250,000 241,885
1993 Class 13-G, 6.000%, 6/25/20 200,000 196,274
1993 Class 15-K, 7.000%, 02/25/08 198,103 197,104
1993 Class 19-G, 5.000%, 5/25/19 250,000 237,095
1993 Class 32-K, 6.000%, 3/25/23 398,757 383,429
1993 Class 38-S, IO, IF, 11/25/22 1,167,204 32,098
1993 Class 44-S, IO, IF, 4/25/23 440,206 19,395
1993 Class 58-J, 5.500%, 4/25/23 172,150 160,876
1993 Class 94-K, 6.750%, 5/25/23 129,919 127,147
1993 Class 139-SG, IF, 8/25/23 242,431 187,959
1993 Class 155-LA, 6.500%, 5/25/23 347,178 342,498
1993 Class 155-SB, IO, IF, 9/25/23 855,151 46,495
1993 Class 190-SE, IF, 10/25/08 49,847 38,740
1993 Class 207-SC, IF, 11/25/23 286,295 208,995
1993 Class 209-KB, 5.659%, 8/25/08 186,995 178,470
1993 Class 214-L, 6.000%, 12/25/08 167,752 165,801
1993 Class 220-SD, IF, 11/25/13 49,707 38,631
1993 Class 223-FB, AR, 12/25/23 371,360 365,790
1993 Class 223-SB, IF, 12/25/23 165,265 132,212
1994 Class 8-G, PO, 11/25/23 259,594 188,206
1994 Class 19-C, 5.000%, 1/25/24 341,483 315,697
1994 Class 30-LA, 6.500%, 2/25/09 84,934 83,897
1994 Class 36-SE, IF, 11/25/23 136,624 109,299
1994 Class 39-F, AR, 3/25/24 226,630 225,071
1994 Class 39-S, IF, 3/25/24 87,166 77,413
1994 Class 53-CA, PO, 11/25/23 460,000 318,550
1994 Class 59-PK, 6.000%, 3/25/24 176,633 171,714
1994 Class 82-SA, IO, 5/25/23 1,931,538 51,900
1995 Class 13-B, 6.500%, 3/25/09 576,322 563,533
1992-G Class 15-Z, 7.000%, 1/25/22 196,015 190,649
1992-G Class 42-Z, 7.000%, 7/25/22 633,918 624,341
1992-G Class 59-C, 6.000%, 12/25/21 200,000 194,128
1993-G Class 19-K, 6.500%, 6/25/19 254,799 250,365
1994-G Class 13-ZB, 7.000%, 11/17/24 107,229 102,640
Government National Mortgage Assn. Pass Thru
Securities
Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22 600,000 38,250
Government National Mortgage Assn. Pass Thru:
Pool #297628, 8.000%, 9/15/22 190,467 198,974
Pool #313110, 7.500%, 11/15/22 499,859 515,218
-----------
(Cost $15,517,459) 16,737,005
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 31,293,448
-----------
(Cost $29,090,435)
CORPORATE BONDS AND NOTES -- 1.95%
Finance -- 1.12%
Associates Corp. of North America:
9.125%, 4/1/00 85,000 95,937
8.150%, 8/1/09 200,000 227,996
Ford Credit Grantor Trust Asset Backed Ctf.
Series 1994-A, Class A, 6.350%, 5/15/99 272,012 274,846
Merrill Lynch Trust 43 E CMO, Series 43-E,
6.500%, 8/27/15 200,000 198,998
Nationsbank Auto Grantor Trust Asset Backed Ctf.
Series 1995-A, Class A, 5.850%, 6/15/02 96,427 96,983
Standard Credit Card Master Trust Asset Backed
Ctf. Series 1995-5, Class A, AR, 5/8/00 150,000 150,046
-----------
(Cost $1,000,850) 1,044,806
-----------
Industrial -- 0.42%
Boeing Co., 7.950%, 8/15/24 110,000 129,493
Proctor & Gamble Co., 8.000%, 10/26/96 220,000 262,544
-----------
(Cost $360,295) 392,037
-----------
Public Utility -- 0.41%
New England Telephone & Telegraph Co., 7.875%,
11/15/29 250,000 294,213
Nippon Telegraph & Telephone Corp., 9.500%,
7/27/98 80,000 87,370
-----------
(Cost $351,127) 381,583
-----------
TOTAL CORPORATE BONDS AND NOTES 1,818,426
-----------
(Cost $1,712,272)
CONVERTIBLE BONDS -- 0.52%
Chubb Capital Corp., 6.00%, 5/15/98 121,000 136,730
Consolidated Natural Gas Co., 7.25%, 12/15/15 98,100 101,779
Price Co., 6.75%, 3/1/01 112,000 113,820
Unifi, Inc., 6.00%, 3/15/02 130,000 130,975
-----------
(Cost $473,776) 483,304
-----------
Shares
------
COMMON STOCKS -- 52.78%
Aerospace -- 1.06%
Boeing Co. 12,600 987,525
-----------
Air Transport -- 0.15%
Air Express International Corp. 6,225 143,175
-----------
Apparel -- .90%
Nine West Group, Inc. * 2,950 110,625
Reebok International Ltd. 2,780 78,535
Russell Corp. 20,000 555,000
Unifi Inc. 1,640 36,285
V.F. Corp. 1,050 55,388
-----------
835,833
-----------
Banks -- 2.58%
Banc One Corp. 3,100 117,025
Bancorp Hawaii, Inc. 3,390 121,616
Barnett Banks, Inc. 10,800 637,200
Charter One Financial Inc. 5,200 159,250
Commerce Bancshares, Inc. 1,975 75,530
First Union Corp. 2,200 122,375
Fleet Financial Group, Inc. 20,900 851,675
Norwest Corp. 4,000 132,000
TCF Financial Corp. 5,600 185,500
-----------
2,402,171
-----------
Business Machines -- 1.01%
Autodesk, Inc. 12,370 423,673
Diebold, Inc. 2,613 144,695
InterVoice, Inc. * 2,500 47,500
Komag, Inc. * 2,700 124,538
Microsoft Corp. * 1,100 96,525
Xilinx, Inc. * 3,350 102,174
-----------
939,105
-----------
Business Services -- 3.94%
American Management System, Inc. * 4,500 135,000
Angelica Corp. 2,600 53,300
Automatic Data Processing, Inc. 1,800 133,650
CDI Corp. * 2,900 52,200
Deluxe Corp. 19,400 562,600
DST Systems, Inc. * 1,600 45,600
Dun & Bradstreet Corp. 10,300 666,925
G & K Services, Inc. Class A 3,400 86,700
Harland (John H.) Co. 5,360 111,890
Interpublic Group of Companies, Inc. 12,600 546,525
National Service Industries, Inc. 4,120 133,385
Omnicom Group, Inc. 3,380 125,905
SunGard Data Systems, Inc. * 4,500 128,250
WMX Technologies, Inc. 23,500 702,063
Zilog, Inc. * 5,000 183,125
-----------
3,667,118
-----------
Chemicals -- 2.64%
Dow Chemical Co. 8,500 598,188
Great Lakes Chemical Corp. 13,600 979,200
NCH Corp. 2,140 123,585
RPM, Inc. 8,265 136,372
Sigma-Aldrich Corp. 12,500 618,750
-----------
2,456,095
-----------
Construction -- 3.00%
Crane Co. 5,604 206,648
Fluor Corp. 2,100 138,600
Masco Corp. 20,900 655,737
Stanley Works 13,500 695,250
York International Corp. 23,300 1,095,100
-----------
2,791,335
-----------
Consumer Durables -- 1.43%
Durakon Industries, Inc. * 4,508 56,350
Hillenbrand Industries, Inc. 1,970 66,734
Invacare Corp. 1,700 42,925
Leggett & Platt, Inc. 3,840 93,120
National Presto Industries, Inc. 1,710 67,973
Newell Co. 4,300 111,263
Rubbermaid, Inc. 30,700 782,850
Thiokol Corp. 3,110 105,350
-----------
1,326,565
-----------
Containers -- 0.65%
AptarGroup, Inc. 4,600 171,925
Crown Cork & Seal Co., Inc. * 10,400 434,200
-----------
606,125
-----------
Domestic Oil -- 0.27%
Atlantic Richfield Co. 810 89,708
MAPCO, Inc. 2,940 160,597
-----------
250,305
-----------
Drugs and Medicine -- 5.52%
Abbott Laboratories 14,400 601,200
Block Drug, Inc. Class A 1,000 34,750
Bristol-Myers Squibb Co. 10,790 926,591
Community Health System 2,600 92,625
Health Care & Retirement Corp. * 2,594 90,790
Johnson & Johnson 1,700 145,563
Medtronic, Inc. 2,400 134,100
Merck & Co., Inc. 9,700 637,775
Pall Corp. 5,800 155,875
Scherer (R.P.) Corp. * 2,286 112,300
Schering-Plough Corp. 17,300 947,175
Stryker Corp. 900 47,250
Sybron International Corp. * 5,400 128,250
United Healthcare Corp. 2,400 157,200
U.S. HealthCare, Inc. 17,600 818,400
Vivra, Inc. * 4,500 113,062
-----------
5,142,906
-----------
Electronics -- 2.28%
Allen Group, Inc. 5,393 120,668
Belden, Inc. 7,500 193,125
Dynatech Corp. * 8,000 136,000
General Motors Corp. Class E 20,400 1,060,800
Hewlett Packard Co. 1,500 125,625
Holophane Corp. * 5,100 110,925
Intel Corp. 1,600 90,800
MEMC Electronic Materials * 2,500 81,563
Molex, Inc. Class A Non-Voting 3,550 108,719
3COM Corp. * 952 44,387
Vishay Intertechnology, Inc. * 1,700 53,550
-----------
2,126,162
-----------
Energy and Utilities -- 1.62%
American Water Works Co., Inc. 1,800 69,975
Enron Corp. 1,500 57,188
Entergy Corp. 10,200 298,350
Equitable Resources, Inc. 2,770 86,563
MCN Corp. 36,300 843,974
Sierra Pacific Resources 6,320 147,730
-----------
1,503,780
-----------
Energy Raw Materials -- 2.27%
Apache Corp. 5,076 149,742
Ashland Coal, Inc. 2,810 60,064
Burlington Resources, Inc. 13,300 522,025
Schlumberger Ltd. 16,500 1,142,625
Southwestern Energy Co. 8,476 108,069
Western Atlas, Inc. * 2,500 126,250
-----------
2,108,775
-----------
Food and Agriculture -- 1.71%
ConAgra, Inc. 11,300 466,125
CPC International, Inc. 1,500 102,938
Sysco Corp. 28,300 919,750
Universal Foods Corp. 2,549 102,278
-----------
1,591,091
-----------
Insurance -- 3.97%
AFLAC, Inc. 1,400 60,725
Allmerica Property & Casualty Co. 2,800 75,600
AMBAC, Inc. 2,050 96,094
American International Group, Inc. 9,400 869,500
Chubb Corp. 10,200 986,850
Citizens Corp. 6,548 121,957
Financial Security Assurance Holdings 2,440 60,695
First Colony Corp. 30,200 766,325
Home Beneficial Corp. Class B 5,350 128,400
Marsh & McLennan Companies, Inc. 740 65,675
Mid Ocean Ltd. 1,570 58,286
Old Republic International Corp. 4,880 173,240
SAFECO Corp. 2,020 69,690
Transatlantic Holdings, Inc. 2,254 165,387
-----------
3,698,424
-----------
International Oil -- 0.73%
Amoco Corp. 1,340 96,313
Royal Dutch Petroleum Co., N.Y. Registry 3,400 479,825
Texaco, Inc. 1,350 105,975
-----------
682,113
-----------
Liquor -- 0.87%
Anheuser Busch Companies, Inc. 12,120 810,525
-----------
Media -- 2.04%
Banta Corp. 3,290 144,760
Donnelley (R.R.) & Sons Co. 2,200 86,625
Gannett Co., Inc. 14,790 907,736
Washington Post Co. Class B 2,700 761,400
-----------
1,900,521
-----------
Miscellaneous and Conglomerates -- 1.24%
Arctco, Inc. 4,983 64,779
Culligan Water Technologies, Inc. * 3,700 89,725
DENTSPLY International, Inc. 3,700 148,000
Department 56, Inc. * 1,200 46,050
Duracell International, Inc. 2,200 113,850
Greenfield Industries, Inc. 5,700 178,125
Health Management Associates, Inc. Class A * 4,862 127,020
Littlefuse, Inc. * 3,500 128,625
Minerals Technologies, Inc. 3,085 112,602
Wolverine Tube, Inc. * 4,000 150,000
-----------
1,158,776
-----------
Miscellaneous Finance -- 1.68%
A.G. Edwards, Inc. 5,755 137,401
CMAC Investment Corp. 2,300 101,200
Executive Risk, Inc. 5,200 150,800
Federal National Mortgage Association 1,640 203,565
FINOVA Group, Inc. 5,535 267,064
Fund American Enterprises Holdings, Inc. 2,310 172,095
Idex Corp. 2,472 101,332
PMI Group, Inc. 3,200 144,800
Prudential Reinsurance Holding 6,000 140,250
Salomon, Inc. 1,610 57,154
Scotsman Industries, Inc. 4,900 86,362
-----------
1,562,023
-----------
Motor Vehicles -- 1.22%
Excel Industries, Inc. 7,035 98,490
Ford Motor Co. 1,861 53,969
General Motors Corp. 11,700 618,638
Harley-Davidson, Inc. 6,926 199,123
Myers Industries, Inc. 4,520 74,014
Superior Industries International 3,338 88,040
-----------
1,132,274
-----------
Non-Durables and Entertainment -- 1.12%
Cracker Barrel Old Country Store, Inc. 32,000 552,000
CUC International, Inc. 2,250 76,781
Hasbro, Inc. 3,920 121,520
Lancaster Colony Corp. 3,764 140,209
Luby's Cafeterias, Inc. 820 18,245
Sbarro, Inc. 2,280 49,020
Service Corp. International 2,000 88,000
-----------
1,045,775
-----------
Non-Ferrous Metals -- 0.08%
DT Industries, Inc. 5,200 70,200
-----------
Producer Goods -- 2.52%
General Electric Co. 9,500 684,000
Hubbell, Inc. Class B 3,351 220,328
Illinois Tool Works, Inc. 2,100 123,900
Juno Lighting, Inc. 7,239 115,824
Stewart & Stevenson Services, Inc. 33,400 843,350
Teleflex, Inc. 1,590 65,190
Trimas Corp. 6,235 117,686
Watts Industries, Inc. Class A 7,398 172,003
-----------
2,342,281
-----------
Railroads and Shipping -- 0.19%
Alexander & Baldwin, Inc. 5,470 125,810
Norfolk Southern Corp. 690 54,769
-----------
180,579
-----------
Retail -- 1.70%
Albertsons, Inc. 3,200 105,200
Cato Corp. Class A 14,518 112,515
Home Depot, Inc. 2,500 119,688
Kohls Corp. * 1,732 90,930
May Department Stores Co. 3,380 142,805
Melville Corp. 4,360 134,070
Mercantile Stores Inc. 1,200 55,500
Stanhome, Inc. Voting 3,510 102,229
Talbots, Inc. 1,949 56,034
Toys R Us * 24,900 541,575
Walgreen Co. 4,200 125,474
-----------
1,586,020
-----------
Soaps and Cosmetics -- 0.12%
Unilever N. V. 810 114,007
-----------
Telephone -- 2.64%
AT&T Corp. 9,000 582,750
AirTouch Communications, Inc. * 3,300 93,225
Century Telephone Enterprises, Inc. 21,500 682,625
MCI Communications Corp. 42,000 1,097,250
-----------
2,455,850
-----------
Tires and Rubber Goods -- 0.06%
Bandag, Inc. Class A 1,050 55,650
-----------
Tobacco -- 0.38%
Loews Corp. 1,700 133,238
Philip Morris Companies, Inc. 1,130 102,265
UST, Inc. 3,500 116,812
-----------
352,315
-----------
Travel and Recreation -- 0.49%
Callaway Golf Co. 5,600 126,700
Carnival Corp. Class A 5,000 121,875
Disney (Walt) Co. 1,600 94,400
Gaylord Entertainment Co. Class A 4,130 114,608
-----------
457,583
-----------
Trucking and Freight -- 0.70%
Ryder System, Inc. 26,300 650,924
-----------
TOTAL COMMON STOCKS 49,133,906
-----------
(Cost $41,977,085)
TOTAL INVESTMENTS $93,092,772
===========
(Cost $83,617,256)
<FN>
* Non-income producing security.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BALANCED FUND
PORTFOLIO OF INVESTMENTS (Continued)
Notes to Portfolio of Investments
The Fund invests in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Some of these securities are collateralized
mortgage obligations (CMOs). CMOs are debt securities issued by U.S.
government agencies or by financial institutions and other mortgage lenders
which are collateralized by a pool of mortgages held under an indenture.
Descriptions of certain collateralized mortgage obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. These securities are subject to accelerated principal paydowns as a
result of prepayments or refinancing of the underlying pool of mortgage
instruments. As a result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right
to receive a very small portion of principal. The high interest rate results
from taking interest payments from other classes in the REMIC Trust and
allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the
yield on these securities increases.
<PAGE>
THE WOODWARD FUNDS
EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series. The five Equity Funds (Equity
Funds) included in these financial statements are described below.
Woodward Growth/Value Fund
Woodward Opportunity Fund
Woodward Intrinsic Value Fund
Woodward Capital Growth Fund
Woodward Balanced Fund
The Growth/Value, Opportunity and Intrinsic Value Funds commenced
operations on June 1, 1991, the Balanced Fund commenced operations on
January 1, 1994, and the Capital Growth Fund commenced operations on
July 2, 1994.
The remaining two Woodward Equity Funds, the Equity Index and
International Equity Funds, are each included on separate stand alone
financial statements.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Equity Funds in preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Equity Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by Woodward or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life. Dividends
are recorded on the ex-dividend date.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to
its shareholders. Therefore, no federal income tax provision is required in
the accompanying financial statements.
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions and
post-October 31 capital losses. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were recorded by the Fund.
Certain book-to-tax timing differences for the funds are reflected as excess
distributions in the Statements of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by
the Equity Funds. Net realized capital gains are distributed annually.
Distributions from net investment income and net realized gains are made
during each year to avoid the 4% excise tax imposed on regulated investment
companies by the Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. Woodward monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of Woodward or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Equity Funds' average net assets and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the period ended December 31, 1995, NBD reimbursed the
Capital Growth Fund and Balanced Fund for certain expenses in the amounts of
$58,424 and $136,954, respectively.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
<PAGE>
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
Growth/Value Opportunity Intrinsic Value
Fund Fund Fund
------------ ------------ ---------------
<S> <C> <C> <C>
Gross Unrealized Gains $151,285,779 $121,714,875 $ 32,487,357
Gross Unrealized Losses (11,595,221) (23,828,874) (5,683,919)
------------ ------------ ------------
$139,690,558 $ 97,886,001 $ 26,803,438
============ ============ ============
Federal Income Tax Cost $598,326,613 $545,136,639 $231,447,596
Purchases $226,974,931 $334,152,727 $100,553,869
Sales, at value $164,369,937 $305,957,872 $104,699,734
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Balanced
Fund Fund
------------- --------
<S> <C> <C>
Gross Unrealized Gains $ 36,159,065 $10,960,819
Gross Unrealized Losses (3,710,820) (1,616,652)
------------ -----------
$ 32,448,245 $ 9,344,167
============ ===========
Federal Income Tax Cost $164,013,755 $83,748,605
Purchases $ 94,109,852 $38,447,984
Sales, at value $ 9,347,828 $20,747,860
</TABLE>
<PAGE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
Growth/Value Opportunity Intrinsic Value
Effective Date Fund Fund Fund
-------------- ------------ ----------- --------------
<S> <C> <C> <C>
Expense Rates:
January 1 0.84% 0.90% 0.91%
August 9 0.83% 0.88% 0.90%
November 9 0.83% 0.86% 0.90%
NBD Advisory Fee:
January 1 0.75% 0.75% 0.75%
Amounts Paid:
Advisory Fee to NBD $4,951,664 $4,490,930 $1,817,833
Distribution Fees to FoM & Essex $ 67,240 $ 80,463 $ 24,640
Other Fees & Out of Pocket Expenses to NBD $ 183,590 $ 247,535 $ 85,169
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Balanced
Effective Date Fund Fund
-------------- -------------- --------
<S> <C> <C>
Expense Rates:
January 1 0.85% 0.87%
March 21 0.85% 0.90%
August 9 0.85% 0.90%
November 9 0.87% 0.92%
NBD Advisory Fee:
January 1 0.75% 0.75%
Amounts Paid:
Advisory Fee to NBD $1,064,273 $ 570,525
Distribution Fees to FoM & Essex $ 9,455 $ 11,148
Other Fees & Out of Pocket
Expenses to NBD $ 44,622 $ 93,196
Expense Reimbursements by NBD $ (58,424) $(136,954)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
EQUITY FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Equity
Funds' net asset values have changed during the periods presented. Additional
quantitative measures expressed in ratio form analyze important relationships
between certain items presented in the financial statements. These financial
highlights have been derived from the financial statements of the Equity Funds
and other information for the periods presented.
<TABLE>
<CAPTION>
Growth/Value Fund
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.67 $ 11.16 $ 10.51 $ 9.86 $ 10.00
Income from investment operations:
Net investment income 0.21 0.23 0.20 0.22 0.14
Net realized and unrealized
gains (losses) on investments 2.76 (0.17) 1.24 0.75 (0.14)
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.97 0.06 1.44 0.97 --
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.22) (0.21) (0.20) (0.22) (0.14)
From realized gains (0.26) (0.30) (0.59) (0.10) --
In excess of realized gains -- (0.01) -- -- --
Tax return of capital -- (0.03) -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.48) (0.55) (0.79) (0.32) (0.14)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 13.16 $ 10.67 $ 11.16 $ 10.51 $ 9.86
============ ============ ============ ============ ============
Total Return (b) 28.04% 0.55% 13.79% 9.87% 0.17%(a)
Ratios/Supplemental Data
Net assets, end of period $737,167,067 $571,370,711 $429,635,045 $287,344,809 $238,085,630
Ratio of expenses to average net assets 0.84% 0.84% 0.83% 0.83% 0.85%(a)
Ratio of net investment income to
average net assets 1.73% 2.07% 1.84% 2.20% 2.56%(a)
Portfolio turnover rate 26.80% 28.04% 42.31% 16.28% 0.94%
<FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Opportunity Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.34 $ 14.49 $ 12.37 $ 10.40 $ 10.00
Income from investment operations:
Net investment income 0.06 0.07 0.10 0.11 0.09
Net realized and unrealized gains
losses) on investments 2.57 (0.54) 2.87 2.43 0.43
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.63 (0.47) 2.97 2.54 0.52
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.06) (0.07) (0.10) (0.11) (0.09)
From realized gains (0.76) (0.49) (0.75) (0.46) (0.03)
In excess of realized gains -- (0.02) -- -- --
Tax return of capital -- (0.10) -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.82) (0.68) (0.85) (0.57) (0.12)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 15.15 $ 13.34 $ 14.49 $ 12.37 $ 10.40
============ ============ ============ ============ ============
Total Return (b) 19.88% (3.27%) 24.01% 24.56% 8.92%(a)
Ratios/Supplemental Data
Net assets, end of period $650,952,268 $524,999,120 $365,664,513 $166,423,073 $108,046,450
Ratio of expenses to average net assets 0.89% 0.90% 0.86% 0.84% 0.84%(a)
Ratio of net investment income
to average net assets 0.37% 0.53% 0.71% 1.09% 1.56(a)
Portfolio turnover rate 53.55% 37.51% 33.99% 34.44% 2.92%
Average commission rate $ 0.04
</TABLE>
<TABLE>
<CAPTION>
Intrinsic Value Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.48 $ 11.05 $ 10.40 $ 9.89 $ 10.00
Income from investment operations:
Net investment income 0.29 0.31 0.29 0.29 0.17
Net realized and unrealized gains
(losses) on investments 2.24 (0.38) 1.23 1.14 (0.02)
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.53 (0.07) 1.52 1.43 0.15
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.30) (0.30) (0.28) (0.28) (0.17)
From realized gains (0.82) (0.20) (0.59) (0.64) (0.09)
------------ ------------ ------------ ------------ ------------
Total distributions (1.12) (0.50) (0.87) (0.92) (0.26)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 11.89 $ 10.48 $ 11.05 $ 10.40 $ 9.89
============ ============ ============ ============ ===========
Total Return (b) 24.38% (0.60%) 14.71% 2.70%(a)
Ratios/Supplemental Data
Net assets, end of period $255,884,859 $220,028,096 $192,555,183 $107,260,873 $77,450,163
Ratio of expenses to average net assets 0.91% 0.91% 0.86% 0.84 0.84%(a)
Ratio of net investment income
to average net assets 2.49% 2.92% 2.67% 2.78% 3.03%(a)
Portfolio turnover rate 45.55% 58.62% 63.90% 48.52% 1.80%
Average commission rate $ 0.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Growth Fund Balanced Fund
----------------------------- -----------------------------
Year Ended Period Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.44 $ 10.00 $ 9.53 $ 10.00
Income from investment operations:
Net investment income 0.08 0.05 0.35 0.28
Net realized and unrealized gains
(losses) on investments 2.93 0.43 1.83 (0.48)
------------ ----------- ----------- -----------
Total from investment operations 3.01 0.48 2.18 (0.20)
------------ ----------- ----------- -----------
Less distributions:
From net investment income (0.08) (0.04) (0.35) (0.27)
From realized gains (0.11) -- (0.12) --
------------ ----------- ----------- -----------
Total distributions (0.19) (0.04) (0.47) (0.27)
------------ ----------- ----------- -----------
Net asset value, end of period $ 13.26 $ 10.44 $ 11.24 $ 9.53
============ =========== =========== ===========
Total Return (b) 28.90% 9.62%(a) 23.18% (1.95)%
Ratios/Supplemental Data
Net assets, end of period $195,861,178 $81,269,604 $93,623,801 $54,167,192
Ratio of expenses to average net assets 0.86% 0.85%(a) 0.91% 0.85%
Ratio of net investment income to
average net assets 0.65% 1.25%(a) 3.40% 3.41%
Ratio of expenses to average net assets
without fee waivers/ reimbursed expenses 0.90% 0.95%(a) 1.09% 1.56%
Ratio of net investment income to
average net assets without fee waivers/
reimbursed expenses 0.61% 1.15%(a) 3.22% 2.70%
Portfolio turnover rate 6.97% 3.29% 31.76% 37.49%
Average commission rate $ 0.04 $ 0.05
<FN>
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Equity Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Equity Funds of THE WOODWARD
FUNDS (comprising, as indicated in Note 1, the Growth/Value, Opportunity,
Intrinsic Value, Capital Growth and Balanced Funds) as of December 31, 1995,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Equity Funds of The
Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
from inception (as indicated in Note 1) through December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
[ BACK COVER ]
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107-3496 [ WOODWARD FUNDS LOGO ]
- -------------------------------------------------------------------------------
The Woodward Funds ------------
P.O. Box 7058 BULK RATE
Troy, MI 48007-7058 U.S. POSTAGE
PAID
Detroit, MI
Permit No. 2
------------
Exhibit (17)(t)
[ FRONT COVER ]
[ WOODWARD FUNDS LOGO ART AND LOGOTYPE ]
Annual Report
December 31, 1995
Woodward International Equity Fund
Investment Adviser
[ NBD BANK LOGOTYPE ]
24 Hour yield information:
Purchase and Redemption orders:
(800) 688-3350
<PAGE>
To Our Woodward Shareholders:
The fourth quarter of 1995 provided strong results in the equity and
bond markets with total returns of 6 percent for the Standard and Poor's (S&P)
and 4.3 percent for the Lehman Aggregate Bond Index. These results capped an
exceptional year which provided total returns of 37.5 percent for the S&P,
31.7 percent for the Russell 2500 (a proxy for smaller companies) and 18.5
percent for the Lehman Aggregate Bond Index. Foreign markets, as measured by
the EAFE Index, provided good absolute returns of 11.2 percent, but failed to
keep up with the exceptional U.S. market. In fact, S&P 500 results were the
third highest since 1948 and the highest since 1958; the overall bond results
were also the third highest, in this case since the mid 1970s.
The Woodward money market funds had an excellent year with all funds
finishing in the top quartile of their respective IBC/Donoghue's peer groups.
The funds maintained their exceptional credit quality throughout the year and
profited from a strategy of maintaining slightly longer-weighted average
maturities as compared to their peer groups.
The Woodward bond funds again exceeded their respective benchmarks in
the fourth quarter, providing exceptional 1995 results. The Bond Fund
generated a total return of 23.8 percent, while the Intermediate Bond Fund
provided results of 19.5 percent. The two funds ranked at the top of their
respective fund categories for the year. The Short Bond Fund provided a total
return of 10.1 percent, modestly below its benchmark but well above cash
alternatives.
The Woodward equity funds had a solid fourth quarter with a number of
the funds exceeding their peer groups. Generally, the results for the Woodward
equity funds for the year provided very high absolute results; they moderately
lagged peer managers and came up somewhat short of the broader indices. The
Woodward Growth/Value, Capital Growth and International Equity funds had good
fourth quarters. This helped the Growth/Value and Capital Growth Funds close
the gap with their peers for the year, while the International Equity Fund
provided good comparative returns on an annual basis. The Opportunity and
Intrinsic Value Funds lagged their respective benchmarks for the quarter and
the year. We look to 1996 to improve relative equity performance which,
coupled with our strong bond results, should provide our clients continued
success with their investments.
During the year, NBD Bancorp, Inc. merged with First Chicago
Corporation. We were pleased that the investment management effort of the
joint organization has been identified as a primary business of the Bank and
that substantial resources have been allocated to the business. We look
forward to melding the two organization's considerable strengths and providing
our clients with a measurably enhanced research and fund management group.
Thank you for your continued support and we hope you find this report
useful and informative.
Sincerely,
/s/ Earl I. Heenan, Jr.
-----------------------
Earl I. Heenan, Jr.
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTERNATIONAL EQUITY FUND
Objective:
The Woodward International Equity Fund (the "Fund") is an equity mutual
fund which invests primarily in equity securities of foreign companies. The
Fund's objective is to achieve long-term capital appreciation and,
secondarily, to produce current income. The Fund seeks to achieve this
objective by emphasizing active country selection involving global economic
and political assessments together with valuation analysis of selected
countries' securities markets. The Fund may exhibit more volatility than the
U.S. equity market in general.
Performance Highlights:
International equity markets appreciated during 1995 as slower economic
growth and modest inflationary pressures resulted in lower interest rates. The
Morgan Stanley Capital International EAFE Index returned 11.2 percent in U.S.
dollar terms during 1995. European equity markets advanced 21.6 percent in
U.S. dollars on good earnings gains and lower interest rates. The Japanese
stock market lagged with a U.S. dollar return of 0.7 percent. This stock
market declined during the first half of the year on concerns about the anemic
business outlook, trade tensions with the U.S. and increasing nonperforming
loans at Japanese banks. The MSCI Pacific ex-Japan index returned 12.9
percent, led by a return of 22.6 percent in Hong Kong. Latin American equity
markets generally declined in response to a financial crisis in Mexico.
During the calendar year ended December 31, 1995, the Fund returned 11.5
percent (without sales charge). The net asset value increased from $10.005 to
$11.046. Distributions from ordinary income were $0.107 per share and there
was no long-term capital gains distribution.
The Fund's performance compared favorably with the Morgan Stanley
Capital International EAFE Index, a market value weighted index of about 1,100
equity securities issued by foreign companies with a total market value of
approximately US $5.3 trillion. This index is not subject to expenses of a
mutual fund. The Fund outperformed primarily due to its underweighting of
equities in Japan and overweighting of equities in Europe. The Fund also
outperformed the Lipper International Universe average return of 9.4 percent
for 1995.
Over the long term, international equities have historically provided
returns superior to U.S. large capitalization stocks although, at a higher
level of volatility. We continue to recommend that long-term investors have a
portion of their assets invested internationally to capture the benefits of
portfolio diversification and potential capital appreciation.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTERNATIONAL EQUITY FUND (Continued)
Growth of $10,000 Invested in the
Woodward International Equity Fund and the
Morgan Stanley Capital International EAFE Index
[ GRAPH ]
12/3/94 6/95 12/95
------- ---- -----
<S> <C> <C> <C>
Fund (1) ... $ 9,500 $10,004 $10,595
Fund (2) ... $10,000 $10,531 $11,153
Index (3) .. $10,000 $10,492 $11,372
<FN>
(1) Includes maximum sales charge of 5.0%.
(2) Excludes maximum sales charge of 5.0%.
(3) Excludes expenses.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (12/3/94)
--------------------------- ---- ---------
<S> <C> <C>
Woodward International Equity Fund
(with maximum 5.0% sales charge) 5.9% 5.5%
Woodward International Equity Fund
(without sales charge) 11.5% 10.7%
Morgan Stanely Capital International
EAFE Index 11.2% 12.7%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment in securities:
At cost $100,165,227
============
At value (Note 2) $107,690,899
Cash 364,232
Receivable for securities sold 8,253
Unrealized appreciation on foreign exchange contracts 52
Withholding tax receivable 140,894
Income receivable 178,985
Deferred organization costs, net (Note 2) 49,159
Prepaids and other assets 27,321
------------
TOTAL ASSETS 108,459,795
------------
LIABILITIES:
Payable for securities purchased 770,234
Unrealized depreciation on foreign exchange contracts 267
Accrued investment advisory fee 67,327
Accrued distribution fees 516
Accrued custodial fee 14,528
Dividends payable 306,527
Other payables and accrued expenses 12,095
------------
TOTAL LIABILITIES 1,171,494
------------
NET ASSETS $107,288,301
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 971,289
Additional paid-in capital 98,938,436
Accumulated undistributed net investment income 803
Accumulated undistributed net realized losses from
investments and foreign currency transactions (154,256)
Net unrealized appreciation on investments and
foreign currency translation 7,532,029
------------
TOTAL NET ASSETS $107,288,301
============
Shares of capital stock outstanding 9,712,891
============
Net asset value and redemption price per share $ 11.05
============
Maximum offering price per share $ 11.63
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C> <C>
INVESTMENT INCOME (Note 2)
Interest $ 538,478
Dividends (net of foreign taxes withheld of $98,515) 1,279,198
----------
TOTAL INVESTMENT INCOME 1,817,676
----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 529,312
Distribution fees 4,063
Professional fees 66,313
Custodial fee 133,650
Amortization of deferred organization costs 10,714
Marketing expenses 46,449
Registration, filing fees and other expenses 77,246
Less: Expense reimbursement (51,707)
----------
NET EXPENSES 816,040
----------
NET INVESTMENT INCOME 1,001,636
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized loss on:
Investment securities (147,589)
Foreign currency transactions (475) (148,064)
---------
Net change in unrealized appreciation on:
Investment securities 7,523,087
Assets and liabilities denominated in foreign
currencies 6,376 7,529,463
--------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
AND FOREIGN CURRENCY 7,381,399
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $8,383,035
==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,001,636 $ 32,338
Net realized losses on investments and foreign
currency transactions (148,064) (2,937)
Net change in unrealized appreciation on
investments and foreign currency translation 7,529,463 2,566
------------ -----------
Net increase in net assets from operations 8,383,035 31,967
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,033,171) --
In excess of realized gains (3,255) --
------------ -----------
Total distributions (1,036,426) --
------------ -----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 74,411,073 36,626,877
Net asset value of shares issued in reinvestment of
distributions to shareholders 720,012 --
------------ -----------
75,131,085 36,626,877
Less: payments for shares redeemed (11,734,863) (113,374)
------------ -----------
Net increase in net assets from capital share
transactions 63,396,222 36,513,503
------------ -----------
NET INCREASE IN NET ASSETS 70,742,831 36,545,470
NET ASSETS:
Beginning of period 36,545,470 --
------------ -----------
End of period $107,288,301 $36,545,470
============ ===========
CAPITAL SHARE TRANSACTIONS:
Shares sold 7,102,657 3,664,087
Shares issued in reinvestment of distributions to
shareholders 65,214 --
------------ -----------
7,167,871 3,664,087
Less: shares redeemed (1,107,679) (11,388)
------------ -----------
NET INCREASE IN SHARES OUTSTANDING 6,060,192 3,652,699
------------ -----------
CAPITAL SHARES:
Beginning of period 3,652,699 --
------------ -----------
End of period 9,712,891 3,652,699
============ ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 4.48%
Salomon Brothers, Revolving Repurchase Agreement,
5.875%, 1/3/95 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/95
through 5/15/99, all held at Chemical Bank) $4,819,555 $4,819,555
---------- ----------
(Cost $4,819,555)
Shares
------
<S> <C> <C>
COMMON STOCKS -- 95.52%
AUSTRALIA -- 2.42%
BANKS
National Australia Bank 38,710 348,421
Westpac Bank Corp 55,410 245,657
CHEMICALS
Ici Australia 11,453 87,751
CONSTRUCTION
Boral Limited 17,000 42,996
Csr Limited 27,466 89,488
Pioneer International 13,882 35,832
ENERGY & RAW MATERIALS
Broken Hill Pty 28,140 397,716
Santos Limited 33,203 97,066
FOOD & AGRICULTURE
Amcor Limited 9,799 69,247
Goodman Fielder Limited 23,031 23,128
LIQUOR & TOBACCO
Coca-Cola Amatil 14,487 115,631
Fosters Brewing Gp 22,347 36,737
MEDIA
News Corporation (Aust Listing) 37,765 201,702
News Corporation Preferred Limited Voting
Shares 30,504 142,726
MISCELLANEOUS
Pacific Dunlop Limited 44,367 103,960
NON-FERROUS METALS
Cra Limited 10,619 155,938
Mim Holding Limited 23,841 32,986
Western Mining Corp 36,388 233,866
RAILROAD & SHIPPING
Brambles Inds Ltd. 8,027 89,565
RETAIL
Coles Myer Ltd. 18,791 58,568
----------
2,608,981
----------
BELGIUM -- 4.30%
BANKS
Generale De Banque 1,300 460,514
Kredietbank 1,550 423,985
CHEMICALS
Solvay 850 459,240
ENERGY & UTILITIES
Electrabel 4,250 1,010,905
Tractebel Inv Cap 1,300 536,714
INSURANCE
Fortis Ag 3,700 450,099
Fortis Ag(VVPR) 80 9,745
INTERNATIONAL OIL
Petrofina Sa 2,160 661,305
NON-FERROUS METALS
Union Miniere * 1,804 120,761
OTHER ENERGY SOURCES
Gpe Bruxelles Lam 2,300 319,259
PRODUCER GOODS
Bekaert Sa 220 181,282
----------
4,633,809
----------
DENMARK -- 2.11%
BANKS
Den Danske Bank 3,641 251,634
Unidanmark 'A' (Reg'd) 3,535 175,417
BUSINESS MACHINE
Iss International Series 'B' 2,800 63,156
Sophus Berendsen 'B' 1,175 132,516
DRUGS & MEDICINE
Novo-Nordisk As 'B' 2,449 335,855
FOOD & AGRICULTURE
Danisco 3,695 178,689
LIQUOR & TOBACCO
Carlsberg 'A' 275 15,383
Carlsberg 'B' 2,018 112,884
RAILROAD & SHIPPING
D/S 1912 'B' 15 286,910
D/S Svendborg 'B' 9 248,475
TELEPHONE
Tele Danmark 'B' 8,786 480,378
----------
2,281,297
----------
FINLAND -- 3.55%
BANKS
Unitas Ser 'A' * 119,766 303,414
CONSTRUCTION
Metro AB 'A' 2,000 82,450
ELECTRONICS
Nokia (AB) Oy Series 'K' 18,600 736,802
Nokia (AB) Oy Series 'A' 24,500 964,876
FOOD & AGRICULTURE
Cultor Oy Series '2' 500 20,728
Cultor Oy Series '1' 2,500 103,639
INSURANCE
Pohjola Series 'B' 3,800 49,010
Sampo 'A' 2,200 118,056
NON-FERROUS METALS
Outokumpo Oy 'A' 19,500 309,880
PAPER & FOREST PRODUCTS
Kymmene Corp 12,500 331,068
Repola 23,400 441,915
PRODUCER GOODS
Kone Corp 'B' 700 58,521
RETAIL
Kesko 12,000 149,516
Stockmann Oy 'A' 1,600 91,386
TRAVEL & RECREATION
Amer Group 'A' 3,800 59,424
----------
3,820,685
----------
FRANCE -- 4.91%
BANKS
Banque National Paris 3,615 163,291
Cie De Suez 1,251 51,673
Cie Fin Paribas 'A' 2,318 127,267
Society Generale 1,829 226,270
CHEMICALS
Air Liquide ('L') 996 165,173
Rhone Poulenc Sa 'A' 5,686 121,966
CONSTRUCTION
Cie De St Gobain 1,834 203,262
Lafarge Coppee Sa (Br) 1,800 116,126
CONSUMER DURABLES
Printemps (Av) 600 119,868
DRUGS & MEDICINE
L'Oreal 985 264,056
Sanofi 2,339 150,134
ELECTRONICS
Alcatel Alsthom (Cge) 2,544 219,631
Csf (Thomson) 3,520 78,528
Legrand 500 77,295
Schneider Sa (Ex-Sp) 3,630 124,257
ENERGY & UTILITIES
Eaux (Cie Generale) 2,307 230,635
Lyonnaise Des Eaux 1,753 169,013
FOOD & AGRICULTURE
Danone (Ex Bsn) 1,520 251,138
Eridania Beghin Sa 861 147,890
Saint Louis 350 93,040
INSURANCE
Axa 1,981 133,677
INTERNATIONAL OIL
Elf Auqitaine (Soc Nat) 5,566 410,646
Total B 4,716 318,715
LIQUOR & TOBACCO
Lvmh Moet-Hennessy 2,000 417,146
Pernod-Ricard 1,114 63,395
MOTOR VEHICLES
Peugeot Sa 793 104,752
PRODUCER GOODS
Carnaud Metal Box 766 35,086
Michelin (Cgde) Class 'B' (Brwn Bds)(Reg'd) 2,150 85,861
REAL PROPERTY
Sefimeg (Reg'd) 986 65,527
RETAIL
Carrefour 586 356,006
Promodes 433 101,912
TRAVEL & RECREATION
Accor 757 98,139
----------
5,291,375
----------
GERMANY -- 4.93%
AIR TRANSPORT
Lufthansa Ag 1,707 236,739
BANKS
Bayer Vereinsbank (Var) 5,140 154,422
Deutsche Bank (Var) 10,440 496,734
Dresdner Bank (Var) 7,140 191,810
CHEMICALS
Basf (Var) 1,026 231,540
Bayer (Var) 1,100 292,662
Schering 1,350 89,888
CONSTRUCTION
Hochtief 357 152,899
ELECTRONICS
Siemens (Var) 704 387,592
SAP N/V Pref 600 91,303
ENERGY & UTILITIES
Rwe (Var) 516 188,010
Veba (Var) 10,150 435,422
INSURANCE
Munchener Ruckvers Reg Vink * 145 313,042
Allianz (Regd) 250 491,869
MOTOR VEHICLES
Daimler-Benz (Var) 384 194,243
Volkswagen (Var) 506 170,048
PRODUCER GOODS
Linde 156 92,645
Mannesmann (Var) 1,146 365,512
RETAIL
Kaufhof Holding 402 122,739
STEEL
Preussag Br (Var) 1,074 303,153
Thyssen * 716 130,917
Viag (Var) 419 173,014
----------
5,306,203
----------
HONG KONG -- 2.40%
AIR TRANSPORT
Cathay Pacific Airways 37,000 56,467
BANKS
Hang Seng Bank 39,400 352,881
ENERGY & UTILITIES
China Light & Power 34,700 159,769
Hong Kong Electric 20,000 65,572
Hong Kong & China Gas 34,800 56,035
MISCELLANEOUS
Hutchinson Whampoa 56,000 341,131
MISCELLANEOUS FINANCE
Swire Pacific 'A' 23,500 182,361
Wharf (Holding) 30,000 99,910
Wing Lung Bank 16,848 94,351
REAL PROPERTY
Cheung Kong (Holdings) 40,000 243,665
Hopewell Holdings 50,000 28,777
Hysan Development 10,000 26,449
New World Infrastr * 52 100
New World Development Co 31,366 136,710
Sun Hung Kai Properties 45,700 373,842
TELEPHONE
Hong Kong Telecomm 203,600 363,386
----------
2,581,406
----------
IRELAND -- 1.95%
BANKS
Allied Irish Banks 82,680 447,907
Bank of Ireland (Dublin Listing) 26,825 193,904
CONSTRUCTION
Crh 48,929 367,014
FOOD & AGRICULTURE
Greencore 24,349 209,568
Kerry Group 'A' 28,760 218,954
INSURANCE
Irish Life 56,656 215,211
MEDIA
Independent News 18,405 117,406
PAPER & FOREST PRODUCTS
Smurfit(Jefferson) (Dublin Listing) 139,859 329,517
----------
2,099,481
----------
JAPAN -- 30.54%
AIR TRANSPORT
Japan Airlines Co * 46,000 305,472
BANK
Asahi Bank 34,000 428,495
Bank of Tokyo 28,000 491,315
Dai-Ichi Kangyo Bank 40,000 787,190
Fuji Bank 43,000 950,445
Industrial Bank of Japan 23,000 697,904
Joyo Bank 36,000 289,671
Sakura Bank 19,000 241,295
Sumitomo Bank 37,000 785,542
Tokai Bank 25,000 349,001
BUSINESS MACHINE
Canon Inc 21,000 380,702
Fujitsu 10,000 111,486
Ricoh Co. 55,000 602,511
CHEMICALS
Asahi Chemical Industries 63,000 482,493
Dainippon Ink & Chemical 19,000 88,598
Mitsubishi Gas Chemical 19,000 85,651
Sekisui Chemical 15,000 221,034
Shin-Etsu Chemical Co. 13,000 269,700
Showa Denko Kk * 102,000 320,383
Sumitomo Chemical 92,000 459,324
Toray Industries Inc 20,000 131,845
CONSTRUCTION
Chichibu Onoda Cement 6,000 32,050
Fujita Corp 6,000 27,106
Haseko Corp 57,000 230,428
Kajima Corp 11,000 108,772
Nihon Cement Co 30,000 200,675
Obayashi Corp 8,000 63,596
Sato Kogyo Co 12,000 73,872
Sekisui House 43,000 550,258
Shimizu Corp 25,000 254,480
Taisei Corp 47,000 313,936
Toto 15,000 209,400
CONSUMER DURABLES
Matsushita Electric Industries 56,000 912,055
Sanyo Electric Co 34,000 196,119
Sharp Corp 24,000 383,901
DRUGS & MEDICINE
Daiichi Pharmacy Co 33,000 470,278
Sankyo Co 15,000 337,367
Takeda Chemical Industries 24,000 395,534
ELECTRONICS
Hitachi * 78,000 786,415
Kyocera 11,000 817,922
Mitsubishi Electric Corp 48,000 345,743
Omron Corp 17,000 392,238
ENERGY & UTILITIES
Kansai Electric Power 13,900 336,883
Osaka Gas Co 124,000 429,154
Tokyo Electric Power 36,600 979,296
Tokyo Gas Co 15,000 52,932
FOOD & AGRICULTURE
Ajinomoto Co., Inc. 36,000 401,351
Yamazaki Baking Co 14,000 260,587
INTERNATIONAL OIL
Japan Energy Corp 19,000 63,731
Nippon Oil Co 86,000 540,253
MEDIA
Dai Nippon Printing 33,000 559,855
MULTI-INDUSTRY
Itochu Corp 38,000 256,031
Marubeni Corp 68,000 368,506
Mitsubishi 26,000 320,111
Sumitomo Corp 34,000 346,092
MISCELLANEOUS FINANCE
Daiwa Securities 34,000 520,786
Mitsubishi Trust & Banking 11,000 183,419
Nomura Securities 44,000 959,752
Yamaichi Securities Co. 34,000 264,678
MOTOR VEHICLES
Honda Motor Co 27,000 557,528
Nissan Motor Co 53,000 407,449
Toyota Motor Corp 56,000 1,188,929
NON-FERROUS METALS
Mitsubishi Steel * 17,000 88,995
Tostem Corp 5,000 166,260
PAPER & FOREST PRODUCTS
Daishowa Paper Manufacturing * 13,000 100,822
Honshu Paper Co 48,000 294,091
PRODUCER GOODS
Bridgestone Corp 31,000 492,866
Komatsu 33,000 271,930
Kubota Corp 60,000 386,809
Mitsubishi Heavy Industries 79,000 630,305
Nippondenso Co 25,000 467,758
Sumitomo Heavy Industries * 83,000 298,522
Toyo Seikan Kaisha 12,000 359,471
Toyoda Auto Loom 12,000 215,217
RAILROAD & SHIPPING
Hankyu Corp * 65,000 356,029
Mitsui Osk Lines * 63,000 202,159
Nagoya Railroad Co 61,000 307,508
Tokyu Corp 47,000 332,161
REAL PROPERTY
Mitsubishi Estate 49,000 612,787
RETAIL
Ito-Yokado Co 6,000 369,941
Nichii Co 47,000 624,226
Seven-Elevan Japan Npv 7,000 494,030
STEEL
Kawasaki Steel Corp 47,000 164,030
Kobe Steel * 34,000 105,146
Nippon Steel Corp 108,000 370,638
Nkk Corp * 48,000 129,362
Sumitomo Metal Industries * 156,000 473,360
----------
32,893,948
----------
MALAYSIA -- 2.03%
AIR TRANSPORT
Malaysian Airline Systems 8,000 25,995
BANKS
Ammb Holdings Berhad 6,000 68,534
Commerce Asset Holding 5,000 25,208
Dcb Holdings Berhad 17,000 49,549
Malayan Bkg Berhad 32,000 269,723
Public Bank Berhad 14,000 19,631
Public Bank Berhad (Alien Market) 51,000 97,625
CONSTRUCTION
Hume Inds (M) Berhad 16,000 76,884
United Engineers Berhad 8,000 51,046
CONSUMER DURABLES
Tech Res Inds Berhad * 21,000 62,035
ENERGY & UTILITIES
Tenaga Nasional 74,000 291,465
FOOD & AGRICULTURE
Golden Hope Plants 31,000 51,770
Nestle Malay Berhad 2,000 14,652
LIQUOR & TOBACCO
Rothmans Pall Mall 10,000 82,319
MISCELLANEOUS
Malayan Utd Inds 28,000 22,718
MOTOR VEHICLES
Edaran Otomobil 17,000 127,890
MULTI-INDUSTRY
Sime Darby Berhad 52,200 138,780
PRODUCER GOODS
Leader Univ Holdings 41,333 94,423
RAILROAD & SHIPPING
Malaysian Int Ship (Alien Market) 22,000 57,623
REAL PROPERTY
Hong Leong Properties 7,000 7,279
TELEPHONE
Telekom Malaysia 41,000 319,744
TRAVEL & RECREATION
Landmarks Berhad 6,000 7,988
Magnum Corp Berhad 61,500 116,271
Resorts World Berhad 19,000 101,775
----------
2,180,927
----------
MEXICO -- 1.03%
BANKS
Gpo Financiero Banamex-Ac Series 'B' 13,700 22,831
Gpo Financiero Banamex-Ac Series 'L' 685 1,006
CONSTRUCTION
Cemex Sa Ser 'A' 29,937 98,692
FOOD & AGRICULTURE
Grupo Ind Bimbo Series 'A' 12,000 49,061
MEDIA
Fomento Economico Mexico Series 'B' 17,000 39,274
Grupo Televisa Ptg Certs Repr 1 A,L,D Shs 11,500 130,452
MISCELLANEOUS FINANCE
Grupo Financiero Bancomer Series 'B' 55,000 15,490
Grupo Financiero Bancomer Series 'L' 2,037 523
Grupo Carso Series 'A1' * 16,000 85,350
MULTI-INDUSTRY
Alfa Sa Series 'A' (Cpo) 3,500 44,791
NON-FERROUS METALS
Industrias Penoles 10,000 41,273
PAPER & FOREST PRODUCTS
Kimberly Clark Mexico 'A' 11,000 166,326
RETAIL
Cifra Sa De Cv 'B' * 147,000 154,542
TELEPHONE
Telefonos De Mexico Series 'L' (Ltd Voting) 162,000 258,620
----------
1,108,231
----------
NETHERLANDS -- 6.11%
AIR TRANSPORT
KLM 2,341 82,366
BANK
ABN Amro Holding 11,227 511,977
CHEMICALS
Akzo Nobel Nv 2,562 296,638
ELECTRONICS
Philips Electronic 11,082 400,974
FOOD & AGRICULTURE
Ahold (kon) Nv 4,389 179,340
Unilever Nv Cva 5,151 724,616
INSURANCE
ING Groep Nv Cva 8,743 584,689
INTERNATIONAL OIL
Royal Dutch Petroleum (Br) 16,546 2,314,186
LIQUOR & TOBACCO
Heineken Nv 1,734 307,968
MEDIA
Elsevier Nv 23,480 313,460
Wolters Kluwer Cva 2,079 196,877
PAPER & FOREST PRODUCTS
KNP BT (Kon) Nv 2,446 62,867
STEEL
Kon Hoogovens Nv Cva 1,568 52,528
TELEPHONE
Kon Ptt Nederland 15,198 552,744
----------
6,581,230
----------
NORWAY -- 3.41%
CHEMICALS
Dyno Industrier 4,900 114,786
DRUGS & MEDICINE
Hafslund Nycomed Series 'A' 10,010 262,218
Hafslund Nycomed Series 'B' 6,018 152,882
FOOD & AGRICULTURE
Orkla As 'A' 6,150 306,631
Orkla As 'B' 1,200 57,361
INSURANCE
Uni Storebrand As 'A' * 51,053 282,826
INTERNATIONAL OIL
Norsk Hydro As 35,100 1,477,812
Transocean * 14,721 255,142
PAPER & FOREST PRODUCTS
Norske Skogsindust 'A' 4,100 120,706
PRODUCER GOODS
Kvaerner As Series 'A' 5,750 203,867
Kvaerner As Series 'B' 3,900 130,867
RAILROAD & SHIPPING
Bergesen Dy As 'A' 7,100 141,599
Bergesen Dy As 'B' Non-Voting 2,400 47,105
Leif Hoegh & Co 4,600 68,441
Unitor As 4,000 55,081
----------
3,677,324
----------
SINGAPORE -- 3.35%
AIR TRANSPORT
Singapore Airlines (Alien Market) 48,000 447,943
BANK
Dev Bank Singapore (Alien Market) 35,250 438,611
Overseas Chinese Bank (Alien Market) 33,833 423,371
United Overseas Bank (Alien Market) 40,804 392,328
CONSUMER DURABLES
Jardine Matheson (Sing Quote) 2,041 13,981
LIQUOR & TOBACCO
Fraser & Neave 18,000 229,062
Straits Trading Co 36,000 84,498
MEDIA
Singapore Press Holdings (Alien Market) 16,000 282,792
MOTOR VEHICLES
Cycle & Carriage 30,000 299,053
MULTI-INDUSTRY
Straits Steamship 44,000 148,692
PRODUCER GOODS
Jurong Shipyard (Nl) 13,000 100,179
Keppel Corp 45,000 400,858
REAL PROPERTY
City Developments 37,600 273,799
Hong Kong Land Holdings (Sing Quote) 25,975 48,054
RETAIL
Dairy Farms Intl (Sing Quote) 21,831 20,084
----------
3,603,305
----------
SPAIN -- 2.31%
BANKS
Argentaria Corp Banc 3,909 161,108
Banco Bilbao Vizcaya (Reg'd) 5,568 200,568
Banco Central Hispan (Reg'd) 3,721 75,453
Banco Santander (Reg'd) 4,588 230,315
CONSTRUCTION
Fomento Const Y Contra 588 45,076
ENERGY & UTILITIES
Empresa Nac Electricid 6,839 387,285
Gas Natural Sdg Sa 1,341 208,916
Iberdrola Sa 19,807 181,227
Union Electrical Fenosa 12,958 77,973
INSURANCE
Corporation Mapfre (Reg'd) 947 53,003
INTERNATIONAL OIL
Repsol Sa 8,351 273,626
LIQUOR & TOBACCO
Tabacalera Sa Series 'A' (Reg'd) 1,599 60,630
NON-FERROUS METALS
Acerinox Sa (Reg'd) 401 40,557
PRODUCER GOODS
Zardoya-Otis 310 33,858
RAILROAD & SHIPPING
Autopistas Cesa 6,059 68,923
REAL PROPERTY
Vallehermoso Sa 2,815 52,325
TELEPHONE
Telefonica De Espana 24,037 332,867
----------
2,483,710
----------
SWITZERLAND -- 5.46%
BANKS
Cs Holding (Reg'd) 6,034 620,102
Schweiz Bangesellsch (Br) 566 614,870
Schweiz Bangesellsch (Reg'd) 252 57,380
Schweiz Bankverein (Reg'd) 700 143,267
CHEMICALS
Ciba-Geigy (Br) 120 105,332
Ciba-Geigy (Reg'd) 380 335,202
CONSTRUCTION
Holderbank Fn Glarus (Br) 135 103,833
Holderbank Fn Glarus Wts (Pur Br) * 55 50
CONSUMER DURABLES
Smh Ag Neuenburg (Reg'd) 475 62,334
Smh Ag Neuenburg (Br) 25 14,992
DRUGS & MEDICINE
Roche Holdings Genusscheine Npv 113 896,124
Roche Holdings (Br) 44 617,564
Sandoz (Reg'd) 835 766,314
ELECTRONICS
Bbc Brown Boveri (Br) 240 279,494
Sgs Holding (Br) 24 47,764
FOOD & AGRICULTURE
Merkur Hldg Ag (Reg'd) 80 17,590
Nestle Sa (Reg'd) 673 746,315
INSURANCE
Zurich Versicherun (Reg'd) 1,200 359,796
NON-FERROUS METALS
Alusuisse-Lonza Holdings (Reg'd) 108 85,788
PRODUCER GOODS
Sulzer Ag Ptg 13 6,947
----------
5,881,058
----------
UNITED KINGDOM -- 14.71%
AIR TRANSPORT
British Airways 44,575 322,505
BANKS
Abbey National 38,813 383,260
Barclays 34,087 391,104
Hsbc Holdings (UK Reg'd) 42,779 652,231
Hsbc Holdings (UK Reg'd) 24,871 388,464
LLoyds Bank 74,113 381,450
CHEMICALS
Boc Group 13,799 193,033
Imperial Chemical Industries 17,053 202,016
CONSTRUCTION
English China Clay 33,609 165,415
Rmc Group 19,470 299,571
Taylor Woodrow 91,386 166,716
DRUGS & MEDICINE
Glaxo Holdings 63,234 898,321
Smithkline Beecham/ Bec Unts (1bch 'B'
12.5P&1sbc Pfd) 22,566 245,953
Smithkline Beecham 'A' 24,860 274,043
Zeneca Group 17,984 347,908
ELECTRONICS
General Electric Co 59,140 325,964
ENERGY & UTILITIES
British Gas 123,228 485,962
National Power 34,132 238,205
Thames Water 26,744 233,358
FOOD & AGRICULTURE
Associated British Foods 33,128 189,793
Cadbury Schweppes 27,535 227,434
Kingfisher 11,117 93,551
Sainsbury (J) 32,305 197,116
Tesco 47,446 218,784
Unilever 14,698 301,910
INSURANCE
Prudential Corp 68,435 440,947
INTERNATIONAL OIL
British Petroleum 125,393 1,049,353
LIQUOR & TOBACCO
BAT Industries 67,568 595,342
Bass 24,550 274,056
Grand Metropolitan 47,103 339,333
Guinness 59,179 435,517
MEDIA
Reuters Holdings 39,031 357,537
MULTI-INDUSTRY
Hanson 107,145 320,230
Inchcape 11,605 44,865
PRODUCER GOODS
Btr * 78,087 398,873
Rolls Royce 54,712 160,548
Rtz Corp (Reg'd) 27,830 404,435
Smiths Industries 22,799 225,130
REAL PROPERTY
Mepc 15,356 94,175
RETAIL
Argos 17,988 166,452
Boots Co 16,552 150,594
Great Univ Stores 19,328 205,559
Marks & Spencer 53,864 376,332
Sears 50,391 81,367
STEEL
British Steel 37,990 95,995
TELEPHONE
British Telecom 130,594 717,771
Cable & Wireless 52,660 376,096
Vodafone Group 74,958 268,255
TRAVEL & RECREATION
Ladbroke Group 64,565 146,857
Thorn Emi 12,257 288,688
------------
15,838,374
------------
TOTAL COMMON STOCKS 102,871,344
(COST $95,345,672) ------------
TOTAL INVESTMENTS $107,690,899
(COST $100,165,227) ============
<FN>
* Non Income producing security
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
At December 31, 1995, industry diversification of the Woodward
International Equity Fund investments was as follows:
<TABLE>
<CAPTION>
% of
Sector Diversification Investments
---------------------- -----------
<S> <C>
Banks/Finance 22.51%
Materials and Services 14.89
Consumer Non-Durables 14.01
Utilities 8.39
International Oil 6.87
Drugs and Medicine 5.96
Capital Goods 5.74
Electronics 5.73
Consumer Durables 4.52
Temporary Cash Investment 4.48
Transportation 3.47
Miscellaneous 2.33
Technology 0.59
Energy 0.51
------
Total Investments 100.00%
======
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series. The Woodward International
Equity Fund (International Fund) commenced operations on December 3, 1994.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed
in the preparation of the financial statements. The policies are in conformity
with generally accepted accounting principles for investment companies.
Following generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments
The International Fund values investment securities at market value
which is determined by a pricing service based upon quoted market prices or
dealer quotes at the close of the respective foreign securities exchange.
Securities for which market prices or dealer quotes are not readily available
are valued by the investment advisor, NBD Bank, (NBD) in accordance with
procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by Woodward or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis. Dividends are
recorded on the ex-dividend date or upon receipt of ex-dividend notification
in the case of certain foreign securities. Investment income is recorded net
of foreign taxes withheld where recovery of such taxes is uncertain.
Forward Foreign Currency Contracts
The International Fund may enter into a forward foreign currency
contract which is an agreement between two parties to buy and sell a currency
at a set price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked-to-market" daily using the prevailing exchange rate and the change in
market value is recorded as an unrealized gain or loss. When the contract is
closed, a realized gain or loss is recorded equal to the difference between
the value of the contract at the time it was entered into and the value at the
time it was closed.
The International Fund may enter into forward foreign currency contracts
with the objective of minimizing its risk from adverse changes in the
relationship between currencies or to enhance income. The International Fund
may also enter into a forward contract in relation to a security denominated
in a foreign currency when it anticipates receipt in a foreign currency of
dividend payments in order to "lock in" the U.S. dollar price of a security or
the U.S. dollar equivalent of such dividend payments.
These contracts involve market risk in excess of the amounts reflected
in the International Fund's Statement of Assets and Liabilities. The face or
contract amount in U.S. dollars, as reflected in Footnote 6, reflects the
total exposure the fund has in that particular currency contract. Losses may
arise due to changes in the value of the foreign currency or if the
counterparty does not perform under the contract.
Foreign Currency Translations
The accounting records of the International Fund are maintained in U.S.
dollars. Foreign currency-denominated assets and liabilities are
"marked-to-market" daily using the prevailing exchange rate and the change in
value is recorded as an unrealized gain or loss. Upon receipt or payment, a
realized gain or loss is recorded equal to the difference between the original
value and the settlement value of the asset or liability. Purchases and sales
of securities, income, and expenses are translated into U.S. dollars at
prevailing exchange rate on the respective date of the transaction.
Net realized gains and losses on foreign currency transactions represent
gains and losses from sales and maturities of forward foreign currency
contracts, disposition of foreign currencies and currency gains and losses
realized between trade and settlement dates on securities transactions and
between the ex, pay and settlement dates on dividend income. Exchange rate
fluctuations on investments are not segregated in the statement of operations
from changes arising in market price movements. The effects of changes in
foreign currency exchange rates on investments in securities are included
within the net realized gain or loss on securities sold and net unrealized
appreciation or depreciation on investment securities held.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to differing treatments for
foreign currency transactions, wash sales and post October 31 capital losses.
Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the net investment
income or realized gains (losses) were recorded by the Fund. Certain
book-to-tax timing differences for the Fund are reflected as excess
distributions in the Statement of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid annually. Net
realized capital gains are distributed annually. Distributions from net
investment income and net realized gains are made during each year to avoid
the 4% excise tax imposed on regulated investment companies by the Internal
Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of the Fund.
Expenses
Expenses are charged daily as a percentage of the Fund's assets.
Woodward monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of the International Fund or change in expectations as to the level of
actual expenses.
Concentration of Risk
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks
include revaluation of currencies, adverse fluctuations in foreign currency
values and possible adverse political, social and economic developments,
including those particular to a specific industry, country or region, which
could cause the securities and their markets to be less liquid and price more
volatile than those of comparable U.S. companies and U.S. government
securities.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive
a fee at the annual rate of .005% of the International Fund's average net
assets and Essex is entitled to receive a fee at the annual rate of .10% of
the aggregate average net assets of Woodward's investment portfolios,
attributable to investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Fund's shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD reimbursed the
International Fund for certain expenses in the amount of $51,707.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted the Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
<PAGE>
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<S> <C>
Gross Unrealized Gains $ 10,121,293
Gross Unrealized Losses (2,595,621)
------------
$ 7,525,672
============
Federal Income Tax Cost $100,165,227
Purchases $ 65,664,939
Sales, at value $ 1,353,172
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of the Fund's average net assets.
<TABLE>
<CAPTION>
Effective Date
- --------------
<S> <C>
Expense Rates:
January 1 1.15%
November 9 1.17%
NBD Advisory Fee:
January 1 0.75%
Amounts Paid:
Advisory Fee to NBD $529,312
Distribution Fees to FoM & Essex $ 4,063
Other
Fees & Out of Pocket Expenses to NBD $140,786
Expense reimbursements by NBD $(51,707)
</TABLE>
<PAGE>
(6) Forward Foreign Currency Contracts
As of December 31, 1995, the Fund had entered into two forward foreign
currency exchange contracts that obligate the Fund to deliver currencies at
specified future dates.
Outstanding contracts as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar
Currency To Value As Of Currency To Value as of Unrealized
Settlement Date Be Delivered Dec. 31, 1995 Be Received Dec. 31, 1995 Gain (Loss)
- --------------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Jan. 2, 1996 770,501 $770,501 3,344,361 $770,234 $(267)
U.S. Dollars Finnish Marks
Jan. 3, 1996 5,349 (8,305) 8,253 (8,253) 52
G.B. Pounds U.S. Dollars
-------- -------- -----
$762,196 $761,981 $(215)
======== ======== =====
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the International
Equity Fund's net asset values have changed during the periods presented.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These Financial Highlights have been derived from the financial statements of
the International Equity Fund and other information for the periods presented.
<TABLE>
<CAPTION>
Year Ended Period ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
Net asset value, beginning of period $ 10.01 $ 10.00
Income from investment operations:
Net investment income 0.10 0.01
Net realized and unrealized gains on investments 1.05 --
------------ -----------
Total from investment operations 1.15 0.01
------------ -----------
Less distributions:
From net investment income (0.11) --
In excess of realized gains (0.00) --
------------ -----------
Total distributions (0.11) --
------------ -----------
Net asset value, end of period $ 11.05 $ 10.01
============ ===========
Total Return (b) 11.47% 1.26%(a)
Ratios/Supplemental Data
Net assets, end of period $107,288,301 $36,545,470
Ratio of expenses to average net assets 1.16% 1.15%(a)
Ratio of net investment income to average net assets 1.43% 1.18%(a)
Ratio of expenses to average net assets without
reimbursed expenses 1.24% 1.92%(a)
Ratio of net investment income to average net assets
without reimbursed expenses 1.35% 0.41%(a)
Portfolio turnover rate 2.09% 0.30%
Average commission rate $ 0.05
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward International Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The Woodward International Equity
Fund as of December 31, 1995, and the related statement of operations for the
year then ended, the statements of changes in net assets and the financial
highlights for each of the periods from inception (as indicated in Note 1)
through December 31, 1995. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The Woodward International Equity Fund as of December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for each of the periods from inception (as
indicated in Note 1) through December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
[ BACK COVER ]
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107-3496 [ WOODWARD FUNDS LOGO ]
- -------------------------------------------------------------------------------
The Woodward Funds ------------
P.O. Box 7058 BULK RATE
Troy, MI 48007-7058 U.S. POSTAGE
PAID
Detroit, MI
Permit No. 2
------------
Exhibit (17)(u)
[ FRONT COVER ]
[ WOODWARD FUNDS LOGO ART AND LOGOTYPE ]
-----------------
Annual Report
December 31, 1995
-----------------
Woodward Bond Fund
Woodward Intermediate Bond Fund
Woodward Short Bond Fund
Woodward Municipal Bond Fund
Woodward Michigan Municipal Bond Fund
Investment Adviser
[ NBD BANK LOGOTYPE ]
24 Hour yield information:
Purchase and Redemption orders:
(800) 688-3350
<PAGE>
To Our Woodward Shareholders:
The fourth quarter of 1995 provided strong results in the equity and
bond markets with total returns of 6 percent for the Standard and Poor's (S&P)
and 4.3 percent for the Lehman Aggregate Bond Index. These results capped an
exceptional year which provided total returns of 37.5 percent for the S&P,
31.7 percent for the Russell 2500 (a proxy for smaller companies) and 18.5
percent for the Lehman Aggregate Bond Index. Foreign markets, as measured by
the EAFE Index, provided good absolute returns of 11.2 percent, but failed to
keep up with the exceptional U.S. market. In fact, S&P 500 results were the
third highest since 1948 and the highest since 1958; the overall bond results
were also the third highest, in this case since the mid 1970s.
The Woodward money market funds had an excellent year with all funds
finishing in the top quartile of their respective IBC/Donoghue's peer groups.
The funds maintained their exceptional credit quality throughout the year and
profited from a strategy of maintaining slightly longer-weighted average
maturities as compared to their peer groups.
The Woodward bond funds again exceeded their respective benchmarks in
the fourth quarter, providing exceptional 1995 results. The Bond Fund
generated a total return of 23.8 percent, while the Intermediate Bond Fund
provided results of 19.5 percent. The two funds ranked at the top of their
respective fund categories for the year. The Short Bond Fund provided a total
return of 10.1 percent, modestly below its benchmark but well above cash
alternatives.
The Woodward equity funds had a solid fourth quarter with a number of
the funds exceeding their peer groups. Generally, the results for the Woodward
equity funds for the year provided very high absolute results; they moderately
lagged peer managers and came up somewhat short of the broader indices. The
Woodward Growth/Value, Capital Growth and International Equity funds had good
fourth quarters. This helped the Growth/Value and Capital Growth Funds close
the gap with their peers for the year, while the International Equity Fund
provided good comparative returns on an annual basis. The Opportunity and
Intrinsic Value Funds lagged their respective benchmarks for the quarter and
the year. We look to 1996 to improve relative equity performance which,
coupled with our strong bond results, should provide our clients continued
success with their investments.
During the year, NBD Bancorp, Inc. merged with First Chicago
Corporation. We were pleased that the investment management effort of the
joint organization has been identified as a primary business of the Bank and
that substantial resources have been allocated to the business. We look
forward to melding the two organization's considerable strengths and providing
our clients with a measurably enhanced research and fund management group.
Thank you for your continued support and we hope you find this report
useful and informative.
Sincerely,
/s/ Earl I. Heenan
------------------
Earl I. Heenan, Jr.
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BOND FUND
Objective:
The Woodward Bond Fund (the "Fund") seeks to maximize total rate of
return by investing predominately in intermediate and long-term debt
securities. The Fund attempts to achieve a total return exceeding that of the
Lehman Brothers Aggregate Bond Index (the "Index") over an interest rate cycle
or five years. The Fund is managed on the basis of both the extended outlook
for interest rates and trends in rates anticipated over the next 3 to 12
months. Active management strategies include sector rotation, intra-sector
adjustments, yield curve positioning and convexity considerations.
Performance Highlights:
During the Fund's fiscal year ended December 31, 1995, interest rates
declined along the yield curve. The two-year U.S. Treasury Note declined in
yield from a 7.69% level on December 31, 1994 to 5.15% on December 31, 1995.
The thirty-year U.S. Treasury Bond dropped in yield from 7.88% to 5.95% during
the same period. This larger decline in two-year yields resulted in a
"steepening" of the yield curve. For the year, the Index returned 18.47%.
The Fund returned 23.75% (without the sales charge) in 1995. During the
year, the net asset value of the Fund rose from $9.01 to $10.45. Distributed
dividends were $.64 per share and there were no capital gains distributions.
This return placed the Fund first in its Lipper category (Intermediate U.S.
Government) for the year. This return also compares very favorably versus the
Index which is an unmanaged, broad based bond index. Although the Fund
maintains a higher quality profile than the Index with over 95% of assets
rated AA or better, in general the long-term risk characteristics are similar.
The Index, however, is not subject to the expenses of a mutual fund.
The Fund's high absolute return was the result of yield declines and
price increases in most sectors of the bond market. The exceptional
performance of the Fund versus the Index was primarily the result of
positioning and security selection within the bond market. The higher duration
of the Fund (a measure of interest rate risk) versus that of the Index during
the year was a positive. Mortgage-Backed Securities (MBS) in general
underperformed Treasuries in 1995 because of fears of faster prepayments, but
the Fund's positioning within the MBS sector was a large positive for the
year. The Fund benefited from the high yield and high price appreciation of
discount CMOs. In particular, the higher yield provided by inverse floater
CMOs and the price appreciation of discount inverse floater and principal only
CMOs contributed to the higher return for the year. Also, premium CMOs backed
by very seasoned high coupon loans prepaid relatively slowly all year, thus
enhancing return. The Fund's overweighting in 2 to 4 year Treasuries was also
a positive for the year. The Fund's positioning in longer Treasury Strips was
a small negative as they were hurt from the yield curve steepening. However,
their high convexity benefited the portfolio during the year due to the large
decline in rates.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD BOND FUND (Continued)
Growth of $10,000 Invested in the
Woodward Bond Fund and the
Lehman Brothers Aggregate Bond Index
[ GRAPH ]
6/91 12/91 6/9 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,544 $10,794 $11,235 $12,186 $12,515 $11,893 $11,640 $13,356 $14,404
Fund (2) $10,000 $11,070 $11,332 $11,796 $12,794 $13,139 $12,486 $12,220 $14,021 $15,122
Index (3) $10,000 $11,099 $11,400 $11,920 $12,744 $13,083 $12,576 $12,701 $14,154 $15,048
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $14,442.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
---------------- ---- ---------
<S> <C> <C>
Woodward Bond Fund 17.86% 8.28%(2)
(with maximum 4.75% sales charge)
Woodward Bond Fund 23.75% 9.43%
(without sales charge)
Lehman Bros Aggregate 18.47% 9.33%
Bond Index(1)
<FN>
(1) Includes Treasury, agency, mortgage-backed, asset-backed and investment
grade corporate debt with maturities of one year or longer.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 8.34%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTERMEDIATE BOND FUND
Objective:
The Woodward Intermediate Bond Fund (the "Fund") seeks to maximize total
rate of return while providing relative stability of principal by investing
predominately in intermediate-term debt securities. The Fund attempts to
achieve a total return exceeding that of the Lehman Brothers Intermediate
Government/Corporate Bond Index (the "Index") over an interest rate cycle or
five years. The Fund is managed on the basis of anticipated trends in interest
rates over the next 3 to 12 months. Active management strategies include
sector rotation, intra-sector adjustments, yield curve positioning and
convexity considerations.
Performance Highlights:
During the Fund's fiscal year ended December 31, 1995, interest rates
declined along the yield curve. The two-year U.S. Treasury Note declined in
yield from a 7.69% level on December 31, 1994 to 5.15% on December 31, 1995.
The thirty-year U.S. Treasury Bond dropped in yield from 7.88% to 5.95% during
the same period. This larger decline in two-year yields resulted in a
"steepening" of the yield curve. For the year, the Index returned 15.33%.
The Fund returned 19.48% (without the sales charge) in 1995. During the
year, the net asset value of the Fund rose from $9.21 to $10.37. Distributed
dividends were $.59 per share and there were no capital gains distributions.
This return placed the Fund first in its Lipper category (Short U.S.
Government) for the year. The Fund's return was significantly greater than the
Index, which is a broad based bond index made up of U.S. Treasury and Agency
debt instruments and investment grade corporate bonds with maturities from 1
to 10 years. Although the Fund maintains a higher quality profile than the
Index with nearly 97% of assets rated AA or better, in general the long-term
risk characteristics are similar. The Index, however, is not subject to the
expenses of a mutual fund.
The Fund's high absolute return was the result of yield declines and
price increases in most sectors of the bond market. The exceptional
performance of the Fund versus the Index was primarily the result of
positioning and security selection within the bond market. The higher duration
of the Fund (a measure of interest rate risk) versus that of the Index during
the year was a positive. Mortgage-Backed Securities (MBS) in general
underperformed Treasuries in 1995 because of fears of faster prepayments, but
the Fund's positioning within the MBS sector was a large positive for the
year. The Fund benefited from the high yield and high price appreciation of
discount CMOs. In particular, the higher yield provided by inverse floater
CMOs and the price appreciation of discount inverse floater and principal only
CMOs contributed to the higher return for the year. Also, premium CMOs backed
by very seasoned high coupon loans prepaid relatively slowly all year, thus
enhancing return. The Fund's overweighting in 2 to 4 year Treasuries was also
a positive for the year.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD INTERMEDIATE BOND FUND (Continued)
Growth of $10,000 Invested in the Woodward
Intermediate Bond Fund and the Lehman Brothers
Intermediate Government/Corporate Bond Index
[ GRAPH ]
6/91 12/91 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,446 $10,734 $11,071 $11,749 $12,002 $11,497 $11,245 $12,629 $13,435
Fund (2) $10,000 $10,966 $11,269 $11,623 $12,335 $12,600 $12,070 $11,806 $13,258 $14,105
Index (3) $10,000 $10,993 $11,324 $11,782 $12,513 $12,816 $12,480 $12,569 $13,774 $14,492
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $13,470.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (6/1/91)
--------------------------- ---- --------
<S> <C> <C>
Woodward Intermediate Bond Fund 13.80% 6.65%(2)
(with maximum 4.75% sales charge)
Woodward Intermediate Bond Fund 19.48% 7.78%
(without sales charge)
Lehman Bros Intermediate 15.33% 8.43%
Govt/Corp Bond Index (1)
<FN>
(1) Includes Treasury, agency and investment grade corporate debt with
maturities from one to ten years.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 6.71%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD SHORT BOND FUND
Objective:
The Woodward Short Bond Fund (the "Fund") objective is to maximize total
rate of return while providing relative stability of principal. While the
portfolio may purchase securities with maturities or average lives of up to 10
years, during normal market conditions, its average weighted portfolio
maturity will be limited to a maximum of 3 years. The Fund is managed on the
basis of both the extended outlook for interest rates and trends in rates
anticipated over the next 3 to 12 months. Active management strategies include
sector rotation, intra-sector adjustments, yield curve positioning and
convexity considerations.
Performance Highlights:
Interest rates declined across the yield curve during 1995 as the economy
showed signs of sluggish growth with no indications of accelerating inflation.
The two-year U.S. Treasury Note declined in yield from a 7.69% level on
December 31, 1994 to 5.15% on December 31, 1995. The thirty-year U.S. Treasury
Bond dropped in yield from 7.88% to 5.95% during the same period. This larger
decline in two-year yields resulted in a "steepening" of the yield curve. For
the year, the Salomon Brothers Government/Corporate 1-3 Year Bond Index
returned 10.89%.
The Fund returned 10.07% (without the sales charge) in 1995. During the
year, the net asset value of the Fund rose from $9.84 to $10.23. Distributed
dividends were $0.58 per share and capital gains distributions were $.0016 per
share. This return underperformed the Salomon Brothers Government/ Corporate
1-3 Year Index (the "Index") for 1995. The Index is made up of U.S. Treasury,
Agency and investment-grade Corporate securities with maturities from 1 to 3
years. The Index, however, is not subject to the expenses of a mutual fund.
The Fund's attractive absolute return was largely due to the substantial
drop in interest rates throughout 1995. The one, two, and five-year Treasury
declined 203, 254, and 245 basis points, respectively. The relative
underperformance of the Fund versus the Index was primarily the result of the
expenses paid by the Fund versus no expenses paid by the Index. The Fund's
slightly higher duration (a measure of interest rate risk) versus that of the
Index during the year helped performance as interest rates declined. During
the year, the Fund had generally higher yielding (yield-to-maturity)
securities than the Index which benefited performance. The Fund was
overweighted in less than one-year and three to five-year average life
securities which proved to be a detriment to performance as the yield curve
steepened in 1995. Also, the portfolio's overweighted position in short-term
premium Mortgage-Backed securities was a negative as spreads widened on these
securities during the year. As of December 31, 1995, the Fund held 75% in
Treasury and Agency securities, 9% in Corporate securities, 2% in Asset-Backed
securities and 14% in Mortgage-Backed securities. The Fund held 92% AAA
securities, 2% AA securities and 6% A securities at year end.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD SHORT BOND FUND (Continued)
Growth of $10,000 Invested in the Woodward
Short Bond Fund and the Salomon Brothers
Government/Corporate 1-3 Year Bond Index
[ GRAPH ]
9/16/94 12/94 6/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund (1) $ 9,700 $ 9,708 $10,292 $10,685
Fund (2) $10,000 $10,008 $10,610 $11,016
Index (3) $10,000 $ 9,993 $10,654 $11,081
<FN>
(1) Includes maximum sales charge of 3%.
(2) Excludes maximum sales charge of 3%.
(3) Excludes expenses.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (9/17/94)
--------------------------- ---- ---------
<S> <C> <C>
Woodward Short Bond Fund 6.77% 5.27%
(with maximum 3% sales charge)
Woodward Short Bond Fund 10.07% 7.78%
(without sales charge)
Salomon Bros Govt/Corp 10.89% 8.29%
1-3 Bond Index (1)
<FN>
(1) Includes Treasury, agency and investment grade corporate debt with
maturities from one to three years.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MUNICIPAL BOND FUND
Objective:
The Woodward Municipal Bond Fund (the "Fund") seeks to provide as high a
level of current income exempt from federal tax as is consistent with relative
stability of principal. The Fund is managed on the basis of both the extended
outlook for interest rates and the underlying credit characteristics and value
of each asset. Active management strategies include duration management,
sector rotation, intra-sector adjustments, yield curve positioning and
convexity considerations.
Performance Highlights:
Municipal bond investors experienced one of their best performance years
during 1995 as slower economic growth, continued subdued inflation and market
technicals helped set a positive tone throughout the year. Much of the rally
was fueled by a record level of bond maturities, calls and redemptions that
came in the face of a sharp decrease in new issue supply. New issue volume in
1995 totaled approximately $155 billion, well below the 1993 peak of $292
billion and over 5% below the $164 billion issued in 1994. The municipal yield
curve flattened by 5 basis points in the 2 to 30-year sector while the
comparable Treasury curve steepened by 61 basis points. For the year, Aaa
rated municipals underperformed Treasuries with the range of 5 to 30-year
Municipal yields as a percentage of Treasury yields ending the year at 76.3%
to 87.5%, up from 69.0% to 83.8% from the previous year-end. The "20-Bond"
Bond Buyer Index, which is comprised of high quality, tax-exempt general
obligation bonds in the 20-year area, fluctuated within a 136 basis point
range throughout the year (one percentage point equals 100 basis points).
Given the overall strong tone of the market, the "20-Bond" Index closed the
year at 5.44%, 127 basis points lower than 1994.
The Fund returned 16.54% without the sales charge for 1995. During the
year, the net asset value of the Fund rose from $9.59 to $10.68. Distributions
from net investment income were $.472 per share compared to $.493 the previous
year and there were no capital gain distributions for the year. The Fund's
total return without the sales load was below the Lehman Brothers Municipal
Bond Index (the "Index") which returned 17.45%. Although the Fund continues to
maintain a higher quality profile than the Index with over 91% of assets rated
Aa or better and no holdings rated below A, in general the risk
characteristics are similar. The Index, however, is not subject to expenses of
a mutual fund.
The Fund's 1995 return was generally attributable to an overall decrease
of interest rates along the yield curve. The primary focus of the Fund was to
maintain a high quality portfolio while providing a steady level of income.
The overall underperformance by the Fund relative to the Index was
attributable to its underweighting in the 20 to 30-year sector of the market
and its negative convexity position. The narrowing of quality spreads also
negatively affected yearly performance. Overweighting in revenue and insured
securities relative to the Index, a slightly longer duration (a measure of
interest rate risk) and its minimal average cash position were all
contributing factors to the Fund's positive performance. Despite a lethargic
year for positive municipal mutual bond fund cash flows, due to a resilient
equity market, talk of tax reform and investor resistance to lower yields, the
Fund's cash flows increased by nearly 14% as compared to the overall municipal
market increase of less than 1%.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MUNICIPAL BOND FUND (Continued)
Growth of $10,000 Invested in the
Woodward Municipal Bond Fund and the
Lehman Brothers Municipal Bond Index
[ GRAPH ]
2/1/93 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,067 $10,612 $10,135 $10,025 $10,982 $11,682
Fund (2) $10,000 $10,569 $11,172 $10,671 $10,587 $11,642 $12,264
Index (3) $10,000 $10,588 $11,099 $10,606 $10,525 $11,541 $12,363
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $11,712.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (2/1/93)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Municipal Bond Fund 10.99% 5.49%(2)
(with maximum 4.75% sales charge)
Woodward Municipal Bond Fund 16.54% 7.27%
(without sales charge)
Lehman Brothers 17.45% 7.54%
Municipal Bond Index(1)
<FN>
(1) Includes investment grade general obligation, revenue, insured and
prerefunded issues with maturities from one to thirty years. Index began
July 1993.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 5.58%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MICHIGAN MUNICIPAL BOND FUND
Objective:
The Woodward Michigan Municipal Bond Fund (the "Fund") seeks to provide
as high a level of current income exempt from federal, and to the extent
possible, from State of Michigan income taxes as is consistent with relative
stability of principal. The Fund is managed on the basis of both the extended
outlook for interest rates and the underlying credit characteristics and value
of each asset. Active management strategies include duration management,
sector rotation, intra-sector adjustments, yield curve positioning and
convexity considerations.
Performance Highlights:
The Michigan municipal bond market, along with all fixed-income markets,
rode the downward drop in interest rates to one of their best performance
years in 1995. Despite talk of tax reform, the municipal market moved onward
as an overall decrease in supply accompanied with record levels of calls,
coupon payments and maturities drove interest rates down approximately 120
basis points along the yield curve. Unlike the general market, new-issue
volume in Michigan was $5.6 billion, an increase of approximately 48% from the
previous year. The overall Municipal bond market saw a decrease in new-issue
volume of over 5% from the previous year. The substantial increase in
new-issue volume raised the State's national ranking for issuance to 7th
versus 13th place last year. The Michigan municipal market experienced a boost
during July when the State's credit rating was upgraded. In addition, the
State Budget Stabilization Fund (Rainy Day) exceeded $1 billion at the end of
fiscal year 1995, among the highest in the nation. The State's unemployment
rate ended the year at 5.3% (seasonally adjusted), lower than the 5.6% for the
rest of the country, further proof of a sustained recovery.
The Fund returned 16.49% without the sales charge for 1995. During the
year, the net asset value increased from $9.54 to $10.60. Distributions from
net investment income were $0.48 per share compared to $0.50 the previous year
and there were no capital gain distributions for the year. The Fund's total
return without the sales load was below the return of the Lehman Brothers
Michigan Municipal Bond Index which returned 18.44%. Due to the increase in
the State's school bond credit rating, the Fund's quality is now higher than
the Index and it's general characteristics are slightly different due to the
seasoned and larger issues that comprise it. The Index, however, is not
subject to the expenses of a mutual fund.
The Fund's overall return during 1995 was generally attributable to a
decrease in interest rates along the yield curve. The primary focus of the
Fund was to maintain a high quality portfolio while providing a steady level
of income. The overall underperformance by the Fund relative to the Index was
largely attributable to the narrowing of quality spreads and its negative
convexity position. Overweighting in the prerefunded sector and a shorter
duration (a measure of interest rate risk) than the Index also proved to be a
negative for yearly performance. The Fund's overweighting in State qualified
general obligation school district bonds (the State's credit rating was
upgraded to Aa from A1 during July) and its gradual increase in the revenue
sector provided good performance. The Fund's discount bond position also
contributed to positive performance during the year. Despite a lethargic year
for positive municipal mutual bond fund cash flows, due to a resilient equity
market, talk of tax reform and investor resistance to lower yields, the Fund's
cash flows increased by over 6% as compared to the overall municipal market
increase of less than 1%.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD MICHIGAN MUNICIPAL BOND FUND (Continued)
Growth of $10,000 Invested in the
Woodward Michigan Municipal Bond Fund and the
Lehman Brothers Michigan Municipal Bond Index
[ GRAPH ]
2/1/93 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (1) $ 9,525 $10,033 $10,528 $10,021 $ 9,958 $10,857 $11,600
Fund (2) $10,000 $10,533 $11,062 $10,551 $10,517 $11,511 $12,179
Index (3) $10,000 $10,588 $11,084 $10,789 $10,525 $11,589 $12,460
<FN>
(1) Includes maximum sales charge of 4.75%.
(2) Excludes maximum sales charge of 4.75%.
(3) Excludes expenses.
(4) Maximum sales charge of 4.75% commenced 10-1-94. A
Shareholder investment at the original offer price (4.5%
sales charge) is currently valued at $11,631.
</TABLE>
<TABLE>
<CAPTION>
Since
Average Annual Total Return One Inception
Through 12/31/95 Year (2/1/93)
---------------------------- ---- ---------
<S> <C> <C>
Woodward Michigan Municipal Bond Fund 10.96% 5.23%(2)
(with maximum 4.75% sales charge)
Woodward Michigan Municipal Bond Fund 16.49% 7.01%
(without sales charge)
Lehman Brothers 18.44% 7.83%
Michigan Municipal Bond Index(1)
<FN>
(1) Includes investment grade general obligation, revenue, insured and
prerefunded issues with maturities from one to thirty years. Index began
July, 1993.
(2) Return for shareholders who invested at the original offer price (4.5%
sales charge) was 5.33%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS: BOND FUND
---------
Investment in securities:
At cost $481,852,916
============
At value (Note 2) $512,978,615
Cash --
Receivable for securities sold 225,826
Interest receivable 5,748,712
Deferred organization costs, net (Note 2) 6,439
Prepaids and other assets 4,113
------------
TOTAL ASSETS 518,963,705
------------
LIABILITIES:
Payable for securities purchased 456,491
Accrued investment advisory fee 283,332
Accrued distribution fees 5,095
Accrued custodial fee 7,282
Dividends payable 582,184
Other payables and accrued expenses 63,742
------------
TOTAL LIABILITIES 1,398,126
------------
NET ASSETS $517,565,579
============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 4,952,384
Additional paid-in capital 509,179,119
Accumulated undistributed net investment income 233,362
Accumulated undistributed net realized gains (losses) (27,924,985)
Net unrealized appreciation on investments 31,125,699
------------
TOTAL NET ASSETS $517,565,579
============
Shares of capital stock outstanding 49,523,843
============
Net asset value and redemption price per share $ 10.45
============
Maximum offering price per share $ 10.97
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
MICHIGAN
INTERMEDIATE SHORT MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment in securities:
At cost $391,716,402 $159,199,919 $75,750,865 $51,219,137
============ ============ =========== ===========
At value (Note 2) $401,008,361 $161,484,092 $78,252,712 $52,778,540
Cash 231,665 -- -- 94,074
Receivable for securities sold -- -- -- --
Interest receivable 4,975,654 2,337,249 1,277,409 716,553
Deferred organization costs, net (Note 2) 3,565 25,504 6,315 6,315
Prepaids and other assets 21,456 78,198 36,597 18,137
----------- ------------ ----------- ------------
TOTAL ASSETS 406,240,701 163,925,043 79,573,033 53,613,619
----------- ------------ ----------- -----------
LIABILITIES:
Payable for securities purchased -- 31,588 2,372,029 --
Accrued investment advisory fee 222,293 89,955 41,971 29,027
Accrued distribution fees 2,543 714 1,295 1,907
Accrued custodial fee 6,109 3,255 1,459 1,318
Dividends payable 632,436 443,656 190,088 125,268
Other payables and accrued expenses 67,381 19,020 2,627 2,939
------------ ------------ ----------- -----------
TOTAL LIABILITIES 930,762 588,188 2,609,469 160,459
------------ ------------ ----------- -----------
NET ASSETS $405,309,939 $163,336,855 $76,963,564 $53,453,160
============ ============ =========== ===========
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 3,909,253 $ 1,596,349 $ 720,543 $ 504,175
Additional paid-in capital 402,590,497 159,350,652 74,166,371 51,420,410
Accumulated undistributed net investment income 291,887 65,478 5,107 1,934
Accumulated undistributed net realized gains (losses (10,773,659) 40,203 (430,304) (32,762)
Net unrealized appreciation on investments 9,291,959 2,284,173 2,501,847 1,559,403
------------ ------------ ----------- -----------
TOTAL NET ASSETS $405,309,939 $163,336,855 $76,963,564 $53,453,160
============ ============ =========== ===========
Shares of capital stock outstanding 39,092,534 15,963,488 7,205,434 5,041,749
============ ============ =========== ===========
Net asset value and redemption price per share $ 10.37 $ 10.23 $ 10.68 $ 10.60
============ ============ =========== ===========
Maximum offering price per share $ 10.89 $ 10.55 $ 11.21 $ 11.13
============ ============ =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
BOND FUND
---------
<S> <C>
INTEREST INCOME (Note 2) $ 34,039,591
------------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 3,121,267
Distribution fees 51,487
Professional fees 69,263
Custodial fee 80,898
Transfer and dividend disbursing agent fees 38,611
Amortization of deferred organization costs 15,455
Marketing expenses 43,247
Security pricing services 13,033
Registration, filing fees and other expenses 118,444
Less:
Expense reimbursement --
------------
NET EXPENSES 3,551,705
------------
NET INVESTMENT INCOME 30,487,886
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) (1,566,826)
Net change in unrealized appreciation on
investments 72,514,668
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 70,947,842
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $101,435,728
============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
MICHIGAN
INTERMEDIATE SHORT MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME (Note 2) $27,227,503 $6,498,945 $ 3,692,331 $2,756,908
----------- ---------- ----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 2,650,418 650,298 444,288 327,020
Distribution fees 28,779 5,165 13,331 19,211
Professional fees 67,806 67,810 54,065 54,065
Custodial fee 71,081 31,613 17,836 15,729
Transfer and dividend disbursing agent fees 18,952 4,585 11,521 16,438
Amortization of deferred organization costs 8,555 6,801 3,031 3,031
Marketing expenses 39,826 32,438 34,056 33,105
Security pricing services 13,033 13,033 18,692 18,692
Registration, filing fees and other expenses 79,582 2,375 33,300 31,536
Less:
Expense reimbursement -- (65,761) (88,071) (119,481)
----------- ---------- ----------- ----------
NET EXPENSES 2,978,032 748,357 542,049 399,346
----------- ---------- ----------- ----------
NET INVESTMENT INCOME 24,249,471 5,750,588 3,150,282 2,357,562
----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) (4,126,208) 97,446 (132,105) 95,495
Net change in unrealized appreciation on
investments 52,637,906 3,290,608 7,347,301 5,119,573
----------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 48,511,698 3,388,054 7,215,196 5,215,068
----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $72,761,169 $9,138,642 $10,365,478 $7,572,630
=========== ========== =========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
BOND FUND
------------------------------
Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 30,487,886 $ 30,959,603
Net realized gains (losses) (1,566,826) (17,468,162)
Net change in unrealized appreciation
(depreciation) on investments 72,514,668 (49,072,055)
------------ ------------
Net increase (decrease) in net assets from
operations 101,435,728 (35,580,614)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (31,071,705) (30,287,702)
From realized gains -- (1,125,200)
------------ ------------
Total distributions (31,071,705) (31,412,902)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 81,776,844 136,836,769
Net asset value of shares issued in reinvestment
of distributions to shareholders 24,963,507 26,773,071
------------ ------------
106,740,351 163,609,840
Less: payments for shares redeemed (86,707,190) (170,644,207)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions 20,033,161 (7,034,367)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 90,397,184 (74,027,883)
NET ASSETS:
Beginning of period 427,168,395 501,196,278
------------ ------------
End of period $517,565,579 $427,168,395
============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 8,355,987 13,838,356
Shares issued in reinvestment of distributions
to shareholders 2,525,870 2,798,104
------------ ------------
10,881,857 16,636,460
Less: shares redeemed (8,790,418) (17,749,867)
------------ ------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 2,091,439 (1,113,407)
CAPITAL SHARES:
Beginning of period 47,432,404 48,545,811
------------ ------------
End of period 49,523,843 47,432,404
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
INTERMEDIATE SHORT
BOND FUND BOND FUND
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 24,249,471 $ 23,804,528 $ 5,750,588 $ 1,090,862
Net realized gains (losses) (4,126,208) (3,493,275) 97,446 (31,726)
Net change in unrealized appreciation
(depreciation) on investments 52,637,906 (47,966,003) 3,290,608 (1,006,435)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations 72,761,169 (27,654,750) 9,138,642 52,701
------------ ------------ ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (24,265,050) (23,538,862) (5,697,455) (1,078,517)
From realized gains -- (325,750) (25,517) --
------------ ------------ ------------ ------------
Total distributions (24,265,050) (23,864,612) (5,722,972) (1,078,517)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 47,268,989 108,142,125 114,313,557 74,761,056
Net asset value of shares issued in reinvestment
of distributions to shareholders 19,077,115 19,356,266 3,924,968 941,812
------------ ------------ ------------ ------------
66,346,104 127,498,391 118,238,525 75,702,868
Less: payments for shares redeemed (102,551,452) (112,749,718) (22,556,503) (10,437,889)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
capital share transactions (36,205,348) 14,748,673 95,682,022 65,264,979
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 12,290,771 (36,770,689) 99,097,692 64,239,163
NET ASSETS:
Beginning of period 393,019,168 429,789,857 64,239,163 --
------------ ------------ ------------ ------------
End of period $405,309,939 $393,019,168 $163,336,855 $ 64,239,163
============ ============ ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 4,818,378 10,895,776 11,284,693 7,483,171
Shares issued in reinvestment of distributions
to shareholders 1,922,824 1,990,229 388,668 95,210
------------ ------------ ------------ ------------
6,741,202 12,886,005 11,673,361 7,578,381
Less: shares redeemed (10,335,186) (11,494,626) (2,236,808) (1,051,446)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (3,593,984) 1,391,379 9,436,553 6,526,935
CAPITAL SHARES:
Beginning of period 42,686,518 41,295,139 6,526,935 --
------------ ------------ ------------ ------------
End of period 39,092,534 42,686,518 15,963,488 6,526,935
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
MICHIGAN
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,150,282 $ 3,064,874 $ 2,357,562 $ 2,210,323
Net realized gains (losses) (132,105) (297,451) 95,495 (128,351)
Net change in unrealized appreciation
(depreciation) on investments 7,347,301 (6,604,737) 5,119,573 (4,621,088)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations 10,365,478 (3,837,314) 7,572,630 (2,539,116)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,149,113) (3,086,808) (2,358,540) (2,226,665)
From realized gains -- -- -- --
------------ ------------ ------------ ------------
Total distributions (3,149,113) (3,086,808) (2,358,540) (2,226,665)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 25,660,467 29,816,164 12,994,627 20,635,934
Net asset value of shares issued in reinvestment
of distributions to shareholders 964,584 1,002,601 927,746 1,084,833
------------ ------------ ------------ ------------
26,625,051 30,818,765 13,922,373 21,720,767
Less: payments for shares redeemed (18,133,625) (17,342,844) (10,946,362) (13,805,722)
------------ ------------ ------------ ------------
Net increase in net assets from capital share
transactions 8,491,426 13,475,921 2,976,011 7,915,045
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS 15,707,791 6,551,799 8,190,101 3,149,264
NET ASSETS:
Beginning of year 61,255,773 54,703,974 45,263,059 42,113,795
------------ ------------ ------------ ------------
End of year $ 76,963,564 $ 61,255,773 $ 53,453,160 $ 45,263,059
============ ============ ============ ============
CAPITAL SHARE TRANSACTIONS:
Shares sold 2,502,764 2,923,798 1,290,446 2,066,281
Shares issued in reinvestment of distributions
to shareholders 93,325 100,547 90,653 109,478
------------ ------------ ------------ ------------
2,596,089 3,024,345 1,381,098 2,175,759
Less: shares redeemed (1,774,851) (1,757,269) (1,085,688) (1,401,752)
------------ ------------ ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 821,238 1,267,076 295,410 774,007
CAPITAL SHARES:
Beginning of year 6,384,196 5,117,120 4,746,339 3,972,332
------------ ------------ ------------ ------------
End of year 7,205,434 6,384,196 5,041,749 4,746,339
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 5.47%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $16,559,026 $ 16,559,026
Nikko Securities, Revolving Repurchase Agreement,
5.90%, 1/2/96 (secured by various U.S. Treasury
Bills with maturities ranging from 9/19/96
through 10/17/96, and U.S. Treasury Notes with
maturities ranging from 5/31/96 through 8/15/00,
all held at the Bank of New York) 11,500,000 11,500,000
-----------
(Cost $28,059,026) 28,059,026
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 82.21%
U.S. Treasury Securities -- 36.90%
Principal Strip from U.S. Treasury Securities
due:
8/15/98 1,500,000 1,309,425
2/15/99 7,450,000 6,332,128
11/15/18 61,840,000 15,020,318
8/15/20 55,640,000 12,111,715
5/15/18 3,720,000 932,976
5/15/05 3,950,000 2,324,614
Strip from U.S. Treasury Securities due:
5/15/98 1,800,000 1,592,856
11/15/98 1,700,000 1,464,992
2/15/99 3,355,000 2,851,146
2/15/11 4,525,000 1,832,172
5/15/11 9,338,000 3,716,898
2/15/12 4,555,000 1,721,061
5/15/13 10,594,000 3,684,064
2/15/14 8,950,000 2,962,897
U.S. Treasury Bonds:
12.750%, 11/15/10 9,000,000 13,708,080
10.375%, 11/15/12 8,830,000 12,207,475
U.S. Treasury Notes:
7.375%, 5/15/96 5,001,000 5,039,308
6.125%, 7/31/96 1,000,000 1,004,840
8.000%, 10/15/96 4,400,000 4,490,728
7.250%, 11/15/96 3,890,000 3,954,418
6.750%, 2/28/97 2,100,000 2,135,763
8.500%, 4/15/97 3,505,000 3,645,761
8.500%, 5/15/97 3,130,000 3,263,995
6.750%, 5/31/97 1,000,000 1,020,620
8.625%, 8/15/97 18,900,000 19,892,250
8.750%, 10/15/97 6,150,000 6,518,016
8.875%, 11/15/97 8,780,000 9,345,169
7.875%, 1/15/98 12,592,000 13,231,422
8.125%, 2/15/98 3,000,000 3,172,500
7.875%, 4/15/98 16,125,000 17,027,032
5.375%, 5/31/98 4,000,000 4,013,120
6.875%, 7/31/99 7,410,000 7,780,500
-----------
(Cost $174,104,991) 189,308,259
-----------
Agency Obligations -- 45.31%
Federal Home Loan Mortgage Corp. Participation
Ctfs.:
#170269, 12.000%, 8/1/15 1,938,783 2,173,246
#200070, 7.500%, 4/1/02 314,427 321,520
#274081, 7.500%, 7/1/16 95,532 97,744
#289711, 7.500%, 4/1/17 171,732 175,599
#555238, 12.000%, 7/1/19 887,323 994,945
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.000%, 7/15/18 1,255,907 1,288,962
Series 11 Class D, 9.500%, 7/15/19 1,500,000 1,669,289
Series 22 Class C, 9.500%, 4/15/20 1,104,876 1,251,748
Series 23 Class E, 9.400%, 8/15/19 823,046 849,687
Series 23 Class F, 9.600%, 4/15/20 1,150,000 1,283,652
Series 32 Class B, 9.500%, 8/15/19 1,000,494 1,020,613
Series 38 Class C, 9.500%, 1/15/19 596,952 612,735
Series 41 Class I, HB, 84.000%, 5/15/20 141,037 331,436
Series 47 Class F, 10.000%, 6/15/20 500,000 559,415
Series 51 Class D, 10.000%, 5/15/19 802,603 807,105
Series 56 Class E, 9.600%, 5/15/20 2,220,582 2,215,606
Series 82 Class D, 8.900%, 10/15/20 1,000,000 1,018,119
Series 99 Class Z, 9.500%, 1/15/21 2,181,715 2,347,545
Series 129 Class E, 8.850%, 6/15/09 3,500,000 3,565,136
Series 134 Class B, IO, 9.000%, 8/15/22 1,177,894 265,026
Series 204 Class E, HB, IF, 5/15/23 21,745 478,384
Series 1022 Class G, 8.000%, 2/15/19 696,411 699,815
Series 1045 Class G, HB, 1066.2085%, 2/15/21 5,071 135,144
Series 1051 Class D, 7.000%, 11/15/19 1,429,602 1,447,085
Series 1065 Class J, 9.000%, 4/15/21 2,000,000 2,175,618
Series 1072 Class A, HB, 1008.500%, 5/15/06 35,279 697,117
Series 1079 Class S, IF, 5/15/21 1,332,679 1,501,756
Series 1084 Class F, AR, 5/15/21 2,000,000 2,039,918
Series 1084 Class S, IF, 5/15/21 1,400,000 1,820,000
Series 1089 Class C, IO, IF, 6/15/21 91,366 1,000,233
Series 1098 Class M, HB, 10.080%, 6/15/06 15,632 326,711
Series 1144 Class KB, 8.500%, 9/15/21 2,000,000 2,117,078
Series 1172 Class L, HB, 1167.776%, 11/15/21 21,071 611,045
Series 1196 Class B, HB, IF, 1/15/22 93,403 934,965
Series 1295 Class JB, 4.500%, 3/15/07 2,400,000 2,173,605
Series 1297 Class H, 7.500%, 1/15/20 1,699,404 1,741,021
Series 1298 Class L, HB, 981.8667, 6/15/07 9,000 328,500
Series 1329 Class S, IO, IF, 8/15/99 5,014,742 269,542
Series 1360 Class PK, 10.000%, 12/15/20 2,500,000 2,869,872
Series 1370 Class F, 6.750%, 3/15/19 600,000 606,329
Series 1378 Class H, 10.000%, 1/15/21 1,500,000 1,728,119
Series 1378 Class JZ, 7.500%, 11/15/21 2,280,849 2,318,934
Series 1418 Class B, 6.500%, 11/15/19 2,250,000 2,253,062
Series 1456 Class G, 6.500%, 12/15/18 6,500,000 6,506,818
Series 1465 Class SA, IO, IF, 2/15/08 29,155,288 1,439,397
Series 1483 Class E, 6.500%, 2/15/20 3,150,000 3,148,138
Series 1489 Class L, 5.500%, 4/15/08 2,087,129 2,036,306
Series 1506 Class F, AR, 5/15/08 1,632,714 1,640,877
Series 1506 Class S, IF, 5/15/08 583,112 530,632
Series 1506 Class SD, IO, IF, 5/15/08 27,449,198 1,269,525
Series 1508 Class KB, IO, IF, 5/15/23 8,872,418 571,118
Series 1531 Class K, 6.000%, 4/15/08 1,127,152 1,093,314
Series 1554 Class KA, PO, 8/15/08 927,383 736,685
Series 1583 Class NS, IF, 9/15/23 1,270,128 939,895
Series 1585 Class NB, IF, 9/15/23 2,271,596 1,839,993
Series 1586 Class A, 6.000%, 9/15/08 1,478,062 1,422,175
Series 1595 Class S, IO, IF, 10/15/11 14,871,975 604,100
Series 1604 Class SE, IF, 11/15/08 701,374 561,099
Series 1628 Class S, IF, 12/15/23 2,550,000 1,606,500
Series 1640 Class A, 5.500%, 10/15/07 1,102,202 1,073,455
Series 1655 Class F, AR, 12/15/08 1,494,755 1,483,544
Series 1655 Class SA, IF, 12/15/08 344,875 257,146
Series 1681 Class K, 7.000%, 8/15/23 1,115,049 1,090,606
Series 1686 Class SH, IF, 2/15/24 1,535,892 1,132,720
Series 1689 Class SD, IF, 10/15/23 1,725,000 1,535,250
Series 1694 Class SE, IF, 5/15/23 1,418,419 1,290,761
Series 1706 Class LA, 7.000%, 3/15/24 5,227,604 5,121,740
Series 1757-A Class A, 9.500%, 5/15/23 3,532,192 3,757,369
Series 1796-A, Class S, IF, 2/15/09 1,000,000 755,000
Series 1798-B, Class C, 6.500%, 3/15/08 2,250,000 2,200,073
GNMA Series 29 Class SD, IO, IF, 4/25/24 24,545,249 613,631
Federal Housing Administration Merrill Lynch
Project Pool 170 Pass Thru Ctfs., 7.430%,
8/1/20 1,368,496 1,413,821
Federal National Mortgage Assn. Mortgage Backed
Securities,
Stripped Trust:
23, Class 2, IO, 10.000%, 9/1/17 1,348,966 346,521
50, Class 2, IO, 10.500%, 3/25/19 180,863 46,912
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #44699, 7.000%, 4/1/17 350,441 355,329
Pool #50966, 7.000%, 1/1/24 2,047,461 2,068,364
Pool #70226, AR, 1/1/19 603,874 604,629
Pool #116612, AR, 3/1/19 2,562,238 2,651,219
Pool #160330, 6.345%, 3/1/99 2,391,211 2,433,057
Pool #303306, 12.500%, 1/1/16 2,182,598 2,515,988
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 841,800 897,829
1988 Class 17-B, 9.400%, 10/25/17 736,900 760,273
1989 Class 27-D, 10.000%, 1/25/16 827,434 852,744
1989 Class 34-E, 9.850%, 8/25/14 1,000,000 1,066,785
1989 Class 69-G, 7.600%, 10/25/19 2,250,000 2,321,397
1989 Class 70-G, 8.000%, 10/25/19 2,000,000 2,122,378
1989 Class 73-C, PO, 10/25/19 1,299,464 1,015,206
1989 Class 78-H, 9.400%, 11/25/19 1,250,000 1,393,024
1990 Class 1-D, 8.800%, 1/25/20 3,200,000 3,400,189
1990 Class 60-K, 5.500%, 6/25/20 750,000 713,669
1990 Class 63-H, 9.500%, 6/25/20 900,000 1,003,301
1990 Class 93-G, 5.500%, 8/25/20 1,500,000 1,427,669
1990 Class 94-H, HB, 505.000%, 8/25/20 36,402 527,832
1990 Class 95-J, HB, 1118.040%, 8/25/20 20,445 654,236
1990 Class 102-J, 6.500%, 8/25/20 4,000,000 3,990,276
1990 Class 106-H, 8.500%, 1/25/19 1,135,711 1,137,731
1990 Class 134-SC, IF, 11/25/20 1,210,648 1,325,659
1990 Class 140-K, HB, 652.1454%, 12/25/20 23,237 426,391
1991 Class 4-N, HB, 758.750%, 1/25/06 11,237 162,935
1991 Class 7-K, HB, 908.500%, 2/25/21 8,010 172,206
1991 Class 33-J, HB, 1008.250%, 4/25/06 10,292 206,673
1991 Class 55-G, HB, 1148.550%, 2/25/05 3,554 14,215
1991 Class 144-PZ, 8.500%, 6/25/21 2,134,822 2,258,319
1992 Class 13-S, HB, IF, 1/25/99 35,593 263,385
1992 Class 135-LC, 7.500%, 9/25/07 1,000,000 1,035,809
1992 Class 137-BA, 3.500%, 1/25/17 2,297,663 2,212,970
1992 Class 199-S, IO, IF, 11/25/99 13,023,680 577,861
1992 Class 204-B, 6.000%, 10/25/20 4,300,000 4,160,418
1993 Class 8-SB, IO, IF, 8/25/06 16,001,583 729,992
1993 Class 12-S, IO, IF, 2/25/23 7,558,799 481,873
1993 Class 12-SB, HB, IF, 2/25/23 59,767 552,847
1993 Class 13-G, 6.000%, 6/25/20 2,000,000 1,962,738
1993 Class 15-K, 7.000%, 2/25/08 792,410 788,415
1993 Class 19-G, 5.000%, 5/25/19 3,265,000 3,096,457
1993 Class 32-K, 6.000%, 3/25/23 1,888,847 1,816,240
1993 Class 38-S, IO, IF, 11/25/22 33,215,974 913,439
1993 Class 44-S, IO, IF, 4/25/23 11,772,196 518,683
1993 Class 58-J, 5.500%, 4/25/23 2,065,801 1,930,512
1993 Class 94-K, 6.750%, 5/25/23 1,299,186 1,271,473
1993 Class 113-S, IO, IF, 7/25/23 8,861,933 509,561
1993 Class 139-SG, IF, 8/25/23 3,450,311 2,675,060
1993 Class 152-D, PO, 8/25/23 1,000,000 785,000
1993 Class 155-LA, 6.500%, 5/25/23 4,166,134 4,109,970
1993 Class 155-SB, IO, IF, 9/25/23 10,689,381 581,182
1993 Class 156-SD, IF, 10/25/19 1,250,000 900,000
1993 Class 167-S, IF, 9/25/23 1,776,420 1,314,551
1993 Class 190-SE, IF, 10/25/08 1,719,713 1,336,526
1993 Class 207-SC, IF, 11/25/23 3,435,541 2,507,945
1993 Class 209-KB, 5.659%, 8/25/08 3,632,376 3,466,773
1993 Class 214-L, 6.000%, 12/25/08 838,760 829,005
1993 Class 220-SD, IF, 11/25/13 2,087,684 1,622,506
1993 Class 223-FB, AR, 12/25/23 5,732,752 5,646,761
1993 Class 223-SB, IF, 12/25/23 2,901,860 2,321,488
1993 Class X-225C VO, IF, 12/25/22 1,600,000 1,456,000
1994 Class 8-G, PO, 11/25/23 2,249,815 1,631,116
1994 Class 19-C, 5.000%, 1/25/24 2,519,478 2,329,230
1994 Class 26-G, PO, 2/25/24 2,278,569 1,458,284
1994 Class 30-LA, 6.500%, 2/25/09 1,953,476 1,929,623
1994 Class 36-SG, IO, IF, 8/25/23 7,651,123 399,236
1994 Class 36-SE, IF, 11/25/23 2,061,342 1,649,073
1994 Class 39-F, AR, 3/25/24 1,133,152 1,125,356
1994 Class 39-S, IF, 3/25/24 435,828 387,067
1994 Class 53-CA, PO, 11/25/23 2,500,000 1,731,250
1994 Class 59-PK, 6.000%, 3/25/24 1,766,334 1,717,140
1994 Class 82-SA, IO, IF, 5/25/23 41,672,922 1,119,751
1995 Class 13-B, 6.500%, 3/25/09 3,457,934 3,381,203
1995 Class XG1C C, 8.800%, 1/25/25 1,000,000 1,096,116
1992-G Class 15-Z, 7.000%, 1/25/22 1,633,455 1,588,745
1992-G Class 27-SQ, HB, IF, 5/25/22 7,749 1,118,615
1992-G Class 42-Z, 7.000%, 7/25/22 1,644,947 1,620,098
1992-G Class 59-C, 6.000%, 12/25/21 1,300,000 1,261,831
1992-G Class 61-Z, 7.000%, 10/25/22 1,028,251 946,207
1993-G Class 19-K, 6.500%, 6/25/19 2,208,259 2,169,833
1993-G Class 27-SE, IF, 8/25/23 1,343,715 863,337
1994-G Class 13-ZB, 7.000%, 11/17/24 2,359,038 2,258,067
Government National Mortgage Assn. Pass Thru
Securities
Guaranteed Remic Trust:
1994 Class 4-SA, IO, IF, 10/16/22 7,700,000 490,875
Government National Mortgage Assn. Pass Thru
Pool:
#023594, 8.500%, 7/15/08 453,589 479,352
#190923, 9.000%, 12/15/16 445,009 474,753
#297628, 8.000%, 9/15/22 3,428,413 3,581,557
#313110, 7.500%, 11/15/22 2,076,338 2,140,142
#345288, 7.500%, 3/15/23 852,574 878,329
International Bank For Reconstruction &
Development, 2/15/15 2,000,000 576,830
------------
(Cost $217,452,161) 232,446,081
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 421,754,340
------------
(Cost $391,557,152)
CORPORATE BONDS AND NOTES -- 9.07%
Finance -- 7.54%
American Express Co., 11.625%, 12/12/00 1,400,000 1,562,750
Associates Corp. of North America:
9.125%, 4/1/00 2,350,000 2,652,372
8.150%, 8/1/09 3,085,000 3,516,838
Chase Manhattan Grantor Trust, Series 95-B,
5.900%, 11/15/01 1,692,081 1,702,943
Collaterized Mortgage Obligation Trust CMO:
Series 10, Class Z, 8.950%, 12/1/16 3,070,227 3,121,344
Series 12, Class D, 9.500%, 2/1/17 889,933 953,517
Series 16, Class Q, 14.750%, 3/20/18 491,993 521,513
Ford Credit Grantor Trust, Series 94-A, 6.350%,
5/15/99 2,040,088 2,061,344
Ford Motor Credit Co., 9.625%, 2/27/96 2,150,000 2,161,761
General Motors Acceptance Corp. Medium Term Note,
7.550%, 1/14/97 2,500,000 2,550,125
Government National Mortgage Assn. Backed Trust I
CMO, Class A, Zero Coupon, PO, 5/20/17 354,912 278,101
Kidder Peabody Mortgage Assets Trust CMO, Series
24 Class E, 8.940%, 4/1/19 1,125,000 1,162,405
Merrill Lynch Trust Series 43 Class E CMO 6.500%,
8/27/15 4,000,000 3,979,956
Morgan Stanley Mortgage Trust CMO:
Series 35-2, HB, IF, 4/20/21 5,248 760,996
Series 37-2, HB, IF, 7/20/21 5,996 779,480
Series 39-3, PO, 12/20/21 999,131 815,851
PaineWebber CMO Trust:
Series H-4, 8.750%, 4/1/18 1,030,480 1,080,241
Series P-4, 8.500%, 8/1/19 2,479,357 2,620,405
Rural Housing Trust 1987-1 Sr. Mortgage Pass Thru
Ctf., Class 3-B, 7.330%, 4/1/26 1,199,436 1,225,594
Shearson Lehman, Inc. CMO, Mortgage Backed
Sequential Pay Bond, Series U, Sequence U-1,
8.750%, 8/27/17 322,556 325,249
Standard Credit Card Master Trust Asset Backed
Ctf., Series 1995-5, Class A, Adjustable Rate,
5/8/00 2,000,000 2,000,620
Toyota Auto Receivables Grantor Trust, Series
95-A Class A, 5.850%, 3/15/01 1,314,302 1,320,767
World Omni Automobile LSE SEC Trust, Series 95-5
Class A, 6.050%, 11/25/01 1,500,000 1,513,619
------------
(Cost $39,352,083) 38,667,791
------------
Industrial -- 1.24%
Boeing Co., 7.950%, 8/15/24 1,730,000 2,036,573
Dominos Pizza Funding Corp., Series A, Adjustable
Rate, 4/1/96 995,000 1,005,235
General Motors Corp., 8.800%, 3/1/21 2,695,000 3,321,668
------------
(Cost $5,521,130) 6,363,476
------------
Public Utility -- 0.29%
Nippon Telegraph & Telephone Corp., 9.500%,
7/27/98 1,355,000 1,479,850
------------
(Cost $1,447,437)
TOTAL CORPORATE BONDS AND NOTES 46,511,117
------------
(Cost $46,320,650)
FOREIGN -- 3.25%
African Development Bank Note, 9.300%, 7/1/00 1,572,000 1,784,786
Kingdom of Belgium Put Euro Dollar, 9.200%, 6/28/10 2,000,000 2,542,500
Metropolis of Tokyo, 8.700%, 10/05/99 2,250,000 2,483,620
National Australia Bank Ltd, 9.700%, 10/15/98 800,000 879,136
Province of Ontario, 15.750%, 3/15/12 1,415,000 1,653,031
Province of Ontario Eurobond, 7.000%, 1/27/99 4,300,000 4,461,250
Province of Quebec, 9.125%, 8/22/01 2,515,000 2,849,809
------------
(Cost $15,916,088) 16,654,13
------------
TOTAL INVESTMENTS $512,978,615
============
(Cost $481,852,916)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
(a) The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $1,496,849. The book cost of certain IO and HB securities
includes a write down in the amount of $6,056,100 taken during 1993 to
properly state the net realizable value of the securities. The write down
results in a lower cost of investments than the tax cost disclosed in Note
4 in Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 3.30%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $8,248,085 $ 8,248,085
Nikko Securities, Revolving Repurchase Agreement,
5.90%, 1/2/96 (secured by various U.S. Treasury
Bills with maturities ranging fom 9/19/96 through
10/17/96, and U.S. Treasury Notes with maturities
ranging from 5/31/96 through 8/15/00, all held at
the Bank of New York) 5,000,000 5,000,000
------------
(Cost $13,248,085) 13,248,085
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 85.73%
U.S. Treasury Securities -- 47.10%
Principal Strip from U.S. Treasury Securities
due:
2/15/99 6,900,000 5,864,655
Strip from U.S. Treasury Securities due:
5/15/98 6,600,000 5,840,472
11/15/98 7,600,000 6,549,376
2/15/99 2,760,000 2,345,503
5/15/05 5,660,000 3,330,967
8/15/08 6,350,000 3,046,667
2/15/09 4,300,000 1,996,318
U.S. Treasury Bonds:
12.750%, 11/15/10 6,731,000 10,252,121
10.375%, 11/12/12 4,800,000 6,636,000
U.S. Treasury Notes:
7.375%, 5/15/96 540,000 544,136
6.125%, 7/31/96 1,000,000 1,004,840
7.250%, 11/15/96 2,000,000 2,033,120
6.750%, 2/28/97 5,000,000 5,085,150
8.500%, 4/15/97 11,640,000 12,107,462
6.875%, 4/30/97 10,000,000 10,206,200
8.500%, 5/15/97 11,470,000 11,961,031
6.750%, 5/31/97 2,000,000 2,041,240
8.625%, 8/15/97 3,000,000 3,157,500
8.750%, 10/15/97 9,950,000 10,545,408
8.875%, 11/15/97 19,985,000 21,271,434
7.875%, 1/15/98 23,710,000 24,913,994
8.125%, 2/15/98 8,300,000 8,777,250
7.875%, 4/15/98 12,425,000 13,120,055
5.125%, 4/30/98 3,320,000 3,313,260
5.375%, 5/31/98 4,500,000 4,514,760
6.875%, 7/31/99 8,000,000 8,400,000
------------
(Cost $185,580,125) 188,858,919
------------
Agency Obligations -- 38.63%
Federal Home Loan Mortgage Corp. Participation
Ctf.:
#170269, 12.000%, 8/01/15 1,533,401 1,718,840
#252600, 7.500%, 9/1/08 369,227 379,170
#252601, 8.000%, 6/1/01 389,128 400,802
#555238, 12.000%, 7/1/19 673,464 755,147
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 10 Class D, 10.000%, 7/15/18 1,998,034 2,050,621
Series 11 Class D, 9.500%, 7/15/19 500,000 556,429
Series 14 Class A, 9.000%, 12/15/19 44,298 44,434
Series 18 Class A, 9.000%, 11/15/19 80,381 80,707
Series 23 Class E, 9.400%, 8/15/19 548,697 566,458
Series 30 Class C, 9.500%, 5/15/18 731,331 747,009
Series 32 Class B, 9.500%, 8/15/19 2,718,733 2,773,404
Series 38 Class C, 9.500%, 1/15/19 397,968 408,490
Series 39 Class E, 10.000%, 10/15/19 876,507 898,953
Series 41 Class I, HB, 84.000%, 5/15/20 105,777 248,577
Series 47 Class F, 10.000%, 6/15/20 500,000 559,415
Series 51 Class D, 10.000%, 5/15/19 525,068 528,013
Series 56 Class E, 9.600%, 5/15/20 2,599,353 2,593,528
Series 63 Class F, 9.350%, 10/15/19 315,973 320,447
Series 82 Class D, 8.900%, 10/15/20 700,000 712,683
Series 99 Class Z, 9.500%, 1/15/21 2,181,715 2,347,545
Series 115 Class G, 9.000%, 3/15/18 684,605 683,762
Series 129 Class E, 8.850%, 6/15/09 2,700,000 2,750,248
Series 191 Class D, 9.000%, 9/15/21 203,506 203,398
Series 204 Class E, HB, IF, 5/15/23 7,008 154,175
Series 1022 Class G, 8.000%, 2/15/19 654,626 657,826
Series 1072 Class A, HB, 1008.500%, 5/15/06 23,438 463,139
Series 1079 Class S, IF, 5/15/21 999,510 1,126,317
Series 1084 Class F, AR, 5/15/21 500,000 509,979
Series 1084 Class S, IF, 5/15/21 350,000 455,000
Series 1098 Class M, HB, 10.080%, 6/15/06 3,474 72,602
Series 1144 Class KB, 8.500%, 9/15/21 2,000,000 2,117,078
Series 1172 Class L, HB, 1167.776%, 11/15/21 18,197 527,720
Series 1196 Class B, HB, IF, 1/15/22 61,111 611,721
Series 1295 Class JB, 4.500%, 3/15/07 1,500,000 1,358,503
Series 1298 Class L, HB, 981.86%, 6/15/07 6,000 219,000
Series 1329 Class S, IO, IF, 8/15/99 4,297,785 231,006
Series 1360 Class PK, 10.000%, 12/15/20 2,000,000 2,295,898
Series 1378 Class H, 10.000%, 1/15/21 1,500,000 1,728,119
Series 1418 Class B, 6.500%, 11/15/19 1,250,000 1,251,701
Series 1456 Class G, 6.500%, 12/15/18 3,000,000 3,003,147
Series 1465 Class SA, IO, IF, 2/15/08 26,873,569 1,326,748
Series 1489 Class L, 5.500%, 4/15/08 1,744,840 1,702,351
Series 1506 Class F, AR, 5/15/08 1,088,476 1,093,918
Series 1506 Class SD, IO, IF, 5/15/08 15,122,475 699,414
Series 1506 Class S, IF, 5/15/08 388,742 353,755
Series 1508 Class KB, IF, 5/15/23 4,613,657 296,981
Series 1531 Class K, 6.000%, 4/15/08 1,040,448 1,009,212
Series 1583 Class NS, IF, 9/15/23 982,727 727,218
Series 1585 Class NB, IF, 9/15/23 2,513,255 2,035,737
Series 1586 Class A, 6.000%, 9/15/08 1,377,285 1,325,208
Series 1595 Class S, IO, IF, 10/15/13 20,963,156 851,523
Series 1628 Class S, IF, 12/15/23 2,500,000 1,575,000
Series 1640 Class A, 5.500%, 10/15/07 1,992,442 1,940,477
Series 1655 Class F, AR, 12/15/08 970,128 962,852
Series 1655 Class SA, IF, 12/15/08 223,945 166,978
Series 1689 Class SD, IF, 10/15/23 1,500,000 1,335,000
Series 1694 Class SE, IF, 5/15/23 1,086,730 988,924
Series 1706 Class LA, 7.000%, 3/15/24 3,400,068 3,331,213
Series 1757-A Class A, 9.500%, 5/15/23 2,649,144 2,818,027
Series 1796-A, Class S, IF, 2/15/09 1,391,843 1,050,841
GNMA Series 29 Class SD, IO, IF, 4/25/24 14,249,782 356,245
Federal National Mortgage Assn. Mortgage Backed
Securities Stripped Trust:
46, Class 1, 7.000%, 12/25/03 290,697 292,877
50, Class 2, IO, 10.500%, 3/25/19 286,367 74,278
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 823,889 878,726
1988 Class 17-B, 9.400%, 10/25/17 128,067 132,130
1989 Class 26-D, 10.000%, 5/25/04 1,000,000 1,057,759
1989 Class 27-D, 10.000%, 1/25/16 1,510,067 1,556,259
1989 Class 34-D, 9.850%, 7/25/13 750,247 760,142
1989 Class 70-G, 8.000%, 10/25/19 2,000,000 2,122,378
1989 Class 73-C, PO, 10/25/19 275,805 215,472
1989 Class 78-H, 9.400%, 11/25/19 1,750,000 1,950,233
1990 Class 1-D, 8.800%, 1/25/20 950,000 1,009,431
1990 Class 60-K, 5.500%, 6/25/20 1,250,000 1,189,449
1990 Class 63-H, 9.500%, 6/25/20 755,000 841,658
1990 Class 93-G, 5.500%, 8/25/20 1,250,000 1,189,724
1990 Class 94-H, HB, 505.000%, 8/25/20 21,561 312,639
1990 Class 95-J, HB, 1118.040%, 8/25/20 10,222 327,119
1990 Class 102-J, 6.500%, 8/25/20 4,600,000 4,588,817
1990 Class 106-H, 8.500%, 1/25/19 879,775 881,341
1990 Class 134-SC, IF, 11/25/20 719,616 787,979
1990 Class 140-K, HB, 652.145%, 12/25/20 21,687 397,964
1991 Class 4-N, HB, 758.750%, 1/25/06 3,966 57,503
1991 Class 7-K, HB, 908.500%, 2/25/21 2,002 43,052
1991 Class 20-M, HB, 908.750%, 3/25/06 2,044 33,936
1991 Class 33-J, HB, 1008.250%, 4/25/06 4,803 96,448
1991 Class 55-G, HB, 1148.550%, 2/25/05 4,442 17,769
1991 Class 161-H, 7.500%, 2/25/21 780,627 794,256
1992 Class 13-S, HB, IF, 1/25/99 10,539 77,988
1992 Class 137-BA, 3.500%, 1/25/17 1,969,426 1,896,831
1992 Class 199-S, IO, IF, 11/25/99 9,074,832 402,650
1992 Class 204-B, 6.000%, 10/25/20 2,000,000 1,935,078
1993 Class 8-SB, IO, IF, 8/25/06 15,386,138 701,916
1993 Class 12-S, IO, IF, 2/25/23 4,781,380 304,813
1993 Class 12-SB, HB, IF, 2/25/23 52,736 487,806
1993 Class 19-G, 5.000%, 5/25/19 3,530,000 3,347,778
1993 Class 38-S, IO, IF, 11/25/22 31,190,042 857,726
1993 Class 58-J, 5.50%, 4/25/23 1,549,351 1,447,884
1993 Class 94-K, 6.750%, 5/25/23 866,124 847,649
1993 Class 110-SC, IO, IF, 7/25/23 4,235,993 177,361
1993 Class 113-S, IO, IF, 7/25/23 7,935,546 456,294
1993 Class 139-SG, IF, 8/25/23 2,597,473 2,013,847
1993 Class 152-D, PO, 8/25/23 700,000 549,500
1993 Class 155-LA, 6.500%, 5/25/23 1,735,889 1,712,488
1993 Class 155-SB, IO, IF, 9/25/23 7,696,354 418,451
1993 Class 156-SD, IF, 10/25/19 1,000,000 720,000
1993 Class 167-S, IF, 9/25/23 2,138,284 1,582,330
1993 Class 190-SE, IF, 10/25/08 1,495,403 1,162,197
1993 Class 207-SC, IF, 11/25/23 2,366,706 1,727,695
1993 Class 209-KB, 5.659%, 8/25/08 2,804,924 2,677,045
1993 Class 214-L, 6.000%, 12/25/08 1,677,520 1,658,009
1993 Class 220-SD, IF, 11/25/13 1,242,669 965,777
1993 Class 223-FB, AR, 12/25/23 721,333 710,513
1993 Class 223-SB, IF, 12/25/23 651,339 521,071
1993 Class X225-C VO, IF, 12/25/22 2,000,000 1,820,000
1994 Class 8-G, PO, 11/25/23 1,730,627 1,254,705
1994 Class 19-C, 5.000%, 1/25/24 2,082,214 1,924,984
1994 Class 26-G, PO, 2/25/24 2,199,391 1,407,610
1994 Class 30-LA, 6.500%, 2/25/09 2,123,344 2,097,416
1994 Class 36-SE, IF, 11/25/23 1,198,454 958,764
1994 Class 36-SG, IO, IF, 8/25/23 3,480,275 181,601
1994 Class 39-F, AR, 3/25/24 1,019,837 1,012,820
1994 Class 39-S, IF, 3/25/24 392,245 348,361
1994 Class 53-CA, PO, 11/25/23 3,352,442 2,321,566
1994 Class 59-PK, 6.000%, 3/25/24 2,826,135 2,747,424
1994 Class 82-SA, IO, IF, 5/25/23 20,541,515 551,951
1995 Class 13-B, 6.500%, 3/25/09 2,497,397 2,441,980
1995 Class X-G1C C, 1/25/25 1,000,000 1,096,116
1992-G Class 27-SQ, HB, IF, 5/25/22 3,907 563,973
1992-G Class 42-Z, 7.000%, 7/25/22 630,973 621,441
1993-G Class 8-PG, 6.500%, 7/25/18 1,000,000 997,249
1993-G Class 13-G, 6.000%, 6/25/20 1,000,000 981,369
1993-G Class 19-K, 6.500%, 6/25/19 1,613,728 1,585,647
1993-G Class 27-SE, IF, 8/25/23 1,535,674 986,671
1994-G Class 13-ZB, 7.000%, 11/17/24 2,359,038 2,258,069
Federal National Mortgage Assn. Pass Thru Pool:
#111366, AR, 8/01/19 517,219 534,649
#116612, AR, 3/01/19 1,643,700 1,700,782
#160330, 6.345%, 3/1/99 2,391,210 2,433,057
#303306, 12.500%, 1/1/16 1,440,515 1,660,552
Government National Mortgage Assn. Pass Thru
Pool:
#297628, 8.000%, 9/15/22 2,285,609 2,387,705
#313110, 7.500%, 11/15/22 1,922,535 1,981,613
------------
(Cost $149,905,032) 154,886,744
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 343,745,663
------------
(Cost $335,485,157)
CORPORATE BONDS AND NOTES -- 9.24%
Finance -- 8.45%
American Express Co., 11.625%, 12/12/00 1,250,000 1,395,313
American Express Credit Corp., 8.500%, 6/15/99 300,000 325,020
Associates Corp. of North America:
9.125%, 4/1/00 1,675,000 1,890,521
8.150%, 8/1/09 3,625,000 4,132,427
Bear Stearns Secured Investments, Inc. CMO,
Series 88-7B, 9.250%, 12/1/18 576,823 574,723
Case Equipment Loan Trust Asset Backed Ctf.
1994 Series A, Class A2, 4.650%, 8/15/99 1,398,171 1,389,794
1994 Series C, Class A2, 8.100%, 6/15/01 2,000,000 2,089,818
Chase Manhattan Grantor Trust Automobile Loan
Pass Thru Ctfs. Series 1995-B, Class A,
5.900%, 11/15/01 1,450,355 1,459,665
Collaterized Mortgage Obligation Trust CMO:
Series 10, Class Z, 8.950%, 12/1/16 4,950,742 5,033,167
Series 12, Class D, 9.500%, 2/1/17 444,966 476,759
Series 16 Class Q, 14.750%, 3/20/18 277,484 294,133
Collaterized Mortgage Securities Corp. CMO:
Series 88-2 Class B, 8.800%, 4/20/19 585,723 617,454
General Motors Acceptance Corp. Medium Term Note,
7.550%, 1/14/97 4,735,000 4,829,937
Goldman Sachs Trust 7-C CMO, Series 7, Class C-2,
9.100%, 4/27/17 16,195 16,184
Merrill Lynch Trust 43-E CMO, Series 43, Class E,
6.500%, 8/27/15 1,500,000 1,492,483
Morgan Stanley Mortgage Trust, CMO:
Series 35-2, HB, IF, 4/20/21 3,999 579,806
Series 37-2, HB, IF, 7/20/21 4,065 528,466
Series 39-3, PO, 12/20/21 777,102 634,550
Rural Housing Trust 1987-1, Senior Mortgage
Pass-Thru Ctf.,
Sub Class 3-B, 7.330%, 4/1/26 536,660 548,364
Standard Credit Card Master Trust Asset Backed
Ctf.
Series 1995-5, Class A, IF, 5/8/00 200,000 200,062
Series 1995-10, Class A, 5.900%, 2/7/01 2,520,000 2,547,339
Toyota Auto Receivable Grantor Trust Asset Backed
Ctf.
Series 1995-A, Class A, 5.850%, 3/15/01 1,311,436 1,317,887
World Omni Automobile Lse Sec Trust Asset Backed
Ctf.
Series 1995-A, Class A, 6.050%, 11/25/01 1,500,000 1,513,619
------------
(Cost $33,041,515) 33,887,491
------------
Industrial -- 0.79%
Boeing Co., 8.375%, 3/1/96 3,020,000 3,034,257
Dominos Pizza Funding Corp., Series A, Adjustable
Rate, 4/1/96 145,000 146,492
------------
(Cost $3,183,157) 3,180,749
------------
TOTAL CORPORATE BONDS AND NOTES 37,068,240
------------
(Cost $36,224,672)
FOREIGN -- 1.73%
African Development Bank Note, 9.300%, 7/1/00 983,000 1,116,059
Metropolis of Tokyo, 8.700%, 10/5/99 1,500,000 1,655,746
National Australia Bank Ltd., 9.700%, 10/15/98 400,000 439,568
Province of Ontario Eurobond, 7.000%, 1/27/99 3,600,000 3,735,000
------------
(Cost $6,758,488) 6,946,373
------------
TOTAL INVESTMENTS $401,008,361
============
(Cost $391,716,402)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
(a) The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
(b) Based upon estimated future cash flows, income is currently not being
recognized on certain IO, HB, and CMO securities with an aggregate market
value of $1,408,358. The book cost of certain IO and HB securities
includes a write down in the amount of $2,639,653 taken during 1993 to
properly state the net realizable value of the securities. The write down
results in a lower cost of investments than the tax cost disclosed in Note
4 in Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
SHORT BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 0.16%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes,
5.500%, 11/15/98, all held at Chemical Bank) $ 262,082 $ 262,082
------------
(Cost $262,082)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 87.11%
U.S. Treasury Securities -- 71.75%
Strips from U.S. Treasury Note Principal due:
5/15/96 380,000 372,997
8/15/98 500,000 436,475
U.S. Treasury Notes:
5.875%, 5/31/96 1,430,000 1,433,575
7.625%, 5/31/96 3,200,000 3,229,984
7.875%, 7/15/96 1,500,000 1,520,160
6.125%, 7/31/96 4,000,000 4,019,360
8.000%, 10/15/96 1,000,000 1,020,620
7.500%, 1/31/97 1,945,000 1,990,883
6.625%, 3/31/97 500,000 508,280
8.500%, 4/15/97 2,750,000 2,860,440
6.500%, 5/15/97 10,500,000 10,675,560
8.500%, 5/15/97 500,000 521,405
6.750%, 5/31/97 600,000 612,372
6.125%, 5/31/97 25,490,000 25,816,552
8.500%, 7/15/97 250,000 262,070
8.750%, 10/15/97 490,000 519,322
8.875%, 11/15/97 4,000,000 4,257,480
5.750%, 10/31/97 250,000 252,422
7.875%, 1/15/98 11,265,000 11,837,037
5.625%, 1/31/98 1,450,000 1,462,006
7.875%, 4/15/98 3,200,000 3,379,008
5.125%, 4/30/98 1,000,000 997,970
9.000%, 5/15/98 4,500,000 4,874,062
5.375%, 5/31/98 1,100,000 1,103,608
5.125%, 6/30/98 4,500,000 4,490,865
5.250%, 7/31/98 3,000,000 3,000,930
5.125%, 11/30/98 5,000,000 4,983,600
5.125%, 12/31/98 500,000 498,280
5.875%, 3/31/99 1,000,000 1,017,810
7.000%, 4/15/99 1,000,000 1,051,250
6.500%, 4/30/99 3,000,000 3,109,680
6.750%, 5/31/99 2,200,000 2,298,309
6.750%, 6/30/99 990,000 1,035,164
6.375%, 7/15/99 1,700,000 1,761,353
6.875%, 8/31/99 1,000,000 1,050,940
7.125%, 9/30/99 1,000,000 1,060,000
7.500%, 10/31/99 1,500,000 1,610,385
7.750%, 11/30/99 2,250,000 2,438,078
7.750%, 12/31/99 1,000,000 1,085,936
7.750%, 1/31/00 1,300,000 1,412,937
------------
(Cost $114,151,228) 115,869,165
------------
Agency Obligations -- 15.36%
Federal Home Loan Bank Consolidated Bond:
4.265%, 3/12/96 500,000 499,050
4.410%, 7/8/96 665,000 661,350
4.410%, 8/26/96 1,000,000 994,950
4.750%, 1/13/97 1,500,000 1,492,600
4.920%, 2/24/97 1,000,000 996,180
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 2 Class Z, 9.300%, 3/15/19 1,418,594 1,515,951
Series 10 Class D, 10.000%, 7/15/18 285,434 292,946
Series 11 Class C, 9.500%, 4/15/19 266,023 277,662
Series 81 Class A, 8.125%, 11/15/20 450,236 461,492
Series 85 Class C, 8.600%, 1/15/21 1,000,000 1,056,045
Series 99 Class Z, 9.500%, 1/15/21 1,090,858 1,173,773
Series 192 Class H, 9.000%, 7/15/21 521,411 535,744
Series 1045 Class G, HB, 1066.2085%, 2/15/21 2,536 67,572
Series 1096 Class D, 7.000%, 6/15/20 1,344,241 1,350,867
Series 1238 Class E, 6.500%, 2/15/04 329,352 329,282
Series 1477 Class F, 6.650%, 5/15/18 300,000 305,973
Series 1559 Class VF, 6.250%, 2/15/20 500,000 502,214
Series 1578 Class C, 5.500%, 11/15/12 1,000,000 998,689
Series 1603 Class F, 5.750%, 4/15/21 500,000 489,739
Series 1623 Class PC, 5.000%, 11/15/07 300,000 297,525
Federal National Mortgage Assn. Medium Term Note,
4.920%, 9/28/98 220,000 215,181
Federal National Mortgage Assn. Mortgage Backed
Securities
Stripped Trust 268, Class 2, IO, 9.000%,
12/25/21 282,888 69,485
Federal National Mortgage Assn. Pass Thru
Securities:
Pool #070226, AR, 1/1/19 362,325 362,778
Pool #111366, AR, 8/1/19 417,754 431,832
Pool #116612, AR, 3/1/19 918,538 950,437
Federal National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust:
1988 Class 7-Z, 9.250%, 4/25/18 895,532 955,137
1988 Class 15-A, 9.000%, 6/25/18 188,049 198,405
1988 Class 16-B, 9.500%, 6/25/18 1,124,388 1,212,273
1988 Class 17-B, 9.400%, 10/25/17 64,034 66,065
1988 Class 19-H, 9.500%, 7/25/17 267,638 269,709
1989 Class 27-D, 10.000%, 1/25/16 206,859 213,186
1989 Class 31-D, 9.150%, 8/25/18 358,340 367,269
1989 Class 73-C, PO, 10/25/19 212,157 165,748
1990 Class 77-C, 9.000%, 7/25/19 387,757 404,463
1990 Class 94-C, 8.000%, 1/25/19 183,675 186,015
1991 Class 16-G, 8.000%, 3/25/04 1,050,000 1,066,830
1991 Class 41-O, 9.000%, 8/25/06 375,000 392,591
1992 Class 13-S, HB, IF, 1/25/99 4,479 33,146
1992 Class 137-BA, 3.500%, 1/25/17 328,238 316,139
1993 Class 35-C, 5.500%, 10/25/01 200,000 199,310
1993 Class 85-PD, 5.500%, 7/25/03 300,000 299,181
1993 Class 107-D, 6.500%, 12/25/06 400,000 409,600
1994-G Class 7-PB, 6.000%, 4/17/08 1,000,000 1,002,659
1994-G Class 8-B, 6.650%, 8/17/07 700,000 707,000
------------
(Cost $24,493,755) 24,794,043
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 140,663,208
------------
(Cost $138,644,983)
CORPORATE BONDS AND NOTES -- 12.73%
Finance -- 10.62%
American Southwest Financial Corp. CMO, Series
67-D,
9.450%, 3/1/15 464,754 467,208
Associates Corp. of North America:
8.800%, 3/1/96 405,000 407,048
9.700%, 5/1/97 765,000 805,392
6.800%, 12/15/97 800,000 819,067
8.500%, 1/10/00 500,000 547,895
7.550%, 8/23/01 250,000 268,825
Associates Corp. of North America Medium Term
Note
Tranche #SR 00455, 7.480%, 7/27/02 300,000 322,988
Bear Stearns Secured Investments, Inc. CMO,
Series 88-7B, 9.250%, 12/1/18 288,412 287,361
Beneficial Finance Corp. Medium Term Note:
Tranche #00107, 9.250%, 10/15/96 1,150,000 1,182,456
Tranche #00490, 7.200%, 2/21/97 400,000 407,515
Tranche #00659, 7.340%, 11/26/99 200,000 210,421
CFC-7 Grantor Trust Asset Backed Ctf., 8.650%,
10/15/96 262,064 262,983
Chemical Bank Grantor Trust 1989-B Participation
Marine Contracts, Class 1, 8.900%, 12/15/96 212,785 218,927
Citicorp Mortgage Securities, Inc. Remic Pass
Thru Ctf.,
Series 89-16, Class A-1, AR, 4/1/19 336,678 336,678
Collaterized Mortgage Obligation Trust CMO:
Series 12, Class D, 9.500%, 2/1/17 222,483 238,379
Collaterized Mortgage Securities Corp. CMO:
Series 88-16, Class B, 9.100%, 2/27/18 44,941 44,948
Ford Credit Grantor Trust Asset Backed Ctf.
Series 1994-B, Class A, 7.300%, 10/15/99 242,975 248,028
Ford Motor Credit Co.:
8.625%, 4/15/96 475,000 479,028
9.500%, 4/15/00 590,000 669,731
Ford Motor Credit Co. Euro Dollar Debenture,
9.625%, 2/27/96 500,000 502,735
Ford Motor Credit Co. Medium Term Note:
9.750%, 5/6/96 1,005,000 1,019,900
9.000%, 7/26/96 500,000 509,726
Tranche #TR 00493, 6.450%, 7/21/97 300,000 304,111
Tranche #00281, 7.470%, 7/29/99 1,000,000 1,054,275
Tranche #00442, 7.590%, 4/6/00 300,000 319,328
General Electric Capital Corp., 8.750%, 11/26/96 500,000 514,477
General Electric Capital Corp. Medium Term Note
Tranche #TR 00624, 7.665%, 2/3/97 500,000 512,393
General Motors Acceptance Corp. Medium Term Note
Tranche #00162, 7.750%, 2/20/97 250,000 255,992
Goldman Sachs CMO:
Trust 4, Series C-3, 9.450%, 10/27/03 269,782 271,120
Trust 7, Class 2-C, 9.100%, 4/27/17 7,393 7,388
Lomas Mortgage Funding Corp. II, CMO, Series
88-1A,
9.000%, 9/20/15 62,912 63,463
MBNA Master Credit Card Trust Asset Backed Ctf.:
Trust 91-1, Series 1991-1A, 7.750%, 10/15/98 1,000,000 1,017,229
Trust 92-1, Series 1992-1A, 7.250%, 6/15/99 750,000 768,682
Morgan Stanley Mortgage Trust, CMO, Series 38-4,
PO, 11/20/21 71,667 56,258
Ryland Acceptance Corp. Four, CMO, Series 78,
Class 78-B, 9.550%, 3/1/16 653,661 675,166
Shearson Lehman, Inc. CMO, Mortgage Backed
Sequential Pay Bond, Series U, Sequence U-1,
8.750%, 8/27/17 30,833 31,141
Western Financial Grantor Trust Auto Receivable P/T Ctf:
1993-4, Class A1, 4.600%, 4/1/99 614,418 609,109
1994-3, Class A, 6.650%, 12/1/99 423,509 430,607
------------
(Cost $18,335,649) 18,581,444
------------
Industrial -- 2.11%
Coca-Cola Co., 7.750%, 2/15/96 290,000 290,799
Ford Holdings Inc.:
9.250%, 3/1/00 468,000 525,722
9.250%, 7/15/97 861,000 907,744
General Electric Co., 7.875%, 5/1/96 488,000 491,940
Pepsico, Inc.:
7.875%, 8/15/96 445,000 451,858
7.000%, 11/15/96 182,000 184,628
Waste Management Inc., 7.875%, 8/15/96 550,000 558,133
------------
(Cost $1,957,205) 1,977,358
------------
TOTAL CORPORATE BONDS AND NOTES 20,558,802
------------
(Cost $20,292,854)
TOTAL INVESTMENTS $161,484,092
============
(Cost $159,199,919)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
SHORT BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
The Funds invest in securities whose value is derived from an underlying
pool of mortgages or consumer loans. Some of these securities are
collateralized mortgage obligations (CMOs). CMOs are debt securities
issued by U.S. government agencies or by financial institutions and other
mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage
obligations are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate
that increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not
be fully recouped. These securities are subject to accelerated principal
paydowns as a result of prepayments or refinancing of the underlying pool
of mortgage instruments. As a result, interest income may be reduced
considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a
right to receive a very small portion of principal. The high interest rate
results from taking interest payments from other classes in the REMIC
Trust and allocating them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion
only on an underlying pool of mortgage loans. The market value of these
securities is extremely volatile in response to changes in market interest
rates. As prepayments on the underlying mortgages of these securities
increase, the yield on these securities increases.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 99.94%
Alaska -- 3.33%
Fairbanks North Star Borough Series S (MBIA
Insured), 5.45%, 3/1/06 $2,500,000 $ 2,602,825
Arizona -- 2.19%
Phoenix General Obligation Refunding Series A,
5.00%, 7/1/03 1,000,000 1,036,700
Salt River Project Agricultural Improvement Power
District Revenue, Electric System Series D,
6.00%, 1/1/08 625,000 680,319
-----------
1,717,019
-----------
California -- 1.34%
Los Angeles Waste Water System Revenue Series D
(MBIA Insured) 6.25%, 12/1/15 1,000,000 1,052,030
-----------
Florida -- 5.17%
Florida State Board of Education Capital Outlay
Public Education Series C, 5.10%, 6/1/09 1,650,000 1,656,765
Florida State Pollution Control Series Y, 6.40%,
7/1/08 1,400,000 1,527,624
Gainesville Utilities System Revenue Series B,
5.50%, 10/1/13 850,000 860,804
-----------
4,045,193
-----------
Georgia -- 0.86%
Georgia State Housing and Finance Authorit Revenue
Series B, 6.10%, 12/1/12 650,000 669,922
Illinois -- 14.15%
Chicago Metropolitan Water Capital Improvement,
5.50%, 12/1/12 1,000,000 1,046,100
Chicago School Finance Authority (FGIC Insured)
Series A, 5.20%, 6/1/06 1,000,000 1,020,120
DuPage Co. Forest Preservation District, 6.00%,
11/1/03 1,750,000 1,910,790
Evanston General Obligation Unlimited Tax, 6.10%,
12/1/09 1,000,000 1,082,480
Illinois Dedicated Tax Revenue (AMBAC Insured)
Civic Center, 6.25%, 12/15/11 250,000 280,255
Illinois Health Facilities Authority Revenue
Northwestern Memorial Hospital Series A, 5.60%,
8/15/06 1,000,000 1,056,800
Illinois Housing Development, Series A, 5.95%,
7/1/21 2,000,000 2,013,240
Illinois State Toll Highway Authority Revenue,
Series A, Variable Rate, 1/1/10 2,666,000 2,666,000
-----------
11,075,785
-----------
Indiana -- 9.53%
Ball State University Revenue (FGIC Insured)
Student Fee Series G, 6.125%, 7/1/09 400,000 427,724
Fort Wayne Sewer Works Improvement Revenue Indiana
(FGIC Insured), 5.75%, 8/1/10 1,100,000 1,131,482
Indiana State Vocational Technology Revenue Series
D, 5.90%, 7/1/06 1,000,000 1,077,090
Indiana Transportation Finance Authority, Series A
6.25%, 11/1/16 1,500,000 1,551,255
North Adams Community Schools Participation Ctfs.,
5.75%, 7/15/12 1,000,000 1,031,960
Perry Township Multi School Corporation Revenue,
5.20%, 1/15/11 1,200,000 1,176,672
St. Joseph Co. Hospital Authority Facilities
Revenue (MBIA Insured), Memorial Hospital South
Bend Project, 6.25%, 8/15/12 1,000,000 1,064,990
-----------
7,461,173
-----------
Kentucky -- 1.60%
Kentucky State Turnpike Authority Economic
Development Revenue (AMBAC Insured) Refunding,
5.50%, 7/1/06 1,175,000 1,250,223
-----------
Maryland -- 1.31%
Maryland State Community Development Administration
Dept. Housing & Community Development, First
Series, 5.80%, 4/1/07 1,000,000 1,026,520
-----------
Massachusetts -- 3.68%
Massachusetts General Obligation Series A, 5.25%,
2/1/08 500,000 503,930
Massachusetts State Finance Agency, Series F 6.00%,
1/1/15 2,265,000 2,377,781
-----------
2,881,711
-----------
Michigan -- 8.66%
Grand Rapids Water Supply System Revenue (FGIC
Insured), 6.30%, 1/1/04 250,000 272,323
Michigan State Building Authority Revenue Series I,
6.40%, 10/1/04 600,000 659,724
Michigan State Housing Development Authority
Revenue Series C, 6.375%, 12/1/11 1,450,000 1,514,293
Michigan State Trunk Line Revenue Series B-2,
5.75%, 10/1/12 500,000 510,315
Rochester Community School District School Building
& Site Unlimited Tax, 6.50%, 5/1/06 250,000 278,455
Royal Oak Hospital Finance Authority Revenue,
William Beaumont Hospital:
Series C, 7.20%, 1/1/05 250,000 276,582
Series G, 5.60%, 11/15/11 850,000 860,225
Saranac Community School District, 6.00%, 5/1/13 250,000 263,870
Wyandotte Electric Revenue, 6.25%, 10/1/17 2,000,000 2,140,200
-----------
6,775,987
-----------
Missouri -- 2.48%
Kansas City School District Building Revenue
Elementary School Project Series D, 5.10%, 2/1/07 1,905,000 1,937,995
-----------
Nevada -- 1.54%
Nevada General Obligation Series B Prison Board
Limited Tax, 6.30%, 4/1/05 1,100,000 1,201,310
-----------
Gloucester Co. Improvement Authority Gtd. Revenue,
Solid Waste Landfill Project Series AA, 6.20%,
9/1/07 400,000 428,084
Monmouth Co. General Obligation Utility Unlimited
Tax, 7.00%, 8/1/08 250,000 282,723
-----------
710,807
-----------
New York -- 2.27%
New York State Thruway Authority Highway Revenue
Series B, 5.125%, 4/1/15 1,500,000 1,482,705
Tri-Borough Bridge & Tunnel Authority Revenue
General Purpose Series X, 6.625%, 1/1/12 250,000 290,767
-----------
1,773,472
-----------
North Carolina -- 5.37%
Charlotte North Carolina General Obligation
Series A, 5.50%, 7/1/07 1,000,000 1,057,440
Mecklenberg County General Obligation Unlimited
Tax, 5.50%, 4/1/12 2,000,000 2,096,180
North Carolina Municipal Power Agency Catawba
Electric Revenue, 6.00%, 1/1/05 1,000,000 1,049,610
-----------
4,203,230
-----------
Ohio -- 6.66%
Franklin Co. Hospital Revenue, Children's Hospital
Series A, 6.50%, 5/1/07 950,000 1,035,329
Ohio State Building Authority Revenue, State
Facilities Adult Correctional Building Fund
Series A, 6.125%, 10/1/09 250,000 269,080
Ohio State Water Development Authority Revenue
(MBIA Insured), 5.75%, 12/1/05 1,000,000 1,072,750
Ohio General Obligation State of Public & Sewer
Imports Unlimited Tax, 6.00%, 8/1/07 1,000,000 1,103,350
Ohio Housing Financial Agency Mortgage Revenue
Residential GNMA Series A-1, 6.20%, 9/1/14 1,670,000 1,732,542
-----------
5,213,051
-----------
South Dakota -- 3.09%
South Dakota Housing Development Authority Revenue
Series C, 6.25%, 5/1/15 1,000,000 1,024,390
South Dakota State Building Authority Lease Revenue
(AMBAC Insured), 6.625%, 9/1/12 1,200,000 1,390,464
-----------
2,414,854
-----------
Tennessee -- 1.31%
Metropolitan Government Nashville/Davis County
Revenue, 7.00%, 1/1/14 1,000,000 1,022,250
-----------
Texas -- 6.68%
Austin Utilities System Revenue (AMBAC Insured),
6.50%, 5/15/11 250,000 273,917
El Paso General Obligation Unlimited Tax, 5.00%,
8/15/09 500,000 498,505
Harris Co. Flood Control District Refunding General
Obligation, 6.25%, 10/1/05 250,000 269,060
Houston General Obligation Series C, 6.00%, 3/1/05 400,000 427,328
Round Rock General Obligation (AMBAC Insured)
Unlimited Tax, 5.30%, 8/15/05 500,000 515,450
San Antonio Water Revenue (MBIA Insured), 6.50%,
5/15/10 250,000 275,483
Tarrant Co. Water Control & Improvement District #1
Revenue Series A, 6.10%, 3/1/05 400,000 423,912
Texas General Obligation, 7.70%, 8/1/06 1,305,000 1,444,257
Texas General Obligation Refunding Series A
Unlimited Tax 6.00%, 10/1/05 1,000,000 1,102,350
-----------
5,230,262
-----------
Virginia -- 9.29%
Norfolk Virginia General Obligation 7.00%, 10/1/07 1,500,000 1,643,494
Virginia State Housing Development Authority
Revenue, 5.60%, 11/1/10 1,500,000 1,496,880
Virginia State Housing Development Commonwealth
Series H, 6.20%, 1/1/08 1,000,000 1,035,660
Virginia State Public School Authority Revenue
Series A, 6.25%, 1/1/11 500,000 524,575
Virginia State Transportation Board Contract
Revenue #58 Corridor, 6.00%, 5/15/19 2,500,000 2,567,650
-----------
7,268,259
-----------
Washington -- 3.17%
Kent General Obligation (AMBAC Insured) Unlimited
Tax, 5.40%, 12/1/06 1,300,000 1,360,021
King Co. General Obligation Series A, 7.00%,
12/1/07 550,000 617,034
Seattle General Obligation, 4.90%, 12/1/05 500,000 506,420
-----------
2,483,475
-----------
Wisconsin -- 5.35%
Wisconsin Housing and Economic Development
Authority Revenue Series A, 6.15%, 9/1/17 1,500,000 1,525,305
Wisconsin Public Power System Revenue (AMBAC
Insured), Power Supply System Series A:
5.20%, 7/1/06 400,000 410,560
5.30%, 7/1/08 700,000 710,969
Wisconsin State Health & Educational Facilities
Authority Revenue, Lutheran Hospital Benevolent
Development Fund Series A, 5.60%, 2/15/09 450,000 462,920
Wisconsin State Transportation Revenue Series B,
5.75%, 7/1/12 1,000,000 1,077,410
-----------
4,187,164
-----------
TOTAL MUNICIPAL BONDS 78,204,517
-----------
(Cost $75,702,670)
TEMPORARY CASH INVESTMENT -- 0.06%
Woodward Tax Exempt Money Market Fund 48,195 48,195
-----------
(Cost $48,195)
TOTAL INVESTMENTS $78,252,712
===========
(Cost $75,750,865)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MICHIGAN MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
MUNICIPAL BONDS -- 98.62%
Michigan -- 98.62%
Allegan Public School District General Obligation
(AMBAC Insured), Unlimited Tax, 5.75%, 5/1/12 $ 200,000 $ 208,860
Ann Arbor General Obligation Resource Recovery
Improvements, Series A, 6.375%, 9/1/10 525,000 560,726
Dearborn Economic Division Oakwood Obligation
Group Series, 5.60%, 11/15/08 1,690,000 1,759,882
Detroit Sewer Disposal Revenue (FGIC Insured):
6.00%, 7/1/00 1,225,000 1,312,575
Series A, Sewer Improvement, 5.30%, 7/1/06 455,000 470,443
East China Township School District School
Building & Site, Unlimited Tax, 6.00%, 5/1/03 400,000 431,500
Eastern Michigan University General Obligation
Revenue (AMBAC Insured), 5.125%, 6/1/11 500,000 495,250
Eastern Michigan University General Sinking Fund,
6.375%, 6/1/14 1,000,000 1,070,030
Fenton Area Public Schools, 7.00%, 5/1/04 250,000 275,880
Ferndale School District, 5.50%, 5/1/11 1,000,000 1,022,880
Grand Haven Electric Revenue, 5.25%, 7/1/13 1,315,000 1,317,919
Grand Traverse Co. Hospital Finance Authority
Revenue (AMBAC Insured), Munson Healthcare
Series A, 5.90%, 7/1/04 1,000,000 1,078,450
Hartland Consolidated School District General
Obligation (AMBAC Insured), Unlimited Tax,
6.00%, 5/1/11 650,000 695,895
Holland Electric Revenue:
5.00%, 7/1/09 625,000 620,756
Kent Co. Building Authority Limited Tax, 6.45%,
12/1/02 620,000 671,981
Lansing Building Authority (AMBAC Insured),
6.00%, 6/1/05 1,000,000 1,101,210
Livingston Co. General Obligation Bldg. Authority
Limited Tax, 5.80%, 7/1/08 1,330,000 1,408,975
Marysville Public School District, 5.60%, 5/1/09 620,000 644,626
Michigan General Obligation Environmental
Protection Program:
6.25%, 11/1/08 450,000 507,928
Michigan Municipal Bond Authority Revenue:
Equipment & Real Property Financing Program G,
5.70%, 5/1/05 365,000 381,732
Local Government Loan Program Series A, 5.70%,
8/1/07 1,145,000 1,200,361
Michigan State Building Authority Revenue
Series I:
6.40%, 10/1/04 400,000 439,816
(AMBAC Insured), 5.00%, 10/1/06 950,000 960,897
Michigan State Comprehensive Transportation
Revenue Series B, 5.75%, 5/15/11 2,140,000 2,187,915
Michigan State Hospital Finance Authority
Revenue:
Detroit Medical Center -- B (AMBAC Insured),
5.00%, 8/15/06 1,000,000 1,004,040
Henry Ford Hospital, 6.00%, 9/1/11 1,250,000 1,315,425
Henry Ford Hospital, 5.75%, 9/1/17 750,000 758,092
Mercy Mt. Clemens, 6.25%, 5/15/11 500,000 525,855
Sisters of Mercy (MBIA Insured):
Series P, 5.00%, 8/15/06 460,000 458,845
Series H, 7.50%, 8/15/07 250,000 270,133
Michigan State Housing Development Authority
Revenue:
Rental, Series A, 6.20%, 4/1/03 1,000,000 1,055,990
Single Family Mortgage Series B, 6.30%, 4/1/03 1,000,000 1,002,180
Series C, 6.375%, 12/1/11 750,000 783,255
Michigan State University Revenue Series A:
6.125%, 8/15/07 500,000 533,515
6.25%, 8/15/15 2,000,000 2,112,140
Newaygo Public Schools General Obligation
Unlimited Tax, 6.00%, 5/1/12 300,000 318,339
Norway Vulcan Area Schools, 5.75%, 5/1/13 250,000 257,998
Novi Community Schools, 6.125%, 5/1/13 750,000 807,645
Novi General Obligation Series A & B Recreational
Facilities & Public Improvements, 5.00%,
10/1/11 725,000 706,433
Oak Park School District (AMBAC Insured):
6.00%, 6/1/09 250,000 266,470
Oakland County General Obligation Segment I & II
Evergreen Farmington Sewer Disposal System,
6.80%, 11/1/03 750,000 814,965
Oakland Community College Refunding & Improvement
Limited Tax:
5.15%, 5/1/09 910,000 898,707
General Obligation, 5.20%, 5/1/10 700,000 689,527
Okemos Public School District, 6.30%, 5/1/06 655,000 725,393
Ottawa Co. General Obligation Water Supply
System, 6.00%, 8/1/08 1,950,000 2,100,735
Perry Public Schools General Obligation Unlimited
Tax, 6.00%, 5/1/12 250,000 263,870
Rockford Public Schools, 5.875%, 5/1/12 500,000 522,905
Royal Oak Hospital Finance Authority Revenue,
William Beaumont Hospital -- G, 5.60%, 11/15/11 2,000,000 2,024,060
Saranac Community School District, 6.00%, 5/1/13 250,000 263,870
Traverse City Area Public School District,
Series I, 5.70%, 5/1/12 2,400,000 2,500,800
Troy City School District, School Improvements,
6.40%, 5/1/12 400,000 426,076
University of Michigan Revenue Hospital Series A:
5.75%, 12/1/12 850,000 859,409
5.50%, 12/1/21 450,000 445,077
University of Michigan Revenue Medical Service
Plan, 6.20%, 12/1/03 1,000,000 1,100,100
University of Michigan Revenue Student Fee
Series A, 5.25%, 4/1/15 1,000,000 997,510
Washtenaw Community College Unlimited Tax, 6.25%,
4/1/07 1,000,000 1,048,770
Wayne State University (AMBAC Insured):
5.50%, 11/15/07 1,000,000 1,044,180
5.65%, 11/15/15 800,000 813,904
Wayne Westland Community Schools (FGIC Insured),
Unlimited Tax, 5.75%, 5/1/11 350,000 360,951
Webberville Community School, 5.60%, 5/1/11 500,000 511,415
Western University Revenue (FGIC Insured), 6.25%,
11/15/12 250,000 270,172
Wyoming Public School, 5.875%, 5/1/13 350,000 367,010
-----------
TOTAL MUNICIPAL BONDS 52,052,248
-----------
(Cost $50,492,845)
TEMPORARY CASH INVESTMENT -- 1.38%
Woodward Michigan Tax-Exempt Money Market Fund 726,292 726,292
-----------
(Cost $726,292)
TOTAL INVESTMENTS $52,778,540
===========
(Cost $51,219,137)
</TABLE>
<PAGE>
THE WOODWARD FUNDS
BOND FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987, and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995,
Woodward consisted of seventeen separate series of which there were five Bond
Funds, as described below. Woodward Bond Fund Woodward Intermediate Bond Fund
Woodward Short Bond Fund Woodward Municipal Bond Fund Woodward Michigan
Municipal Fund
The Bond and Intermediate Bond Funds commenced operations on June 1,
1991. The Municipal Bond and Michigan Municipal Bond Funds commenced
operations February 1, 1993. The Short Bond Fund commenced operations on
September 17, 1994.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Bond Funds in the preparation of the financial statements. The policies
are in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
The Bond Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Investment security purchases and sales are accounted for on the day
after trade date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to Woodward's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD or its third
party custodian to assure its value remains at least equal to 102% of the
repurchase agreement amount; and 3) funds are not disbursed by Woodward or its
agent unless collateral is presented or acknowledged by the collateral
custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
<PAGE>
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions for all Funds
and write downs for book purposes on the Bond and Intermediate Bond funds (See
notes to Portfolio of Investments). Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year the income or realized gains were recorded by the Fund.
As of December 31, 1995, the Bond Funds had capital loss carryforwards
and related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 2002 2003 Total
- ---- ---- ---- -----
<S> <C> <C> <C>
Bond $19,955,806 $1,041,792 $20,997,598
Intermediate Bond 3,916,956 2,190,497 6,107,453
Municipal Bond 96,878 333,098 429,976
Michigan Municipal Bond 29,400 -- 29,400
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared and paid monthly by the
Bond Funds. Net realized capital gains are distributed annually. Distributions
from net investment income and net realized gains are made during each year to
avoid the 4% excise tax imposed on regulated investment companies by the
Internal Revenue Code.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
When Issued/To Be Announced (TBA) Securities.
The Bond Funds may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a
commitment by the Funds to purchase particular securities, with payment and
delivery taking place at a future date, for which all specific information,
such as the face amount and maturity date of such investment security, is not
known at the time of the trade. These transactions are subject to market
fluctuations and the risk that the value at delivery may be more or less than
the purchase price at which the transactions were entered. The current value
of these securities is determined in the same manner as that of other
portfolio securities. Although the Bond Funds generally purchase these
securities with the intention of acquisition, such securities may be sold
before the settlement date.
Expenses
Expenses are charged daily as a percentage of the Fund's assets. Woodward
monitors the rate at which expenses are charged to ensure that a proper amount
of expense is charged to income each year. This percentage is subject to
revision if there is a change in the estimate of the future net assets of
Woodward or a change in expectations as to the level of actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .005% of the Bond Funds's average net assets and Essex
is entitled to receive a fee at the annual rate of .10% of the aggregate
average net assets of Woodward's investment portfolios attributable to
investments by clients of Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For its
advisory services to Woodward, NBD is entitled to a fee, computed daily and
payable monthly. Under the Advisory Agreement, NBD also provides Woodward with
certain administrative services, such as maintaining Woodward's general ledger
and assisting in the preparation of various regulatory reports. NBD receives
no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered by
the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
<PAGE>
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD reimbursed the Short
Bond, Municipal Bond, and Michigan Municipal Bond Funds for certain expenses
in the amount of $65,761, $88,071, and $119,481 respectively.
On March 10, 1994, Woodward adopted the Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
MICHIGAN
INTERMEDIATE SHORT MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross Unrealized
Gains $ 35,731,180 $ 13,566,717 $ 2,333,204 $ 2,346,519 $ 1,652,718
Gross Unrealized
Losses (11,032,156) (7,073,022) (49,031) (155,328) (93,315)
------------ ------------ ------------ ------------ ------------
$ 24,699,024 $ 6,493,695 $ 2,284,173 $ 2,501,847 $ 1,559,403
============ ============ ============ ============ ============
Federal Income Tax
Cost $488,279,591 $394,514,666 $159,199,919 $ 75,750,865 $ 51,219,137
Purchases $191,486,673 $141,628,950 $129,641,103 $ 24,624,824 $ 16,596,409
Sales & Maturities, at value $189,618,003 $176,498,989 $ 31,673,292 $ 13,656,636 $ 13,193,153
</TABLE>
<PAGE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee
rates payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each fund's average net assets.
<TABLE>
<CAPTION>
MICHIGAN
INTERMEDIATE SHORT MUNICIPAL MUNICIPAL
Effective Date BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
- -------------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Expense Rates:
January 1 0.74% 0.73% 0.75% 0.77% 0.77%
March 21 0.74% 0.73% 0.75% 0.80% 0.80%
NBD Advisory Fee:
January 1 0.65% 0.65% 0.65% 0.65% 0.65%
Amounts Paid:
Advisory Fee to NBD $3,121,267 $2,650,418 $650,298 $444,288 $ 327,020
Distribution Fees to FoM
& Essex $ 51,487 $ 28,779 $ 5,165 $ 13,331 $ 19,211
Other Fees & Out of Pocket
Expenses to NBD $ 124,183 $ 92,054 $ 36,588 $ 33,445 $ 34,020
Expense reimbursement by NBD -- -- $(65,761) $(88,071) $(119,481)
</TABLE>
(6) Portfolio Composition
Although the Municipal Bond Fund has a diversified investment portfolio,
the Fund has investments greater than 10% of its total investments in the
state of Illinois. The Michigan Municipal Bond Fund does not have a
diversified portfolio since all of its investments are within the state of
Michigan. Such concentrations within particular states may subject the Funds
more significantly to economic changes occuring within those states.
<PAGE>
THE WOODWARD FUNDS
BOND FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Bond
Funds' net asset values have changed during the periods presented. Additional
quantitative measures expressed in ratio form analyze important relationships
between certain items presented in the financial statements. These financial
highlights have been derived from the financial statements of the Bond Funds
and other information for the periods presented.
<TABLE>
<CAPTION>
Bond Fund
-------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.01 $ 10.32 $ 10.25 $ 10.55 $ 10.00
Income from investment operations:
Net investment income 0.63 0.61 0.76 0.83 0.51
Net realized and unrealized gains
(losses) on investments 1.45 (1.31) 0.38 (0.17) 0.57
------------ ------------- ------------ ------------ ------------
Total from investment operations 2.08 (0.70) 1.14 0.66 1.08
------------ ------------- ------------ ------------ ------------
Less distributions:
From net investment income (0.64) (0.59) (0.76) (0.83) (0.51)
From realized gains -- (0.02) (0.31) (0.13) (0.02)
------------ ------------- ------------ ------------ ------------
Total distributions (0.64) (0.61) (1.07) (0.96) (0.53)
------------ ------------- ------------ ------------ ------------
Net asset value, end of period $ 10.45 $ 9.01 $ 10.32 $ 10.25 $ 10.55
============ ============= ============ ============ ============
Total Return (b) 23.75% (6.99%) 11.39% 6.56% 18.45%(a)
Ratios/Supplemental Data
Net assets, end of period $517,565,579 $427,168,395 $501,196,278 $321,758,333 $237,673,316
Ratio of expenses to average net assets 0.74% 0.74% 0.73% 0.73% 0.75%(a)
Ratio of net investment income to
average net assets 6.39% 6.36% 7.20% 8.08% 8.44%(a)
Portfolio turnover rate 41.91% 75.67% 111.52% 90.45% 8.19%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Intermediate Bond Fund
-----------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.21 $ 10.41 $ 10.28 $ 10.55 $ 10.00
Income from investment operations:
Net investment income 0.59 0.56 0.59 0.71 0.40
Net realized and unrealized gains (losses)
on investments 1.16 (1.20) 0.26 (0.10) 0.57
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.75 (0.64) 0.85 0.61 0.97
------------ ------------ ------------ ------------ ------------
Less distributions:
From net investment income (0.59) (0.55) (0.59) (0.71) (0.40)
From realized gains -- (0.01) (0.13) (0.17) (0.02)
------------ ------------ ------------ ------------ ------------
Total distributions (0.59) (0.56) (0.72) (0.88) (0.42)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.37 $ 9.21 $ 10.41 $ 10.28 $ 10.55
============ ============ ============ ============ ============
Total Return (b) 19.48% (6.31%) 8.41% 6.00% 16.62%(a)
Ratios/Supplemental Data
Net assets, end of period $405,309,939 $393,019,168 $429,789,857 $220,432,255 $130,367,032
Ratio of expenses to average net assets 0.73% 0.74% 0.74% 0.74% 0.75%(a)
Ratio of net investment income to average net
assets 5.98% 5.73% 5.44% 6.91% 6.59%(a)
Portfolio turnover rate 36.47% 54.60% 92.80% 56.30% 7.38%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short Bond Fund Municipal Bond Fund
------------------------------ ---------------------------------------------
Year ended Period ended Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.84 $ 10.00 $ 9.59 $ 10.69 $ 10.00
Income from investment operations:
Net investment income 0.58 0.17 0.48 0.50 0.45
Net realized and unrealized gains
(losses) on investments 0.39 (0.16) 1.08 (1.11) 0.69
------------ ------------ ----------- ----------- -----------
Total from investment operations 0.97 0.01 1.56 (0.61) 1.14
------------ ------------ ----------- ----------- -----------
Less distributions:
From net investment income (0.58) (0.17) (0.47) (0.49) (0.44)
From realized gains (0.00) -- -- -- (0.01)
------------ ------------ ----------- ----------- -----------
Total distributions (0.58) (0.17) (0.47) (0.49) (0.45)
------------ ------------ ----------- ----------- -----------
Net asset value, end of period $ 10.23 $ 9.84 $ 10.68 $ 9.59 $ 10.69
============ =========== =========== =========== ===========
Total Return (b) 10.07% 0.21%(a) 16.54% (5.72%) 12.69%(a)
Ratios/Supplemental Data
Net assets, end of period $163,336,855 $64,239,163 $76,963,564 $61,255,773 $54,703,974
Ratio of expenses to average net assets 0.75% 0.75%(a) 0.79% 0.53% 0.19%(a)
Ratio of net investment income to
average net assets 5.74% 5.92%(a) 4.63% 4.94% 5.27%(a)
Ratio of expenses to average net assets
without fee waivers/ reimbursed expenses 0.81% 0.93%(a) 0.93% 0.88% 1.12%(a)
Ratio of net investment income to average
net assets without fee waivers/
reimbursed expenses 5.68% 5.74%(a) 4.49% 4.59% 4.34%(a)
Portfolio turnover rate 30.94% 10.20% 20.46% 19.11% 11.12%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Bond Fund
---------------------------------------------
Year ended Year ended Period ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.54 $ 10.60 $ 10.00
Income from investment operations:
Net investment income 0.48 0.50 0.44
Net realized and unrealized gains (losses)
on investments 1.06 (1.06) 0.59
----------- ----------- -----------
Total from investment operations 1.54 (0.56) 1.03
----------- ----------- -----------
Less distributions:
From net investment income (0.48) (0.50) (0.43)
From realized gains -- -- --
----------- ----------- -----------
Total distributions (0.48) (0.50) (0.43)
----------- ----------- -----------
Net asset value, end of period $ 10.60 $ 9.54 $ 10.60
=========== =========== ===========
Total Return (b) 16.49% (5.42%) 11.50%(a)
Ratios/Supplemental Data
Net assets, end of period $53,453,160 $45,263,059 $42,113,795
Ratio of expenses to average net assets 0.79% 0.53% 0.19%(a)
Ratio of net investment income to average net assets 4.71% 5.01% 5.12%(a)
Ratio of expenses to average net assets without fee
waivers/ reimbursed expenses 1.04% 1.05% 1.21%(a)
Ratio of net investment income to average net assets
without fee waivers/reimbursed expenses 4.46% 4.49% 4.10%(a)
Portfolio turnover rate 26.97% 25.93% 41.70%
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
(b) Total returns as presented do not include any applicable sales load.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Bond Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Bond Funds of THE WOODWARD
FUNDS (comprising, as indicated in Note 1, the Bond, Intermediate Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond Funds) as of December 31,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods from
inception (as indicated in Note 1) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Bond Funds of The
Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
from inception (as indicated in Note 1) through December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
[ BACK COVER ]
Investment Adviser:
NBD Bank
Detroit, Michigan 48226
Sponsors and Co-Distributors:
First of Michigan Corporation
Detroit, Michigan 48243
Essex National Securities, Inc.
Napa, California 94558
Custodian and Transfer Agent:
NBD Bank
Troy, Michigan 48007-7058
Legal Counsel:
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107-3496 [ WOODWARD FUNDS LOGO ]
- -------------------------------------------------------------------------------
The Woodward Funds ------------
P.O. Box 7058 BULK RATE
Troy, MI 48007-7058 U.S. POSTAGE
PAID
Detroit, MI
Permit No. 2
------------
Exhibit (17)(v)
<PAGE>
[LOGO OF PRAIRIEFUNDS]
PRAIRIE FUNDS
ASSET ALLOCATION FUNDS
The Managed Assets Income Fund
The Managed Assets Fund
EQUITY FUNDS
The Equity Income Fund
The Growth Fund
The Special Opportunities Fund
The International Equity Fund
BOND FUNDS
The Intermediate Bond Fund
The Bond Fund
The International Bond Fund
MUNICIPAL BOND FUNDS
The Intermediate Municipal Bond Fund
The Municipal Bond Fund
MONEY MARKET FUNDS
The U.S. Government Money Market Fund
The Money Market Fund
The Municipal Money Market Fund
ANNUAL REPORT
DECEMBER 31, 1995
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
Table of Contents
1 Letter to Shareholders
3-23 Fund Highlights
24-104 Portfolios of Investments
106-113 Statements of Assets and Liabilities
114-117 Statements of Operations
118-127 Statements of Changes in Net Assets
128-150 Notes to Financial Statements
152-172 Financial Highlights
173 Report of Independent Auditors
The Prairie Funds PRAIRIE FUNDS
are not insured or (800) 224-4800
protected by the
FDIC or any other INVESTMENT ADVISER
governmental First Chicago Investment Management
agency, are not Company (FCIMCO)
deposits or Three First National Plaza, MS 0334
obligations of The Chicago, IL 60670-0334
First National Bank
of Chicago, are not DISTRIBUTOR
guaranteed by the Concord Financial Group, Inc.
bank, and involve 3435 Stelzer Road
investment risk, Columbus, OH 43219
including the
possible loss of
principal.
<PAGE>
DEAR SHAREHOLDERS:
For investors, 1995 was a year for the record books--the performance of both
the stock and bond markets was nothing short of extraordinary. During the 12
months ended December 31, 1995, the Standard & Poor's 500 Index had a total
return of 37%. Bond investors profited handsomely too, as returns from some
sectors rivaled those of the stock market.
THE BULLS MAY BACK OFF A BIT IN '96
The stock market's relentless march upward in 1995 was driven by two powerful
factors: interest rates and corporate profits. A combination of strong
overseas sales, productivity increases and slow wage growth supported the
uptrend in corporate profits. Reported earnings for the S&P 500 increased some
28% over the 12 months ended December 31, 1995.
Interest rates also declined significantly in 1995. Yields on long-term
government bonds fell from 8% to 6%--and lower long-term interest rates
provided less investment competition to stocks as the months wore on. As a
result, the U.S. stock market scored record highs, and for the year,
outperformed most major equity markets worldwide.
Where do we go from here? It is highly unlikely that 1995's strong
performance will be repeated in 1996. Nevertheless, we see little on the
horizon to dramatically alter the underpinnings of this market. Inflation
remains in check, and there is no indication that corporate profits will
collapse. Fundamentals are strong. Consumer demand, while not robust, has not
disappeared, and U.S. corporations are operating more efficiently after years
of downsizing. Consequently, we are optimistic about the equity market's
prospects in 1996.
A DIFFICULT ENVIRONMENT FOR BONDS
We are not as enthusiastic about the outlook for bonds in 1996. Recent
volatility in energy and gold prices may be an early signal of increasing
inflationary pressure. While there are few indications that inflation is
picking up, we are watching these signs closely.
The political situation also troubles us. If and when Congress and the
President agree on a balanced budget plan, we expect the final agreement to be
watered down so much as to be almost meaningless. At this point, even a short-
term agreement would be helpful. If tax cuts and budget cuts are not
significant over the long term, we believe that the fixed-income markets will
suffer.
1
<PAGE>
Additionally, in 1996, we expect the Federal Reserve to cut short-term rates
and long-term rates will rise. At current rates, however, an investor is not
paid enough in higher yield to buy long-term bonds relative to the risk
assumed. We are positioning our fixed-income portfolios with this in mind.
OUR VALUED SHAREHOLDERS
We thank you for the confidence that you have expressed in us by choosing the
Prairie Funds. We will continue to strive for superior performance for your
investments.
Sincerely,
/s/Marco Hanig
Marco Hanig
Managing Director, Prairie Funds
First Chicago Investment Management Company (FCIMCO)
2
<PAGE>
- -------------------------------------------------------------------------------
FUND HIGHLIGHTS
- -------------------------------------------------------------------------------
Prairie Funds can meet the diverse needs of investors who may be seeking to
build capital, preserve their assets, reduce their taxes or generate higher
income.
[LINE GRAPH APPEARS HERE]
The graph on page 3 compares the relative risk versus the potential return for
the various Prairie Funds. The funds are listed in five groups based on their
investment strategies.
3
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
4
<PAGE>
PORTFOLIO MANAGER INTERVIEWS
ASSET ALLOCATION FUNDS
MANAGED ASSETS INCOME FUND, MANAGED ASSETS FUND
An interview with CLAUDE ERB Portfolio Manager
Q. IN A YEAR THAT WAS GOOD FOR BOTH STOCKS AND BONDS, HOW WELL DID THE FUNDS
DO?
We're pleased that both Funds performed well. The Managed Assets Income
Fund returned 26.40% (A Shares)+ for the 12 months ended December 31,
1995, compared to 19.24% and 37.43% for its benchmarks, the Lehman
Brothers Government/Corporate Bond Index and the S&P 500, respectively.
The Managed Assets Fund returned 16.48% (A Shares)+ from April 3, 1995,
through December 31, 1995, versus 13.58% for the Lehman Brothers
Government/Corporate Bond Index and 25.24% for the S&P 500.
Q. WAS THERE ANY ONE PARTICULAR REASON THAT THE FUNDS DID SO WELL?
1995 was a year of tremendous opportunity. Stocks were a great value in
comparison to bonds, and we had a healthy exposure to U.S. equities. In
the fixed-income area, it was a year to go long on maturity, and we were
positioned in the right area of the yield curve. As a result, bonds made a
positive contribution to the portfolios' performance as well.
Q. HOW WERE THE PORTFOLIOS' ASSETS ALLOCATED THROUGHOUT THE YEAR?
Given the differing objectives of the two Funds, the emphasis of each was
different. Both Funds had a greater-than-normal allocation to the equity
markets, where we saw good values. In the Managed Assets Fund, where our
focus is on total return, we invested approximately 60% of the portfolio
in stocks, 30% in bonds and 10% in cash. In the Managed Assets Income
Fund, where the focus is on income, we had a heavier weighting in bonds
and in above-average yielding equities.++
Q. WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD?
Realistically, it's unlikely that the U.S. stock market will repeat its
performance of the past year. As a result, we're taking a more cautious
approach to the equity markets and shifting our focus to intermediate
securities in the fixed-income markets.
+ With the maximum sales charge of 4.50%, A Shares of the Managed Assets
Income Fund returned 20.71%, and A Shares of the Managed Assets Fund
returned 11.25% over the respective time periods.
++ The composition of the Funds' holdings is subject to change.
5
<PAGE>
Q. WHERE DO YOU SEE OPPORTUNITY IN 1996?
Internationally. As the U.S. market slows, we will be looking increasingly
at opportunities overseas. Although equities aren't particularly cheap
outside the U.S., the dollar has bottomed and should strengthen in the
coming year, which will help foreign companies producing goods for the
U.S. market--making foreign stocks attractive as a long-term investment.
Nearer term, we're also interested in the fixed-income side of the
equation--particularly when it comes to emerging markets.
Q. WHAT KIND OF YEAR DO YOU THINK 1996 WILL BE?
A good one--if you're positioned correctly. 1995 was a year to be in
domestic stocks and long-term fixed-income securities. In 1996, we believe
that international stocks and the intermediate range of the yield curve
will offer investors the greatest opportunity.
Managed Assets Income Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Lehman Brothers
S&P 500 Government/Corporate
Date A Shares* Index Bond Index
- ---- --------- ------- ----------
<S> <C> <C> <C>
01/23/86 9,551
01/31/86 9,561 10,000 10,000
12/31/86 10,847 11,795 11,492
12/31/87 10,738 12,412 11,757
12/31/88 12,645 14,499 12,649
12/31/89 15,054 19,064 14,450
12/31/90 15,482 18,459 15,648
12/31/91 19,218 24,099 18,172
12/31/92 20,895 25,947 19,549
12/31/93 22,965 28,539 21,711
12/31/94 22,525 28,912 20,948
12/31/95 28,494 39,734 24,979
</TABLE>
<TABLE>
<CAPTION>
Managed Assets Income Fund Performance
Average Annual Total Return
- --------------------------------------------------------------------------------
Inception Since
Date 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/95
A Shares* 1/23/86 20.71% 11.92% 11.61%
B Shares** 3/3/95 NA NA 16.42%
I Shares*** 3/3/95 NA NA 22.55%
</TABLE>
The performance of the Prairie Managed Assets Income Fund is measured against
the S&P 500 Index, an unmanaged index generally representative of the U.S. stock
market, and the Lehman Brothers Government/Corporate Bond Index, an unmanaged
broad-based index representative of the bond market as a whole. The indices do
not reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects the deduction of fees for these value-added services. Past performance
is not predictive of future results. The investment return and NAV will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
The chart reflects the performance of Class A shares, which have been offered
since 1/23/86. Please refer to the box above for returns on Class B and I
shares.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
*** Aggregate Total Return
6
<PAGE>
Managed Assets Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Lehman
Government/Corporate
Bond S&P 500
Date A Shares* B Shares** I Shares Index Index
- ---- --------- ---------- -------- -------------------- -------
<S> <C> <C> <C> <C> <C>
03/31/95 10,000 10,000
04/03/95 9,551 9,500 10,000
06/30/96 10,038 9,990 10,520 10,648 10,949
09/30/95 10,507 10,460 11,024 10,852 11,819
12/31/95 11,125 11,083 11,690 11,358 12,524
</TABLE>
<TABLE>
<CAPTION>
Managed Assets Fund Performance
Aggregate Total Return
---------------------------------------------
Inception Since
Date Inception
---------------------------------------------
<S> <C> <C>
12/31/95
A Shares* 4/3/95 11.25%
B Shares** 4/3/95 10.83%
I Shares 4/3/95 16.90%
</TABLE>
The performance of the Prairie Managed Assets Fund is measured against the S&P
500 Index, an unmanaged index generally representative of the U.S. stock market,
and the Lehman Brothers Government/Corporate Bond Index, an unmanaged broad-
based index representative of the bond market as a whole. The indices do not
reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects the deduction of fees for these value-added services. Past performance
is not predictive of future results. The investment return and NAV will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
7
<PAGE>
EQUITY FUNDS
EQUITY INCOME FUND, GROWTH FUND AND SPECIAL OPPORTUNITIES FUND
An interview with JAMES MOELLER Portfolio Manager
Q. 1995 WAS A GOOD YEAR FOR EQUITY FUNDS. HOW WELL DID THE THREE DOMESTIC
STOCK FUNDS PERFORM?
All three of the Funds benefited from the stock market's rise. From their
inception on January 27, 1995, through December 31, 1995, the Equity
Income Fund returned 29.78% (A Shares),+ compared to 34.21% for its
benchmark, the Russell 1000 Value Index; the Growth Fund returned 29.98%
(A Shares),+ versus 34.34% for the Russell 1000 Growth Index; and the
Special Opportunities Fund posted a gain of 24.80% (A Shares),+ compared
to 26.36% for the Russell 2000 Value Index.
Q. DID INVESTMENTS IN ANY ONE AREA OF THE MARKET--LARGE-CAP, MID-CAP, SMALL-
CAP--CONTRIBUTE MORE TO PERFORMANCE THAN ANY OTHER?
Not really. We saw a very broad strong market during the year. The Dow
Jones Industrial Average, the S&P 500 and the Wilshire 5000 all posted
gains over 35% for the 12 months ended December 31, 1995. So returns were
relatively uniform across the various sectors of the market. Only the
small-cap index, the Russell 2000, lagged, but it was still up about 28%
for the year. In any other year, with this kind of performance, small-cap
stocks would be considered big winners.
Q. GIVEN THIS ENVIRONMENT, HOW DID YOU APPROACH THE MARKET?
We expected the economy to exhibit slower economic growth in 1995 after
the torrid pace it achieved in the latter part of 1994. Accordingly, we
invested our portfolios in defensive securities, or companies whose profit
outlook would be least affected by the slower rate of growth. This
strategy initially proved conservative. The consensus viewed the sharp
decline of bond yields in the first half of the year as a catalyst for the
economy to reaccelerate, thereby favoring cyclical investments. However,
this did not occur, and the economy continued to slow as the year
progressed. It became clear that certain sectors of the economy could not
meet earnings expectations, and our strategy began to positively impact
our Funds' performance.
+ With the maximum sales charge of 4.50%, A Shares of the Equity Income Fund
returned 23.95%, A Shares of the Growth Fund returned 24.14%, and A Shares
of the Special Opportunities Fund returned 19.20% over the same time
period.
Small-capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure, and by definition are not
as well established as "blue chip" companies. Historically, smaller
companies' stocks have experienced a greater degree of market volatility
than average.
8
<PAGE>
Q. WHICH SECTORS DID YOU EMPHASIZE?
In the second half of the year, the best-performing groups were the most
defensive--sectors with relatively stable demand regardless of the
economy's ups and downs. The Equity Income Fund emphasized energy, utility
and financial stocks and had only a few holdings in companies with more
cyclical demand. While the Growth Fund held a few positions in the
technology sector, it was overweighted in health care and consumer
staples. The Special Opportunities Fund focused on smaller companies in
the same sectors as the Growth Fund.++
Q. TURNING TO 1996, WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
We feel that earnings disappointments will continue. Economic growth is
expected to remain sluggish in the months ahead, and while profits will
still be positive, fewer companies will be able to meet or surpass the
stratospheric records set in 1995. So we expect to see a challenging
market in the months ahead.
Q. GIVEN THIS OUTLOOK, HOW ARE THE FUNDS POSITIONED?
Defensively. As we move into 1996, we remain invested in less economically
sensitive sectors of the marketplace. Other than this, we haven't made any
major changes in the Funds' allocations. Many of the companies we invest
in are global in nature and not solely dependent on the U.S. economy for
profit growth. Consequently, while we are somewhat cautious about the U.S.
stock market, we are optimistic about the Funds' prospects for growth in
the year ahead.
++ The composition of the Funds' holdings is subject to change.
Equity Income Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Russell 1000
Date A Shares* B Shares** I Shares Value Index
- ---- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
12/31/94 10,000
01/27/95 9,551 9,500 10,000
01/31/95 10,308
03/31/95 10,005 9,959 10,476 10,950
06/30/95 10,750 10,721 11,264 11,930
09/30/95 11,583 11,570 12,154 12,973
12/31/95 12,395 12,397 13,027 13,834
</TABLE>
<TABLE>
<CAPTION>
Equity Income Fund Performance
Aggregate Total Return
------------------------------
Since
Inception
(1/27/95)
------------------------------
<S> <C>
12/31/95
A Shares* 23.95%
B Shares** 23.97%
I Shares 30.27%
</TABLE>
The performance of the Prairie Equity Income Fund is measured against the
Russell 1000 Value Index, an unmanaged index generally representative of the
"large-cap" segment of the Russell 3000 Index, an index of the 3000 largest
U.S. companies. The index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees.
However, the Fund's performance reflects the deduction of fees for these value-
added services. Past performance is not predictive of future results. The
investment return and NAV will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
9
<PAGE>
Growth Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Russell 1000
Date A Shares* B Shares** I Shares Growth Index
- ---- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
12/31/94 10,000
01/27/95 9,551 9,500 10,000
01/31/95 10,213
03/31/95 10,172 10,130 10,650 10,953
06/30/95 10,807 10,769 11,317 12,030
09/30/95 11,646 11,629 12,211 13,123
12/31/95 12,414 12,415 13,038 13,721
</TABLE>
<TABLE>
<CAPTION>
Growth Fund Performance
Aggregate Total Return
------------------------------
Since
Inception
(1/27/95)
------------------------------
<S> <C>
12/31/95
A Shares* 24.14%
B Shares** 24.15%
I Shares 30.38%
</TABLE>
The performance of the Prairie Growth Fund is measured against the Russell 1000
Growth Index, an unmanaged index generally representative of the "large-cap"
segment of the Russell 3000 Index, an index of the 3000 largest U.S. companies.
The index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management and fund accounting fees. However, the
Fund's performance reflects the deduction of fees for these value-added
services. Past performance is not predictive of future results. The investment
return and NAV will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than the original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
10
<PAGE>
Special Opportunities Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Russell 2000
Date A Shares* B Shares** I Shares Value Index
- ---- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
12/31/94 10,000
01/27/95 9,551 9,500 10,000
01/31/95 9,952
03/31/95 10,124 10,090 10,600 10,371
06/30/95 10,167 10,100 10,640 11,280
09/30/95 11,255 11,220 11,798 12,219
12/31/95 11,920 11,876 12,508 12,575
</TABLE>
<TABLE>
<CAPTION>
Special Opportunities Fund Performance
Aggregate Total Return
--------------------------------------
Since
Inception
(1/27/95)
--------------------------------------
<S> <C>
12/31/95
A Shares* 19.20%
B Shares** 18.76%
I Shares 25.08%
</TABLE>
The performance of the Prairie Special Opportunities Fund is measured against
the Russell 2000 Value Index, an unmanaged index generally representative of the
2000 smallest stocks in the Russell 3000 Index, an index of the 3000 largest
U.S. companies and the Lehman Brothers Aggregate Bond Index, an unmanaged broad-
based index representative of the bond market as a whole. The index does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects the deduction of fees for these value-added services. Past performance
is not predictive of future results. The investment return and NAV will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
11
<PAGE>
EQUITY FUNDS
INTERNATIONAL EQUITY FUND
An interview with PETER JANKOVSKIS Portfolio Manager
Q. HOW WELL HAS THE FUND PERFORMED SINCE ITS INCEPTION ON MARCH 3, 1995?
Very well. It outperformed its benchmark by 5.74 percentage points. The
Fund posted a gain of 15.16% (A Shares),+ while the Morgan Stanley Europe,
Asia and Far East (EAFE) Index produced a total return of 9.42% for the
period.
Q. GENERALLY, IT WAS A TOUGH YEAR FOR MARKETS OUTSIDE THE U.S. WHAT ACCOUNTED
FOR THE FUND'S STRONG PERFORMANCE?
Primarily our investment in Japan. After a dismal four years, the Japanese
economy showed signs of reviving in 1995; with 59% of our assets invested
there, we benefited from the rebound. In addition, 40% of the yen currency
exposure associated with our holdings in Japan was hedged with U.S.
dollars using currency futures. This helped the Fund preserve its gains in
the Japanese equity market as the dollar rose in value relative to the
yen.
Q. WHAT HAPPENED IN MARKETS BEYOND JAPAN?
The rising value of European currencies relative to the dollar and the
associated pressure on the export-oriented economies of Europe made it
difficult for foreign markets to match the torrid pace of the U.S. stock
market. The Fund had significant investments in the UK stock market (21%),
which had a return of 22.2%. Returns in Germany and France were
considerably lower, though aided by the appreciation of the D-mark and
franc.
Q. SPECIFICALLY, WHERE DO YOU SEE OPPORTUNITY?
I like foreign equity markets in general and look for them to outperform
the U.S. in 1996. Dollar strength will be the major driver for foreign
markets in the coming year. A rising dollar means that foreign goods will
be cheaper in the U.S., which should increase sales and, eventually, boost
foreign corporate profits. Looking at individual markets, I still like
Japan, which has continued to show signs that it is coming out of its
recession.
+ With the maximum sales charge of 4.50%, A Shares of the International
Equity Fund returned 9.99% for the same period.
12
<PAGE>
Q. IS THERE ANY REGION YOU AREN'T OPTIMISTIC ABOUT?
I'm not wildly enthusiastic about the prospects for Continental Europe in
the year ahead. Growth is slowing and unemployment is high. Most
importantly, the governments there can't do much to relieve the
situation--they're constrained by the Maastricht Treaty on monetary union
and have very little margin for fiscal stimulus.
Q. GIVEN YOUR OUTLOOK, HOW HAVE YOU ALLOCATED THE FUND'S ASSETS?
As of December 31, 1995, 59% of our holdings were invested in Japan and
21% was invested in the United Kingdom. Approximately one-third of our
currency exposure in both countries was hedged with U.S. dollars. Holdings
in Germany and France accounted for approximately 7% of the portfolio. The
remainder was invested in Australia, Singapore and Hong Kong.++
++ The composition of the Fund's holdings is subject to change. The Fund seeks
to outperform the EAFE Index by actively shifting exposure among countries.
International investing is subject to certain risk factors such as currency
exchange-rate volatility, possible political, social or economic instability,
foreign taxation and possible differences in auditing and other financial
standards.
International Equity Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Date A Shares* B Shares** I Shares EAFE Index
- ---- --------- ---------- -------- ----------
<S> <C> <C> <C> <C>
03/06/95 9,551 9,500 10,000
03/31/95 9,847 9,800 10,310 10,000
06/30/95 9,616 9,552 10,090 10,080
09/30/95 10,397 10,351 10,925 10,508
12/31/95 10,999 10,952 11,562 10,942
</TABLE>
<TABLE>
<CAPTION>
International Equity Fund Performance
Aggregate Total Return
-------------------------------------
Since
Inception
(3/3/95)
-------------------------------------
<S> <C>
12/31/95
A Shares* 9.99%
B Shares** 9.52%
I Shares 15.62%
</TABLE>
The performance of the Prairie International Equity Fund is measured against
the EAFE Index, an unmanaged index generally representative of the entire range
of stocks available to investors in each local market. The index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects the deduction of fees for these value-added services. Past performance
is not predictive of future results. The investment return and NAV will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
13
<PAGE>
BOND FUNDS
INTERMEDIATE BOND FUND AND BOND FUND
An interview with ANNETTE COLE Portfolio Manager
Q. HOW DID THE INTERMEDIATE BOND AND BOND FUNDS PERFORM IN 1995?
Very well. For the 12 months ended December 31, 1995, the Intermediate
Bond Fund beat its industry benchmark with a total return of 17.19% (A
Shares)+ versus 14.43% for the Lehman Brothers Intermediate
Government/Corporate Bond Index. The Bond Fund, which began operations on
February 10, 1995, produced a total return of 18.22% (A Shares)+ since
inception, beating the Lehman Brothers Corporate Bond Index, which had a
total return of 16.35% over the same time period.
Q. WAS THERE ANY ONE REASON FOR YOUR FUNDS' STRONG PERFORMANCE?
We made the right moves at the right time. Throughout the year, as rates
rose and fell, we adjusted the duration of the portfolios (a measure of
their sensitivity to changes in interest rates), capitalizing on
opportunities to capture appreciation as interest rates fell and moving to
a more defensive position as interest rates rose. The Funds were also
overweighted in two sectors of the market that did particularly well
during the year--banking and asset-backed securities.
Q. HOW ABOUT OTHER MARKET SECTORS? DID YOU MAKE ANY MAJOR CHANGES IN
ALLOCATION DURING THE YEAR?
In an effort to track more closely with industry averages, we increased
our positions in corporate securities in both Funds during the year.
Corporate bonds were relatively expensive at the start of the period and
became more expensive as the year progressed, so we added to our holdings
only when the added yield was high enough to compensate for their added
risk. As a result, these bonds made a solid contribution to the
performance of both Funds.++
Q. WILL 1996 BE AS GOOD A YEAR AS 1995 FOR THE BOND MARKET?
We think it's unlikely. Right now, we're watching commodity and gold
prices very closely for evidence of inflationary pressures. We're not
convinced that the economy is slowing quite as much or as quickly as most
investors think. We're
+ With the maximum sales charge of 3.00%, A Shares of the Intermediate Bond
Fund returned 13.61% for the 12 months ended December 31, 1995. With the
maximum sales charge of 4.50%, A Shares of the Bond Fund returned 12.91%
from February 10, 1995, through December 31, 1995.
++ The composition of the Funds' holdings is subject to change.
14
<PAGE>
also worried about the situation in Washington--endless wrangling over the
budget can only erode confidence in our financial markets. Finally, we're
concerned about the shape of the domestic yield curve--currently, longer-
term securities are not paying investors a premium over short-term
securities. There is little incentive for investors to be in anything
other than shorter-term securities at the moment.
Q. WHERE DO YOU SEE INTEREST RATES GOING?
Clearly, investors believe that the Federal Reserve Board is poised to cut
short-term rates once again and have priced the cut into the market. As a
result, at this point, the risks of extending maturities outweigh the
potential rewards. Our forecast calls for short-term rates to fall and
long-term rates to rise later in the year. Therefore, at the end of 1996,
the rewards for extending maturities are expected to be much greater.
Q.GIVEN YOUR OUTLOOK, HOW ARE YOU POSITIONING THE PORTFOLIOS?
We're approaching the markets very cautiously. By the first quarter of
1996, we expect the Funds to hold 8% to 10% of their assets in short-term
securities. Our target figure will move higher if we see a clear
indication of increased inflationary pressures such as a dramatic increase
in the price of commodities, gold or energy.
Q.WHAT'S THE AVERAGE MATURITY OF THE FUNDS' HOLDINGS?
As of December 31, 1995, the average portfolio maturity was 10.4 years for
the Bond Fund and 6.5 years for the Intermediate Bond Fund. The average
credit quality of portfolio holdings was AAA for the Intermediate Bond
Fund and AA2 for the Bond Fund.
15
<PAGE>
Intermediate Bond Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Lehman Intermediate
Government/Corporate
Date A Shares* Bond Index
- ---- --------- ----------
<S> <C> <C>
03/05/93 9,698
03/31/93 9,664 10,000
06/30/93 9,845 10,197
09/30/93 10,045 10,412
12/31/93 10,063 10,428
03/31/94 9,921 10,235
06/30/94 9,880 10,178
09/30/94 9,945 10,255
12/31/94 9,968 10,246
03/31/95 10,420 10,672
06/30/95 10,999 11,172
09/30/95 11,202 11,344
12/31/95 11,682 11,724
</TABLE>
<TABLE>
<CAPTION>
Intermediate Bond Fund Performance
Average Annual Total Return
- --------------------------------------------------------------------------------
Inception Since
Date 1 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
12/31/95
A Shares* 3/5/93 13.61% 5.65%
B Shares** 5/31/95 NA 1.41%
I Shares 3/5/93 17.53% 6.91%
</TABLE>
The performance of the Prairie Intermediate Bond Fund is measured against the
Lehman Brothers Intermediate Government/Corporate Bond Index, an unmanaged
broad-based index representative of the bond market as a whole. The index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects the deduction of fees for these value-added services. Past performance
is not predictive of future results. The investment return and NAV will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than the original cost.
This chart reflects the performance of Class A shares, which have been offered
since 3/5/93. Please refer to the box above for returns on Class B and I shares.
* Reflects 3.00% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
16
<PAGE>
Bond Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Lehman Corporate
Date A Shares* B Shares** I Shares Bond Index
- ---- --------- ---------- -------- ----------------
<S> <C> <C> <C> <C>
02/16/95 9,551 9,500 10,000
02/28/95 9,752 9,707 10,211 10,000
03/31/95 9,811 9,761 10,275 10,082
06/30/95 10,480 10,451 10,992 10,832
09/30/95 10,716 10,667 11,241 11,087
12/31/95 11,291 11,241 11,857 11,635
</TABLE>
<TABLE>
<CAPTION>
Bond Fund Performance
Aggregate Total Return
------------------------------
Since
Inception
(2/10/95)
------------------------------
<S> <C>
12/31/95
A Shares* 12.91%
B Shares** 12.41%
I Shares 18.57%
</TABLE>
The performance of the Prairie Bond Fund is measured against the Lehman Brothers
Corporate Bond Index, an unmanaged broad-based index representative of
investment-grade debt corporate bonds. The index does not reflect the deduction
of expenses associated with a mutual fund, such as investment management and
fund accounting fees. However, the Fund's performance reflects the deduction of
fees for these value-added services. Past performance is not predictive of
future results. The investment return and NAV will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
17
<PAGE>
BOND FUNDS
INTERNATIONAL BOND FUND
An interview with CLAUDE ERB Portfolio Manager
Q. HOW DID THE INTERNATIONAL BOND FUND PERFORM IN 1995?
We did extremely well. For its 11 months of operation since January 27,
1995, the Fund had a total return of 21.10% (A Shares),+ outperforming our
industry benchmark, the Salomon Brothers Non-U.S. Government Bond Index,
which returned 16.98% for the period. We are extremely pleased with
results.
Q. WHAT ACCOUNTED FOR YOUR SUCCESS?
Very simply, smart currency hedging. We took advantage of the gross
overvaluation of the Japanese yen. As the dollar bottomed and the yen
began to take a hit, the Fund was positioned to benefit--and it has. We
expect to see the dollar strengthen in the coming year, so the environment
still presents us with opportunity.
Q. DURING 1995, WHICH MARKETS DID YOU EMPHASIZE AND WHY?
Basically, we had exposure to the major bond markets, such as Japan,
Germany, the United Kingdom and Canada. Our good performance was due to
selective currency and maturity decisions.++
Q.WHAT, SPECIFICALLY, DO YOU SEE AS OPPORTUNITIES IN THE YEAR AHEAD?
Without doubt, the most compelling non-U.S. bond market is Canada. We plan
to take advantage of this view soon.
+ With the maximum sales charge of 4.50%, A Shares of the International Bond
Fund returned 15.66% for the same period.
++ The composition of the Fund's holdings is subject to change.
International investing is subject to certain risk factors such as currency
exchange-rate volatility, possible political, social or economic instability,
foreign taxation and possible differences in auditing and other financial
standards.
18
<PAGE>
International Bond Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
Salomon Non-U.S.
Date A Shares* B Shares** I Shares Government Index
- ---- --------- ---------- -------- ----------------
<S> <C> <C> <C> <C>
12/31/94 10,000
01/27/95 9,551 9,500 10,000
01/31/95 10,218
03/31/95 10,705 10,647 11,213 11,443
06/30/95 11,110 11,115 11,706 12,003
09/30/95 11,270 11,266 11,886 11,711
12/31/95 11,566 11,549 12,213 11,953
</TABLE>
<TABLE>
<CAPTION>
International Bond Fund Performance
Aggregate Total Return
-----------------------------------
Since
Inception
(1/27/95)
-----------------------------------
<S> <C>
12/31/95
A Shares* 15.66%
B Shares** 15.49%
I Shares 22.13%
</TABLE>
The performance of the Prairie International Bond Fund is measured against the
Salomon Brothers Non-U.S. Government Bond Index, an unmanaged index generally
representative of the world government bond markets. The index does not reflect
the deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. However, the Fund's performance reflects
the deduction of fees for these value-added services. Past performance is not
predictive of future results. The investment return and NAV will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than the
original cost.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
19
<PAGE>
MUNICIPAL BOND FUNDS
INTERMEDIATE MUNICIPAL BOND FUND AND MUNICIPAL BOND FUND
An interview with JOHN ERICKSON Portfolio Manager
Q. HOW DID THE FUNDS PERFORM DURING THE YEAR ENDED DECEMBER 31, 1995?
Very well. For the one-year period ended December 31, 1995, the Municipal
Bond Fund's total return was 16.89% (A Shares),+ versus a gain of 15.98%
for the A. H. Williams Broad Market Municipal Index, our benchmark.
Similarly, the Intermediate Municipal Bond Fund ran neck and neck with its
index. For the same period, its total return was 12.55% (A Shares)+ versus
12.49% for the A. H. Williams Intermediate Municipal Index.
Q. WAS THERE ANY ONE REASON THAT THE FUNDS DID SO WELL?
Security selection. 1995 was a volatile year in the municipal markets. As
the economy weakened and inflationary fears eased, investors regained
confidence, which put upward pressure on the market. At the same time, the
specter of tax reform hung over our heads for most of the year--which
exerted downward pressure. Investor sentiment seemed to shift in response
to whichever topic the media focused on. In such an uncertain environment,
the quality of the portfolio's holdings was key. At period's end, the
average quality of the securities in the portfolios was Aa.
Q. WHAT IMPACT DID THE BUDGET SITUATION IN WASHINGTON HAVE ON THE MARKET?
It was a wild card. Meaningful progress on the deficit would have a very
positive effect--and that's what investors thought they would get. But so
far, no budget agreement has materialized. Now we're seeing the other side
of the equation--there's a consensus growing that there may not be an
agreement or significant progress anytime soon.
Q. WHAT ABOUT THE POSSIBILITY OF A FLAT TAX?
The possibility of such a change was positive for the taxable bond markets
in 1995, while the yield from municipals was at a historic high versus
Treasury securities throughout much of the year. Whether the possibility
of a true flat tax will ever become a reality seems unlikely at the
moment. Such a revolutionary change would demand a consensus of opinion,
which is in short supply in Washington these days.
+ With the maximum sales charge of 4.50%, A Shares of the Municipal Bond Fund
returned 11.67% for the one-year period. With the maximum sales charge of
3.00%, A Shares of the Intermediate Municipal Bond Fund returned 9.21% for
the same period.
20
<PAGE>
Q. WHAT'S YOUR OUTLOOK FOR THE MUNI MARKETS IN THE MONTHS AHEAD?
We're not wildly optimistic. We expect to see long-term rates increase
while short-term and intermediate-term rates remain constant. Right now,
little yield can be picked up by extending out the yield curve past five
years.
Q. WITH THIS IN MIND, HOW ARE YOU POSITIONING THE PORTFOLIOS?
Defensively. Given the environment, it makes little sense for income-
oriented fixed-income investors to be in long-term securities. As a
result, in recent weeks, we've been unwinding our long-term bond positions
and increasing our holdings of short-term securities.++
Q. WHAT'S THE AVERAGE MATURITY OF THE FUNDS' HOLDINGS NOW?
As of December 31, 1995, the average portfolio maturity was 7.4 years for
the Intermediate Municipal Bond Fund and 13.5 years for the Municipal Bond
Fund. However, we expect to see these numbers fall in the months ahead as
we increase our short-term holdings.
++ The composition of the Funds' holdings is subject to change.
Intermediate Municipal Bond Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
A. H. Williams
Intermediate
Date A Shares* Municipal Index
- ---- --------- ---------------
<S> <C> <C>
03/01/88 9,704 10,000
02/28/89 10,365
02/28/90 11,298 10,308
02/28/91 12,422 11,292
02/29/92 13,637 12,245
02/28/93 15,172 13,731
02/28/94 15,935 14,309
02/28/95 16,196 14,731
12/31/95 17,586 15,942
</TABLE>
<TABLE>
<CAPTION>
Intermediate Municipal Bond Fund Performance
Average Annual Total Return
- --------------------------------------------------------------------------------
Inception Since
Date 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/95
A Shares* 3/1/88 9.21% 7.08% 7.46%
B Shares** 1/30/95 NA NA 6.22%
I Shares*** 1/30/95 NA NA 11.33%
</TABLE>
The performance of the Prairie Intermediate Municipal Bond Fund is measured
against the A.H. Williams Intermediate Municipal Index, an unmanaged index
generally representative of the intermediate investment-grade tax-exempt bond
market. The index does not reflect the deduction of expenses associated with a
mutual fund, such as investment management and fund accounting fees. However,
the Fund's performance reflects the deduction of fees for these value-added
services. Past performance is not predictive of future results. The investment
return and NAV will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than the original cost.
This chart reflects the performance of Class A shares, which have been offered
since 3/1/88. Please refer to the box above for returns on Class B and I shares.
Although the A.H. Williams Index started after the inception of the Fund, the
index is an appropriate measure of performance because the investments tracked
by the index are similar to those in the Fund.
* Reflects 3.00% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
*** Aggregate Total Return
21
<PAGE>
Municipal Bond Fund
[GRAPH APPEARS HERE]
Return on a $10,000 Investment
<TABLE>
<CAPTION>
A. H. Williams Broad
Date A Shares* Market Municipal Index
- ---- --------- ----------------------
<S> <C> <C>
03/01/88 9,552 10,000
02/28/89 10,204
02/28/90 11,160 10,284
02/28/91 12,290 11,279
02/29/92 13,580 12,418
02/28/93 15,529 14,274
02/28/94 16,103 15,004
02/28/95 16,846 15,387
12/31/95 18,692 16,897
</TABLE>
<TABLE>
<CAPTION>
Municipal Bond Fund Performance
Average Annual Total Return
- --------------------------------------------------------------------------------
Inception Since
Date 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/95
A Shares* 3/1/88 11.67% 8.21% 8.30%
B Shares** 4/4/95 NA NA 3.81%
I Shares*** 2/1/95 NA NA 14.20%
</TABLE>
The performance of the Prairie Municipal Bond Fund is measured against
the A.H. Williams Broad Market Municipal Index, an unmanaged index generally
representative of the broad investment-grade, tax-exempt bond market. The
index does not reflect the deduction of expenses associated with a mutual fund,
such as investment management and fund accounting fees. However, the Fund's
performance reflects the deduction of fees for these value-added services. Past
performance is not predictive of future results. The investment return and NAV
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than the original cost.
Although the A.H. Williams Index started after the inception of the Fund, the
index is an appropriate measure of performance because the investments tracked
by the index are similar to those in the fund.
This chart reflects the performance of Class A shares, which have been offered
since 3/1/88. Please refer to the box above for returns on Class B and I
shares.
* Reflects 4.50% Sales Charge
** Reflects 5.00% Contingent Deferred Sales Charge
*** Aggregate Total Return
22
<PAGE>
MONEY MARKET FUNDS
MONEY MARKET FUND U.S. GOVERNMENT MONEY MARKET FUND MUNICIPAL MONEY MARKET
FUND
CURRENT SEVEN-DAY YIELDS
AS OF DECEMBER 31, 1995*
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRAIRIE PRAIRIE
CLASS A CLASS B
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund............................................... 5.03% 4.29%
U.S. Government Money Market Fund............................... 4.63% --
Municipal Money Market Fund..................................... 3.85% --
- --------------------------------------------------------------------------------
</TABLE>
* An investment in the Funds is neither insured nor guaranteed by the U.S.
Government. Yields will fluctuate, and there can be no assurance that the
Fund will be able to maintain a stable NAV of $1.00 per share.
Performance quoted reflects the reimbursement of a portion of the advisory
and/or administration fees. Had these reimbursements not been in effect, the
performance would have been lower and the 7-day yields would have been: Money
Market Fund A, 4.78%; Money Market Fund B, 3.58%; U.S. Government Money
Market Fund, 4.50%; and Municipal Money Market Fund, 3.62%.
23
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--25.7%
AUTOMOBILES--LEASING--0.9%
Hertz Corp., Junior Subordinate Note.... 6.63% 7/15/00 $ 500 $ 511,596
-----------
BANKING--2.4%
Citicorp, Subordinate Capital Note...... 9.75% 8/1/99 250 281,881
Citicorp, Subordinate Debenture......... 8.63% 12/1/02 350 399,187
NationsBank Corp., Subordinate
Debenture............................. 8.13% 6/15/02 350 386,750
Westpac Banking Limited, Subordinate
Debenture............................. 9.13% 8/15/01 250 285,192
-----------
1,353,010
-----------
BEVERAGES, FOOD AND TOBACCO--4.8%
Grand Metro Investment Corp., Guaranteed
Debenture, Yankee Bond................ 9.00% 8/15/11 250 309,616
Philip Morris Cos., Inc., Corporate
Note.................................. 8.63% 3/1/99 500 539,361
Philip Morris Cos., Inc., Corporate
Note.................................. 7.13% 10/1/04 250 264,357
RJR Nabisco, Inc. ...................... 8.30% 4/15/99 750 799,769
RJR Nabisco, Inc. ...................... 8.63% 12/1/02 700 727,012
-----------
2,640,115
-----------
CONSUMER GOODS AND SERVICES--1.0%
Time Warner, Inc., Corporate Note....... 7.95% 2/1/00 500 528,668
-----------
ENERGY--3.1%
Burlington Resources, Inc., Corporate
Note.................................. 8.50% 10/1/01 250 279,853
Coastal Corp., Senior Debenture......... 10.25% 10/15/04 500 623,257
Occidental Petroleum Corp., Senior Note. 11.13% 8/1/10 400 558,388
Shell Canada Limited, Corporate Note.... 7.38% 6/1/99 250 263,587
-----------
1,725,085
-----------
FINANCIAL SERVICES--9.2%
Barclay American Corp., Senior
Debenture............................. 9.13% 12/1/97 750 796,317
Chemical Banking Corp., Subordinate
Note.................................. 7.63% 1/15/03 500 542,021
Discover Credit Corp., Medium Term Note. 8.37% 4/28/99 250 268,483
General Motors Acceptance Corp.,
Corporate Note........................ 7.75% 4/15/97 250 254,756
General Motors Acceptance Corp.,
Corporate Note........................ 7.00% 3/1/00 500 520,157
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
FINANCIAL SERVICES (CONTINUED)
General Motors Acceptance Corp.,
Medium Term Note...................... 8.65% 5/29/96 $ 400 $ 405,094
International Lease Finance,
Corporate Note........................ 8.35% 10/1/98 500 533,594
KFW International Finance, Inc.
Guaranteed Note....................... 8.85% 6/15/99 250 274,728
Progessive Corp., Ohio, Corporate Note.. 6.60% 1/15/04 500 509,013
Salomon Inc., Senior Note............... 7.50% 2/1/03 500 514,213
Wells Fargo & Co., Subordinate Note..... 8.38% 5/15/02 400 447,822
-----------
5,066,198
-----------
HEATH CARE AND HOSPITAL MANAGEMENT--0.5%
Multicare Cos., Inc.,
Subordinate Debenture*................ 7.00% 3/15/03 250 271,250
-----------
RETAIL--0.5%
May Department Stores Co.,
Medium Term Note...................... 9.45% 2/2/99 250 275,701
-----------
STEEL--0.9%
USX-Marathon Group, Corporate Note...... 6.38% 7/15/98 500 505,561
-----------
TECHNOLOGY INDUSTRIES--1.0%
Digital Equipment Corp., Debenture...... 8.63% 11/1/12 500 547,116
-----------
UTILITIES--1.4%
Commonwealth Edison Co., First Mortgage,
Series 81, Corporate Note............. 8.63% 2/1/22 250 275,250
Pacific Bell, Corporate Note............ 7.00% 7/15/04 500 525,940
-----------
801,190
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $13,587,940)..................... 14,225,490
-----------
U.S. GOVERNMENT OBLIGATIONS--3.7%
U.S. Treasury Notes..................... 8.50% 5/15/97 100 104,344
U.S. Treasury Notes..................... 8.13% 2/15/98 500 528,750
U.S. Treasury Notes..................... 6.25% 5/31/00 850 879,218
U.S. Treasury Notes..................... 8.00% 5/15/01 500 560,000
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $1,960,714)...................... 2,072,312
-----------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--1.7%
Federal National
Mortgage Association.. 7.60% 1/10/97 $ 400 $ 409,250
Federal National
Mortgage Association.. 8.35% 11/10/99 500 547,694
----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $900,628)........ 956,944
----------
<CAPTION>
Shares
------
<S> <C> <C> <C> <C>
PREFERRED CONVERTIBLE
STOCKS--7.0%
AUTOMOBILES--3.1%
Ford Motor Co., Series
A, $4.20.............. 9,000 852,750
General Motors Corp.,
Series C, $3.25....... 12,000 879,000
----------
1,731,750
----------
BANKING AND FINANCE--3.9%
Citicorp, Series 13,
$5.38................. 6,000 1,098,750
First USA, Inc., 6.25%.. 15,000 592,500
National City Corp.,
8.00%................. 6,000 472,500
----------
2,163,750
----------
TOTAL PREFERRED
CONVERTIBLE STOCKS
(COST $2,643,539)...... 3,895,500
----------
COMMON STOCKS--41.9%
AUTOMOBILES--1.7%
Ford Motor Co. ......... 4,000 116,000
General Motors Corp..... 14,886 787,097
----------
903,097
----------
BANKING AND FINANCE--5.1%
Bank of Boston Corp. ... 21,000 971,250
First Union Corp. ...... 11,000 611,875
NationsBank Corp. ...... 13,912 968,623
Citicorp................ 4,280 287,830
----------
2,839,578
----------
BEVERAGE, FOOD AND
TOBACCO--3.3%
Philip Morris Cos.,
Inc. ................. 20,000 1,810,000
----------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
ELECTRICAL AND ELECTRONIC EQUIPMENT--0.6%
Hubbell, Inc., Class B.......................... 5,000 $ 328,750
-----------
HEALTH INDUSTRIES--3.6%
National Health Investors, Inc. ................ 61,000 2,020,625
-----------
INSURANCE--3.1%
AON Corp. ...................................... 28,500 1,421,438
Exel, Ltd. ..................................... 5,200 317,200
-----------
1,738,638
-----------
OIL & GAS--3.9%
Atlantic Richfield Co. ......................... 5,000 553,750
British Petroleum PLC ADR....................... 9,000 919,125
Texaco, Inc. ................................... 9,000 706,500
-----------
2,179,375
-----------
PHARMACEUTICALS--5.8%
Bristol Myers Squibb Co. ....................... 8,000 687,000
Johnson & Johnson............................... 8,000 685,000
Pfizer, Inc. ................................... 20,000 1,260,000
Warner Lambert Co. ............................. 6,000 582,750
-----------
3,214,750
-----------
REAL ESTATE INVESTMENT TRUSTS--2.0%
Amli Residential Property Trust................. 55,000 1,100,000
-----------
TELECOMMUNICATIONS--6.0%
Brittish Telecom PLC ADR........................ 10,000 565,000
GTE Corp. ...................................... 26,000 1,144,000
Sprint Corp. ................................... 20,000 797,500
US West, Inc. .................................. 15,000 536,250
US West Media Group............................. 15,000 285,000
-----------
3,327,750
-----------
UTILITIES--6.8%
Detroit Edison Co. ............................. 20,000 690,000
Entergy Corp. .................................. 20,000 585,000
Peco Energy Co. ................................ 25,000 753,125
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES (CONTINUED)
Texas Utilities Co. ................... 30,000 $ 1,233,750
United Illuminating Co. ............... 14,000 523,250
-----------
3,785,125
-----------
TOTAL COMMON STOCKS
(COST $17,046,251).................... 23,247,688
-----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
SHORT TERM INVESTMENT--19.2%
U.S. TREASURY BILL--19.2%
U.S. Treasury Bill (cost $10,607,930).. 5.31%** 2/29/96 $10,700 10,617,075
-----------
TOTAL INVESTMENTS--99.2%
(COST $46,747,002)(A)................. 55,015,009
Other assets in excess of liabilities--
0.8%.................................. 450,318
-----------
NET ASSETS--100.0%...................... $55,465,327
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $55,465,327.
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
** Yield at purchase.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $8,452,650
Unrealized depreciation......................................... (184,643)
----------
Net unrealized appreciation..................................... $8,268,007
==========
</TABLE>
ADR--American Depository Receipts.
See Notes to Financial Statements.
28
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--61.4%
ALUMINUM--1.1%
Aluminum Co. of America...................... 1,900 $ 100,462
----------
AUTOMOBILES--0.9%
Ford Motor Co................................ 3,000 87,000
----------
AUTOMOTIVE PARTS & EQUIPMENT--0.9%
Echlin, Inc.................................. 2,400 87,600
----------
BANKING--3.7%
BankAmerica Corp............................. 1,900 123,025
NationsBank Corp............................. 1,700 118,363
State Street Bank(b)......................... 2,600 117,000
----------
358,388
----------
BEVERAGE, FOOD & TOBACCO--4.5%
Anheuser-Busch Cos., Inc..................... 1,200 80,250
Coca-Cola Co................................. 1,600 118,800
PepsiCo, Inc................................. 2,000 111,750
Philip Morris Cos., Inc...................... 1,300 117,650
----------
428,450
----------
BROKERAGE SERVICES--0.7%
Dean Witter, Discover & Co................... 1,400 65,800
----------
BUSINESS & DATA PROCESSING EQUIPMENT--1.6%
International Business Machines.............. 1,700 155,975
----------
CHEMICALS--3.6%
E. I. du Pont de Nemours & Co................ 1,100 76,863
Monsanto Co.................................. 700 85,750
Morton Int'l................................. 2,900 104,037
Praxair, Inc................................. 2,300 77,337
----------
343,987
----------
COMPUTERS-MICRO--0.9%
Compaq Computer Corp.(b)..................... 1,700 81,600
----------
COMPUTERS-SOFTWARE & PERIPHERALS--2.1%
Computer Association Int'l., Inc. ........... 1,550 88,156
Microsoft Corp.(b)........................... 1,300 114,075
----------
202,231
----------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
CONGLOMERATES--3.4%
Allied Signal, Inc........................... 1,700 $ 80,750
General Electric Co.......................... 2,500 180,000
ITT Corp..................................... 900 47,700
ITT Industries, Inc.(b)...................... 900 21,600
----------
330,050
----------
CONSUMER GOODS--1.0%
Service Corp. International.................. 2,100 92,400
----------
ELECTRONIC EQUIPMENT--2.7%
Emerson Electric Co.......................... 2,000 163,500
Motorola, Inc................................ 1,700 96,900
----------
260,400
----------
FINANCE COMPANIES--1.1%
Federal Home Loan Mortgage Corp.............. 1,300 108,550
----------
FOOD PROCESSING--0.9%
CPC Int. .................................... 1,300 89,212
----------
FOOD PRODUCTS--0.8%
Hershey Foods................................ 1,200 78,000
----------
HOUSEHOLD & PERSONAL CARE PRODUCTS--1.2%
Procter & Gamble Co. ........................ 1,400 116,200
----------
INSURANCE--1.9%
American International Group, Inc. .......... 1,500 138,750
ITT Hartford Group(b)........................ 900 43,538
----------
182,288
----------
LEISURE & ENTERTAINMENT--1.1%
Walt Disney Co............................... 1,800 106,200
----------
NEWSPAPERS AND PUBLISHING--0.7%
News Corp., Ltd. ADR......................... 3,300 70,538
----------
OIL-DOMESTIC--3.9%
Chevron Corp................................. 2,300 120,750
Mobil Corp................................... 1,200 134,400
Unocal Corp.................................. 4,100 119,413
----------
374,563
----------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
OIL-FIELD SERVICES AND EQUIPMENT--0.9%
Schlumberger, Ltd. ........................... 1,200 $ 83,100
----------
OIL & GAS--2.0%
British Petroleum Co. ADR..................... 900 91,913
Royal Dutch Petroleum Co...................... 700 98,788
----------
190,701
----------
PHARMACEUTICALS--5.5%
Bristol Myers Squibb Co....................... 1,200 103,050
Johnson & Johnson............................. 1,500 128,437
Merck & Co., Inc.............................. 1,800 118,350
Pfizer, Inc................................... 1,600 100,800
Smithkline Beecham ADR........................ 1,300 72,150
----------
522,787
----------
POLLUTION CONTROL--0.9%
WMX Technologies.............................. 3,000 89,625
----------
RAILROADS--1.1%
CSX Corp...................................... 2,400 109,500
----------
RESTAURANTS--0.8%
McDonald's Corp............................... 1,600 72,200
----------
RETAIL--3.1%
Home Depot, Inc............................... 2,400 114,900
May Department Stores Co...................... 1,500 63,375
Wal Mart Stores, Inc.......................... 5,400 120,825
----------
299,100
----------
TELECOMMUNICATIONS--6.9%
AT&T Corp..................................... 2,100 135,974
General Instrument Corp.(b)................... 1,300 30,388
GTE Corp...................................... 3,800 167,200
MCI Communications Corp....................... 2,800 73,150
NYNEX Corp.................................... 2,100 113,400
Pacific Telesis Group......................... 1,800 60,525
Telcom Corp. New Zealand ADR.................. 1,200 83,250
----------
663,887
----------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES--1.5%
FPL Group, Inc.......................... 3,200 $ 148,400
----------
TOTAL COMMON STOCKS
(COST $5,270,362)...................... 5,899,194
----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
----- -------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--26.0%
U.S. TREASURY NOTES
U.S. Treasury Note...................... 6.25% 5/31/00 $ 800 827,500
U.S. Treasury Note...................... 7.50% 11/15/01 700 771,750
U.S. Treasury Note...................... 6.38% 8/15/02 850 893,296
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $2,398,249)...................... 2,492,546
----------
SHORT TERM INVESTMENT--11.7%
U.S. TREASURY BILL
U.S. Treasury Bill (cost $1,120,308).... 5.31%* 2/29/96 1,130 1,121,243
----------
TOTAL INVESTMENTS
(COST $8,788,919)(A)--99.1% ........... 9,512,982
Other assets in excess of liabilities--
0.9%................................... 86,019
----------
NET ASSETS--100.0%....................... $9,599,001
==========
</TABLE>
- -----------
Percentages indicated are based on net assets of $9,599,001.
*Yield at purchase.
(a)Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $766,286
Unrealized depreciation........................................... (42,223)
--------
Net unrealized appreciation....................................... $724,063
========
</TABLE>
(b)Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
32
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--87.4%
AUTOMOBILES--1.4%
Ford Motor Co.............................. 140,000 $ 4,060,000
------------
AUTOMOTIVE PARTS & EQUIPMENT--1.7%
Echlin, Inc................................ 135,000 4,927,500
------------
BANKS--5.7%
Bankers Trust.............................. 115,000 7,647,500
First Union Corp. ......................... 90,000 5,006,250
NationsBank Corp........................... 55,000 3,829,375
------------
16,483,125
------------
BEVERAGES, FOOD & TOBACCO--2.8%
ConAgra, Inc............................... 81,418 3,358,492
Philip Morris Cos., Inc.................... 50,841 4,601,111
------------
7,959,603
------------
CHEMICALS--6.3%
ARCO Chemical.............................. 106,000 5,154,250
Dow Chemical............................... 93,000 6,544,875
E. I. du Pont de Nemours & Co.............. 90,000 6,288,750
------------
17,987,875
------------
COMPUTER SOFTWARE AND PERIPHERALS--1.3%
International Business Machines............ 40,000 3,670,000
------------
CONSTRUCTION--0.5%
Vulcan Materials........................... 23,000 1,325,375
------------
CONSUMER PRODUCTS--3.8%
Clorox Co. ................................ 100,000 7,162,500
Southern Co. .............................. 150,000 3,693,750
------------
10,856,250
------------
DEFENSE--1.7%
Lockheed Martin............................ 60,000 4,740,000
------------
ELECTRICAL EQUIPMENT--2.2%
Emerson Electric Co. ...................... 48,000 3,924,000
Hubbell, Inc., Class B..................... 20,000 1,315,000
Thomas & Betts Corp. ...................... 15,000 1,106,250
------------
6,345,250
------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
FOREST AND PAPER PRODUCTS--1.4%
Weyerhaeuser Co............................. 95,000 $ 4,108,750
------------
INSURANCE--5.8%
AON Corp. .................................. 137,000 6,832,875
FPL Group, Inc. ............................ 75,000 3,478,125
Lincoln National Corp. ..................... 120,000 6,450,000
------------
16,761,000
------------
METALS--1.0%
Phelps Dodge Corp. ......................... 45,000 2,801,250
------------
NATURAL GAS--3.0%
National Fuel Gas Co. ...................... 25,000 840,625
Sonat, Inc.................................. 40,000 1,425,000
Tenneco, Inc. .............................. 130,000 6,451,250
------------
8,716,875
------------
OIL & GAS--19.0%
AMOCO Corp.................................. 140,000 10,062,500
Atlantic Richfield Corp..................... 55,000 6,091,250
British Petroleum Co. PLC, ADR.............. 70,000 7,148,750
Exxon Corp.................................. 15,000 1,201,875
Mobil Corp.................................. 105,000 11,760,000
Occidental Petroleum Corp. ................. 195,000 4,168,125
Texaco, Inc................................. 125,000 9,812,500
Unocal Corp................................. 153,000 4,456,125
------------
54,701,125
------------
PHARMACEUTICALS--2.9%
Warner Lambert Co. ......................... 86,000 8,352,750
------------
REAL ESTATE INVESTMENT TRUSTS--3.8%
Amli Residential Properties Trust........... 140,000 2,800,000
Equity Residential Properties Trust ........ 80,000 2,450,000
National Health Investors, Inc. ............ 174,000 5,763,750
------------
11,013,750
------------
RETAIL STORES--2.3%
May Department Stores Co. .................. 156,938 6,630,631
------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
TELECOMMUNICATIONS--8.7%
British Telecom PLC ADR.................. 70,000 $ 3,955,000
GTE Corp. ............................... 210,000 9,240,000
Sprint Corp.............................. 156,938 6,257,903
U.S. West, Inc........................... 156,938 5,610,533
------------
25,063,436
------------
UTILITIES--12.1%
Cinergy Corp............................. 130,000 3,981,250
Detroit Edison Co. ...................... 196,173 6,767,969
Houston Industries....................... 260,000 6,305,000
Pacific Gas & Electric Co................ 54,928 1,558,582
Peco Energy Co. ......................... 129,769 3,909,291
Texas Utilities Co. ..................... 156,938 6,454,075
United Illuminating Co................... 156,938 5,865,558
------------
34,841,725
------------
TOTAL COMMON STOCKS
(COST $213,380,725)..................... 251,346,270
------------
CONVERTIBLE PREFERRED STOCKS--2.9%
AUTOMOBILES--2.2%
Ford Motor Company, Series A, $4.20...... 66,699 6,319,730
------------
STEEL--0.7%
WHX Corp., Series B, $3.00............... 45,694 1,941,995
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $7,461,465)....................... 8,261,725
------------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
CONVERTIBLE BOND--2.7%
BANKS--2.7%
Bank of New York, Inc.
Subordinate Convertible Debenture
(cost $4,984,156)...................... 7.50% 8/15/01 $ 3,139 7,816,110
------------
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
PRAIRIE FUNDS
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--7.1%
TIME DEPOSIT--7.1%
Berlin/Frankfurt Bank
(cost $20,271,000).................... 5.81% 1/2/96 $20,271 $ 20,271,000
------------
TOTAL INVESTMENTS
(COST $246,097,346)(A)--100.1%......... 287,695,105
Liabilities in excess of other
assets--(0.1%)......................... (301,578)
------------
NET ASSETS--100.0%....................... $287,393,527
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $287,393,527.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $42,227,078
Unrealized depreciation........................................ (629,319)
-----------
Net unrealized appreciation.................................... $41,597,759
===========
</TABLE>
ADR--American Depository Receipt.
See Notes to Financial Statements.
36
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--95.5%
ADVERTISING AND MARKETING SERVICES--1.3%
Interpublic Group of Companies, Inc. ........ 55,000 $ 2,385,625
Omnicon Group................................ 40,000 1,490,000
------------
3,875,625
------------
AUTOMOTIVE PARTS & EQUIPMENT--1.0%
Echlin, Inc. ................................ 80,000 2,920,000
------------
BANKING--1.5%
State Street Bank(b)......................... 100,000 4,500,000
------------
BEVERAGES, FOOD AND TOBACCO--16.0%
Coca Cola Co. ............................... 55,000 4,083,750
ConAgra, Inc. ............................... 110,000 4,537,500
General Mills, Inc. ......................... 140,000 8,085,000
Hershey Foods Corp. ......................... 60,000 3,900,000
Hudson Foods, Inc. Class A................... 90,000 1,552,500
PepsiCo, Inc. ............................... 130,000 7,263,750
Philip Morris Cos., Inc. .................... 140,000 12,670,000
Sara Lee Corp. .............................. 170,000 5,418,750
Schweitzer-Mauduit Int'l.(b)................. 8,000 185,000
------------
47,696,250
------------
CHEMICALS--5.9%
Eastman Chemical Co. ........................ 85,000 5,323,125
Morton Int'l ................................ 150,000 5,381,250
Praxair, Inc. ............................... 145,000 4,875,625
Wellman, Inc. ............................... 90,000 2,047,500
------------
17,627,500
------------
COMPUTERS--MICRO--0.7%
Compaq Computer Corp.(b)..................... 40,000 1,920,000
------------
COMPUTER SOFTWARE AND PERIPHERALS--5.2%
Automatic Data Processing, Inc. ............. 80,000 5,940,000
Computer Associates Int'l., Inc. ............ 100,000 5,687,500
Intel Corp. ................................. 70,000 3,972,500
------------
15,600,000
------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
CONSUMER GOODS AND SERVICES--10.4%
American Home Products Corp. ................ 70,000 $ 6,790,000
Clorox Co. .................................. 75,000 5,371,875
Hillenbrand Industries, Inc. ................ 100,000 3,387,500
Kimberly-Clark Corp. ........................ 80,000 6,620,000
Service Corp. Int'l. ........................ 115,000 5,060,000
Stewart Enterprises, Inc. ................... 105,000 3,885,000
------------
31,114,375
------------
CONSUMER NON-DURABLES--0.6%
Alberto-Culver Co., Class A.................. 55,000 1,677,500
------------
ELECTRONICS--9.5%
AMP, Inc. ................................... 120,000 4,605,000
Emerson Electric............................. 80,000 6,540,000
General Electric Co. ........................ 180,000 12,960,000
Motorola, Inc. .............................. 75,000 4,275,000
------------
28,380,000
------------
ENTERTAINMENT AND LEISURE--1.5%
Time Warner, Inc. ........................... 120,000 4,545,000
------------
HEALTH INDUSTRIES--3.9%
Horizon HealthCare Corp.(b).................. 145,000 3,661,250
Procter & Gamble Co. ........................ 95,000 7,885,000
------------
11,546,250
------------
INSURANCE--5.4%
American International Group, Inc. .......... 75,000 6,937,500
Chubb Corp. ................................. 65,000 6,288,750
General RE Corp. ............................ 20,000 3,100,000
------------
16,326,250
------------
MANUFACTURING--1.1%
Corning, Inc. ............................... 100,000 3,200,000
------------
MEDICAL CARE & PRODUCTS--0.7%
Sofamor Danek Group(b)....................... 80,000 2,270,000
------------
OIL & GAS--3.4%
British Petroleum Co. ADR.................... 70,000 7,148,750
Unocal Corp. ................................ 100,000 2,912,500
------------
10,061,250
------------
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
PHARMACEUTICALS--12.0%
Elan Corp. PLC ADR(b)......................... 90,000 $ 4,376,250
Forest Labs, Inc.(b).......................... 50,000 2,262,500
Ivax Corp. ................................... 100,000 2,850,000
Johnson & Johnson............................. 95,000 8,134,375
Mylan Labs.................................... 105,000 2,467,500
Pfizer, Inc. ................................. 160,000 10,080,000
Pharmacia & Upjohn(b)......................... 75,000 2,906,250
Smithkline Beecham ADR........................ 50,000 2,775,000
------------
35,851,875
------------
POLLUTION CONTROL--4.1%
Browning-Ferris............................... 185,000 5,457,500
WMX Technologies, Inc. ....................... 230,000 6,871,250
------------
12,328,750
------------
RETAIL--4.2%
Eckerd Corp.(b)............................... 110,000 4,908,750
May Department Stores Co. .................... 110,000 4,647,500
Walgreen Co.(b)............................... 100,000 2,987,500
------------
12,543,750
------------
TELECOMMUNICATIONS--6.5%
AT&T Corp. ................................... 140,000 9,065,000
Century Telephone Enterprises, Inc. .......... 50,000 1,587,500
DSC Communications Corp.(b)................... 40,000 1,475,000
MCI Communications Corp. ..................... 275,000 7,184,375
------------
19,311,875
------------
UTILITIES--0.6%
AES Corp.(b).................................. 80,000 1,910,000
------------
TOTAL COMMON STOCKS
(COST $239,473,384).......................... 285,206,250
------------
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
PRAIRIE FUNDS
GROWTH FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--3.6%
TIME DEPOSIT--3.6%
Berlin/Frankfort Bank
(cost $10,663,000).................... 5.81% 1/2/96 $10,663 $ 10,663,000
------------
TOTAL INVESTMENTS
(COST $250,136,384)(A)--99.1%.......... 295,869,250
Other assets in excess of liabilities--
0.9%................................... 2,672,096
------------
NET ASSETS--100.0%....................... $298,541,346
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $298,541,346.
(a) Represents cost for financial reporting purposes. Cost for federal income
tax purposes was $250,657,238 and differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $48,528,373
Unrealized depreciation........................................ (3,316,361)
-----------
Net unrealized appreciation.................................... $45,212,012
===========
</TABLE>
(b) Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
40
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--93.9%
ADVERTISING AND MARKETING SERVICES--1.3%
Interpublic Group of Companies, Inc. ......... 12,000 $ 520,500
Omnicon Group................................. 20,000 745,000
-----------
1,265,500
-----------
APPAREL--1.1%
Tommy Hilfiger Corp.(b)....................... 24,100 1,021,238
-----------
AUTOMOTIVE PARTS AND EQUIPMENT--3.0%
Borg Warner................................... 30,000 960,000
Simpson Industries............................ 70,000 630,000
Superior Industries Int'l, Inc. .............. 45,000 1,186,875
-----------
2,776,875
-----------
BANKS--13.0%
First of America.............................. 50,000 2,218,750
Firstar Corp.................................. 60,000 2,377,500
Northern Trust Corp. ......................... 50,000 2,800,000
Old Kent Financial............................ 60,000 2,467,500
Southern National............................. 60,000 1,575,000
Southtrust Corp. ............................. 30,000 768,750
-----------
12,207,500
-----------
BEVERAGES, FOOD AND TOBACCO--3.0%
Dean Foods Co. ............................... 35,000 962,500
Hudson Foods, Inc., Class A................... 110,000 1,897,500
-----------
2,860,000
-----------
BUSINESS EQUIPMENT AND SERVICES--1.1%
Proxima Corp.(b).............................. 45,000 995,625
-----------
CHEMICALS--2.0%
Airgas, Inc.(b)............................... 55,000 1,828,750
-----------
CONSUMER GOODS AND SERVICES--2.1%
Service Corp Int'l. .......................... 45,000 1,980,000
-----------
CONSUMER NON-DURABLES--1.8%
Alberto-Culver Co., Class A................... 55,000 1,677,500
-----------
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
ELECTRONICS--1.9%
Memec Electric Materials, Inc.(b)............. 14,000 $ 456,750
Methode Electronics, Inc., Class A............ 37,500 534,375
Molex, Inc. .................................. 25,000 793,750
-----------
1,784,875
-----------
ENTERTAINMENT AND LEISURE--1.1%
Royal Caribbean Cruise Ltd. .................. 48,000 1,056,000
-----------
HEALTH CARE PRODUCTS AND SERVICES--14.4%
American Medical Response, Inc.(b)............ 55,000 1,787,500
Amerisource Health Corp., Class A(b).......... 60,000 1,980,000
Genesis Health Ventures, Inc.(b).............. 50,000 1,825,000
Healthcare & Retirement Corp.(b).............. 55,000 1,925,000
Horizon HealthCare Corp.(b)................... 95,000 2,398,750
Multicare Cos., Inc.(b)....................... 50,000 1,200,000
OEA, Inc...................................... 42,000 1,254,750
Summit Care Corp.(b).......................... 50,000 1,143,750
-----------
13,514,750
-----------
INSURANCE--13.6%
Ace Limited................................... 40,000 1,590,000
AMBAC, Inc.................................... 60,000 2,812,500
American Re Corp.............................. 50,000 2,043,750
Integon, Corp................................. 100,000 2,062,500
National Re Corp.............................. 60,000 2,280,000
Sphere Drake Holdings Ltd..................... 68,024 952,336
Western National Corp......................... 60,000 967,500
-----------
12,708,586
-----------
INVESTMENT MANAGEMENT--0.5%
Phoenix Duff & Phelps Corp.................... 62,471 429,488
-----------
MANUFACTURING--1.0%
Holophane(b).................................. 45,000 978,750
-----------
MEDICAL CARE AND PRODUCTS--4.8%
Rural/Metro(b)................................ 80,000 1,810,000
Sofamor Danek Group(b)........................ 95,000 2,695,625
-----------
4,505,625
-----------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
NATURAL GAS--0.4%
Swift Energy Co.(b)............................ 35,000 $ 420,000
-----------
OIL & GAS--3.5%
Noble Affiliates............................... 50,000 1,493,750
Smith Intl., Inc.(b)........................... 75,000 1,762,500
-----------
3,256,250
-----------
PHARMACEUTICALS--7.6%
A.L. Pharmaceuticals, Inc...................... 85,000 2,220,625
Elan Corp. PLC ADR(b).......................... 50,000 2,431,250
Ivax Corp. .................................... 85,000 2,422,500
-----------
7,074,375
-----------
POLLUTION CONTROL--0.7%
Waste Management PLC ADR(b).................... 65,000 698,750
-----------
RAILROAD EQUIPMENT--0.3%
Johnstown America Industries, Inc.(b).......... 60,000 300,000
-----------
REAL ESTATE DEVELOPMENT--1.8%
Stewart Enterprises, Inc., Class A ............ 45,000 1,665,000
-----------
RESTAURANTS--1.9%
IHOP Corp.(b).................................. 60,000 1,560,000
Starbucks Corp................................. 10,000 210,000
-----------
1,770,000
-----------
RETAIL AND WHOLESALE DISTRIBUTION--1.0%
Corporate Express, Inc.(b)..................... 30,000 903,750
-----------
RETAIL STORES--4.1%
Eckerd Corp.(b)................................ 55,000 2,454,375
Officemax, Inc................................. 60,193 1,346,818
-----------
3,801,193
-----------
TELECOMMUNICATIONS--2.8%
Centennial Cellular Corp., Class A(b).......... 30,000 513,750
Century Telephone Enterprises, Inc. ........... 65,000 2,063,750
-----------
2,577,500
-----------
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
PRAIRIE FUNDS
SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UTILITIES--4.1%
AES Corp.(b)............................ 80,000 $ 1,910,000
Public Service Co. of New Mexico(b)..... 35,000 616,875
South Industries G&E Co.(b)............. 36,800 1,278,800
-----------
3,805,675
-----------
TOTAL COMMON STOCKS
(COST $72,403,453)..................... 87,863,555
-----------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--6.3%
TIME DEPOSIT
Berlin/Frankfort Bank
(cost $5,914,000)..................... 5.81% 1/2/96 $5,914 5,914,000
-----------
TOTAL INVESTMENTS
(COST $78,317,453)(A)--100.2%.......... 93,777,555
Liabilities in excess of other assets--
(0.2%)................................. (164,612)
-----------
NET ASSETS--100.0%....................... $93,612,943
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $93,612,943.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $16,914,276
Unrealized depreciation........................................ (1,454,174)
-----------
Net unrealized appreciation.................................... $15,460,102
===========
</TABLE>
(b) Represents non-income producing security.
ADR--American Depository Receipts.
See Notes to Financial Statements.
44
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
COMMON STOCKS--71.2%
AUSTRALIA--3.2%
Aberfoyle................................... 2,400 $ 5,266
Adelaide Brighton Limited................... 3,800 3,392
Amcor Limited............................... 15,300 108,121
Ampolex..................................... 6,900 15,090
Ashton Mining Limited....................... 7,000 10,154
Australian National Industries Limited...... 18,800 13,983
Boral Limited............................... 27,500 69,550
Brambles Industries Limited................. 5,500 61,369
Broken Hill Proprietary Co. ................ 47,000 664,270
Burns Philip & Co. ......................... 12,200 27,316
Caltex Limited.............................. 4,300 16,985
Coca-Coca Amatil............................ 9,600 76,623
Coles Myer Limited.......................... 26,612 82,944
CRA Limited................................. 16,017 235,192
Crusader(b)................................. 2,400 2,535
CSR Limited................................. 22,700 73,959
Dominion Mining Limited(b).................. 2,160 1,125
Email Limited............................... 6,900 16,424
Emperor Mines Limited(b).................... 1,600 2,559
FAI Insurances(b)........................... 7,600 4,127
Fosters Brewing Group....................... 48,900 80,387
General Property Trust...................... 15,200 26,910
Gold Mines of Kalgoorlie.................... 23,800 22,129
Goodman Fielder Limited..................... 29,900 30,026
Hardie (James) Industries................... 9,600 16,567
ICI Australia............................... 7,400 56,697
Lend Lease Corp. ........................... 6,000 87,032
MIM Holdings Limited........................ 39,700 54,925
National Australia Bank..................... 34,900 314,124
Newcrest Mining Limited..................... 5,800 24,419
News Corporation Limited.................... 49,700 265,443
North Limited............................... 17,100 47,700
OPSM Protector Limited...................... 3,500 5,467
Pacific Dunlop Limited...................... 28,800 67,481
Pioneer International Holdings.............. 22,100 57,045
QCT Resources............................... 15,100 16,960
RGC Limited................................. 5,000 24,920
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
AUSTRALIA (CONTINUED)
Rothman's Holdings Limited................. 2,500 $ 10,228
Santos Limited............................. 21,000 61,389
Schroders Property Fund.................... 9,100 14,892
Smith Howard Limited....................... 4,200 19,839
Sons of Gwalia Limited..................... 1,800 9,908
Southcorp Holdings......................... 23,400 54,482
Stockland Trust Group...................... 7,400 17,064
TNT Limited(b)............................. 14,400 19,066
Tubemakers of Australia Limited............ 6,900 21,403
Westfield Trust............................ 23,700 42,662
Westpac Banking Corp....................... 45,500 201,720
WMC Limited................................ 27,600 177,385
------------
3,339,254
------------
FRANCE--3.5%
Accor...................................... 100 12,964
Air Liquide................................ 250 41,459
Alcatel Alsthom............................ 1,700 146,766
AXA........................................ 600 40,488
Banque Nationale de Paris.................. 4,500 203,266
BIC........................................ 100 10,183
Bouygues................................... 100 10,087
Carnaudmetalbox(b)......................... 3,300 151,154
Carrefour(b)............................... 150 91,128
Casino Guich-Perr.......................... 250 7,264
Chargeurs.................................. 50 9,969
Cie De St Gobain........................... 2,300 254,909
Cie De Suez................................ 2,400 99,133
Cie Geophysique(b)......................... 50 1,646
Club Mediterranee(b)....................... 50 3,998
Compagnie Bancaire......................... 1,210 135,589
Compagnie UAP.............................. 3,600 94,152
Comptoirs Modern........................... 50 16,256
CSF (Thomson).............................. 450 10,039
Docks de France............................ 50 7,607
Dollfus-Meig & Cie PV...................... 50 2,044
Eaux-Cie Generale.......................... 2,700 269,924
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
FRANCE (CONTINUED)
ELF-Aquitane............................... 3,300 $ 243,466
Eridania Beghin-Say........................ 100 17,177
Essilor International...................... 50 9,570
Europe 1(b)................................ 25 5,061
Groupe Danone.............................. 250 41,306
GTM Entrepose.............................. 50 3,512
Imetal..................................... 50 5,981
Lafarge-Coppee............................. 330 21,290
Lagardere Groupe........................... 350 6,441
Legrand.................................... 500 77,295
L'oreal.................................... 250 67,019
LVMH Moet Hennessy......................... 1,600 333,716
Lyonnais Des Eaux-Dumez.................... 100 9,641
Michelin, Class B.......................... 2,300 91,852
Moulinex(b)................................ 100 1,374
Nord Est................................... 50 1,159
Peugeot SA................................. 1,300 171,725
Pinault-Printemps.......................... 100 19,978
Promodes................................... 50 11,768
Rhone Poulenc, Series A.................... 1,250 26,813
Sanofi..................................... 3,300 211,818
Schneider SA............................... 500 17,115
Sefimeg.................................... 50 3,323
Seita...................................... 200 7,259
Simco...................................... 50 4,754
Societe Generale........................... 2,500 309,281
Sodexho(b)................................. 50 14,723
St. Louis.................................. 50 13,291
Total, Class B............................. 4,800 324,392
Union Immobiliere de France................ 50 4,334
------------
3,696,459
------------
GERMANY--3.1%
AMB AAchener & Muench...................... 50 36,331
BASF AG.................................... 600 135,404
Bayer AG................................... 600 159,634
Bayerische Vereinsbank..................... 3,000 90,129
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
GERMANY (CONTINUED)
Beiersdorf AG, Series ABC................... 50 $ 34,410
Bilfinger & Berger.......................... 50 19,039
Brau Und Brunnen............................ 50 7,616
Bremer Vulkan AG............................ 150 4,192
CKAG Colonial............................... 50 41,921
Commerzbank AG.............................. 500 118,950
Continental AG.............................. 1,000 14,148
Daimler Benz AG............................. 350 177,045
Degussa AG.................................. 100 33,746
Deutsche Bank AG............................ 8,000 380,639
Deutsche Lufthansa AG....................... 400 55,475
Didier-Werke AG(b).......................... 50 4,045
FAG Kugelfischer Georg(b)................... 50 6,428
Heidelberger Zement......................... 55 34,508
Hochtief AG................................. 100 42,829
Kaufhof Holding AG.......................... 300 91,597
Linde AG.................................... 100 59,388
Linotype Hell AG(b)......................... 50 5,153
MAN AG...................................... 100 27,737
Mannesmann AG............................... 450 143,526
Muenchener Ruckvers......................... 100 215,891
Preussag AG................................. 800 225,812
P.W.A. Papier Waldhof(b).................... 50 7,406
RWE AG...................................... 300 109,308
SAP AG...................................... 500 77,553
Schering AG................................. 1,000 66,584
Siemens AG(b)............................... 650 357,862
Thyssen AG(b)............................... 350 63,995
Veba AG..................................... 7,000 300,291
Volkswagon AG............................... 200 67,212
------------
3,215,804
------------
HONG KONG--1.6%
Bank of East Asia........................... 6,000 21,534
Cathay Pacific Airway....................... 23,000 35,100
Cheung Kong Holdings........................ 18,000 109,649
China Light and Power Co., Limited.......... 25,000 115,105
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
HONG KONG (CONTINUED)
Chinese Estates Holdings................... 12,000 $ 7,837
Dickson Concepts Intl. Limited............. 5,000 4,656
Giordano International Holdings............ 4,000 3,414
Hang Lung Development Co................... 10,000 15,908
Hang Seng Bank Limited..................... 21,800 195,247
Hong Kong Aircraft......................... 1,200 3,104
Hong Kong Telecom.......................... 106,400 189,903
Hopewell Holdings.......................... 35,000 20,143
Hutchison Whampoa.......................... 46,000 280,214
Hysan Development Limited.................. 8,000 21,158
Johnson Electric Holdings.................. 3,000 5,354
Kumagai Gumi............................... 3,000 2,173
Lai Sun Garment International.............. 2,000 1,940
Miramar Hotel & Investment................. 4,000 8,432
New World Development Co................... 13,000 56,661
Oriental Press Group....................... 12,000 3,647
Peregrine Investment Holdings.............. 4,000 5,173
Playmates Toys Holdings.................... 4,000 796
Regal Hotel Holdings....................... 22,000 5,177
Shangri-La Asia............................ 8,000 9,778
Shun Tak Holdings Limited.................. 12,000 8,458
South China Morning Post................... 12,000 7,333
Sun Hung Kai Properties.................... 25,000 204,508
Swire Pacific Limited...................... 20,000 155,200
Television Broadcasts Limited.............. 3,000 10,689
Wharf Holdings Limited..................... 39,000 129,882
Wing Lung Bank............................. 1,200 6,720
Winsor Industrial Corp. Limited............ 2,000 1,693
------------
1,646,586
------------
JAPAN--41.2%
Advantest Corp. ........................... 1,000 51,380
Ajinomoto Co., Inc. ....................... 10,000 111,485
Alps Electric Co.(b)....................... 3,000 34,608
Amada Co. ................................. 28,000 276,871
Aoki Corp.(b).............................. 2,000 8,394
Aoyama Trading............................. 1,000 31,991
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Asahi Bank Limited(c)....................... 41,000 $ 516,710
Asahi Breweries............................. 8,000 94,617
Asahi Chemical Industries................... 27,000 206,781
Asahi Glass Co. ............................ 33,000 367,903
Ashikaga Bank............................... 10,000 62,431
Bank of Tokyo............................... 36,000 631,687
Bank of Yokohama............................ 20,000 163,836
Banyu Pharmaceutical........................ 2,000 24,624
Bridgestone Corp. .......................... 16,000 254,382
Brother Industries Limited.................. 4,000 21,754
Canon, Inc. ................................ 24,000 435,086
Casio Computer Co. ......................... 1,000 9,791
Chiba Bank.................................. 13,000 117,205
Chichibu Onada Cement....................... 7,000 37,391
Chugai Pharmaceutical Co. .................. 2,000 19,176
Citizen Watch Co. Limited................... 19,000 145,513
Cosmo Oil Co. .............................. 3,000 16,403
Credit Saison............................... 2,000 47,697
Dai Nippon Co. Limited.(b).................. 26,000 441,098
Dai Nippon Ink & Chemical................... 8,000 37,304
Dai Nippon Screen........................... 2,000 17,566
Daicel Chemical Industries.................. 13,000 73,978
Daido Steel Co. Limited..................... 2,000 10,082
Daiei Inc. ................................. 9,000 109,062
Dai-Ichi Kangyo Bank(c)..................... 64,000 1,259,501
Dai-Ichi Pharmaceuticals Co. Limited........ 3,000 42,752
Daikin Industries........................... 27,000 264,368
Daikyo(b)................................... 3,000 22,394
Daimaru(b).................................. 2,000 15,511
Daishowa Paper(b)........................... 1,000 7,756
Daito Trust................................. 1,000 11,827
Daiwa Bank.................................. 20,000 161,896
Daiwa House Industries...................... 14,000 230,727
Daiwa Kosho Lease Co. Limited............... 3,000 29,956
Daiwa Securities............................ 24,000 367,613
Denid Kagaku Kogyo.......................... 3,000 10,906
Ebara Corp. ................................ 2,000 29,277
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Eisai Co. ................................. 3,000 $ 52,641
Ezaki Glico Co. ........................... 2,000 19,350
Fanuc Co. ................................. 7,000 303,339
Fuji Bank(c)............................... 56,000 1,237,785
Fuji Photo Film Limited(c)................. 11,000 317,783
Fujita Corp. .............................. 3,000 13,553
Fujita Kanko............................... 2,000 44,207
Fujitsu Limited............................ 43,000 479,390
Furukawa Electric.......................... 3,000 14,687
Gakken Co.(b).............................. 2,000 13,184
Gunma Bank................................. 9,000 96,847
Gunze Limited(b)........................... 4,000 24,236
Hankyu Corp.(b)............................ 12,000 65,728
Hanyu Department Stores.................... 1,000 14,833
Haseko Corp.(b)............................ 2,000 8,085
Hazama Corp.(b)............................ 2,000 8,531
Higo Bank.................................. 3,000 24,139
Hitachi Limited(c)......................... 81,000 816,658
Hokkaido Bank.............................. 5,000 16,965
Hokuriku Bank.............................. 11,000 68,995
Honda Motor Co. ........................... 19,000 392,335
Honshu Paper Co. .......................... 2,000 12,254
House Foods Corp.(b)....................... 2,000 36,063
Hoya Corp. ................................ 1,000 34,415
Inax Corp. ................................ 26,000 247,013
Industrial Bank of Japan(c)................ 47,000 1,426,149
Isetan Co. ................................ 2,000 32,961
Ishihara Sangyo Kaisha(b).................. 2,000 6,495
Ito Yokado Co.(c).......................... 13,000 801,537
Itochu Corp. .............................. 26,000 175,178
Itoham Foods............................... 3,000 22,685
Iwantani International Corp.(b)............ 3,000 15,996
Jaccs...................................... 2,000 20,746
Japan Air Lines Co.(b)..................... 33,000 219,143
Japan Energy Corp. ........................ 5,000 16,771
Jeol....................................... 1,000 8,512
JGC Corp.(b)............................... 1,000 10,567
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Joyo Bank.................................. 14,000 $ 112,650
Jusco Co.(b)............................... 4,000 104,312
Kajima Corp. .............................. 12,000 118,660
Kaken Pharmaceutical....................... 1,000 9,016
Kandenko Limited........................... 1,000 12,506
Kanebo Corp.(b)............................ 9,000 22,335
Kaneka Corp. .............................. 3,000 18,933
Kansai Electric Power(c)................... 20,100 487,146
Kansai Paint Co. Limited................... 2,000 9,307
Kao Corp. ................................. 9,000 111,680
Katokichi.................................. 1,000 20,843
Kawasaki Kisen Kaisha(b)................... 11,000 34,977
Kawasaki Steel Corp........................ 39,000 136,110
Keihin Electric............................ 6,000 36,005
Keio Teito Electric Railway................ 16,000 93,221
Kikkoman Corp.............................. 3,150 23,208
Kinden Corp................................ 2,000 34,124
Kinki Nippon Railway....................... 31,000 234,410
Kirin Brewery Co........................... 19,000 224,717
Kobe Steel(b).............................. 30,000 92,775
Komatsu Limited(c)......................... 9,000 74,162
Konica Corp................................ 1,000 7,251
Kubota Corp................................ 13,000 83,808
Kumagai Gumi Co............................ 5,000 20,116
Kurabo Industries.......................... 5,000 19,147
Kuraray Co. Limited........................ 8,000 87,638
Kureha Chemical Industries Co.(b).......... 2,000 9,404
Kyocera Corp............................... 3,000 223,070
Kyowa Hakko Kogyo.......................... 5,000 47,212
Lion Corp.................................. 2,000 11,808
Maeda Road Construction.................... 6,000 111,098
Makita Corp................................ 2,000 31,992
Marubeni Corp.............................. 28,000 151,738
Marudai Food Co............................ 2,000 14,348
Maruha Co.(b).............................. 4,000 13,533
Marui Co.(b)............................... 5,000 104,215
Matsushita Electric Industries............. 40,000 651,464
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Meija Milk Products......................... 4,000 $ 23,964
Meiji Seika Kaisha.......................... 5,000 30,150
Misawa Homes................................ 1,000 8,803
Mitsubishi Bank............................. 12,000 282,690
Mitsubishi Chemical Corp.................... 29,000 141,131
Mitsubishi Corp............................. 29,000 357,045
Mitsubishi Electric Corp.................... 32,000 230,493
Mitsubishi Estate........................... 24,000 300,139
Mitsubishi Gas(b)........................... 3,000 13,524
Mitsubishi Heavy Industries Limited......... 68,000 542,538
Mitsubishi Materials........................ 21,000 108,917
Mitsubishi Oil Co........................... 2,000 17,780
Mitsubishi Paper............................ 34,000 204,687
Mitsubishi Steel Manufacturing(b)........... 1,000 5,235
Mitsubishi Trust and Banking Limited........ 24,000 400,186
Mitsui Engine & Shipbuilding(b)............. 1,000 2,782
Mitsui Fire & Marine Insurance.............. 13,000 92,756
Mitsui Fudosan Co. ......................... 15,000 184,679
Mitsui Mining and Smelting(b)............... 9,000 36,122
Mitsui O.S.K. Lines(b)...................... 20,000 64,176
Mitsui Toatsu Chemical...................... 6,000 24,139
Mitsui Trust and Banking Co................. 22,000 241,003
Mitsui & Co. Limited........................ 29,000 254,710
Mitsukoshi Limited(b)....................... 6,000 56,422
Mochida Pharmaceuticals..................... 1,000 13,863
Murata Manufacturing Co..................... 4,000 147,356
Nagase & Co.(b)............................. 1,000 8,609
Nagoya Railroad Co.......................... 11,000 55,452
Nankai Electric Railway..................... 6,000 40,717
NEC Corp. .................................. 30,000 366,450
New Oji Paper............................... 8,000 72,437
NGK Insulators.............................. 44,000 439,349
Nichido Fire and Marine Insurance........... 8,000 64,371
Nichii Co. Limited.......................... 22,000 292,191
Nichirei Corp............................... 5,000 32,476
Nihon Cement Co............................. 4,000 26,756
Nintendo Co................................. 2,600 197,864
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Nippon Beet Sugar(b)........................ 2,000 $ 8,880
Nippon Communications Systems Corp.(b)...... 1,000 10,567
Nippon Denso................................ 19,000 355,496
Nippon Express Co........................... 16,000 154,179
Nippon Fire and Marine Insurance............ 11,000 74,647
Nippon Light Metal.......................... 10,000 57,391
Nippon Meat Packers......................... 16,000 232,666
Nippon Oil Co. ............................. 11,000 69,102
Nippon Paper Industries..................... 10,000 69,509
Nippon Seiko Kab Kai........................ 2,000 14,542
Nippon Shinpan Co. ......................... 5,000 37,808
Nippon Shokubai Kagaku Kogyo................ 2,000 19,583
Nippon Steel Corp. ......................... 138,000 473,588
Nippon Suisan(b)............................ 4,000 16,558
Nippon Yusen Kab Kai........................ 22,000 127,752
Nishimatsu(b)............................... 2,000 23,460
Nissan Motor Co. ........................... 46,000 353,634
Nisshinbo Industries, Inc. ................. 4,000 38,778
Nissin Food Products Co., Limited(b)........ 2,000 46,921
NKK Corp.(b)................................ 40,000 107,800
NOF Corp. .................................. 2,000 10,877
Nomura Securities........................... 36,000 785,250
NTN Corp. .................................. 1,000 6,689
Obayashi Corp. ............................. 8,000 63,595
Odakyu Electric Railway..................... 10,000 68,345
Okamoto Industries.......................... 3,000 19,486
Okumura(b).................................. 1,000 9,113
Olympus Optical Co., Limited................ 1,000 9,694
Omron Corp. ................................ 3,000 69,218
Onward Kashiyama(b)......................... 3,000 48,860
Orient Corp. ............................... 5,000 28,405
Orix Corp. ................................. 3,000 123,604
Osaka Gas Co. .............................. 117,000 404,925
Penta-Ocean(b).............................. 2,000 15,511
Pioneer Electronic.......................... 8,000 146,580
Q.P. Corp.(b)............................... 2,000 17,431
Renown, Inc. ............................... 5,000 17,402
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Ricoh Co. .................................. 5,000 $ 54,774
Rohn Company Limited........................ 2,000 113,037
Sagami...................................... 4,000 17,334
Sakura Bank................................. 61,000 774,682
Sankyo Co. ................................. 19,000 427,331
Sankyo Aluminum............................. 2,000 10,722
Sanrio Corp.(b)............................. 1,000 11,536
Sanwo Shutter Corp. ........................ 2,000 14,522
Sanyo Electric Corp......................... 32,000 184,582
Sapporo Corporation......................... 6,000 55,840
Secom Co. .................................. 7,000 487,243
Sega Enterprises............................ 1,000 55,258
Seino Transportation........................ 10,000 167,714
Seiyu(b).................................... 2,000 24,818
Sekisui Chemical............................ 8,000 117,884
Sekisui House............................... 54,000 691,016
Settsu Corp.(b)............................. 1,000 3,151
Seven-Eleven Japan NPV...................... 8,000 564,605
Sharp Corp. ................................ 18,000 287,924
Shimizu Corp. .............................. 9,000 91,612
Shin-Etsu Chemical Co. ..................... 4,000 82,984
Shinmaywa Industries........................ 16,000 132,154
Shiongoi & Co. ............................. 3,000 25,273
Shiseido Co. ............................... 4,000 47,696
Shizuoka Bank............................... 14,000 176,438
Shochiku Co.(b)............................. 1,000 10,955
Shokusan(b)................................. 1,000 3,665
Showa Denko KK(b)........................... 10,000 31,410
Skylark Co. ................................ 2,000 36,839
Snow Brand Milk(b).......................... 5,000 31,992
Sony Corp. ................................. 6,200 372,054
Sumitomo Bank............................... 63,000 1,337,540
Sumitomo Chemical........................... 20,000 99,852
Sumitomo Corp. ............................. 20,000 203,582
Sumitomo Electric Industries................ 22,000 264,464
Sumitomo Forestry........................... 2,000 30,634
Sumitomo Marine and Fire Insurance.......... 12,000 98,651
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Sumitomo Metal Industries(b)................ 36,000 $ 109,235
Sumitomo Metal Mining....................... 10,000 89,964
Sumitomo Osaka Cement....................... 5,000 23,267
Taisei Corp. ............................... 11,000 73,473
Taisho Pharmaceutical Co. .................. 4,000 79,107
Taiyo Yuden................................. 2,000 21,522
Takara(b)................................... 2,000 22,879
Takara Shuzo(b)............................. 4,000 38,274
Takashimaya Co.(b).......................... 2,000 31,992
Takeda Chemical Industries.................. 32,000 527,376
Tanabe...................................... 2,000 14,406
TDK Corp. .................................. 8,000 408,718
Teijin Limited.............................. 11,000 56,305
TOA Corp.(b)................................ 1,000 7,368
Tobu Railway Co. ........................... 12,000 75,151
Tohoku Electric Power....................... 8,080 195,045
Tokai Bank.................................. 36,000 502,560
Tokio Marine and Fire Insurance............. 29,000 379,538
Tokyo Broadcasting.......................... 3,000 49,442
Tokyo Dome Corp. ........................... 3,000 51,477
Tokyo Electric Power........................ 27,200 727,782
Tokyo Electronics........................... 3,000 116,333
Tokyo Gas Co. .............................. 43,000 151,734
Tokyo Steel Manufacturing Co. Limited....... 20,000 368,388
Tokyo Style Co.(b).......................... 2,000 34,318
Tokyo Tatemono(b)........................... 4,000 19,001
Tokyoto Keiba Co. .......................... 5,000 20,843
Tokyu Corp. ................................ 16,000 113,075
Tonen Corp. ................................ 20,000 292,772
Toppan Printing Co. ........................ 14,000 184,582
Toray Industries Inc. ...................... 90,000 593,298
Toshiba Corp.(c)............................ 88,000 690,166
Tosoh Corp.(b).............................. 5,000 24,091
Tostem Corp. ............................... 3,000 99,756
Toto Limited................................ 4,000 55,840
Toyo Engineering............................ 1,000 6,301
Toyo Kanetsu KK............................. 3,000 15,385
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
JAPAN (CONTINUED)
Toyo Seikan Kaisha.......................... 2,000 $ 59,912
Toyobo Co.(b)............................... 13,000 46,756
Toyoda Automatic Loom Works Limited......... 2,000 35,869
Toyota Motor Corp.(c)....................... 77,000 1,634,772
UBE Industries(b)........................... 2,000 7,562
Unitika Limited(b).......................... 3,000 9,132
Yamaguchi Bank.............................. 3,000 51,187
Yamaichi Securities Co. .................... 22,000 171,261
Yamanouchi Pharmaceutical................... 4,000 86,087
Yamato Transport............................ 4,000 47,696
Yamazaki Baking Co. ........................ 3,000 55,840
Yasuda Trust and Bank....................... 20,000 118,466
Yokogawa Bridge Works Corp. ................ 7,000 105,863
Yokogawa Electric........................... 4,000 37,847
77 Bank..................................... 6,000 55,084
------------
43,005,659
------------
SINGAPORE--5.1%
Amcol Holdings.............................. 20,000 55,144
Chaun Hup Holdings.......................... 13,000 11,764
City Developments........................... 52,000 378,654
Cycle and Carriage.......................... 16,000 159,494
DBS Land Limited............................ 61,000 206,137
Development Bank Singapore.................. 45,000 559,926
First Capital Corp. ........................ 16,000 44,341
Fraser and Neave Limited.................... 16,000 203,610
Hai Sun Hup Group........................... 29,000 19,476
Haw Par Brothers International.............. 12,000 25,620
Hotel Properties Limited.................... 27,000 41,801
Inchcape Berhad............................. 11,000 35,306
Jurong Shipyard............................. 7,000 53,942
Keppel Corp. ............................... 34,000 302,869
Low Keng Huat Limited....................... 4,000 2,234
Lum Chang Holdings Limited.................. 22,000 18,352
Metro Holdings.............................. 7,000 27,218
Natsteel Limited............................ 22,000 45,104
Neptune Orient Lines........................ 46,000 51,704
Overseas Chinese Banking Corp. ............. 61,000 763,324
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
SINGAPORE (CONTINUED)
Overseas Union Enterprises................. 8,000 $ 40,439
Parkway Holdings Limited................... 19,000 51,581
Prima Limited.............................. 3,000 11,453
Robinson and Company....................... 4,000 16,684
Shangri-La Hotel........................... 10,000 38,883
Sia Limited Foreign........................ 86,000 802,561
Singapore Press Holdings................... 22,800 402,979
Straits Steamship.......................... 40,000 135,172
Straits Trading Co. ....................... 20,000 46,942
United Industrial Corp. ................... 90,000 88,443
United Overseas Bank....................... 60,600 582,663
United Overseas Land....................... 33,000 62,756
------------
5,286,576
------------
UNITED KINGDOM--13.5%
Abbey National PLC(b)...................... 21,900 216,252
Anglian Water PLC.......................... 3,000 28,180
Argos PLC.................................. 2,900 26,835
Argyll Group............................... 11,000 58,067
Arjo Wiggins............................... 11,100 28,435
Associated British FDS..................... 2,400 13,750
Barclays PLC(b)............................ 26,900 308,643
Bass(b).................................... 27,900 311,450
Bat Industries............................. 35,500 312,791
BBA Group.................................. 3,200 14,383
Bet Pub Limited............................ 48,400 95,435
BICC PLC................................... 2,800 11,998
Blue Circle Industries..................... 9,900 52,644
BOC Group.................................. 6,500 90,928
Boots Co. PLC.............................. 9,300 84,613
BPB Industries............................. 6,800 31,884
British Aerospace.......................... 2,200 27,223
British Airways............................ 13,000 94,056
British Gas................................ 116,800 460,612
British Land Co.(b)........................ 5,000 29,577
British Petroleum.......................... 61,800 517,173
British Steel.............................. 27,500 69,487
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
British Telecom............................ 131,700 $ 723,850
BTR PLC.................................... 61,600 314,653
Cable & Wireless........................... 18,900 134,982
Cadbury Schweppes PLC...................... 16,400 135,461
Carlton Communities PLC(b)................. 2,300 34,496
Chubb Security(b).......................... 2,800 13,846
Coats Viyella.............................. 15,600 42,385
Commercial Union........................... 11,100 108,228
Courtaulds PLC............................. 5,500 34,755
De La Rue PLC(b)........................... 2,200 22,236
Delta PLC.................................. 1,200 7,434
Electrocomponent PLC....................... 5,800 32,418
English China Clays........................ 4,200 20,671
Forte PLC.................................. 15,800 81,075
General Accident........................... 3,400 34,365
General Electric........................... 46,000 253,538
GKN PLC.................................... 4,700 56,845
Glaxo Holdings PLC......................... 46,900 666,271
Grand Metropolitan......................... 39,300 283,117
Great Universe Stores PLC.................. 9,800 104,226
Guardian Royal Exchange PLC................ 6,600 28,282
Guinness................................... 43,200 317,922
Hammerson PLC.............................. 3,900 21,344
Hanson..................................... 75,200 224,750
Harrison & Crossfield PLC.................. 9,600 23,847
Hepworth Ceramic........................... 3,300 16,344
HSBC Holdings.............................. 43,800 684,117
IMI PLC.................................... 4,400 22,441
Imperial Chemical Industries............... 9,900 117,278
Kingfisher PLC............................. 6,500 54,698
Ladbroke Group PLC(b)...................... 19,400 44,125
Land Securities PLC........................ 6,900 66,099
Lasmo PLC.................................. 74,200 201,601
Legal and General.......................... 9,700 100,903
Lloyds TSB Group........................... 180,086 926,867
London Electricity PLC..................... 3,300 29,409
Lonrho PLC(b).............................. 9,000 24,593
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Lucas Industries PLC....................... 28,300 $ 79,529
Marks & Spencer PLC........................ 46,700 326,279
Metal Box-Caradon(b)....................... 8,200 24,889
MEPC....................................... 5,500 33,730
National Grid Group(b)..................... 2,910 9,013
National Power............................. 13,000 90,726
Next PLC................................... 3,700 26,195
Northwest Water Group(b)................... 3,800 36,343
P & O Stream Nav(b)........................ 10,100 74,642
Pearson PLC................................ 6,500 62,973
Pilkington Ord PLC......................... 10,800 33,871
Prudential Corp. .......................... 31,700 204,249
Rank Organisation PLC...................... 11,300 81,757
Reckitt and Coleman........................ 22,600 250,182
Redland PLC................................ 7,100 42,881
Reed International......................... 9,400 143,317
Reuters Holdings PLC(b).................... 27,800 254,656
Rexam PLC.................................. 6,800 37,374
RMC Group.................................. 2,700 41,543
Rolls Royce................................ 39,300 115,322
Royal Bank of Scotland PLC................. 13,300 121,006
Royal Insurance PLC........................ 24,200 143,528
RTZ Corp................................... 17,800 258,675
Rugby...................................... 8,700 14,858
Sainsbury (J) PLC.......................... 17,600 107,390
Schroders PLC.............................. 3,200 67,966
Scottish & New Castle PLC(b)............... 1,000 9,517
Scottish Power PLC(b)...................... 13,600 78,127
Sears...................................... 88,800 143,385
Sedgwick Group............................. 24,700 46,401
Seeboard PLC(b)............................ 200 1,633
Slough Estate PLC.......................... 5,300 18,021
Smith Industries........................... 4,100 40,485
Smithkline Beecham, Class A................ 12,900 142,202
Smithkline Beecham......................... 50,400 549,320
Southern Electric PLC(b)................... 200 2,807
Southern Water PLC......................... 1,700 18,159
</TABLE>
See Notes to Financial Statements.
60
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
T & N PLC.................................. 4,200 $ 10,564
Tarmac PLC................................. 12,600 20,148
Tate & Lyle PLC............................ 1,000 7,328
Taylor Woodrow PLC......................... 5,200 9,486
Tesco...................................... 77,700 358,290
Thames Water PLC........................... 22,800 198,944
Thorn EMI PLC(b)........................... 7,100 167,226
TI Group PLC(b)............................ 5,500 39,195
Trafalgar House PLC(b)..................... 12,600 5,428
Unigate Limited............................ 600 3,829
Unilever PLC............................... 13,500 277,301
United Biscuits PLC........................ 1,400 5,564
Vodafone Group............................. 26,200 93,762
Williams Holdings.......................... 7,900 40,231
Willis Corroon PLC......................... 3,200 7,005
Wimpey George PLC.......................... 4,900 10,955
Wolseley................................... 7,500 52,517
Zeneca Group............................... 8,900 172,172
------------
14,106,784
------------
TOTAL COMMON STOCKS
(COST $68,762,442)........................ 74,297,122
------------
PREFERRED STOCKS--0.6%
AUSTRALIA--0.1%
News Corp., Limited Voting Preferred Voting
Shares................................... 24,100 112,761
------------
FRANCE--0.0%
Casino Guich-Perr, Preferred Shares........ 50 1,135
------------
GERMANY--0.5%
Allianz AG, Preferred Shares Nonvoting..... 200 393,495
Kloeckner AG, Preferred Shares Nonvoting... 500 3,022
Lufthansa AG, Preferred Shares Nonvoting... 50 6,550
Man AG, Preferred Shares Nonvoting......... 50 10,753
RWE AG, Preferred Shares Nonvoting......... 150 41,921
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description Shares (Note 2(a))
----------- ------ -----------
<S> <C> <C>
GERMANY (CONTINUED)
SAP AG, Preferred Nonvoting........... 500 $ 76,085
Volkswagon AG, Preferred Shares
Nonvoting........................... 50 12,150
------------
543,976
------------
TOTAL PREFERRED STOCKS
(COST $580,168)...................... 657,872
------------
<CAPTION>
Principal
Maturity Amount
Rate Date (000)
---- -------- ---------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE OBLIGATION--12.6%
GERMANY--12.6%
Bundeslaender Versicher
(cost $12,896,203).................. 8.63% 2/20/96 18,700** 13,143,650
------------
SHORT-TERM INVESTMENTS--13.4%
U.S. TREASURY BILLS--13.4%
U.S. Treasury Bill.................... 5.61%* 2/8/96 1,000 994,320
U.S. Treasury Bill.................... 5.48%* 2/15/96 2,000 1,986,675
U.S. Treasury Bill.................... 5.54%* 3/7/96 2,500 2,478,150
U.S. Treasury Bill.................... 5.07%* 3/28/96 1,600 1,581,232
U.S. Treasury Bill(c)................. 5.35%* 5/2/96 3,500 3,441,883
U.S. Treasury Bill.................... 5.65%* 7/25/96 1,500 1,457,802
U.S. Treasury Bill.................... 5.61%* 8/22/96 1,150 1,113,305
U.S. Treasury Bill(c)................. 5.61%* 9/19/96 1,000 964,475
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $14,002,418)................... 14,017,842
------------
TOTAL INVESTMENTS
(COST $96,241,231)(A)--97.8%......... 102,116,486
Other assets in excess of liabilities--
2.2%................................. 2,272,891
------------
NET ASSETS--100.0%..................... $104,389,377
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $104,389,377.
* Yield at purchase.
** Denominated in local currency.
See Notes to Financial Statements.
62
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $ 7,077,639
Unrealized depreciation........................................ (1,202,384)
-----------
Net unrealized appreciation.................................... $ 5,875,255
===========
</TABLE>
(b) Represents non-income producing security.
(c) Securities partially or fully pledged as collateral to cover open futures
positions.
<TABLE>
<CAPTION>
Contract Contract Unrealized
Price Value (Depreciation)
-------- -------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY INVESTMENTS
CURRENCY PURCHASED:
German Deutsche Mark......................... $0.698600 $328,907 $ (3,032)
Japanese Yen(d).............................. $0.960000 504,385 (69,326)
U.K. Pound Sterling.......................... $1.552600 115,183 (1,442)
-------- --------
TOTAL FOREIGN CURRENCY INVESTMENTS
(COST $1,022,275)........................... $948,475 $(73,800)
======== ========
</TABLE>
(d) Pledged to cover margin requirements for open futures positions.
<TABLE>
<S> <C> <C> <C> <C>
FINANCIAL FUTURES
<CAPTION>
UNREALIZED
MARKET VALUE APPRECIATION
NUMBER OF COVERED (DEPRECIATION)
CONTRACTS BY CONTRACTS EXPIRATION AT 12/31/95
--------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Financial Futures Purchased
Long:
British Pound--FTSE(1)...... 57 $ 8,134,087 March 1996 $ 54,862
German Deutsche Marks--
DAX(1).................... 3 447,415 March 1996 12,404
Japanese Yen--TOPIX(1)...... 120 18,426,486 March 1996 851,509
Financial Futures Sold Short:
German Deutsche Marks(2).... 130 $11,340,875 March 1996 (71,500)
Japanese Yen(2) 69 8,491,312 March 1996 101,775
--------
$949,050
========
</TABLE>
(1) Exchange traded local currency denominated futures contracts.
(2) U.S. Dollar denominated futures contracts.
See Notes to Financial Statements.
63
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--33.6%
ASSET-BACKED SECURITIES--7.0%
Advanta Mortgage Loan Trust,
Series 1994-3, Class A2............... 7.60% 7/25/10 $ 3,915 $ 4,045,170
First Federal Savings & Loan
Association, Chicago, Mortgage Backed
Certificates, Series A, Passthrough
Notes(b).............................. 8.75% 6/1/06 7 7,113
Green Tree Home Improvement Loan Trust,
Series 1994-B1, Class A1.............. 7.15% 7/15/14 1,045 1,071,326
MBNA Master Credit Card Trust,
Series 1994-C, Class A................ 6.25% 3/15/04 1,655 1,661,206
Midlantic Auto Grantor Trust,
Series 1992-1, Class A................ 4.30% 9/15/97 125 124,509
Olympic Automobiles Receivables Trust,
Series 1995-D......................... 6.15% 7/15/01 2,300 2,333,781
People's Bank Credit Card Master Trust,
Series 1993-1, Class A................ 4.80% 12/15/99 2,480 2,476,352
Security Pacific Acceptance Corp.,
Series 1995-1......................... 7.25% 4/10/20 2,000 2,119,118
------------
13,838,575
------------
BANKING--11.3%
AAB, Global Bond, Bank Guaranteed....... 7.25% 5/31/05 2,800 2,998,192
Chase Manhattan Corp., Subordinate Note. 9.75% 11/1/01 2,500 2,949,827
Chevy Chase Auto Receivables Trust
Class A............................... 5.80% 6/15/02 3,000 3,015,687
First Union Corp., Subordinate Note..... 6.88% 9/15/05 3,000 3,129,951
Mellon Financial Co., Senior Notes...... 7.63% 11/15/99 2,310 2,449,360
Midland Bank PLC, Subordinate Notes..... 8.63% 12/15/04 2,230 2,568,289
Norwest Corp., Medium Term Note......... 7.75% 3/1/02 1,500 1,639,203
Saloman, Inc. Senior Notes.............. 6.70% 12/1/98 3,700 3,724,901
------------
22,475,410
------------
ENTERTAINMENT--3.2%
News America Holdings................... 8.50% 2/15/05 2,500 2,821,893
Time Warner Entertainment............... 9.63% 5/1/02 3,000 3,476,898
------------
6,298,791
------------
FINANCE--2.2%
Associates Corp., North America,
Corporate Notes....................... 6.63% 6/15/05 1,700 1,757,470
Chemical Master Credit Card Trust,
Series 1995-3, Class A................ 6.23% 4/15/02 2,500 2,556,748
------------
4,314,218
------------
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
HEALTH CARE & HOSPITAL MANAGEMENT--2.2%
Columbia HCA/Health, Medium Term Note... 6.87% 9/15/03 $ 4,250 $ 4,421,896
------------
HOTELS AND GAMING--1.4%
Marriot International, Inc., Senior
Note.................................. 7.88% 4/15/05 2,500 2,718,953
------------
INDUSTRIAL--3.9%
ITT Corp., Debentures................... 7.38% 11/15/15 5,000 5,132,450
TCI Communications, Senior Notes........ 8.00% 8/1/05 2,500 2,672,875
------------
7,805,325
------------
RETAIL STORES--1.3%
Dayton Hudson Credit Card Master Trust,
Series 1995-1, Class A................ 6.10% 2/25/02 2,500 2,543,247
------------
SUPRANATIONALS--0.6%
European Investment Bank................ 8.88% 3/1/01 1,000 1,143,335
------------
UTILITIES--0.5%
West Texas Utilities.................... 6.38% 10/1/05 1,000 1,017,028
------------
TOTAL CORPORATE OBLIGATIONS
(COST $64,213,422)..................... 66,576,778
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--7.5%
Federal Farm Credit Bank,
Medium Term Note...................... 7.00% 4/18/97 6,000 6,032,004
Federal Home Loan Mortgage Corporation,
Debenture............................. 7.35% 3/22/05 8,000 8,807,624
Federal Home Loan Mortgage Corporation,
Pool #555124 ......................... 9.50% 12/1/18 1 1,010
Government National Mortgage
Association, Pool #304382............. 8.50% 3/15/23 64 67,206
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $14,201,890)..................... 14,907,844
------------
U.S. GOVERNMENT OBLIGATIONS--47.5%
U.S. TREASURY BOND--0.6%
U.S. Treasury Bond...................... 8.13% 8/15/19 1,000 1,257,812
------------
U.S. TREASURY NOTES--46.9%
U.S. Treasury Note...................... 5.88% 5/31/96 2,650 2,657,449
U.S. Treasury Note...................... 7.88% 1/15/98 2,900 3,048,625
U.S. Treasury Note...................... 5.38% 5/31/98 375 376,288
U.S. Treasury Note...................... 5.13% 6/30/98 400 399,125
U.S. Treasury Note...................... 4.75% 10/31/98 19,000 18,750,625
U.S. Treasury Note...................... 5.00% 1/31/99 550 546,046
U.S. Treasury Note...................... 6.88% 8/31/99 1,785 1,875,921
U.S. Treasury Note...................... 7.13% 9/30/99 165 174,900
U.S. Treasury Note...................... 7.88% 11/15/99 990 1,076,625
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
U.S. Treasury Note...................... 7.75% 11/30/99 $ 2,440 $ 2,644,350
U.S. Treasury Note...................... 7.75% 1/31/00 12,100 13,151,187
U.S. Treasury Note...................... 8.50% 2/15/00 830 925,708
U.S. Treasury Note...................... 6.88% 3/31/00 800 846,250
U.S. Treasury Note...................... 6.13% 7/31/00 5,000 5,150,000
U.S. Treasury Note...................... 8.75% 8/15/00 1,870 2,125,369
U.S. Treasury Note...................... 7.50% 11/15/01 18,050 19,900,125
U.S. Treasury Note...................... 7.50% 5/15/02 150 166,500
U.S. Treasury Note...................... 7.25% 5/15/04 1,500 1,669,217
U.S. Treasury Note...................... 7.25% 8/15/04 2,365 2,631,063
U.S. Treasury Note...................... 7.88% 11/15/04 9,700 11,236,829
U.S. Treasury Note...................... 7.63% 2/15/25 3,000 3,666,558
------------
93,018,760
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $90,128,484)..................... 94,276,572
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $168,543,796).................... 175,761,194
------------
SHORT-TERM INVESTMENT--10.5%
REPURCHASE AGREEMENT--10.5%
Repurchase Agreement with National
Westminster Bank dated 12/29/95, with
a maturity value of $20,870,094 (See
Footnote A)........................... 5.65% 1/2/96 20,857 20,857,000
------------
TOTAL SHORT-TERM INVESTMENT (COST
$20,857,000)........................... 20,857,000
------------
TOTAL INVESTMENTS--99.1%
(COST $189,400,796)(A)................. 196,618,194
Other assets in excess of liabilities--
0.9%................................... 1,665,477
------------
NET ASSETS--100.0%....................... $198,283,671
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $198,283,671.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $7,224,889
Unrealized depreciation......................................... (7,491)
----------
Net unrealized appreciation..................................... $7,217,398
==========
</TABLE>
(b) Illiquid security.
Footnote A: Collateralized by $22,100,000 U.S. Treasury Bill due 9/19/96, with
a value of $21,293,129.
See Notes to Financial Statements.
66
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--50.2%
ASSET-BACKED SECURITIES--7.7%
Advanta Mortgage Loan Trust,
Series 1994-3, Class A2............... 7.60% 7/25/10 $ 1,625 $ 1,679,030
First U.S.A. Credit Card Master Trust,
Series 1992-1, Class A................ 5.20% 6/15/98 833 832,116
Green Tree Financial Corporation,
Manufactured Housing Senior
Subordinate Passthrough,
Series 1995-4, Class A6............... 7.30% 7/15/25 3,000 3,169,227
Security Pacific Acceptance Corp.
Manufactured Housing Contract
Senior Subordinate, Series 1995-1,
Class A3.............................. 7.25% 4/10/20 2,000 2,119,118
Standard Credit Card Master Trust I,
Participation Certificates,
Series 1994-2, Class A................ 7.25% 4/7/06 1,800 1,945,636
------------
9,745,127
------------
BANKING--15.8%
ABN-AMRO Bank N.V., Chicago Subordinate
Note.................................. 7.25% 5/31/05 2,000 2,141,566
Chase Manhattan Corp.,
Subordinate Note...................... 9.75% 11/1/01 2,000 2,359,862
Chemical Master Credit Card Trust I,
Series 1995-3, Asset-Backed CTF, Class
A..................................... 6.23% 4/15/05 1,000 1,022,699
Chevy Chase Auto Receivables Trust,
Series 1995-2 Class A................. 5.80% 6/15/02 2,000 2,010,458
First Union Corp., Subordinate Note..... 6.88% 9/15/05 2,000 2,086,634
Interamerican Development Bank,
Debentures............................ 8.50% 3/15/11 1,800 2,152,114
Interamerican Development Bank,
Debentures............................ 7.00% 6/15/25 2,200 2,347,633
International Bank for Reconstruction
and Development Debentures............ 9.64% 4/30/99 1,500 1,685,392
Midland Bank PLC, Subordinate Note...... 8.63% 12/15/04 1,500 1,727,549
Solomon, Inc., Senior Notes............. 6.70% 12/1/98 2,500 2,516,825
------------
20,050,732
------------
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
BEVERAGE, FOOD AND TOBACCO--0.7%
Grand Metro Investment Corp.,
Guaranteed Note....................... 7.13% 9/15/04 $ 800 $ 854,929
------------
CABLE TV SYSTEMS--3.0%
Cablevision Industries Corp., Senior
Debentures............................ 9.25% 4/1/08 3,500 3,797,500
------------
CHEMICALS--1.4%
Monsanto Co., Debenture................. 8.20% 4/15/25 1,500 1,725,809
------------
ENTERTAINMENT--2.2%
News America Holdings, Senior Note...... 8.50% 2/15/05 2,500 2,821,893
------------
FINANCE--2.0%
American Express Co., Debentures........ 8.63% 5/15/22 800 911,707
Sears Credit Master Trust II,
Series 1995-3, Class A................ 7.00% 10/15/04 1,600 1,679,742
------------
2,591,449
------------
FOREST AND PAPER PRODUCTS--0.7%
Weyerhaeuser Co., Debentures............ 8.38% 2/15/07 800 943,652
------------
HEALTH CARE & HOSPITAL MANAGEMENT--3.8%
Coastal Corp. .......................... 7.75% 10/15/35 2,000 2,136,354
Columbia/HCA Healthcare Corp. .......... 7.58% 9/15/25 2,500 2,723,243
------------
4,859,597
------------
HOTELS AND GAMING--1.7%
Marriott International, Inc., Senior
Note, Series B........................ 7.88% 4/15/05 2,000 2,175,162
------------
RETAIL STORES--5.8%
Dayton Hudson Credit Card Master Trust
Series 95-1, Class A.................. 6.10% 2/25/02 1,500 1,525,948
Dayton Hudson Corp., Debenture.......... 7.88% 6/15/23 1,800 1,867,500
Federated Department Stores, Senior
Notes................................. 8.13% 10/15/02 4,000 4,040,000
------------
7,433,448
------------
TELECOMMUNICATIONS--4.6%
ITT Corp................................ 7.75% 11/15/25 2,000 2,052,980
TCI Communications, Inc. ............... 8.75% 8/1/15 3,500 3,862,891
------------
5,915,871
------------
</TABLE>
See Notes to Financial Statements.
68
<PAGE>
PRAIRIE FUNDS
BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
UTILITIES--0.8%
West Texas Utilities First Mortgage,
Series U............................. 6.38% 10/1/05 $ 1,000 $ 1,017,028
------------
TOTAL CORPORATE OBLIGATIONS
(COST $60,247,885).................... 63,932,197
------------
U.S. GOVERNMENT OBLIGATIONS--40.1%
U.S. TREASURY BONDS--8.0%
U.S. Treasury Bond..................... 10.75% 5/15/03 1,000 1,314,686
U.S. Treasury Bond..................... 11.13% 8/15/03 3,500 4,702,026
U.S. Treasury Bond..................... 12.00% 8/15/13 1,760 2,717,000
U.S. Treasury Bond..................... 9.88% 11/15/15 1,000 1,448,125
------------
10,181,837
------------
U.S. TREASURY NOTES--32.1%
U.S. Treasury Note..................... 5.88% 5/31/96 3,850 3,860,822
U.S. Treasury Note..................... 4.75% 2/15/97 3,500 3,483,588
U.S. Treasury Note..................... 7.88% 1/15/98 700 735,875
U.S. Treasury Note..................... 5.00% 1/31/99 6,450 6,403,631
U.S. Treasury Note..................... 7.75% 11/30/99 1,500 1,625,625
U.S. Treasury Note..................... 6.75% 4/30/00 6,200 6,527,428
U.S. Treasury Note..................... 7.75% 2/15/01 2,000 2,210,000
U.S. Treasury Note..................... 7.50% 11/15/01 6,000 6,615,000
U.S. Treasury Note..................... 7.25% 5/15/04 8,500 9,458,894
------------
40,920,863
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $48,518,853).................... 51,102,700
------------
U.S. GOVERNMENT AGENCY
OBLIGATION--0.1%
Government National Mortgage
Association, Pool #201299 (cost
$77,388).............................. 8.50% 2/15/17 77 81,023
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $108,844,126)................... $115,115,920
------------
</TABLE>
See Notes to Financial Statements.
69
<PAGE>
PRAIRIE FUNDS
BOND FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000) (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT--8.8%
REPURCHASE AGREEMENT--8.8%
Repurchase agreement with National
Westminster Bank dated 12/29/95, with a
maturity value of $11,174,010 (see
Footnote A)............................ 5.65% 1/2/96 $11,167 $ 11,167,000
------------
TOTAL SHORT-TERM INVESTMENT
(COST $11,167,000)...................... 11,167,000
------------
TOTAL INVESTMENTS
(COST $120,011,126)(A)--99.2%........... 126,282,920
Other assets in excess of liabilities--
0.8%.................................... 1,025,749
------------
NET ASSETS--100.0%........................ $127,308,669
============
</TABLE>
- -----------
Percentages are based on net assets of $127,308,669.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $6,271,794
Unrealized depreciation......................................... --
----------
Net unrealized appreciation..................................... $6,271,794
==========
</TABLE>
Footnote A: Collateralized by $11,300,000 U.S. Treasury Note, 5.63%, due
10/31/97; with a value of $11,480,710.
See Notes to Financial Statements.
70
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000)* (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--5.3%
BRITISH POUNDS STERLING--1.3%
Barclays Bank........................... 10.25% 12/10/97 120 $ 197,956
-----------
FRENCH FRANCS--1.9%
Unilever NV............................. 9.88% 9/4/97 1,300 284,768
-----------
JAPANESE YEN--2.1%
Export-Import Bank of Japan............. 4.38% 10/1/03 30,000 319,530
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $456,789)........................ 802,254
-----------
FOREIGN GOVERNMENT
OBLIGATIONS--50.0%
BELGIUM FRANCS--3.6%
Belgium Government, Series 19........... 6.50% 3/31/05 16,000 536,496
-----------
BRITISH POUNDS STERLING--3.0%
United Kingdom Exchequer................ 12.25% 3/26/99 250 451,346
-----------
CANADIAN DOLLARS--3.7%
Canadian Government..................... 9.75% 10/1/97 200 156,206
Canadian Government..................... 10.75% 3/15/98 500 402,832
-----------
559,038
-----------
DANISH KRONE--2.6%
Kingdom of Denmark...................... 9.00% 11/15/98 2,000 393,120
-----------
FINLAND--2.3%
Republic of Finland..................... 6.00% 1/29/02 30,000 346,800
-----------
FRENCH FRANCS--5.4%
France O.A.T............................ 8.50% 6/25/97 2,800 599,348
France O.A.T............................ 5.50% 4/25/04 1,100 210,265
-----------
809,613
-----------
GERMAN DEUTSCHEMARKS--9.2%
Austria Republic........................ 6.00% 4/1/98 600 435,555
Bundesrepublic.......................... 9.00% 10/20/00 600 488,375
Deutsche Bundespost..................... 7.50% 8/2/04 600 453,497
-----------
1,377,427
-----------
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Maturity Amount Value
Description Rate Date (000)* (Note 2(a))
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C>
ITALIAN LIRA--6.1%
Italy Government.............. 8.50% 1/1/99 15,000,000 $ 910,500
-----------
JAPANESE YEN--5.6%
Japan Development Bank........ 6.50% 9/20/01 35,000 414,155
Japan Government Bank, Series
175......................... 4.50% 12/20/04 40,000 430,240
-----------
844,395
-----------
NETHERLAND GUILDERS--5.0%
Netherland Government......... 5.75% 1/15/04 1,200 744,109
-----------
SPANISH PESETAS--3.5%
Spanish Government............ 8.00% 5/30/04 70,000 523,040
-----------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS
(COST $7,387,364)............ 7,495,884
-----------
SUPRANATIONAL OBLIGATIONS--13.4%
GERMAN DEUTSCHEMARKS--3.1%
European Investment Bank...... 7.50% 11/4/02 600 457,982
-----------
JAPANESE YEN--10.3%
Asian Development Bank........ 5.00% 2/5/03 40,000 441,080
Council of Europe............. 6.88% 3/5/01 30,000 356,250
IBRD.......................... 5.25% 3/20/02 30,000 337,890
Interamerican Development
Bank........................ 7.25% 5/15/00 35,000 415,625
-----------
1,550,845
-----------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST $2,035,096)............ 2,008,827
-----------
SHORT-TERM INVESTMENT--32.1%
U.S. TREASURY BILL--32.1%
U.S. Treasury Bill............ 5.18%** 1/4/96 4,815(b) 4,812,922
-----------
TOTAL SHORT-TERM INVESTMENT
(COST $4,812,922)............ 4,812,922
-----------
TOTAL INVESTMENTS
(COST $14,692,171)(A)--
100.8%....................... 15,119,887
Liabilities in excess of
assets--(0.8%)............... (124,599)
-----------
TOTAL NET ASSETS--100.0%....... $14,995,288
===========
</TABLE>
See Notes to Financial Statements.
72
<PAGE>
PRAIRIE FUNDS
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
- -----------
Percentages indicated are based on net assets of $14,995,288.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................... $427,716
Unrealized depreciation........................................... --
--------
Net unrealized appreciation....................................... $427,716
========
</TABLE>
(b) Denominated in U.S. dollars.
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACT
Principal Market
Amount in Value
Local in U.S. Unrealized
Currency Proceeds Dollars Appreciation
--------- -------- ------- ------------
<S> <C> <C> <C> <C>
Japanese Yen, expiring 2/10/96 300,000,000 $3,036,130 $2,928,038 $108,092
========
</TABLE>
* Numbers are presented in local currency unless otherwise indicated.
** Yield at purchase.
See Notes to Financial Statements.
73
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS--98.9%
ALASKA--0.7%
Alaska Student Loan Corp.,
Student Loan Revenue,
State Assisted, Series A
(A.M.T.)................. A/A 5.50% 7/1/04 $ 1,000 $ 1,007,940
North Slope Boro Refunding,
Series G (FSA Insured)... Aaa/AAA 8.35% 6/30/98 1,500 1,650,360
------------
2,658,300
------------
ARIZONA--1.3%
Maricopa County University
School District No. 41,
Series C, Collateralized
by U.S. Government
Securities (Pre-refunded
at 100 on 7/1/04)(FGIC
Insured)................. Aaa/AAA 6.10% 7/1/14 2,000 2,219,600
Pima County Refunding,
Series A................. Aa/A+ 5.00% 7/1/02 3,000 3,103,440
------------
5,323,040
------------
CALIFORNIA--12.5%
California Health
Facilities Financing
Authority Revenue
Refunding, Catholic
Health Facilities
Insured, Series B (AMBAC
Insured)................. Aaa/AAA 4.50% 7/1/02 2,500 2,506,275
California Health
Facilities Financing, St.
Joseph's Health Systems,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
7/1/99).................. NR/AA- 6.90% 7/1/14 6,750 7,490,137
</TABLE>
See Notes to Financial Statements.
74
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Central Valley Financing
Authority,
Califcogeneration Project
Revenue, Carson Ice
Generation Project....... NR/BBB- 5.50% 7/1/01 $ 975 $ 993,515
Central Valley Financing
Authority,
Califcogeneration Project
Revenue, Carson Ice
Generation Project....... NR/BBB- 5.40% 7/1/00 2,550 2,598,909
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.10% 12/1/03 1,570 1,626,834
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.10% 12/1/03 635 657,987
Fresno Health Facilities
Revenue, Holy Cross
Health Systems Corp.
(MBIA Insured)........... A1/AA- 5.00% 12/1/02 1,500 1,548,900
Los Angeles Wastewater
Systems Revenue, Series A
(MBIA Insured)........... Aaa/AAA 8.50% 6/1/00 1,360 1,592,519
MSR Public Power Agency
California, San Juan
Project
Revenue Refunding, Series F
(AMBAC Insured).......... Aaa/AAA 5.55% 7/1/02 1,615 1,721,429
Northern California Power
Agency, Public Power
Refunding, Geothermal
Project #3, Series A..... Aaa/AAA 5.85% 7/1/10 4,625 4,983,946
Northern California Power
Agency, Public Power
Refunding, Series B-1,
Collateralized by U.S.
Government Securities
(Pre-refunded at 100 on
7/1/98).................. NR/AAA 8.00% 7/1/24 3,000 3,291,660
</TABLE>
See Notes to Financial Statements.
75
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.90% 7/1/02 $ 1,000 $ 1,027,670
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.80% 7/1/01 1,300 1,333,800
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble Project. NR/BBB- 5.60% 7/1/99 3,300 3,373,557
South Coast Air Quality
Management District
Building Corp.,
California Revenue
Institutional Sale,
Series B, (Pre-refunded
at 102 on 8/1/99)........ Aaa/AAA 7.13% 8/1/14 3,650 4,092,270
University of California
Revenue Refunding,
Multiple Purpose Projects
(MBIA Insured)........... Aaa/AAA 6.20% 9/1/01 6,675 7,312,129
University of California
Revenue Refunding,
Multiple Purpose
Projects, Series B (MBIA
Insured)................. Aaa/AAA 4.90% 9/1/08 3,140 3,064,514
------------
49,216,051
------------
COLORADO--8.3%
Adams County Single Family
Mortgage Revenue, Series
A, Collateralized by U.S.
Government Securities.... Aaa/AAA 8.88% 8/1/03 1,230 1,579,037
Denver City and County
Airport, Series A
(A.M.T.)................. Baa/BB 7.40% 11/15/04 200 224,006
Denver City and County
Airport, Series A........ Aaa/AAA 8.50% 11/15/07 2,000 2,344,740
Denver City and County
Airport, Series A........ B/BB 8.00% 11/15/17 4,215 4,505,624
Denver City and County
Airport, Series A........ NR/NR 8.00% 11/15/25 1,360 1,542,158
</TABLE>
See Notes to Financial Statements.
76
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
COLORADO (CONTINUED)
Denver City and County
Airport, Series B
(A.M.T.)................. NR/NR 7.25% 11/15/05 $ 2,000 $ 2,195,120
Denver City and County
Airport, Series C........ B/BB 6.55% 11/15/03 1,145 1,219,425
Denver City and County
Airport, Series D........ B/BB 7.30% 11/15/00 2,900 3,171,556
Denver City & County Water
Refunding................ Aa/AA 7.00% 10/1/99 8,665 9,548,137
Denver Metropolitan Major
League Baseball Stadium,
Colorado Revenue
Refunding, Sales Tax,
Baseball Stadium Project
(FGIC Insured)........... Aaa/AAA 4.60% 10/1/05 2,000 1,982,040
Poudre Valley Hospital
District Revenue,
Collateralized by U.S.
Government Securities,
(Pre-refunded at 101 on
12/1/01) (AMBAC Insured). Aaa/AAA 6.63% 12/1/01 3,750 4,243,163
------------
32,555,006
------------
DISTRICT OF COLUMBIA--4.9%
District of Columbia,
Series A, Collateralized
by U.S. Government
Securities (Pre-refunded
at 102 on 6/1/00)........ Aaa/AAA 7.25% 6/1/05 1,125 1,283,299
District of Columbia
Hospital Revenue,
Washington Hospital
Center Corp. Issue,
Series A, Collateralized
by U.S. Government
Securities (Pre-refunded
at 102 on 1/1/01)........ NR/BBB 8.75% 1/1/15 2,750 3,330,608
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia Refunding,
Series A-1 (MBIA Insured).... Aaa/AAA 4.75% 6/1/03 $ 2,960 $ 2,950,735
District of Columbia Refunding,
Series A-1 (MBIA Insured).... Aaa/AAA 4.65% 6/1/02 1,500 1,494,180
District of Columbia Refunding,
Series B-1 (AMBAC Insured)... Aaa/AAA 5.10% 6/1/03 3,000 3,055,530
District of Columbia Refunding,
Series B-1 (AMBAC Insured)... Aaa/AAA 5.40% 6/1/06 4,850 4,966,303
District of Columbia Refunding,
Series B-3 (MBIA Insured).... Aaa/AAA 5.20% 6/1/04 2,000 2,040,920
------------
19,121,575
------------
FLORIDA--3.6%
Florida State Board of
Education Capital Outlay
Refunding, Series A,
Collateralized by U.S.
Government Securities (Pre-
refunded at 102 on 6/1/00)... Aaa/AAA 7.25% 6/1/23 4,620 5,282,185
Orlando Utilities Commission
Water & Electric Revenue,
Series A..................... Aa/AA 5.25% 10/1/23 7,500 7,343,775
Orlando Utilities Commission
Water & Electric Revenue,
Series D..................... Aa/AA- 5.00% 10/1/23 1,500 1,431,705
------------
14,057,665
------------
GEORGIA--6.0%
Georgia State,
General Obligation........... Aaa/AA+ 7.25% 9/1/04 9,440 11,310,253
</TABLE>
See Notes to Financial Statements.
78
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
Georgia State,
General Obligation....... Aaa/AA+ 7.25% 9/1/05 $ 10,130 $ 12,235,014
------------
23,545,267
------------
HAWAII--2.5%
Hawaii State Department of
Budget & Finance Special
Purpose Mortgage Revenue,
Kapiolani Healthcare
System................... A/A 5.60% 7/1/02 2,065 2,130,770
Hawaii State Refunding,
Series C................. Aa/AA 4.25% 7/1/99 7,500 7,549,800
------------
9,680,570
------------
ILLINOIS--12.2%
Chicago Metropolitan Water
Reclamation District..... Aa/AA 5.00% 12/1/02 4,500 4,671,720
Chicago Public Community
Building Revenue, Series
A (MBIA Insured)......... Aaa/AAA 4.90% 12/1/01 3,000 3,087,600
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.20% 10/1/03 750 753,743
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.10% 10/1/02 1,180 1,185,263
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 5.00% 10/1/01 1,120 1,124,357
Illinois Health Facilities
Authority Revenue
Refunding, Illinois
Masonic Medical Center... A/A- 4.90% 10/1/00 825 827,714
</TABLE>
See Notes to Financial Statements.
79
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.10% 8/1/08 $ 1,000 $ 1,033,280
Illinois State Sales Tax
Revenue, Series S..... A1/AAA 4.85% 6/15/06 11,300 11,276,722
Illinios State Toll
Highway Authority,
Toll Highway Priority
Revenue, Series A..... A1/A 3.50% 1/1/05 4,000 3,630,240
Illinois Health
Facilities Authority
Revenue Refunding,
Illinois Memorial
Hospital.............. VMIG1/NR 5.60% 1/1/16 1,930 1,930,000
Metropolitan Pier &
Exposition Authority,
Illinois Dedicated
State Tax Revenue..... A/A+ 6.40% 6/1/03 10,495 11,636,226
Metropolitan Pier &
Exposition Authority,
Illinois Dedicated
State Tax Revenue..... A/A+ 6.50% 6/1/05 2,960 3,336,482
Regional Transportation
Authority, Series A
(AMBAC Insured)....... Aaa/AAA 8.00% 6/1/03 2,785 3,357,067
------------
47,850,414
------------
IOWA--0.8%
Iowa Student Loan
Liquidity Corp.
Student Loan Revenue,
Series A.............. Aa1/NR 6.00% 3/1/98 3,000 3,104,850
------------
INDIANA--3.1%
Indiana Bond Bank,
Special Program,
Series A-2............ A/NR 4.75% 11/1/02 375 374,760
Indiana Bond Bank,
Special Program,
Series A-2............ A/NR 4.65% 11/1/01 375 374,599
Indiana Bond Bank
Revenue Guarantee,
State Revolving Fund
Program, Series A..... NR/A 5.80% 2/1/02 500 527,185
</TABLE>
See Notes to Financial Statements.
80
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
INDIANA (CONTINUED)
Indiana Bond Bank Revenue
Guarantee, State Revolving
Fund Program, Series A.... NR/A 5.60% 2/1/05 $ 700 $ 727,230
Indiana Health Facility,
Funding Authority Revenue,
Capital Access Designated
Pool...................... VMIG1/NR 5.60% 12/1/10 1,000 1,000,000
Indiana State Office
Community Building Capital
Complex Revenue Refunding,
State Office Building II
Facilities, Series D...... A1/A+ 6.50% 7/1/99 3,000 3,187,590
Indianapolis Economic
Development Water
Facilities Revenue
Refunding, Indianapolis
Water Co. Project......... A1/A+ 5.20% 5/1/01 5,810 5,948,162
------------
12,139,526
------------
MASSACHUSETTS--3.9%
Massachusetts Bay
Transportation Authority,
General Transportation
Systems, Series A,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
3/1/01)................... Aaa/A+ 7.00% 3/1/22 3,500 4,000,500
Massachusetts Municipal
Wholesale Electric Company
Supply System Revenue,
Series B.................. Aaa/AAA 4.50% 7/1/04 4,215 4,163,703
Massachusetts State General
Obligation, Series B...... A/A+ 9.25% 7/1/00 2,000 2,400,240
Massachusetts State
Refunding, Series A....... A1/A+ 6.25% 7/1/02 4,500 4,949,190
------------
15,513,633
------------
</TABLE>
See Notes to Financial Statements.
81
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEVADA--3.4 %
Clark County General
Obligation................ A1/A+ 7.00% 9/1/00 $ 6,705 $ 7,482,914
Las Vegas Refunding......... A1/A 6.40% 10/1/03 2,250 2,488,680
Nevada State Municipal Bond
Bank Project No. R-5,
Series A.................. Aa/AA 6.00% 5/1/02 1,000 1,083,500
Nevada State Municipal Bond
Bank Project No. R-5,
Series A.................. Aa/AA 4.50% 11/1/02 1,020 1,026,212
Nevada State Refunding,
Series C.................. Aa/AA 5.90% 4/1/01 1,000 1,074,230
------------
13,155,536
------------
NEW YORK--8.9%
New York City, General
Obligation, Series F...... Aaa/AAA 3.00% 11/15/00 3,000 2,857,260
New York City Municipal
Water Financing Authority
Water & Sewer Systems
Revenue, Series C,
Collateralized by U.S.
Government Securities
(Pre-refunded at 101.5 on
6/15/01) (FGIC Insured)... Aaa/AAA 7.00% 6/15/16 3,805 4,369,548
New York State Local
Assistance Corp., Series
A, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.25% 4/1/18 2,000 2,319,020
New York State Local
Assistance Corp., Series
B, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.50% 4/1/20 4,255 4,983,456
</TABLE>
See Notes to Financial Statements.
82
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Local
Assistance Corp., Series
C, Collateralized by U.S.
Government Securities
(Pre-refunded at 102 on
4/1/01)................... Aaa/AAA 7.00% 4/1/21 $ 825 $ 946,960
New York State Throughway
Authority, Highway &
Bridge Traffic Fund,
Series A.................. A/A- 6.00% 4/1/99 17,025 17,736,645
Triborough Bridge & Tunnel
Authority, New York
Revenue, Series R,
Collateralized by U.S.
Government Securities
(Pre-refunded at 100 on
1/1/00)................... Aaa/AAA 6.00% 1/1/20 1,500 1,604,865
------------
34,817,754
------------
NORTH CAROLINA--0.8%
North Carolina Municipal
Power Agency No. 1,
Catawba Electric Revenue,
(MBIA Insured)............ Aaa/AAA 7.25% 1/1/07 2,500 2,989,300
------------
PENNSYLVANIA--10.7%
Geisinger Authority Health
Systems, Series A......... NR/NR 5.50% 7/1/03 2,895 3,063,489
Pennsylvania
Intergovernmental
Cooperative Authority,
Special Tax Revenue, City
of Philadelphia Funding
Program Collateralized by
U.S. Government Securities
(Pre-refunded at 100 on
6/15/02).................. Aaa/AAA 6.80% 6/15/22 9,375 10,662,094
Pennsylvania
Intergovernmental
Cooperative Authority,
Special Tax Revenue, City
of Philadelphia Funding
Program (FGIC Insured).... Aaa/AAA 6.00% 6/15/00 7,000 7,497,280
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Gas Works
Revenue, Fourteenth
Series.................... Aaa/AAA 7.00% 7/1/02 $12,090 $ 13,759,992
Philadelphia Gas Works
Revenue, Fifteenth Series
(FSA Insured)............. Aaa/AAA 4.90% 8/1/02 1,350 1,378,903
Pittsburgh Water & Sewer
Authority, Water & Sewer
System Revenue, Series A,
(Pre-refunded at 102 on
9/1/01)................... Aaa/AAA 6.50% 9/1/14 5,000 5,642,850
------------
42,004,608
------------
SOUTH CAROLINA--1.3%
South Carolina State Public
SVC Authority Revenue,
Series A.................. A1/A+ 5.00% 7/1/01 5,000 5,137,900
------------
TENNESSEE--1.3%
Chattanooga-Hamilton County,
Hospital Authority
Hospital Revenue, Enlanger
Medical Center............ Aaa/AAA 5.63% 10/1/09 5,000 5,274,550
------------
TEXAS--1.2%
Dallas Independent School
District, Collateralized
by U.S. Government
Securities................ Aa/AAA 8.70% 8/1/00 1,000 1,188,280
Humble Independent School
District Refunding
(PSFG Insured)............ Aaa/AAA 6.00% 2/15/04 2,035 2,203,132
Texas State Public Financing
Authority, Series A....... Aa/AA 8.00% 10/1/99 1,000 1,134,560
------------
4,525,972
------------
VIRGINIA--1.7%
Fairfax County Refunding,
Series A.................. Aaa/AAA 5.80% 6/1/02 5,250 5,373,060
Virginia Beach Public
Improvement, Series A..... Aa/AA 6.85% 5/1/99 1,100 1,187,384
------------
6,560,444
------------
</TABLE>
See Notes to Financial Statements.
84
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
WASHINGTON--2.3%
King County General
Obligation, Series A. Aa1/AA+ 9.00% 12/1/99 $ 1,200 $ 1,407,888
Snohomish County Public
Utilities District
No. 001, Electric
Revenue Generation
System,
Series B (A.M.T.).... A1/A+ 5.15% 1/1/03 1,280 1,299,533
Washington State Health
Care Facility
Authority Revenue,
Fred Hutchinson
Cancer............... VMIG1/NR 6.00% 1/1/18 450 450,000
Washington State Health
Care Facility
Authority Revenue,
Fred Hutchinson
Cancer............... VMIG1/NR 6.00% 1/1/18 1,335 1,335,000
Washington State Public
Power Supply Systems,
Nuclear Project No. 1
Revenue, Series A,
Collateralized by
U.S. Government
Securities (Pre-
refunded at 102 on
7/1/99) (MBIA
Insured)............. Aaa/AAA 7.50% 7/1/15 1,420 1,603,279
Washington State Public
Power Supply Systems,
Nuclear Project No. 2
Revenue, Series B
(MBIA Insured)....... Aaa/AAA 5.10% 7/1/04 2,800 2,844,408
------------
8,940,108
------------
WEST VIRGINIA--1.7%
Pleasants County
Pollution Control
Revenue Refunding,
Monongahela Power
Co., Series B........ A1/NR 6.88% 4/1/98 6,105 6,502,558
------------
</TABLE>
See Notes to Financial Statements.
85
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
WISCONSIN--5.8%
Wisconsin Health
Facility Authority
Revenue, Franciscan
Health Care.......... VMIG1/A-1+ 5.50% 1/1/16 $ 235 $ 235,000
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/01 3,950 4,454,652
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/02 4,155 4,750,328
Wisconsin State General
Obligation, Series B. Aa/AA 7.00% 5/1/03 4,625 5,345,205
Wisconsin State General
Obligation, Series 2. Aa/AA 5.13% 11/1/08 3,000 3,039,270
Wisconsin State
Refunding, Series 3.. Aa/AA 4.25% 11/1/99 4,895 4,924,908
------------
22,749,363
------------
TOTAL INVESTMENTS
(COST
$370,618,759)(A)--
98.9%................. 387,423,990
Other assets in excess
of liabilities--1.1%.. 4,446,727
------------
NET ASSETS--100.0%...... $391,870,717
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $391,870,717.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from the value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $16,805,231
Unrealized depreciation........................................ --
-----------
Net unrealized appreciation.................................... $16,805,231
===========
</TABLE>
AMBAC--American Municipal Bond Assurance Corporation.
A.M.T.--Subject to Alternative Minimum Tax.
FGIC--Financial Guaranty Insurance Company.
FSA--Financial Security Assurance.
MBIA--Municipal Bond Insurance Association.
NR--No rating available.
PSFG--Permanent School Fund Guaranty.
See Notes to Financial Statements.
86
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS--98.9%
ALASKA--0.3%
Alaska Student Loan
Corp., Student Loan
Revenue State
Assisted, Series A
(AMBAC Insured),
(A.M.T.).............. Aaa/AAA 6.13% 7/1/05 $ 800 $ 832,792
------------
ARIZONA--1.1%
Maricopa County School
District No. 028,
Kyrene Elementary,
Series B
(FGIC Insured)........ Aaa/AAA 6.00% 7/1/14 2,500 2,631,675
------------
CALIFORNIA--15.9%
Central Valley Financing
Authority,
Califogeneration
Project Revenue,
Carson Ice Generation
Project............... Bbb-/BBB- 6.00% 7/1/09 5,600 5,699,344
Cupertino Certificates
of Participation, Open
Space Acquisition
Project,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102
on 4/1/01)............ NR/NR 7.13% 4/1/16 2,675 3,064,186
Fresno Health Facilities
Revenue, Holy Cross
Health System Corp.
(MBIA Insured)........ A1/AA 5.25% 12/1/05 1,850 1,922,446
Los Angeles Wastewater
Systems Revenue,
Series D,
Collateralized by U.S.
Government Securities
(Pre-refunded at 102
on 12/1/00) (MBIA
Insured).............. Aaa/AAA 6.70% 12/1/21 10,000 11,316,500
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A..................... Aaa/AAA 5.60% 7/1/06 3,500 3,728,620
</TABLE>
See Notes to Financial Statements.
87
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A.................... Aaa/AAA 5.65% 7/1/07 $ 4,800 $ 5,115,936
Northern California
Power Agency, Public
Power Revenue
Refunding, Geothermal
Project No. 3, Series
A.................... NR/NR 5.80% 7/1/09 4,000 4,309,440
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble
Project.............. NR/BBB- 7.00% 7/1/05 1,500 1,666,005
Sacramento Cogeneration
Authority Revenue,
Procter & Gamble
Project.............. NR/BBB- 6.20% 7/1/06 2,500 2,567,950
------------
39,390,427
------------
COLORADO--12.2%
Denver City and County
Airport Revenue,
Series A (A.M.T.).... Baa/BB 8.50% 11/15/23 2,500 2,865,025
Denver City and County
Airport Revenue,
Series A (A.M.T.).... Baa/BB 8.00% 11/15/25 2,295 2,576,229
Denver City and County
Airport Revenue,
Series B (A.M.T.).... Baa/BB 7.25% 11/15/05 3,000 3,292,680
Denver City and County
Airport Revenue,
Series C (A.M.T.).... Baa/BB 6.50% 11/15/06 2,000 2,100,160
Denver City and County
Airport Revenue,
Series C (A.M.T.).... Baa/BB 6.13% 11/15/25 9,355 9,373,242
Denver City and County
Airport Revenue,
Series D (A.M.T.).... Baa/BB 7.75% 11/15/13 6,925 8,332,160
</TABLE>
See Notes to Financial Statements.
88
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
COLORADO (CONTINUED)
Denver Metropolitan
Major League Baseball
Stadium District
Revenue Refunding,
Sales Tax, Baseball
Stadium Project
(FGIC Insured)........ Aaa/AAA 4.50% 10/1/04 $ 1,600 $ 1,593,600
------------
30,133,096
------------
FLORIDA--3.7%
Broward County
Educational Facilities
Authority Revenue,
Nova Southeastern
University Project
(Connie Lee Insured).. NR/AAA 5.70% 4/1/05 1,440 1,523,678
Florida State Board,
Education Capacity
Outlay, General
Obligation, Series D.. Aa/AA 5.13% 6/1/18 5,800 5,663,758
Orlando Florida
Utilities Commision
Water & Electric
Revenue, Series D..... Aa/AA- 5.00% 10/1/23 2,000 1,908,940
------------
9,096,376
------------
GEORGIA--12.7%
Fulton County School
District, General
Obligation............ Aa/AA 6.38% 5/1/10 5,000 5,716,650
Georgia State General
Obligation............ Aaa/AA+ 7.10% 9/1/09 8,500 10,358,185
Georgia State General
Obligation............ Aaa/AA+ 6.75% 9/1/11 10,000 11,956,500
Georgia State General
Obligation, Series F.. Aaa/AA+ 6.50% 12/1/05 3,060 3,530,750
------------
31,562,085
------------
ILLINOIS--11.0%
Chicago Airport Revenue
Refunding, 2nd Lien,
O'Hare International
Airport, Series C
(MBIA Insured)........ Aaa/AAA 5.75% 1/1/09 2,490 2,665,769
</TABLE>
See Notes to Financial Statements.
89
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
Cook County Community
College, District No.
508 Lease, Series C
(MBIA Insured)........ Aaa/NR 7.70% 12/1/04 $ 5,000 $ 6,090,800
Cook County, General
Obligation, Series B.. Aaa/AAA 5.50% 11/15/22 2,535 2,511,982
Illinois Health
Facilities Authority
Revenue Refunding, Bro
Menn Healthcare (SPA--
Bankers Trust
Co.)(FGIC Insured).... Aaa/AAA 6.00% 8/15/05 1,000 1,087,560
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.10% 8/1/08 2,600 2,686,528
Illinois Health
Facilities Authority
Revenue Refunding &
Improvement, Swedish
Covenant,
Series A.............. Baa1/A- 6.30% 8/1/13 2,375 2,446,298
Illinois State Sales Tax
Revenue Refunding,
Series Q.............. A1/AAA 5.75% 6/15/06 5,000 5,376,300
Winnebago & Boone
Counties School
District No. 205 (CGIC
Insured).............. Aaa/AAA 7.35% 2/1/04 3,600 4,280,976
------------
27,146,213
------------
INDIANA--3.5%
Indiana State Office
Building Commission,
Correctional
Facilities Revenue,
Series A.............. Aaa/AAA 5.50% 7/1/20 5,000 5,002,100
Indiana Transmission
Financing Authority
Highway Revenue,
Series A.............. A1/A+ 6.80% 12/1/16 1,200 1,411,512
</TABLE>
See Notes to Financial Statements.
90
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
INDIANA (CONTINUED)
Indiana University
Revenue, Series K..... Aa/AA- 6.50% 8/1/05 $ 1,935 $ 2,197,289
------------
8,610,901
------------
MASSACHUSETTS--12.4%
Massachusetts Municipal
Electric Co., Power
Supply Systems
Revenue, Series B..... A/BBB+ 6.63% 7/1/03 4,535 5,060,516
Massachusetts State
Refunding, Series A... A1/A+ 6.25% 7/1/02 12,000 13,197,840
Massachusetts State
Refunding, Series B... A1/A+ 5.30% 11/1/05 2,300 2,395,611
Massachusetts State
Refunding, Series B... A1/A+ 5.40% 11/1/06 1,730 1,813,075
New England Educational
Loan Marketing Corp.,
Massachusetts Student
Loan Revenue
Refunding,
Series G.............. A1/A- 5.20% 8/1/02 8,000 8,160,480
------------
30,627,522
------------
MISSOURI--1.6%
Sikeston Electric
Revenue Refunding
(MBIA Insured)........ Aaa/AAA 6.00% 6/1/05 3,710 4,069,165
------------
NEVADA--1.9%
Clark County Industrial
Development Revenue
Refunding, Nevada
Power Co. Project,
Series C (AMBAC
Insured).............. Aaa/AAA 7.20% 10/1/22 4,115 4,711,387
------------
NEW YORK--0.8%
New York City General
Obligation, Sub Series
A-9................... A1/A+ 5.10% 8/1/18 2,000 2,000,000
------------
OHIO--2.0%
Columbus School
District, 144A*....... NR/NR 9.39% 5/1/97 688 702,076
</TABLE>
See Notes to Financial Statements.
91
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
OHIO (CONTINUED)
Ohio State Highway,
Series T............. Aa/AAA 4.80% 5/15/02 $ 1,600 $ 1,644,592
Ohio State Public
Facilities
Commission, Higher
Education Capital
Facilities, Series II
A
(AMBAC Insured)...... Aaa/AAA 4.30% 12/1/08 2,890 2,676,920
------------
5,023,588
------------
OKLAHOMA--1.5%
Oklahoma State
Industrial Authority
Revenue Refunding,
Health Facilities,
Sisters of Mercy,
Series A............. Aa/AA 5.20% 6/1/05 3,600 3,719,016
------------
PENNSYLVANIA--0.5%
Philadelphia Gas Works
Revenue, Fifteenth
Series, (FSA
Insured)............. Aaa/AAA 5.13% 8/1/05 1,220 1,248,255
------------
RHODE ISLAND--2.1%
Rhode Island Depositors
Economic Protection
Corp., Series A (FSA
and MBIA Insured).... Aaa/AAA 6.30% 8/1/05 4,640 5,182,880
------------
TENNESSEE--5.0%
Knox County Health,
Educational & Housing
Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured)....... Aaa/AAA 7.25% 1/1/08 8,900 10,731,709
Knox County Health,
Educational & Housing
Facilities Board,
Hospital Facilities
Revenue Refunding,
Fort Sanders Alliance
(MBIA Insured)....... Aaa/AAA 7.25% 1/1/09 1,360 1,649,299
------------
12,381,008
------------
</TABLE>
See Notes to Financial Statements.
92
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal
S&P Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
TEXAS--5.9%
Texas City Industrial
Development Corp.,
Marine Terminal
Revenue Refunding,
Arco Pipe Line Co.
Project.............. A1/A 7.38% 10/1/20 $ 4,650 $ 5,791,436
Texas State College
Student Loan
(A.M.T.)............. Aa/AA 6.50% 8/1/07 4,000 4,362,360
Texas State Public
Finance Authority,
Series A............. Aa/AA 8.00% 10/1/99 3,930 4,458,821
------------
14,612,617
------------
WASHINGTON--2.8%
Chelan County Public
Utilities District
No. 001, Revenue,
Series E............. A1/A+ 5.70% 7/1/08 2,150 2,199,257
Washington State Public
Power Supply System
Nuclear Project No. 2
Revenue, Series C.... NR/AAA 7.63% 7/1/10 4,000 4,673,720
------------
6,872,977
------------
WISCONSIN--1.7%
Wisconsin State General
Obligation, Series B. Aa/AA 5.50% 5/1/09 4,160 4,290,083
------------
WYOMING--0.3%
Wyoming Community
Development
Authority, Single
Family, Series D
(FHA/VA Mortgage
Insured)............. Aa/AA 7.60% 6/1/17 800 856,440
------------
TOTAL INVESTMENTS
(COST
$231,324,230)(A)--
98.9%................. 244,998,503
Other assets in excess
of liabilities--1.1%.. 2,824,647
------------
NET ASSETS--100.0%...... $247,823,150
============
</TABLE>
See Notes to Financial Statements.
93
<PAGE>
PRAIRIE FUNDS
MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
- -----------
Percentages indicated are based on net assets of $247,823,150.
* Securities exempt from registration under Rule 144A of the Securities Act
of 1993. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from the value by net unrealized appreciation of the
securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $13,674,273
Unrealized depreciation......................................... --
-----------
Net unrealized appreciation..................................... $13,674,273
===========
</TABLE>
AMBAC--American Municipal Bond Assurance Corporation.
A.M.T.--Subject to Alternative Minimum Tax.
CGIC--Capital Guaranty Insurance Corporation.
FGIC--Financial Guaranty Insurance Company.
FHA/VA--Federal Housing Association/Veterans Administration.
FSA--Financial Security Assurance.
MBIA--Municipal Bond Insurance Association.
NR--No rating available.
SPA--Standby Purchase Agreement.
See Notes to Financial Statements.
94
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amortized
Maturity Amount Cost
Description Rate Date (000) (Note 2(a))
----------- ------ -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--82.5%
U.S. TREASURY BILLS--82.5%
U.S. Treasury Bill..................... 5.35%* 1/11/96 $10,000 $ 9,985,194
U.S. Treasury Bill..................... 5.32%* 1/18/96 5,000 4,987,451
U.S. Treasury Bill..................... 5.34%* 1/25/96 10,000 9,964,400
U.S. Treasury Bill..................... 5.32%* 2/15/96 7,500 7,450,125
U.S. Treasury Bill..................... 5.30%* 3/7/96 7,500 7,427,194
U.S. Treasury Bill..................... 4.82%* 3/14/96 7,500 7,426,696
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $47,241,060).................... 47,241,060
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $47,241,060).................... 47,241,060
-----------
REPURCHASE AGREEMENTS--17.8%
Repurchase agreement with National
Westminster, dated 12/29/95, with a
maturity value of $10,206,403 (see
Footnote A).......................... 5.65% 1/2/96 10,200 10,200,000
-----------
TOTAL INVESTMENTS
(COST $57,441,060)(A)--100.3%......... 57,441,060
Liabilities in excess of other assets--
(0.3%)................................ (177,000)
-----------
NET ASSETS--100.0%...................... $57,264,060
===========
</TABLE>
- -----------
Percentages indicated are based on net assets of $57,264,060.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Yield at purchase.
Footnote A: Collateralized by $10,100,000 U.S. Treasury Note, due 03/31/97;
with a value of $10,474,323.
See Notes to Financial Statements.
95
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BANKERS ACCEPTANCES--4.9%
Bank of Tokyo............... P-1/A-1 5.81% 1/8/96 $ 5,000 $ 4,994,351
Dai-Ichi Kangyo............. P-1/A-1 5.81% 2/15/96 5,000 4,963,688
------------
TOTAL BANKERS ACCEPTANCES
(COST $9,958,039).......... 9,958,039
------------
CERTIFICATES OF DEPOSIT--39.7%
U.S. BRANCHES OF FOREIGN
BANKS--39.7%
ABN Amro.................... P-1/A-1+ 5.78% 2/1/96 7,000 7,000,494
Bank of Montreal............ P-1/A-1+ 5.78% 1/17/96 5,000 5,000,060
Banque Nationale de Paris... P-1/A-1 5.75% 2/5/96 7,000 7,000,251
Canadian Imperial Bank of
Commerce.................. P-1/A-1+ 5.60% 3/12/96 7,000 7,000,000
Commerz Bank AG............. P-1/A-1+ 5.77% 1/17/96 5,000 5,000,044
Fuji Bank, Ltd. ............ P-1/A-1 6.09% 1/18/96 7,000 7,000,099
Industrial Bank of Japan.... P-1/A-1 5.82% 1/17/96 5,000 4,999,747
Mitsubishi Bank, Ltd. ...... P-1/A-1+ 5.86% 3/6/96 7,000 7,000,849
National Westminster Bank... P-1/A-1+ 5.78% 1/16/96 5,000 5,000,054
Rabobank.................... P-1/A-1+ 5.75% 1/22/96 5,000 5,000,029
Sanwa Bank, Ltd. ........... P-1/A-1+ 6.03% 1/17/96 7,000 6,999,953
Societe Generale............ P-1/A-1 5.77% 2/2/96 7,000 7,000,392
Sumitomo Bank............... P-1/A-1 6.06% 1/18/96 7,000 7,000,066
------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $81,002,038)......... 81,002,038
------------
COMMERCIAL PAPER--43.7%
DOMESTIC--34.4%
AT&T........................ P-1/A-1+ 5.54% 3/19/96 7,000 6,915,977
Barclays Funding............ P-1/A-1+ 5.67% 1/19/96 7,500 7,478,737
Ciesco L.P. ................ P-1/A-1+ 5.70% 1/19/96 7,500 7,478,625
Corporate Asset
Funding Co., Inc. ........ P-1/A-1+ 5.65% 2/9/96 7,000 6,957,154
Exxon Imperial.............. P-1/A-1+ 5.62% 1/16/96 6,000 5,985,950
Ford Motor Credit........... P-1/A-1 5.63% 2/13/96 7,500 7,449,565
Goldman Sachs............... P-1/A-1+ 5.55% 4/2/96 7,000 6,900,717
Morgan Stanley & Co. ....... P-1/A-1+ 6.00% 1/3/96 7,000 6,997,667
Nestle Capital.............. P-1/A-1+ 5.73% 1/12/96 7,000 6,987,744
Philip Morris............... P-1/A-1 5.72% 1/19/96 7,000 6,979,980
------------
70,132,116
------------
</TABLE>
See Notes to Financial Statements.
96
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
FOREIGN--9.3%
Bayerische Vereinsbank..... P-1/A-1+ 5.73% 1/8/96 $ 7,000 $ 6,992,201
Dresdner Finance........... P-1/A-1+ 5.69% 1/3/96 5,000 4,998,419
Deutsche Bank.............. P-1/A-1+ 5.74% 1/12/96 7,000 6,987,723
------------
18,978,343
------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST
$89,110,459).............. 89,110,459
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--0.0%
Small Business
Administration,
Pool #500870V*............ NR/NR 7.63% 4/25/96 6 5,887
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(AMORTIZED COST $5,887)... 5,887
------------
TOTAL INVESTMENTS IN
SECURITIES (AMORTIZED COST
$180,076,423)............. 180,076,423
------------
REPURCHASE AGREEMENTS--12.3%
Repurchase agreement with
Daiwa Securities, dated
12/29/95, with a maturity
value of $15,009,166 (see
Footnote A).............. NR/NR 5.50% 1/2/96 15,000 15,000,000
Repurchase agreement with
National Westminster
Bank, dated 12/29/95,
with a maturity value of
$10,106,431 (see
Footnote B).............. NR/NR 5.65% 1/2/96 10,100 10,100,000
------------
TOTAL REPURCHASE AGREEMENTS
(AMORTIZED COST
$25,100,000).............. 25,100,000
------------
TOTAL INVESTMENTS
(AMORTIZED COST
$205,176,423)(A)--100.6%.. 205,176,423
Liabilities in excess of
other assets--(0.6%)...... (1,117,205)
------------
NET ASSETS--100.0%.......... $204,059,218
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $204,059,218.
(a) Cost for federal income tax and financial reporting purposes are the same.
NR--No rating available.
* Variable rate security. Interest rate stated is as of December 31, 1995.
Maturity date reflects the later of the next rate change or the next put
date.
Footnote A: Collateralized by $14,800,000 U.S. Treasury Note, 5.88%, due
07/31/97; with a value of $15,313,017.
Footnote B: Collateralized by $10,000,000 U.S. Treasury Note, 6.63%, due
03/31/97; with a value of $10,287,625.
See Notes to Financial Statements.
97
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ALASKA--3.3%
City of Valdez, Marine
Terminal Revenue, CP,
Refunding, ARCO
Transportation
Project, Series A..... VMIG1/A-1 3.50% 2/5/96 $ 3,500 $ 3,500,000
City of Valdez, Marine
Terminal Revenue, CP,
Refunding, ARCO
Transportation
Project, Series A,
1994 A................ VMIG1/A-1 3.55% 1/5/96 4,000 4,000,000
------------
7,500,000
------------
ALABAMA--2.6%
Phenix City Alabama
(A.M.T.)(LC
ABN Amro)............. P-1/NR 3.55% 2/7/96 6,000 6,000,000
------------
CALIFORNIA--4.2%
Southeast Resource
Recovery Facility,
Authority of
California Lease
Revision, VRDN, Series
A, (LC Industrial Bank
of Japan Ltd)......... VMIG1/A-1 5.15%* 12/1/18 9,500 9,500,000
------------
COLORADO--4.4%
Burke County
(LC Credit Swisse).... VMIG1/A-1+ 3.40% 3/7/96 5,000 5,000,000
Colorado Student
Obligation Bond
Authority, VRDN,
Student Loan Revenue,
Series 1990A (A.M.T.)
(LC Student Loan
Marketing
Association).......... VMIG1/NR 5.20%* 9/1/24 5,000 5,000,000
------------
10,000,000
------------
FLORIDA--8.4%
Florida Municipal Power
(LC First Union)...... P-1/A-1 3.50% 2/8/96 7,500 7,500,000
West Orange Hospital
(LC Rabobank)......... VMIG1/NR 3.75% 1/3/96 5,600 5,600,000
West Orange Hospital
(LC Rabobank)......... VMIG1/NR 3.80% 1/11/96 6,000 6,000,000
------------
19,100,000
------------
</TABLE>
See Notes to Financial Statements.
98
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
GEORGIA--3.2%
Georgia Municipal Gas
(LC Wachovia Bank).... A1+/NR 3.80% 2/5/96 $ 5,000 $ 5,000,000
Thomaston--Upson County,
Industrial Development
Authority, Yamaha
Music Manufacturing,
(A.M.T.) (LC Bank of
Tokyo Ltd.)........... NR/A-1 5.80%* 8/1/18 2,300 2,300,000
------------
7,300,000
------------
IOWA--2.6%
Iowa School Corps.,
Warrant Certificates,
Iowa School Cash
Anticipation Program,
Series A
(CGIC Insured)........ VMIG1/SP-1+ 4.75% 6/28/96 6,000 6,025,412
------------
ILLINOIS--2.7%
Southwestern Illinois
Development Authority,
Environmental Impact
Revenue, Shell Oil Co.
Wood River Project,
(A.M.T.).............. VMIG1/AAA 6.15% 10/1/25 6,175 6,175,000
------------
INDIANA--1.6%
Seymour Economic
Development Authority
Revenue, Kobelco Metal
Powder Project
(A.M.T.) (LC
Industrial Bank of
Japan, Limited)....... NR/A-1 5.80% 12/1/97 3,700 3,700,000
------------
KENTUCKY--4.8%
Bowling Green,
Industrial Building
Revenue, VRDN, Bando
Manufacturing America
Project (A.M.T.) (LC
Industrial Bank of
Japan, New York)...... NR/A-1 5.80%* 12/1/07 2,655 2,655,000
</TABLE>
See Notes to Financial Statements.
99
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
KENTUCKY (CONTINUED)
Bowling Green,
Industrial Building
Revenue, VRDN, Twin
Faste Inc. Project
(A.M.T.) (LC
Industrial Bank of
Japan)................ NR/A-1 5.80%* 3/1/08 $ 2,400 $ 2,400,000
Henderson County, Solid
Waste Disposal
Revenue, VRDN, Hudson
Foods Inc. Project
(A.M.T.)
(LC Rabobank
Netherland)........... VMIG1/NR 5.10%* 3/1/15 2,000 2,000,000
Kentucky Higher
Education Student Loan
Corp., Insured Student
Loan, Series E,
(A.M.T.) (LC Sumitomo
Bank, Chicago)........ VMIG1/A-1 5.60% 12/1/11 4,000 4,000,000
------------
11,055,000
------------
LOUISIANA--5.3%
New Orleans Exhibition
Hall Authority, Series
B, (A.M.T.) (LC Sanwa
Bank Ltd.)............ VMIG1/A-1 5.50% 7/1/18 5,000 5,000,000
State of Louisiana
(LC Credit Locale).... VMIG1/A-1+ 3.80% 1/3/96 7,000 7,000,000
------------
12,000,000
------------
MISSOURI--3.4%
Missouri Higher
Education Loan
Authority, VRDN,
Series A (A.M.T.) (LC
National Westminster
Place)................ VMIG1/NR 5.25%* 6/1/17 3,000 3,000,000
Burlington G&E VRDN..... P-1/A-1+ 3.65%* 3/11/96 4,800 4,800,000
------------
7,800,000
------------
</TABLE>
See Notes to Financial Statements.
100
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW HAMPSHIRE--4.4%
New Hampshire Business
Finance Authority,
Pollution Control
Revenue Refunding,
Public Service Co. of
New Hampshire Project,
VRDN, Series 1992D,
(A.M.T.) (LC Barclays
Bank PLC)............. VMIG1/A-1+ 5.15%* 5/1/21 $ 10,000 $ 10,000,000
------------
NEVADA--4.8%
Clark County Industrial
Development Revenue,
Nevada Power Co.
Project, Series A,
(A.M.T.) (LC Bank
Barcia Place)......... NR/A-1+ 5.35% 10/1/30 8,000 8,000,000
Washoe County Nevada (LC
Union Bank of
Switzerland).......... P-1/A-1+ 4.00% 1/22/96 3,000 3,000,000
------------
11,000,000
------------
NEW YORK--11.4%
New York City General
Obligation, Series F-6
(LC Noeinchukin)...... VMIG1/A-1+ 5.50% 2/15/18 4,200 4,200,000
New York City Housing
Development Corp.
Mortgage Revenue,
Multifamily 400 West
59th-A-2 (A.M.T.)
(LC Bayerische
Hypotheken)........... NR/A-1 5.00% 9/1/30 9,000 9,000,000
New York State Energy
Research & Development
Authority, Pollution
Control Revenue, New
York Electric & Gas--D
(LC Union Bank of
Switzerland).......... VMIG1/A-1+ 5.30% 10/1/29 6,000 6,000,000
</TABLE>
See Notes to Financial Statements.
101
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Energy
Research & Development
Authority, Pollution
Control Revenue,
Niagara Power Corp.
Project--B, (A.M.T.)
(LC Morgan Guaranty
New York)............. NR/A-1+ 5.60% 7/1/27 $ 2,000 $ 2,000,000
St. Lawrence County
Industrial Development
Agency, Environmental
Impact Revenue
Reynolds Metals Co.
Project, (A.M.T.) (LC
Royal Bank of Canada). VMIG1/A-1+ 5.00% 5/1/25 4,900 4,900,000
------------
26,100,000
------------
OREGON--1.8%
State of Oregon General
Obligation, VRDN,
Veterans' Welfare
Bond, Series 1973F,
(LC Mitsubishi Bank
Ltd.)................. VMIG1/A-1 5.15%* 12/1/17 4,000 4,000,000
------------
PENNSYLVANIA--6.4%
Allegheny County
Pennsylvania (LC
Norinchukin).......... P-1/A-1+ 3.70% 2/2/96 3,700 3,700,000
Carbon County
Pennsylvania (A.M.T.)
(LC NatWest).......... P-1/A-1+ 3.45% 3/6/96 7,000 7,000,000
Montgomery County (LC
Deutsche Bank)........ P-1/A-1+ 3.80% 2/7/96 3,800 3,800,000
------------
14,500,000
------------
RHODE ISLAND--1.3%
Providence Off Street
Public Parking
Facility Revenue,
VRDN, Wash Street
Garage Corp. Project,
(A.M.T.) (LC Morgan
Guaranty Trust)....... NR/A-1+ 5.10%* 12/1/22 3,000 3,000,000
------------
</TABLE>
See Notes to Financial Statements.
102
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
SOUTH CAROLINA--3.0%
South Carolina Jobs,
Economic Development
Authority, VRDN,
Hospital Facilities
Revenue, Baptist
Healthcare System (LC
Credit Local de
France)............... VMIG1/A-1+ 5.05%* 8/1/17 $ 7,000 $ 7,000,000
------------
TENNESSEE--2.8%
Memphis Shelby County
(A.M.T.) (LC Canadian
Imperial Bank of
Commerce)............. P-1/A-1+ 3.70% 2/22/96 6,405 6,405,000
------------
TEXAS--9.9%
Brazos Higher Education
Authority, Student
Loan Revenue, VRDN,
Series B-1 (A.M.T.)
(LC
Student Loan Marketing
Assoc.) .............. VMIG1/NR 5.20%* 6/1/23 6,000 6,000,000
Brazos River Texas
(A.M.T.) (LC Canadian
Imperial Bank of
Commerce)............. VMIG1/A-1+ 3.95% 1/18/96 3,000 3,000,000
Gulf Coast Industrial
Development Authority,
Texas Solid Waste
Disposal Revenue,
Citgo Petroleum Corp.
Project (A.M.T.)
(LC NationsBank of
Texas)................ VMIG1/NR 6.15% 5/1/25 2,700 2,700,000
Milam County Industrial
Development Corp.,
Pollution Control
Revenue Refunding,
Aluminum Co. of
America Project (LC
Credit Suisse)........ VMIG1/NR 4.60% 3/1/01 5,000 5,000,000
</TABLE>
See Notes to Financial Statements.
103
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/ Principal Amortized
S&P Maturity Amount Cost
Description (Unaudited) Rate Date (000) (Note 2(a))
----------- ----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
Panhandle Plains Higher
Education Authority
Revenue, VRDN,
Student Loan Revenue,
Series A, (A.M.T.)
(LC Student Loan
Marketing
Association)......... VMIG1/NR 5.20%* 6/1/21 $ 6,000 $ 6,000,000
------------
22,700,000
------------
UTAH--2.4%
Emery County (LC Credit
Suisse).............. P-1/A-1+ 3.90% 1/10/96 5,500 5,500,000
------------
WEST VIRGINIA--2.6%
West Virginia Public
Energy (A.M.T.) (LC
Swiss Bank).......... P-1/A-1+ 3.70% 2/22/96 6,000 6,000,000
------------
WYOMING--2.4%
Sweetwater City,
Wyoming (A.M.T.) (LC
West Deutsche
LandesBank).......... VMIG1/A-1+ 3.70% 2/1/96 5,400 5,400,000
------------
TOTAL INVESTMENTS--99.7%
(COST
$227,760,412)(A)...... 227,760,412
Other assets in excess
of liabilities--0.3%.. 750,866
------------
NET ASSETS--100.0%...... $228,511,278
============
</TABLE>
- -----------
Percentages indicated are based on net assets of $228,511,278.
(a) Cost for federal income tax and financial reporting purposes are the same.
A.M.T.--Subject to Alternative Minimum Tax.
CGIC--Capital Guaranty Insurance Corporation.
CP--Commercial Paper.
LC--Letter of Credit.
NR--No rating available.
VRDN--Variable Rate Demand Note.
* Variable rate security. Interest rate stated is as of December 31, 1995.
Maturity date reflects the later of the next rate change or the next put
date.
See Notes to Financial Statements.
104
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
105
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund Assets Fund Income Fund
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $46,747,002, $8,788,919,
$246,097,346, $250,136,384,
$78,317,453, $96,241,231 and
$168,543,796, respectively).......... $55,015,009 $9,512,982 $287,695,105
Repurchase Agreements (cost $0, $0, $0,
$0, $0, $0 and $20,857,000,
respectively)........................ -- -- --
Cash................................... 23,959 27,271 --
Cash denominated in foreign currencies. -- -- --
Receivable for investment securities
sold................................. -- -- --
Receivable for Fund shares sold........ 42,814 16,051 59,398
Receivable from Adviser................ -- -- --
Dividends receivable................... 130,722 10,670 1,011,718
Interest receivable.................... 341,392 31,618 98,743
Foreign tax reclaim receivable......... -- -- --
Deferred organization expenses......... 76,450 61,278 60,637
Prepaid expenses and other assets...... 20,666 5,397 7,051
----------- ---------- ------------
Total Assets.......................... 55,651,012 9,665,267 288,932,652
----------- ---------- ------------
LIABILITIES:
Advisory fees payable.................. 32,187 1,596 80,927
Administration fees payable............ 9,160 534 33,314
Shareholder Services fees payable
(Class A Shares)..................... 30,702 4,618 1,548
Shareholder Services fees payable
(Class B Shares)..................... 1,269 486 302
12b-1 fees payable (Class B Shares).... 4,502 1,419 892
Bank overdrafts........................ -- -- 438,819
Dividends payable...................... 19,103 2,812 847,092
Payable for Fund shares redeemed....... 59,709 -- --
Payable for investment securities
purchased............................ -- 23,593 --
Payable for variation margin........... -- -- --
Other accrued expenses................. 29,053 31,208 136,231
----------- ---------- ------------
Total Liabilities..................... 185,685 66,266 1,539,125
----------- ---------- ------------
NET ASSETS.............................. $55,465,327 $9,599,001 $287,393,527
=========== ========== ============
</TABLE>
See Notes to Financial Statements.
106
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Growth Opportunities Equity Intermediate
Fund Fund Fund Bond Fund
------ ------------- ------------- ------------
<S> <C> <C> <C>
$295,869,250 $93,777,555 $102,116,486 $175,761,194
-- -- -- 20,857,000
-- 7,474 89,437 1,010
-- -- 948,475 --
5,224,933 -- -- --
103,710 13,900 447,060 56,077
-- -- -- 192,506
634,710 33,175 129,246 --
5,165 2,865 960,435 2,452,092
-- -- 55,468 --
59,746 60,194 60,697 38,759
7,172 3,042 3,482 13,068
- ------------ ----------- ------------ ------------
301,904,686 93,898,205 104,810,786 199,371,706
- ------------ ----------- ------------ ------------
139,215 39,946 31,952 53,803
42,597 11,526 10,626 25,102
2,545 359 1,592 3,312
148 10 90 136
437 28 256 451
262,146 -- -- --
844,773 180,457 203,585 929,545
326,751 -- 634 --
1,593,065 -- -- --
-- -- 72,514 --
151,663 52,936 100,160 75,686
- ------------ ----------- ------------ ------------
3,363,340 285,262 421,409 1,088,035
- ------------ ----------- ------------ ------------
$298,541,346 $93,612,943 $104,389,377 $198,283,671
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
107
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund Assets Fund Income Fund
------------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
CLASS A SHARES:
Net Assets........................... $51,996,986 $8,355,636 $ 2,872,994
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 3,576,517 726,432 235,161
----------- ---------- ------------
Net Asset Value per Share............ 14.54 11.50 12.22
Maximum Sales Charge................. 0.68* 0.54* 0.58*
----------- ---------- ------------
Maximum Offering Price............... $ 15.22 $ 12.04 $ 12.80
=========== ========== ============
CLASS B SHARES:
Net Assets........................... $ 2,174,744 $ 832,603 $ 593,200
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 149,364 72,716 48,550
----------- ---------- ------------
Net Asset Value per Share............ $ 14.56 $ 11.45 $ 12.22
=========== ========== ============
CLASS I SHARES:
Net Assets........................... $ 1,293,597 $ 410,762 $283,927,333
Shares of beneficial interest issued
and outstanding, $0.001 par value,
unlimited number of shares
authorized......................... 88,785 35,843 23,259,373
----------- ---------- ------------
Net Asset Value per Share............ $ 14.57 $ 11.46 $ 12.21
=========== ========== ============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at
par................................ $ 3,815 $ 835 $ 23,544
Additional paid-in-capital........... 47,372,999 8,874,025 240,515,461
Accumulated net realized gains
(losses) from investment
transactions....................... (179,714) 5 5,265,350
Undistributed net investment income
(loss)............................. 220 73 (8,587)
Net unrealized appreciation on
investments........................ 8,268,007 724,063 41,597,759
Net unrealized appreciation of assets
and liabilities denominated in
foreign currencies and financial
futures............................ -- -- --
----------- ---------- ------------
NET ASSETS, DECEMBER 31, 1995.......... $55,465,327 $9,599,001 $287,393,527
=========== ========== ============
</TABLE>
- -----------
* Sales charge is 4.50% of Maximum Offering Price.
** Sales charge is 3.00% of Maximum Offering Price.
See Notes to Financial Statements.
108
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Opportunities Equity Intermediate
Growth Fund Fund Fund Bond Fund
----------- ------------- ------------- ------------
<S> <C> <C> <C>
$ 4,329,204 $ 671,776 $ 2,749,124 $ 6,094,679
361,669 55,070 246,447 744,997
------------ ----------- ------------ ------------
11.97 12.20 11.16 8.18
0.56* 0.57* 0.53* 0.25**
------------ ----------- ------------ ------------
$ 12.53 $ 12.77 $ 11.69 $ 8.43
============ =========== ============ ============
$ 268,039 $ 15,387 $ 192,707 $ 259,384
22,438 1,269 17,292 31,701
------------ ----------- ------------ ------------
$ 11.95 $ 12.12 $ 11.14 $ 8.18
============ =========== ============ ============
$293,944,103 $92,925,780 $101,447,546 $191,929,608
24,559,453 7,623,036 9,079,890 23,455,341
------------ ----------- ------------ ------------
$ 11.97 $ 12.19 $ 11.17 $ 8.18
============ =========== ============ ============
$ 24,944 $ 7,679 $ 9,344 $ 24,232
247,530,554 78,254,290 95,968,721 188,432,293
5,249,304 (113,066) 1,502,766 2,609,748
3,678 3,938 134,091 --
45,732,866 15,460,102 5,875,255 7,217,398
-- -- 899,200 --
------------ ----------- ------------ ------------
$298,541,346 $93,612,943 $104,389,377 $198,283,671
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
109
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate
International Municipal
Bond Fund Bond Fund Bond Fund
--------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $108,844,126, $14,692,171,
$370,618,759, $231,324,230,
$47,241,060, $180,076,423 and
$227,760,412, respectively)......... $115,115,920 $15,119,887 $387,423,990
Repurchase agreements (amortized cost
$11,167,000, $0, $0, $0,
$10,200,000, $25,100,000 and $0,
respectively)....................... 11,167,000 -- --
Cash.................................. -- 20,834 --
Receivable for investment securities
sold................................ -- -- --
Receivable for Fund shares sold....... 58,546 5,713 2,889
Receivable from Adviser............... -- -- 142,179
Interest receivable................... 1,667,756 380,503 6,122,544
Unrealized appreciation on forward
foreign currency contracts.......... -- 108,092 --
Deferred organization expenses........ 57,260 56,533 45,319
Prepaid expenses and other assets..... 5,854 6,525 29,721
------------ ----------- ------------
Total Assets......................... 128,072,336 15,698,087 393,766,642
------------ ----------- ------------
LIABILITIES:
Advisory fees payable................. 46,708 4,784 65,306
Administration fees payable........... 17,390 1,942 50,362
Shareholder Services fees payable
(Class A Shares).................... 1,007 283 59,716
Shareholder Services fees payable
(Class B Shares).................... 33 4 160
12b-1 fees payable (Class B Shares)... 94 8 568
Bank overdrafts....................... 175 -- 92
Dividends payable..................... 631,870 665,559 1,447,504
Payable for Fund shares redeemed...... 2,797 -- 170,000
Other accrued expenses................ 63,593 30,219 102,217
------------ ----------- ------------
Total Liabilities.................... 763,667 702,799 1,895,925
------------ ----------- ------------
NET ASSETS............................. $127,308,669 $14,995,288 $391,870,717
============ =========== ============
</TABLE>
See Notes to Financial Statements.
110
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Money Market Money Market Money Market
Bond Fund Fund Fund Fund
--------- --------------- ------------ ------------
<S> <C> <C> <C>
$244,998,503 $47,241,060 $180,076,423 $227,760,412
-- 10,200,000 25,100,000 --
-- -- -- 234,790
-- -- 1,938 --
39,250 -- --
108,845 -- -- --
4,307,370 3,973 496,734 1,016,229
-- -- -- --
4,453 57,957 61,354 83,300
21,770 60,156 110,035 122,258
- ------------ ----------- ------------ ------------
249,480,191 57,563,146 205,846,484 229,216,989
- ------------ ----------- ------------ ------------
51,660 13,690 41,802 30,811
31,720 19,610 31,447 45,718
22,133 117,924 227,761 283,674
123 -- 36 --
462 -- -- --
198,527 111,239 1,334,167 --
991,881 20,092 58,489 304,350
306,469 -- -- --
54,066 16,531 93,564 41,158
- ------------ ----------- ------------ ------------
1,657,041 299,086 1,787,266 705,711
- ------------ ----------- ------------ ------------
$247,823,150 $57,264,060 $204,059,218 $228,511,278
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
111
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate
Bond International Municipal
Fund Bond Fund Bond Fund
---- ------------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
CLASS A SHARES:
Net Assets........................ $ 1,846,532 $ 486,840 $ 17,776,872
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 170,875 45,289 1,451,741
------------ ----------- ------------
Net Asset Value per Share......... 10.81 10.75 12.25
Maximum Sales Charge.............. 0.51* 0.51* 0.38**
------------ ----------- ------------
Maximum Offering Price............ $ 11.32 $ 11.26 $ 12.63
============ =========== ============
CLASS B SHARES:
Net Assets........................ $ 61,260 $ 4,478 $ 340,913
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 5,669 414 27,834
------------ ----------- ------------
Net Asset Value per Share......... $ 10.81 $ 10.81 $ 12.25
============ =========== ============
CLASS I SHARES:
Net Assets $125,400,877 $14,503,970 $373,752,932
Shares of beneficial interest
issued and outstanding, $0.001
par value, unlimited number of
shares authorized(1)............ 11,598,064 1,342,032 30,509,460
------------ ----------- ------------
Net Asset Value per Share......... $ 10.81 $ 10.81 $ 12.25
============ =========== ============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at
par............................. $ 11,774 $ 1,387 $ 31,989
Additional paid-in-capital........ 118,554,093 14,473,243 375,105,416
Accumulated net realized gains
(losses) on investment
transactions.................... 2,471,008 (37,381) (71,919)
Accumulated net investment loss... -- (13,857) --
Net unrealized appreciation on
investments..................... 6,271,794 427,716 16,805,231
Net unrealized appreciation of
assets and liabilities
denominated in foreign
currencies...................... -- 144,180 --
------------ ----------- ------------
NET ASSETS, DECEMBER 31, 1995....... $127,308,669 $14,995,288 $391,870,717
============ =========== ============
</TABLE>
- -----------
*Sales charge is 4.50% of Maximum Offering Price.
**Sales charge is 3.00% of Maximum Offering Price.
(1) The Municipal Bond Fund has authorized 2.5 billion shares for Class A and
Class B and has authorized 5.0 billion shares for Class I.
See Notes to Financial Statements.
112
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Money Market Money Market Money Market
Bond Fund Fund Fund Fund
--------- --------------- ------------ ------------
<S> <C> <C> <C>
$ 7,425,897 $57,264,060 $203,994,341 $228,511,278
587,619 57,280,045 203,962,497 228,564,929
- ------------ ----------- ------------ ------------
12.64 1.00 1.00 1.00
0.60* -- -- --
- ------------ ----------- ------------ ------------
$ 13.24 $ 1.00 $ 1.00 $ 1.00
============ =========== ============ ============
$ 237,697 $ 64,877
18,797 64,867
- ------------ ------------
$ 12.65 $ 1.00
============ ============
$240,159,556
19,011,083
- ------------
$ 12.63
============
$ 19,618 $ 57,280 $ 204,027 $ 228,565
233,921,388 57,222,765 203,823,336 228,322,787
207,871 (15,985) 31,855 (40,074)
-- -- -- --
13,674,273 -- -- --
-- -- -- --
- ------------ ----------- ------------ ------------
$247,823,150 $57,264,060 $204,059,218 $228,511,278
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
113
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed
Assets Income Managed Equity
Fund(6) Assets Fund(1) Income Fund(2)
------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income (net of foreign
withholding taxes of $134,218,
for International Equity Fund).. $ 1,219,984 $ 52,630 $ 8,875,334
Interest income................... 1,726,718 91,756 1,593,621
----------- -------- -----------
2,946,702 144,386 10,468,955
----------- -------- -----------
EXPENSES:
Advisory fees..................... 331,535 25,209 1,106,473
Administration fees............... 70,850 5,818 331,942
Shareholder Services fees (Class A
Shares and Class B Shares)...... 120,334 9,051 2,981
12b-1 fees (Class B Shares)....... 5,831 3,325 1,283
Custodian fees and expenses....... 56,320 37,950 81,104
Registration fees................. 13,918 -- 74,275
Legal and audit fees.............. 31,696 22,325 45,392
Amortization of organization
expenses........................ 10,067 10,494 17,155
Transfer agent fees and expenses.. 80,641 10,246 17,960
Reports to shareholders........... 14,504 12,129 20,660
Trustees' fees.................... 1,760 2,265 5,848
Miscellaneous expenses............ 13,157 2,182 17,505
----------- -------- -----------
Total Expenses.................... 750,613 140,994 1,722,578
Less: Expense reimbursements...... (179,574) (89,978) (277,704)
----------- -------- -----------
Net Expenses..................... 571,039 51,016 1,444,874
----------- -------- -----------
NET INVESTMENT INCOME............ 2,375,663 93,370 9,024,081
----------- -------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENT AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gains (losses) on
investment transactions......... (324,052) 5 12,993,377
Net realized losses on foreign
currency transactions........... -- -- --
Net realized gains on futures
transactions.................... -- -- --
Net change in unrealized
appreciation (depreciation) on
investments..................... 9,391,499 724,063 41,597,759
Net unrealized appreciation of
assets and liabilities
denominated in foreign
currencies and financial
futures......................... -- -- --
----------- -------- -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS.. 9,067,447 724,068 54,591,136
----------- -------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS. $11,443,110 $817,438 $63,615,217
=========== ======== ===========
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 1, 1995 through December 31, 1995.
(5) For the year ended January 31, 1995.
(6) For the year ended December 31, 1995.
See Notes to Financial Statements.
114
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International
Growth Opportunities Equity Intermediate Intermediate
Fund(2) Fund(2) Fund(3) Bond Fund(4) Bond Fund(5)
------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 4,772,025 $ 611,057 $ 973,285
1,172,933 394,772 746,158 $10,539,377 $ 348,758
- ----------- ----------- ----------- ----------- ---------
5,944,958 1,005,829 1,719,443 10,539,377 348,758
- ----------- ----------- ----------- ----------- ---------
1,714,125 487,460 506,105 612,312 30,810
395,568 104,456 94,372 229,617 252
4,884 778 3,253 5,767 170
670 56 379 563 8
74,792 62,572 159,181 60,572 3,383
104,974 16,430 28,299 31,550 3,428
57,332 28,516 28,042 37,450 53,810
17,201 17,259 15,262 148 8,592
16,912 16,800 16,161 23,464 8,893
23,464 15,120 12,673 26,193 17,714
4,088 4,032 5,593 1,670 5,602
18,617 8,410 11,638 7,006 7,099
- ----------- ----------- ----------- ----------- ---------
2,432,627 761,889 880,958 1,036,312 139,761
(314,740) (168,733) (213,519) (185,219) (137,928)
- ----------- ----------- ----------- ----------- ---------
2,117,887 593,156 667,439 851,093 1,833
- ----------- ----------- ----------- ----------- ---------
3,827,071 412,673 1,052,004 9,688,284 346,925
- ----------- ----------- ----------- ----------- ---------
26,140,162 1,749,697 505,347 7,844,775 (63,605)
-- -- (236,752) -- --
-- -- 3,503,125 -- --
45,732,866 15,460,102 5,875,255 7,312,968 (304,664)
-- -- 899,200 -- --
- ----------- ----------- ----------- ----------- ---------
71,873,028 17,209,799 10,546,175 15,157,743 (368,269)
- ----------- ----------- ----------- ----------- ---------
$75,700,099 $17,622,472 $11,598,179 $24,846,027 $ (21,344)
=========== =========== =========== =========== =========
</TABLE>
See Notes to Financial Statements.
115
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Intermediate
International Municipal Municipal
Bond Fund(1) Bond Fund(2) Bond Fund(3) Bond Fund(4)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (net of
foreign withholding
taxes of $13,850 for
International Bond
Fund).................. $ 7,432,982 $ 717,469 $16,586,298 $2,141,819
----------- ---------- ----------- ----------
7,432,982 717,469 16,586,298 2,141,819
----------- ---------- ----------- ----------
EXPENSES:
Advisory fees............ 571,379 79,128 1,294,971 213,509
Administration fees...... 155,831 16,957 488,746 27,546
Shareholder Services fees
(Class A Shares and
Class B Shares)........ 2,161 684 38,461 60,314
12b-1 fees (Class B
Shares)................ 116 30 824 175
Custodian fees and
expenses............... 55,999 34,025 76,502 5,329
Registration fees........ 31,690 5,776 142,121 33,720
Legal and audit fees..... 29,720 24,652 41,560 59,478
Amortization of
organization expenses.. 16,042 16,769 12,943 --
Transfer agent fees and
expenses............... 15,614 16,432 22,560 17,386
Reports to shareholders.. 13,762 12,840 28,882 18,415
Trustees' fees........... 5,642 2,352 1,586 5,076
Miscellaneous expenses... 10,618 6,748 13,408 11,946
----------- ---------- ----------- ----------
Total Expenses........... 908,574 216,393 2,162,564 452,894
Less: Expense
reimbursements......... (178,732) (110,736) (403,299) (296,239)
----------- ---------- ----------- ----------
Net Expenses............ 729,842 105,657 1,759,265 156,655
----------- ---------- ----------- ----------
NET INVESTMENT INCOME... 6,703,140 611,812 14,827,033 1,985,164
----------- ---------- ----------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gains
(losses) on investment
transactions........... 6,908,795 1,020,021 3,839,621 (757,908)
Net realized gains on
foreign currency
transactions........... -- 30,644 -- --
Net change in unrealized
appreciation on
investments............ 6,271,794 427,716 13,694,976 2,898,764
Translation of assets and
liabilities denominated
in foreign currencies.. -- 144,180 -- --
----------- ---------- ----------- ----------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS.......... 13,180,589 1,622,561 17,534,597 2,140,856
----------- ---------- ----------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $19,883,729 $2,234,373 $32,361,630 $4,126,020
=========== ========== =========== ==========
</TABLE>
- -----------
(1) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 1, 1995 through December 31, 1995.
(4) For the year ended February 28, 1995.
(5) For the year ended December 31, 1995.
See Notes to Financial Statements.
116
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Municipal
Municipal Municipal Money Market Money Market Money Market
Bond Fund(3) Bond Fund(4) Fund(5) Fund(5) Fund(5)
------------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
$ 11,366,541 $ 984,395 $3,925,073 $8,980,167 $7,967,822
--------------- ---------- ---------- ---------- ----------
11,366,541 984,395 3,925,073 8,980,167 7,967,822
--------------- ---------- ---------- ---------- ----------
829,219 84,738 297,377 631,448 860,103
310,957 15,548 94,631 220,431 292,778
15,010 20,089 170,762 380,585 508,602
600 183 -- 154 --
43,173 5,356 47,037 58,917 67,687
95,405 30,271 7,824 26,695 19,626
56,450 25,959 22,236 57,347 54,617
148 -- 8,303 7,228 9,259
22,392 15,883 37,804 185,048 56,756
26,190 13,517 14,357 25,741 14,373
2,650 1,718 2,138 5,185 8,633
11,000 8,105 29,658 32,213 35,509
--------------- ---------- ---------- ---------- ----------
1,413,194 221,367 732,127 1,630,992 1,927,943
(278,552) (167,016) (198,986) (431,210) (489,926)
--------------- ---------- ---------- ---------- ----------
1,134,642 54,351 533,141 1,199,782 1,438,017
--------------- ---------- ---------- ---------- ----------
10,231,899 930,044 3,391,932 7,780,385 6,529,805
--------------- ---------- ---------- ---------- ----------
5,020,578 (260,986) 32,485 179,219 (44)
-- -- -- -- --
11,041,965 2,624,847 -- -- --
-- -- -- -- --
--------------- ---------- ---------- ---------- ----------
16,062,543 2,363,861 32,485 179,219 (44)
--------------- ---------- ---------- ---------- ----------
$ 26,294,442 $3,293,905 $3,424,417 $7,959,604 $6,529,761
=============== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
117
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
--------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income............................... $ 2,375,663 $ 2,808,997
Net realized gains (losses) on investment
transactions...................................... (324,052) 210,291
Net change in unrealized appreciation (depreciation)
on investments.................................... 9,391,499 (4,108,668)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. 11,443,110 (1,089,380)
----------- ------------
Net equalization credits............................ -- 2,562
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares..................................... (2,441,590) (2,753,670)
Class B Shares..................................... (31,089) (34,937)
Class I Shares..................................... (36,073) --
----------- ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.................... (2,508,752) (2,788,607)
----------- ------------
Net realized gains on investments:
Class A Shares..................................... (108,059) (19,340)
Class B Shares..................................... (4,560) (323)
Class I Shares..................................... (2,720) --
----------- ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................ (115,339) (19,663)
----------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold....................... 9,561,625 6,725,337
Dividends reinvested................................ 2,415,006 2,336,101
Cost of shares redeemed............................. (9,697,497) (12,384,919)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............................... 2,279,134 (3,323,481)
----------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 11,098,153 (7,218,569)
NET ASSETS:
Beginning of year................................... 44,367,174 51,585,743
----------- ------------
End of year (includes undistributed net investment
income of $220 in 1995 and $133,309 in 1994)...... $55,465,327 $ 44,367,174
=========== ============
</TABLE>
See Notes to Financial Statements.
118
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
119
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income.............. $ 93,370 $ 9,024,081 $ 3,827,071
Net realized gains on investment
transactions..................... 5 12,993,377 26,140,162
Net realized gains (losses) on
foreign currency transactions.... -- -- --
Net realized gains on futures
transactions..................... -- -- --
Net change in unrealized
appreciation on investments...... 724,063 41,597,759 45,732,866
Net unrealized appreciation of
assets and liabilities
denominated in foreign currencies
and financial futures............ -- -- --
---------- ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... 817,438 63,615,217 75,700,099
---------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares.................... (77,991) (36,341) (20,056)
Class B Shares.................... (7,493) (4,665) (128)
Class I Shares.................... (7,813) (8,991,662)(5) (3,803,209)
---------- ------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS... (93,297) (9,032,668) (3,823,393)
---------- ------------ ------------
Net realized gains on investments:
Class A Shares.................... -- (76,484) (297,846)
Class B Shares.................... -- (15,958) (18,522)
Class I Shares.................... -- (7,635,585) (20,574,490)
---------- ------------ ------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... -- (7,728,027) (20,890,858)
---------- ------------ ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold...... 9,391,817 258,157,716 300,831,887
Dividends reinvested............... 85,512 6,638,209 15,027,099
Cost of shares redeemed............ (602,469) (24,256,920) (68,303,488)
---------- ------------ ------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS......... 8,874,860 240,539,005 247,555,498
---------- ------------ ------------
TOTAL INCREASE IN NET ASSETS..... 9,599,001 287,393,527 298,541,346
NET ASSETS:
Beginning of period................ -- -- --
---------- ------------ ------------
End of period(6)................... $9,599,001 $287,393,527 $298,541,346
========== ============ ============
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
(5) Includes distributions in excess of net investment income of $8,587.
(6) Includes undistributed net investment income of $73, $0, $3,678, $3,938,
$134,091, $0 and $0, respectively.
See Notes to Financial Statements.
120
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$ 412,673 $ 1,052,004 $ 6,703,140 $ 611,812
1,749,697 505,347 6,908,795 1,020,021
-- (236,752) -- 30,644
-- 3,503,125 -- --
15,460,102 5,875,255 6,271,794 427,716
-- 899,200 -- 144,180
--------------- ------------ ------------ -----------
17,622,472 11,598,179 19,883,729 2,234,373
--------------- ------------ ------------ -----------
(807) (12,465) (50,085) (13,458)
-- (174) (755) (173)
(407,928) (905,274) (6,652,300) (612,038)
--------------- ------------ ------------ -----------
(408,735) (917,913) (6,703,140) (625,669)
--------------- ------------ ------------ -----------
(13,273) (60,752) (63,549) (33,914)
(308) (4,283) (2,117) (311)
(1,849,182) (2,203,921) (4,372,121) (1,053,821)
--------------- ------------ ------------ -----------
(1,862,763) (2,268,956) (4,437,787) (1,088,046)
--------------- ------------ ------------ -----------
89,942,654 100,265,824 129,396,150 15,584,504
1,194,408 1,535,547 2,974,473 380,496
(12,875,093) (5,823,304) (13,804,756) (1,490,370)
--------------- ------------ ------------ -----------
78,261,969 95,978,067 118,565,867 14,474,630
--------------- ------------ ------------ -----------
93,612,943 104,389,377 127,308,669 14,995,288
-- -- -- --
--------------- ------------ ------------ -----------
$ 93,612,943 $104,389,377 $127,308,669 $14,995,288
=============== ============ ============ ===========
</TABLE>
See Notes to Financial Statements.
121
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
-------------------- ------------------ --------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 9,688,284 $ 346,925 $ 269,055
Net realized gains
(losses) on
investment
transactions......... 7,844,775 (63,605) 13,430
Net change in
unrealized
appreciation
(depreciation) on
investments.......... 7,312,968 (304,664) (60,015)
------------ ----------- ----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... 24,846,027 (21,344) 222,470
------------ ----------- ----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (137,077) (4,217) (1,326)
Class B Shares........ (3,518) (99) --
Class I Shares........ (9,547,689) (342,609) (267,729)
------------ ----------- ----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (9,688,284) (346,925) (269,055)
------------ ----------- ----------
Net realized gains on
investments:
Class A Shares........ (157,731) (16) (152)
Class B Shares........ (6,773) (1) --
Class I Shares........ (5,006,911) (1,196) (12,072)
------------ ----------- ----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (5,171,415) (1,213) (12,224)
------------ ----------- ----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 200,868,057 7,682,912 5,298,453
Dividends reinvested... 4,026,532 9,789 6,783
Cost of shares
redeemed............. (23,767,145) (5,345,718) (154,029)
------------ ----------- ----------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. 181,127,444 2,346,983 5,151,207
------------ ----------- ----------
TOTAL INCREASE IN NET
ASSETS............. 191,113,772 1,977,501 5,092,398
NET ASSETS:
Beginning of period.... 7,169,899 5,192,398 100,000
------------ ----------- ----------
End of period.......... $198,283,671 $ 7,169,899 $5,192,398
============ =========== ==========
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
See Notes to Financial Statements.
122
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Year Ended
December 31, February 28, February 28,
1995(1) 1995 1994(2)
-------------------- ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 14,827,033 $ 1,985,164 $ 1,394,851
Net realized gains
(losses) on
investment
transactions......... 3,839,621 (757,908) 1,275,347
Net change in
unrealized
appreciation on
investments.......... 13,694,976 2,898,764 (1,243,092)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS..... 32,361,630 4,126,020 1,427,106
------------ ------------ -----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (619,417) (1,214,913) (1,394,847)
Class B Shares........ (3,609) (17) (4)
Class I Shares........ (14,204,008) (770,234) --
------------ ------------ -----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (14,827,034) (1,985,164) (1,394,851)
------------ ------------ -----------
Net realized gains on
investments:
Class A Shares........ (143,000) (62,814) (1,471,722)
Class B Shares........ (2,501) (284) --
Class I Shares........ (3,007,029) -- --
------------ ------------ -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (3,152,530) (63,098) (1,471,722)
------------ ------------ -----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 48,746,625 367,446,983 6,646,160
Dividends reinvested... 2,914,315 851,803 1,972,931
Cost of shares
redeemed............. (57,221,370) (16,165,822) (6,226,132)
------------ ------------ -----------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. (5,560,430) 352,132,964 2,392,959
------------ ------------ -----------
TOTAL INCREASE IN NET
ASSETS............. 8,821,636 354,210,722 953,492
NET ASSETS:
Beginning of period.... 383,049,081 28,838,359 27,884,867
------------ ------------ -----------
End of period.......... $391,870,717 $383,049,081 $28,838,359
============ ============ ===========
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995.
(2) Includes Class B Shares for the period February 8, 1994 (initial offering
date of Class B Shares) through February 28, 1994.
See Notes to Financial Statements.
123
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Year Ended
December 31, February 28, February 28,
1995(1) 1995 1994(2)
-------------------- ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS:
Net investment income.. $ 10,231,899 $ 930,044 $ 497,241
Net realized gains
(losses) on
investment
transactions......... 5,020,578 (260,986) 607,250
Net change in
unrealized
appreciation on
investments.......... 11,041,965 2,624,847 (728,931)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS..... 26,294,442 3,293,905 375,560
------------ ------------ -----------
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income:
Class A Shares........ (268,916) (409,080) (497,237)
Class B Shares........ (2,833) (67) (4)
Class I Shares........ (9,960,150) (520,897) --
------------ ------------ -----------
TOTAL DIVIDENDS TO
SHAREHOLDERS........ (10,231,899) (930,044) (497,241)
------------ ------------ -----------
Net realized gains on
investments:
Class A Shares........ (135,418) -- (717,815)
Class B Shares........ (4,334) -- --
Class I Shares........ (4,405,351) -- --
------------ ------------ -----------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........ (4,545,103) -- (717,815)
------------ ------------ -----------
In excess of net
realized gains on
investments:
Class A Shares........ -- -- (6,618)
------------ ------------ -----------
CAPITAL STOCK
TRANSACTIONS:
Net proceeds from
shares sold.......... 34,482,785 222,400,536 3,588,206
Dividends reinvested... 3,928,330 323,826 956,597
Cost of shares
redeemed............. (29,087,608) (7,342,155) (5,752,746)
------------ ------------ -----------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS.. 9,323,507 215,382,207 (1,207,943)
------------ ------------ -----------
TOTAL INCREASE IN NET
ASSETS............. 20,840,947 217,746,068 (2,054,057)
NET ASSETS:
Beginning of period.... 226,982,203 9,236,135 11,290,192
------------ ------------ -----------
End of period.......... $247,823,150 $226,982,203 $ 9,236,135
============ ============ ===========
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995.
(2) Includes Class B Shares for the period February 8,1994 (initial offering
date of Class B Shares) through February 28, 1994.
See Notes to Financial Statements.
124
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
---------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income........................... $ 3,391,932 $ 4,694,844
Net realized gains (losses) on investment
transactions.................................. 32,485 (961,178)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... 3,424,417 3,733,666
------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Class A Shares.................................. (3,391,932) (4,694,844)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold................... 250,085,862 677,021,399
Dividends reinvested............................ 2,488,380 1,310,332
Cost of shares redeemed......................... (311,695,323) (716,564,214)
------------- ------------
NET DECREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................. (59,121,081) (38,232,483)
------------- ------------
Increase due to capital contribution from
affiliate of investment adviser (Note 3(d)).... -- 933,054
------------- ------------
TOTAL DECREASE IN NET ASSETS................... (59,088,596) (38,260,607)
NET ASSETS:
Beginning of year............................... 116,352,656 154,613,263
------------- ------------
End of year..................................... $ 57,264,060 $116,352,656
============= ============
</TABLE>
See Notes to Financial Statements.
125
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment income.......................... $ 7,780,385 $ 5,491,950
Net realized gains (losses) on investment
transactions................................. 179,219 (1,309,831)
------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 7,959,604 4,182,119
------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares................................ (7,779,495) (5,491,950)
Class B Shares................................ (890) --
------------- --------------
TOTAL DIVIDENDS TO SHAREHOLDERS............... (7,780,385) (5,491,950)
------------- --------------
Net realized gains on investments:
Class A Shares................................ (123,505) (23,361)
Class B Shares................................ (35) --
------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS........... (123,540) (23,361)
------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS................................ (7,903,925) (5,515,311)
------------- --------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.................. 803,027,143 1,724,346,455
Dividends reinvested........................... 6,873,012 2,559,069
Cost of shares redeemed........................ (725,296,634) (1,770,081,791)
------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS..................... 84,603,521 (43,176,267)
------------- --------------
Increase due to capital contribution from
affiliate of investment adviser (Note 3(d))... -- 1,286,000
------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS...... 84,659,200 (43,223,459)
NET ASSETS:
Beginning of year.............................. 119,400,018 162,623,477
------------- --------------
End of year.................................... $ 204,059,218 $ 119,400,018
============= ==============
</TABLE>
See Notes to Financial Statements.
126
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
---------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income............................. $ 6,529,805 $ 4,523,891
Net realized losses on investment transactions.... (44) (36,537)
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... 6,529,761 4,487,354
------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares................................... (6,529,805) (4,523,891)
------------- ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold..................... 534,326,783 428,067,086
Dividends reinvested.............................. 3,305,612 2,261,400
Cost of shares redeemed........................... (482,251,105) (434,859,851)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............................. 55,381,290 (4,531,365)
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 55,381,246 (4,567,902)
NET ASSETS:
Beginning of year................................. 173,130,032 177,697,934
------------- ------------
End of year....................................... $ 228,511,278 $173,130,032
============= ============
</TABLE>
See Notes to Financial Statements.
127
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--GENERAL
Prairie Funds (the "Trust") is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "Act"). At
December 31, 1995, the Trust consisted of twelve separate investment
portfolios. The accompanying financial statements include the results of
operations for the following portfolios of the Trust: Managed Assets Income
Fund, Managed Assets Fund, Equity Income Fund, Growth Fund, Special
Opportunities Fund, International Equity Fund, Bond Fund, International Bond
Fund, Intermediate Municipal Bond Fund, U.S. Government Money Market Fund,
Money Market Fund, and Municipal Money Market Fund. Additionally, the
accompanying financial statements include the results of operations for the
Prairie Municipal Bond Fund, Inc. and the Prairie Intermediate Bond Fund, two
open-end management investment companies registered under the Act (together
with the Trust's portfolios, the "Funds").
First Chicago Investment Management Company ("FCIMCO"), a wholly-owned
subsidiary of The First National Bank of Chicago ("FNBC"), serves as each
Fund's investment adviser and administrator. FCIMCO has engaged ANB Investment
Management and Trust Company ("ANB") to serve as sub-investment adviser for the
International Equity Fund. Additionally, FCIMCO has engaged Concord Holding
Corporation ("Concord"), a wholly-owned subsidiary of The BISYS Group, Inc., to
assist it in providing certain administrative services for the Funds. Concord
Financial Group, Inc., a wholly-owned subsidiary of Concord, serves as the
principal underwriter and distributor of each Fund's shares.
The Funds (except for the U.S. Government Money Market Fund and Municipal
Money Market Fund, which offer Class A shares only, and the Money Market Fund
which offers Class A shares and Class B shares) each offer Class A shares,
Class B shares and Class I shares. Class A shares, Class B shares and Class I
shares are substantially the same except that Class A shares are subject to a
sales charge imposed at the time of purchase and are subject to fees charged
pursuant to a Shareholder Services Plan. Class B shares are subject to a
contingent deferred sales charge imposed at the time of redemption and are
subject to fees charged pursuant to a Distribution Plan adopted pursuant to
Rule 12b-1 under the Act and fees charged pursuant to the Shareholder Services
Plan. Class I shares are not subject to any sales charge, shareholder services
fees or distribution fees.
During the period January 27, 1995 through March 3, 1995, various common
trust funds and collective trust funds managed by FNBC transferred cash and
securities to certain Funds in exchange for Class I shares of the corresponding
Fund. The following table sets forth the date on which such transfers occurred,
the transferring entity, the corresponding Fund, the market value of the
securities and cash transferred and the amount of Class I shares issued in
connection with such transfer:
128
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I
Shares
Date of Transfer Transferring Entity Fund Market Value Issued
---------------- ------------------- ---- ------------ -------
<S> <C> <C> <C> <C>
January 27, 1995........ First Chicago Personal Equity Income $198,087,162 19,808,716
Trust Equity Fund Fund
January 27, 1995........ First Chicago Personal Growth Fund 245,392,975 24,539,297
Trust Endowment Equity
Fund and First Chicago
Personal Trust Growth
Equity Fund
January 27, 1995........ First Chicago Personal Special 51,316,357 5,131,636
Trust Special Equity Opportunities
Fund Fund
January 27, 1995........ First Chicago Personal International 8,955,517 895,552
Trust International Bond Bond Fund
Fund
February 10, 1995....... First Chicago Personal Bond Fund 98,997,057 9,899,706
Trust Taxable Bond Fund
And First Chicago
Personal Trust
Endowment Bond Fund
February 10, 1995....... First Chicago Personal Intermediate 129,394,694 16,848,267
Trust Intermediate Bond Fund
Taxable Bond Fund and
Lake Shore Common
Trust Taxable Fixed
Income Fund
February 10, 1995....... First Chicago Personal Municipal Bond 213,488,376 17,910,099
Trust Tax-Exempt Bond Fund
Fund
February 10, 1995....... First Chicago Personal Intermediate 349,656,211 29,885,146
Trust Intermediate Tax- Municipal Bond
Exempt Bond Fund and Fund
Lake Shore Common
Trust Municipal Bond
Fund
March 3, 1995........... First Chicago Personal International 48,338,875 4,833,888
Trust International Equity Equity Fund
Fund
</TABLE>
At meetings of the shareholders of the First Prairie Diversified Assets Fund,
First Prairie Municipal Bond Fund--Intermediate Series, First Prairie Money
Market Fund--Money Market Series and Government Series, and First Prairie
Municipal Money Market Fund (collectively, the "First Prairie Funds") held on
January 17, 1995, shareholders of each such Fund approved an Agreement and Plan
of Exchange (the "Plan") which called for the transfer of the assets, subject
to the liabilities, of each First Prairie Fund to the Prairie Managed Assets
Income Fund,
129
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Prairie Intermediate Municipal Bond Fund, Prairie Money Market Fund, Prairie
U.S. Government Money Market Fund, and Prairie Municipal Money Market Fund,
respectively. The Plan also called for the issuance of shares by the respective
Prairie Funds to the shareholders of the corresponding First Prairie Fund, such
shares being equal in value to the net assets so transferred.
The following table sets forth the date on which this transfer took place
along with the net assets transferred and the number of shares issued:
<TABLE>
<CAPTION>
Net Assets
Fund Date of Transfer Transferred Shares Issued
---- ---------------- ----------- -------------
<S> <C> <C> <C>
Managed Assets Income Fund...... March 3, 1995 $ 43,698,653 3,518,593
Intermediate Municipal Bond
Fund........................... January 27, 1995 22,331,512 1,930,122
Money Market Fund............... May 20, 1995 127,355,807 127,197,352
U.S. Government Money Market
Fund........................... May 20, 1995 52,257,087 52,273,072
Municipal Money Market Fund..... May 20, 1995 178,386,094 178,439,745
</TABLE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. These principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses for the period. Actual results
could differ from those estimates.
(A) Portfolio Valuation: Bonds, debentures, notes, mortgage-related
securities, asset-backed securities, municipal obligations and convertible debt
obligations ("Fixed Income Securities") are valued daily using available market
quotations or at fair value as determined by one or more independent pricing
services (the "Service") approved by the Board of Trustees (or the "Board").
Fixed Income Securities for which quoted bid prices are readily available and
are representative of the bid side of the market, in the judgment of the
Service, are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities). Other
Fixed Income Securities are carried at fair value as determined by the Service,
based upon methods which include consideration of yields or prices of
securities of comparable quality, coupon rate, maturity and type, indications
as to values from dealers, and general market conditions. Fixed Income
Securities with maturities less than 60 days are carried at amortized cost,
which approximates market value.
Common stocks, preferred stocks and convertible securities, as well as
warrants to purchase such securities ("Equity Securities"), and call options
written by a Fund are valued at the last sale price on the securities exchange
or national securities market on which such securities are primarily traded.
Equity securities not
130
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
listed on an exchange or national securities market, or securities for which
there were no transactions, are valued at the most recent bid prices. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by the Board.
Restricted securities, illiquid securities and securities for which market
quotations are not readily available, if any, are valued at fair value using
methods approved by the Board.
Investments of the U.S. Government Money Market Fund, Money Market Fund and
Municipal Money Market Fund (the "money market funds") are valued at amortized
cost, which approximates market value. Under the amortized cost method,
discount or premium is amortized on a constant basis to the maturity of the
security. In addition, the money market funds may not (a) purchase any
instruments with a remaining maturity greater that thirteen months unless such
instrument is subject to a demand feature, or (b) maintain a dollar-weighted
average maturity which exceeds 90 days.
(B) Foreign currency translations: The books and records of the International
Bond Fund and the International Equity Fund are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment securities, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars at the midpoint of the New York interbank market spot exchange
rate as quoted on the day of such translation by the Federal Reserve Bank of
New York or at such other quoted market exchange rate as may be determined to
be appropriate by the investment adviser; (ii) purchases and sales of foreign
securities, income and expenses are converted into U.S. dollars based upon
currency exchange rates prevailing on the respective dates of such
transactions. The Funds generally do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized and unrealized gains and losses on foreign currency
represent: (i) foreign exchange gains and losses from the sale and holding of
foreign currencies, forward contracts and foreign currency denominated debt
obligations; (ii) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of dividends and interest
recorded and the amounts actually received.
(C) Futures contracts: The International Equity Fund may engage in futures
contracts for the purpose of hedging against changes in the value of its
portfolio securities and in the value of securities it intends to purchase.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made
131
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the value of the contract are
recorded as unrealized gains or losses. The Fund recognizes, when the contract
is closed, a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the time it was closed. Futures
contracts open at December 31, 1995 and their related unrealized market
appreciation (depreciation) are set forth in the notes to the Portfolio of
Investments of the International Equity Fund.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or indices, which may not
correlate with the change in value of the hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
(D) Forward foreign currency contracts--The International Bond Fund may enter
into forward foreign currency contracts in order to hedge its exposure to
changes in foreign currency exchange rates on its foreign portfolio holdings.
When executing forward foreign currency contracts, the Fund is obligated to buy
or sell a foreign currency at a specified rate on a certain date in the future.
With respect to sales of forward foreign currency contracts, the Fund would
incur a loss if the value of the contract increases between the date the
forward contract is opened and the date the forward contract is closed. The
Fund realizes a gain if the value of the contract decreases between those
dates. With respect to purchases of forward foreign currency contracts, the
Fund would incur a loss if the value of the contract decreases between the date
the forward contract is opened and the date the forward contract is closed. The
Fund realizes a gain if the value of the contract increases between those
dates. The Fund is also exposed to credit risk associated with counter party
nonperformance on these forward foreign currency contracts which is typically
limited to the unrealized gains on such contracts that are recognized in the
Statement of Assets and Liabilities.
(E) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, adjusted for
amortization of premiums and, when appropriate, discounts on investments, is
earned from settlement date and recognized on the accrual basis. Securities
purchased or sold on a when-issued or delayed-delivery basis may be settled a
month or more after the trade date.
Each Fund may enter into repurchase agreements with financial institutions
deemed to be creditworthy by FCIMCO, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon price. Securities purchased subject to repurchase agreements are
deposited with the Fund's custodian and, pursuant to the terms of the
repurchase agreement, must have an aggregate market value greater than or equal
to the repurchase price
132
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
plus accrued interest at all times. If the value of the underlying securities
falls below the value of the repurchase price plus accrued interest, the Fund
will require the seller to deposit additional collateral by the next business
day. If the request for additional collateral is not met, or the seller
defaults on its repurchase obligation, the Fund maintains the right to sell the
underlying securities at market value and may claim any resulting loss against
the seller.
(F) Expenses: Expenses directly attributable to a Fund are charged to that
Fund's operations; expenses which are applicable to all Funds are allocated
among them on the basis of relative net assets. Fund expenses directly
attributable to a class of shares are charged to that class; expenses which are
applicable to all classes are allocated among them.
(G) Dividends to shareholders: It is the policy of Managed Assets Income Fund
and Equity Income Fund to declare and pay dividends from net investment income
monthly while the Managed Assets Fund, Growth Fund, Special Opportunities Fund
and International Equity Fund declare and pay dividends quarterly. The Bond
Fund, Intermediate Bond Fund, International Bond Fund, Municipal Bond Fund,
Intermediate Municipal Bond Fund, U.S. Government Money Market Fund, Money
Market Fund and Municipal Money Market Fund declare dividends daily from net
investment income, payable monthly. Distributions from net realized capital
gains, if any, are normally declared and paid annually, but each Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code (the "Code"). However, to the extent
that net realized capital gains of a Fund can be reduced by capital loss
carryovers, if any, such gains will not be distributed.
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles. To
the extent these differences are permanent in nature, such amounts are
reclassified within the composition of net assets based on their federal tax-
basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as distributions in excess of net investment income or
net realized capital gains. To the extent they exceed net investment income and
net realized gains for tax purposes, they are reported as distributions of
capital.
(H) Federal income taxes: It is the policy of each Fund to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the Code,
and to make distributions of income and net realized capital gains sufficient
to relieve it from all, or substantially all, Federal income and excise taxes.
Capital losses incurred after October 31 ("Post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Municipal Money Market Fund and the Special Opportunities
Fund
133
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- -------------------------------------------------------------------------------
incurred and may elect to defer net capital losses of approximately $50 and
$113,000, respectively.
At December 31, 1995, the Managed Asset Income Fund had unused capital loss
carryovers of approximately $317,000, which are available for Federal income
tax purposes to be applied against future net capital gains, if any, realized
subsequent to December 31, 1995. If not applied, the carryover expires in
2003.
At December 31, 1995, the U.S. Government Money Market Fund had unused
capital loss carryovers of approximately $16,000, which are available for
Federal income tax purposes to be applied against future net capital gains, if
any, realized subsequent to December 31, 1995. If not applied, the carryover
expires in 2002.
At December 31, 1995, the Municipal Money Market Fund had unused capital
loss carryovers of approximately $40,000, which are available for Federal
income tax purposes to be applied against future net capital gains, if any,
realized subsequent to December 31, 1995. If not applied, $1,000 of the
carryover expires in 1999, $2,000 expires in 2001, $1,000 expires in 2002 and
$36,000 expires in 2003.
At December 31, 1995, with the exception of the Growth Fund, the cost of the
Funds' investments for Federal income tax purposes was substantially the same
as the cost for financial reporting purposes (see Portfolios of Investments).
(I) Other: Organization expenses incurred by the Funds are being amortized
to operations over the period during which it is expected that a benefit will
be realized, not to exceed five years.
(J) Concentration of risk: Investing in securities of foreign issuers and
foreign currency transactions may involve certain considerations and risks not
typically associated with investments in the United States. These risks
include revaluation of currencies, adverse fluctuations in foreign currency
values and possible adverse political, social and economic developments,
including those particular to a specific industry, country or region, which
could cause the securities and their markets to be less liquid and prices more
volatile than those of comparable U.S. securities. These risks are greater
with respect to securities of issuers located in emerging market countries in
which certain Funds are authorized to invest. The ability of the issuers of
debt securities held by the Funds to meet their obligations may be affected by
economic and political developments particular to a specific industry, country
or region.
134
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3--INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
(A) The Trust has an Investment Advisory Agreement with FCIMCO pursuant to
which FCIMCO has agreed to provide day-to-day management of each Fund's
investments at the following annual rates:
<TABLE>
<S> <C>
Managed Assets Income Fund............................................. 0.65%
Managed Assets Fund.................................................... 0.65%
Equity Income Fund..................................................... 0.50%
Growth Fund............................................................ 0.65%
Special Opportunities Fund............................................. 0.70%
International Equity Fund.............................................. 0.80%
Intermediate Bond Fund................................................. 0.40%
Bond Fund.............................................................. 0.55%
International Bond Fund................................................ 0.70%
Intermediate Municipal Bond Fund....................................... 0.40%
Municipal Bond Fund.................................................... 0.40%
U.S. Government Money Market Fund...................................... 0.40%
Money Market Fund...................................................... 0.40%
Municipal Money Market Fund............................................ 0.40%
</TABLE>
The Trust has an Administration Agreement with FCIMCO pursuant to which
FCIMCO has agreed to assist in all aspects of the Funds' operations at an
annual rate of 0.15% of each Fund's average daily net assets. FCIMCO has
engaged Concord to provide certain administrative services to the Funds
pursuant to a Master Sub-Administration Agreement between FCIMCO and Concord.
FCIMCO has agreed to pay Concord a fee for the services stipulated in the
Master Sub-Administration Agreement.
For the period ended December 31, 1995, FCIMCO voluntarily agreed to
reimburse a portion of the operating expenses of the Funds to the extent that
the Funds' expenses exceeded the following amounts, excluding shareholder
servicing fees and 12b-1 fees (as a percentage of each Fund's average net
assets):
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I
------- ------- -------
<S> <C> <C> <C>
Managed Assets Income Fund.............................. 1.31% 2.06% 0.80%
Managed Assets Fund..................................... 1.33% 2.08% 0.80%
Equity Income Fund...................................... 1.18% 1.93% 0.65%
Growth Fund............................................. 1.33% 2.08% 0.80%
Special Opportunities Fund.............................. 1.38% 2.13% 0.85%
International Equity Fund............................... 1.58% 2.33% 1.05%
Intermediate Bond Fund.................................. 1.15% 1.90% 0.55%
Bond Fund............................................... 1.23% 1.98% 0.70%
International Bond Fund................................. 1.48% 2.23% 0.95%
Intermediate Municipal Bond Fund........................ 0.90% 1.83% 0.55%
</TABLE>
135
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
<S> <C> <C> <C>
Municipal Bond Fund..................................... 1.08% 1.83% 0.55%
U.S. Government Money Market............................ 0.80% NA NA
Money Market Fund....................................... 0.80% 1.55% NA
Municipal Money Market Fund............................. 0.70% NA NA
</TABLE>
As such, FCIMCO reimbursed expenses during the period ending December 31,
1995 in the following amounts:
<TABLE>
<CAPTION>
Expense
Reimbursement
-------------
<S> <C>
Managed Assets Income Fund..................................... $179,574
Managed Assets Fund............................................ 89,978
Equity Income Fund............................................. 277,704
Growth Fund.................................................... 314,740
Special Opportunities Fund..................................... 168,733
International Equity Fund...................................... 213,519
Intermediate Bond Fund......................................... 185,219
Bond Fund...................................................... 178,732
International Bond Fund........................................ 110,736
Intermediate Municipal Bond Fund............................... 403,299
Municipal Bond Fund............................................ 278,552
U.S. Government Money Market Fund.............................. 198,986
Money Market Fund.............................................. 431,210
Municipal Money Market Fund.................................... 489,926
</TABLE>
The Distributor is not entitled to any fees pursuant to the Distribution
Agreement; however, the Distributor may receive payments of sales charges or
contingent deferred sales charges.
(B) The Funds' Class A shares and Class B shares have a Shareholder Services
Plan (the "Plan") pursuant to which the Funds pay the Distributor a fee, at an
annual rate of 0.25% of the average daily net assets of the outstanding Class A
shares and Class B shares. Pursuant to the terms of the Plan, the Distributor
has agreed to provide certain shareholder services to the holders of these
shares. Additionally, under the terms of the Plan, the Distributor may make
payments to other shareholder service agents who may include FCIMCO, FNBC and
their affiliates. For the period ended December 31, 1995, the Funds paid the
following amounts under the Plan:
<TABLE>
<CAPTION>
Amounts paid to
FCIMCO, FNBC Amounts paid to Amounts
and other service retained by
its affiliates organizations Distributor
--------------- --------------- -----------
<S> <C> <C> <C>
Managed Assets Income Fund...... $7,185 $111,163 $809
Managed Assets Fund............. 7,036 1,892 124
Equity Income Fund.............. 417 2,510 54
Growth Fund..................... 1,788 2,959 137
Special Opportunities Fund...... 304 454 19
</TABLE>
136
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amounts paid to
FCIMCO, FNBC Amounts paid to Amounts
and other service retained by
its affiliates organizations Distributor
--------------- --------------- -----------
<S> <C> <C> <C>
International Equity Fund....... $ 1,363 $ 1,791 $ 98
Intermediate Bond Fund.......... 3,487 2,209 72
Bond Fund....................... 1,230 898 33
International Bond Fund......... 415 240 29
Intermediate Municipal Bond
Fund........................... 23,617 13,617 1,227
Municipal Bond Fund............. 7,593 7,151 266
U.S. Government Money Market
Fund........................... 168,470 2,292 --
Money Market Fund............... 378,833 1,372 380
Municipal Money Market Fund..... 508,558 28 17
</TABLE>
(C) The Funds' Class B shares have a Distribution Plan adopted pursuant to
Rule 12b-1 under the Act (the "12b-1 Plan") pursuant to which the Funds have
agreed to pay the Distributor for advertising, marketing and distributing Class
B Shares of the Funds at an annual rate of .75% of the average daily net assets
of the Funds' outstanding Class B shares. Under the terms of the 12b-1 Plan,
the Distributor may make payments to FCIMCO, FNBC and their affiliates in
respect of these services. For the period ended December 31, 1995, the Funds
made the following payments under the 12b-1 Plan, all of which was retained by
the Distributor:
<TABLE>
<S> <C>
Managed Assets Income Fund........................................... $5,831
Managed Assets Fund.................................................. 3,325
Equity Income Fund................................................... 1,283
Growth Fund.......................................................... 670
Special Opportunities Fund........................................... 56
International Equity Fund............................................ 379
Intermediate Bond Fund............................................... 563
Bond Fund............................................................ 116
International Bond Fund.............................................. 30
Intermediate Municipal Bond Fund..................................... 824
Municipal Bond Fund.................................................. 600
Money Market Fund.................................................... 154
</TABLE>
(D) During the fiscal year ended December 31, 1994, an affiliate of FCIMCO
purchased securities from the Money Market Fund and the U.S. Government Money
Market Fund at an amount in excess of the securities' fair market value. These
Funds recorded a realized loss on these sales in the amount of $1,286,000 and
$933,054, respectively, and an offsetting capital contribution from the
affiliate. As a result of varying treatments for book and tax purposes, the
capital contributions were reclassified from additional paid-in-capital to
accumulated net realized losses in the Statement of Assets and Liabilities.
137
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions entered into by the
Funds, excluding short-term investments, for the period ended December 31,
1995:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Managed Assets Income Fund........................ $ 3,357,559 $ 7,795,562
Managed Assets Fund............................... 7,772,725 99,502
Equity Income Fund................................ 317,060,048 94,711,633
Growth Fund....................................... 488,008,493 274,675,271
Special Opportunities Fund........................ 96,866,413 26,212,656
International Equity Fund......................... 72,831,246 3,326,924
Intermediate Bond Fund............................ 410,895,956 256,675,480
Bond Fund......................................... 265,646,537 167,721,527
International Bond Fund........................... 14,226,845 4,749,719
Intermediate Municipal Bond Fund.................. 167,757,833 164,745,501
Municipal Bond Fund............................... 174,644,032 162,078,544
</TABLE>
At December 31, 1995, accumulated net unrealized appreciation (depreciation)
on investments was as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized Net Unrealized
Appreciation Depreciation Appreciation
------------ ------------ --------------
<S> <C> <C> <C>
Managed Assets Income Fund.......... $ 8,452,650 $ (184,643) $ 8,268,007
Managed Assets Fund................. 766,286 (42,223) 724,063
Equity Income Fund.................. 42,227,078 (629,319) 41,597,759
Growth Fund......................... 48,630,652 (2,897,786) 45,732,866
Special Opportunities Fund.......... 16,914,276 (1,454,174) 15,460,102
International Equity Fund........... 7,077,639 (1,202,384) 5,875,255
Intermediate Bond Fund.............. 7,224,889 (7,491) 7,217,398
Bond Fund........................... 6,271,794 -- 6,271,794
International Bond Fund............. 427,716 -- 427,716
Intermediate Municipal Bond Fund.... 16,805,231 -- 16,805,231
Municipal Bond Fund................. 13,674,273 -- 13,674,273
</TABLE>
138
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5--CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MANAGED ASSETS
INCOME FUND
---------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
--------------------- ---------------------- -------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares:
Shares Issued........... $ 6,191,735 463,615 $ 5,577,372 441,901
Dividends reinvested.... 2,369,623 177,490 2,307,933 185,739
Shares redeemed......... (9,494,631) (723,267) (11,257,088) (903,518)
----------- -------- ------------ --------
Net Increase (decrease). $ (933,273) (82,162) $ (3,371,783) (275,878)
=========== ======== ============ ========
Class B Shares:
Shares Issued........... $ 2,007,221 146,972 $ 1,147,965 90,904
Dividends reinvested.... 33,593 2,392 28,168 2,281
Shares redeemed......... -- -- (1,127,831) (93,185)(d)
----------- -------- ------------ --------
Net Increase............ $ 2,040,814 149,364 $ 48,302 --
=========== ======== ============ ========
Class I Shares:
Shares Issued........... $ 1,362,669 103,183 -- --
Dividends reinvested.... 11,790 865 -- --
Shares redeemed......... (202,866) (15,263) -- --
----------- -------- ------------ --------
Net Increase............ $ 1,171,593 88,785 $ -- --
=========== ======== ============ ========
Net Increase (decrease)
in Fund................ $ 2,279,134 320,311 $ (3,323,481) (275,878)
=========== ======== ============ ========
</TABLE>
139
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED ASSETS EQUITY INCOME
FUND FUND
-----------------------------------------------
FOR THE PERIOD FOR THE PERIOD
APRIL 3, 1995 JANUARY 27, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(A)
-----------------------------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued........... $8,265,007 774,054 $ 3,147,813 274,126
Dividends reinvested.... 77,996 6,993 96,740 8,056
Shares redeemed......... (582,928) (54,615) (548,876) (47,021)
----------- -------- ------------ ----------
Net Increase............ $7,760,075 726,432 $ 2,695,677 235,161
=========== ======== ============ ==========
Class B Shares:
Shares Issued........... $ 763,106 73,866 $ 549,799 47,321
Dividends reinvested.... 7,435 679 20,644 1,708
Shares redeemed......... (19,541) (1,829) (5,669) (479)
----------- -------- ------------ ----------
Net Increase............ $ 751,000 72,716 $ 564,774 48,550
=========== ======== ============ ==========
Class I Shares:
Shares Issued........... $ 363,704 35,836 $254,460,104 24,853,530
Dividends reinvested.... 81 7 6,520,825 538,073
Shares redeemed......... -- -- (23,702,375) (2,132,230)
----------- -------- ------------ ----------
Net Increase............ $ 363,785 35,843 $237,278,554 23,259,373
=========== ======== ============ ==========
Net Increase in Fund.... $ 8,874,860 834,991 $240,539,005 23,543,084
=========== ======== ============ ==========
</TABLE>
140
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIAL
GROWTH OPPORTUNITIES
FUND FUND
------------------------ ------------------------
FOR THE PERIOD FOR THE PERIOD
JANUARY 27, 1995 JANUARY 27, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(A)
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued............... $ 4,175,044 365,857 $ 621,648 57,254
Dividends reinvested........ 284,304 24,056 13,920 1,177
Shares redeemed............. (339,951) (28,244) (38,190) (3,361)
------------ ---------- ------------ ----------
Net Increase................ $ 4,119,397 361,669 $ 597,378 55,070
============ ========== ============ ==========
Class B Shares:
Shares Issued............... $ 246,223 21,032 $ 13,756 1,248
Dividends reinvested........ 18,650 1,584 308 26
Shares redeemed............. (2,126) (178) (52) (5)
------------ ---------- ------------ ----------
Net Increase................ $ 262,747 22,438 $ 14,012 1,269
============ ========== ============ ==========
Class I Shares:
Shares Issued............... $296,410,620 29,238,077 $89,307,250 8,700,086
Dividends reinvested........ 14,724,145 1,243,736 1,180,180 99,691
Shares redeemed............. (67,961,411) (5,922,360) (12,836,851) (1,176,741)
------------ ---------- ------------ ----------
Net Increase................ $243,173,354 24,559,453 $77,650,579 7,623,036
============ ========== ============ ==========
Net Increase in Fund........ $247,555,498 24,943,560 $78,261,969 7,679,375
============ ========== ============ ==========
</TABLE>
141
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY INTERMEDIATE BOND
FUND FUND
---------------------- ------------------------
FOR THE PERIOD FOR THE PERIOD
MARCH 3, 1995 FEBRUARY 1, 1995
THROUGH THROUGH
DECEMBER 31, 1995(A) DECEMBER 31, 1995(B)
---------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued................. $ 2,704,994 256,160 $ 7,282,071 895,627
Dividends reinvested.......... 72,968 6,664 288,362 35,401
Shares redeemed............... (171,519) (16,377) (1,588,172) (194,954)
----------- --------- ------------ ----------
Net Increase.................. $ 2,606,443 246,447 $ 5,982,261 736,074
=========== ========= ============ ==========
Class B Shares:
Shares Issued................. $ 177,315 16,903 $ 303,451 37,048
Dividends reinvested.......... 4,093 407 7,835 961
Shares redeemed............... (193) (18) (50,817) (6,308)
----------- --------- ------------ ----------
Net Increase.................. $ 181,215 17,292 $ 260,469 31,701
=========== ========= ============ ==========
Class I Shares:
Shares Issued................. $97,383,515 9,484,283 $193,282,535 24,813,641
Dividends reinvested.......... 1,458,486 131,833 3,730,335 459,341
Shares redeemed............... (5,651,592) (536,226) (22,128,156) (2,742,147)
----------- --------- ------------ ----------
Net Increase.................. $93,190,409 9,079,890 $174,884,714 22,530,835
=========== ========= ============ ==========
Net Increase in Fund.......... $95,978,067 9,343,629 $181,127,444 23,298,610
=========== ========= ============ ==========
</TABLE>
142
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND
FUND
---------------------------------------------
FOR THE PERIOD
FOR THE YEAR MARCH 5, 1993
ENDED THROUGH
JANUARY 31, 1995 JANUARY 31, 1994(A)
--------------------- ----------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares Issued..................... $ 19,449 2,527 $ 51,267 6,185
Dividends reinvested.............. 4,153 533 1,484 180
Shares redeemed................... (15,285) (1,997) -- --
---------- --------- ----------- --------
Net Increase...................... $ 8,317 1,063 $ 52,751 6,365
========== ========= =========== ========
Class B Shares:
Shares Issued..................... $ 2,000 245 $ -- --
Dividends reinvested.............. 99 13 -- --
Shares redeemed................... (2,099) (258) -- --
---------- --------- ----------- --------
Net Increase...................... $ -- -- $ -- --
========== ========= =========== ========
Class I Shares:
Shares Issued..................... $7,661,463 1,001,211 $5,247,186 628,922
Dividends reinvested.............. 5,537 710 5,299 639
Shares redeemed................... (5,328,334) (698,958) (154,029) (18,488)
---------- --------- ----------- --------
Net Increase...................... $2,338,666 302,963 $5,098,456 611,073
========== ========= =========== ========
Net Increase in Fund.............. $2,346,983 304,026 $5,151,207 617,438
========== ========= =========== ========
</TABLE>
143
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
BOND
BOND FUND FUND
------------------------ ----------------------
FOR THE FOR THE PERIOD
PERIOD JANUARY 27, 1995
FEBRUARY 10, 1995 THROUGH
THROUGH DECEMBER 31,
DECEMBER 31, 1995(A) 1995(A)
------------------------ ----------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... $ 1,854,556 174,316 $ 480,966 42,767
Dividends reinvested.... 110,618 10,293 47,097 4,274
Shares redeemed......... (148,560) (13,734) (19,999) (1,752)
------------ ---------- ----------- ---------
Net increase............ $ 1,816,614 170,875 $ 508,064 45,289
============ ========== =========== =========
Class B Shares:
Shares issued........... $ 58,404 5,401 $ 3,704 370
Dividends reinvested.... 2,873 268 484 44
Shares redeemed......... -- -- -- --
------------ ---------- ----------- ---------
Net increase............ $ 61,277 5,669 $ 4,188 414
============ ========== =========== =========
Class I Shares:
Shares issued........... $127,483,190 12,620,870 $15,099,834 1,442,838
Dividends reinvested.... 2,860,982 267,174 332,915 29,708
Shares redeemed......... (13,656,196) (1,289,980) (1,470,371) (130,514)
------------ ---------- ----------- ---------
Net increase............ $116,687,976 11,598,064 $13,962,378 1,342,032
============ ========== =========== =========
Net increase in Fund.... $118,565,867 11,774,608 $14,474,630 1,387,735
============ ========== =========== =========
</TABLE>
144
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL
BOND FUND
--------------------------------------------------
FOR THE PERIOD
MARCH 1, 1995 FOR THE
THROUGH YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995(C) 1995
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... $ 2,036,319 167,138 $ 920,191 78,527
Dividends reinvested.... 579,220 47,958 829,334 70,747
Shares redeemed......... (2,724,405) (225,316) (12,219,977) (1,053,197)
------------ ---------- ------------ ----------
Net decrease............ $ (108,866) (10,220) $(10,470,452) (903,923)
============ ========== ============ ==========
Class B Shares:
Shares issued........... $ 348,000 28,626 $ 115,550 9,750
Dividends reinvested.... 4,876 399 1,971 169
Shares redeemed......... (20,212) (1,672) (123,958) (10,419)
------------ ---------- ------------ ----------
Net increase (decrease). $ 332,664 27,353 $ (6,437) (500)
============ ========== ============ ==========
Class I Shares:
Shares issued........... $ 46,362,306 3,850,432 $366,411,242 31,318,358
Dividends reinvested.... 2,330,219 191,337 20,498 1,737
Shares redeemed......... (54,476,753) (4,527,302) (3,821,887) (325,102)
------------ ---------- ------------ ----------
Net increase (decrease). $ (5,784,228) (485,533) $362,609,853 30,994,993
============ ========== ============ ==========
Net increase (decrease)
in Fund................ $ (5,560,430) (468,400) $352,132,964 30,090,570
============ ========== ============ ==========
</TABLE>
145
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL BOND
BOND FUND FUND
--------------------- ------------------------
FOR THE FOR THE PERIOD
YEAR ENDED MARCH 1, 1995
FEBRUARY 28, THROUGH
1994 DECEMBER 31, 1995(C)
--------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued.................. $ 6,634,160 523,996 $ 1,295,558 103,426
Dividends reinvested........... 1,972,927 158,309 346,338 27,700
Shares redeemed................ (6,226,132) (496,647) (1,377,127) (110,562)
----------- -------- ------------ ----------
Net increase................... $ 2,380,955 185,658 $ 264,769 20,564
=========== ======== ============ ==========
Class B Shares:
Shares issued.................. $ 12,000 980 $ 228,602 18,257
Dividends reinvested........... 4 1 6,838 543
Shares redeemed................ -- -- (39) (3)
----------- -------- ------------ ----------
Net increase................... $ 12,004 981 $ 235,401 18,797
=========== ======== ============ ==========
Class I Shares:
Shares issued.................. $ -- -- $ 32,958,625 2,685,708
Dividends reinvested........... -- -- 3,575,154 285,358
Shares redeemed................ -- -- (27,710,442) (2,219,888)
----------- -------- ------------ ----------
Net increase................... $ -- -- $ 8,823,337 751,178
=========== ======== ============ ==========
Net increase in Fund........... $ 2,392,959 186,639 $ 9,323,507 790,539
=========== ======== ============ ==========
</TABLE>
146
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BOND
FUND
-----------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1995 DECEMBER 31, 1994
------------------------ -----------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued................. $ 301,216 25,507 $ 3,586,206 275,363
Dividends reinvested.......... 319,837 27,236 956,593 75,829
Shares redeemed............... (2,895,171) (246,815) (5,752,746) (441,865)
------------ ---------- ----------- --------
Net decrease.................. $ (2,274,118) (194,072) $(1,209,947) (90,673)
============ ========== =========== ========
Class B Shares:
Shares issued................. $ -- -- $ 2,000 161
Dividends reinvested.......... 66 6 4 1
Shares redeemed............... (2,071) (168) -- --
------------ ---------- ----------- --------
Net increase (decrease)....... $ (2,005) (162) $ 2,004 162
============ ========== =========== ========
Class I Shares:
Shares issued................. $222,099,320 18,631,505 $ -- --
Dividends reinvested.......... 3,923 325 -- --
Shares redeemed............... (4,444,913) (371,925) -- --
------------ ---------- ----------- --------
Net increase.................. $217,658,330 18,259,905 $ -- --
============ ========== =========== ========
Net increase (decrease) in
Fund......................... $215,382,207 18,065,671 $(1,207,943) (90,511)
============ ========== =========== ========
</TABLE>
147
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------- ----------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued........... 250,085,862 677,021,399 802,777,063 1,724,346,455
Dividends reinvested.... 2,488,380 1,310,332 6,872,109 2,559,069
Shares redeemed......... (311,695,323) (716,564,214) (725,110,518) (1,770,081,791)
------------ ------------ ------------ --------------
Net increase (decrease). (59,121,081) (38,232,483) 84,538,654 (43,176,267)
============ ============ ============ ==============
Class B Shares:
Shares issued........... -- -- 250,080 --
Dividends reinvested.... -- -- 903 --
Shares redeemed......... -- -- (186,116) --
------------ ------------ ------------ --------------
Net increase............ -- -- 64,867 --
============ ============ ============ ==============
Net increase (decrease)
in Fund................ (59,121,081) (38,232,483) 84,603,521 (43,176,267)
============ ============ ============ ==============
</TABLE>
148
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET
FUND
------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ------------------
SHARES SHARES
------ ------
<S> <C> <C>
Class A Shares:
Shares issued.............................. 534,326,783 428,067,086
Dividends reinvested....................... 3,305,612 2,261,400
Shares redeemed............................ (482,251,105) (434,859,851)
------------ ------------
Net increase (decrease) in Fund............ 55,381,290 (4,531,365)
============ ============
</TABLE>
- -----------
(a) Period from commencement of operations.
(b) Effective February 1, 1995, the Fund changed its fiscal year end from
January 31 to December 31.
(c) Effective March 1, 1995, the Fund changed its fiscal year end from February
28 to December 31.
(d) Includes 91,228 shares converted to Class A Shares on December 2, 1994.
NOTE 6--MERGER AND SUBSEQUENT EVENT
On December 1, 1995, FCIMCO's ultimate parent company, First Chicago
Corporation, merged with NBD Bancorp., Inc., with the combined company renamed
First Chicago NBD Corporation (FCNBD). FCNBD has now begun the process of
reorganizing their proprietary mutual funds: Prairie Funds, Prairie
Institutional Funds and the Woodward Funds (whose investment adviser is NBD
Bank, a wholly owned subsidiary of FCNBD).
On February 20, 1996, the Board of Trustees of The Woodward Funds and the
Board of Trustees/Directors of the Prairie Funds, Prairie Municipal Bond Fund,
Inc. and Prairie Intermediate Bond Fund approved Reorganization Agreements,
which are subject to shareholder approval. The expenses incurred in connection
with entering into and carrying out provisions of the Reorganization
Agreements, whether or not the transactions contemplated thereby are
consummated, will be paid by FCNBD. The reorganization is intended to be
effected on a tax-free basis, so that none of the Fund's shareholders will
recognize taxable gains or losses as a result of the reorganization.
A proxy statement/prospectus describing the reorganization and the reasons
therefore will be sent to shareholders.
149
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 7--ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Trust designates the following eligible distributions for the dividends
received deduction for corporations for the year ended December 31, 1995:
<TABLE>
<CAPTION>
MANAGED
ASSETS MANAGED EQUITY
INCOME ASSETS INCOME
FUND FUND FUND
------- ------- ------
<S> <C> <C> <C>
Dividend Income................................... $1,219,984 $52,630 $8,875,334
Dividend Income Per Share--Class A Shares......... 0.28 0.05 0.32
Dividend Income Per Share--Class B Shares......... 0.22 0.05 0.26
Dividend Income Per Share--Class I Shares......... 0.28 0.08 0.36
</TABLE>
<TABLE>
<CAPTION>
GROWTH SPECIAL INTERNATIONAL
FUND OPPORTUNITIES FUND EQUITY FUND
------ ------------------ -------------
<S> <C> <C> <C>
Dividend Income.................... $4,772,025 $611,057 $973,285
Dividend Income Per Share--Class A
Shares............................ 0.10 0.01 0.05
Dividend Income Per Share--Class B
Shares............................ 0.05 0.00 0.03
Dividend Income Per Share--Class I
Shares............................ 0.12 0.04 0.07
</TABLE>
150
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of
Year.......................... $ 12.13 $ 13.11 $ 12.68 $ 12.56 $ 10.79
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERA-
TIONS:
Net investment income (loss)... 0.64 0.73 0.72 0.79 0.83
Net realized and unrealized
gains (losses) on invest-
ments........................ 2.48 (0.98) 0.61 0.26 1.77
------- ------- ------- ------- -------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS....... 3.12 (0.25) 1.33 1.05 2.60
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income..... (0.68) (0.72) (0.72) (0.77) (0.83)
From net realized gains on in-
vestments.................... (0.03) (0.01) (0.18) (0.16) --
------- ------- ------- ------- -------
TOTAL DIVIDENDS AND DISTRIBU-
TIONS....................... (0.71) (0.73) (0.90) (0.93) (0.83)
------- ------- ------- ------- -------
Net change in net asset value... 2.41 (0.98) 0.43 0.12 1.77
------- ------- ------- ------- -------
Net Asset Value, End of Year.... $ 14.54 $ 12.13 $ 13.11 $ 12.68 $ 12.56
======= ======= ======= ======= =======
- ---------------------------------
TOTAL RETURN (EXCLUDES SALES
CHARGE) 26.40% (1.92)% 10.70% 8.68% 24.87%
- ---------------------------------
- ---------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------
Ratio of expenses to average net
assets........................ 1.17% 0.63% 0.39% 0.02% --
Ratio of net investment income
to average net assets......... 4.88% 5.77% 5.54% 6.24% 7.04%
Ratio of expenses to average net
assets*....................... 1.54% 1.67% 1.65% 1.88% 2.16%
Ratio of net investment income
to average net assets*........ 4.51% 4.73% 4.28% 4.38% 4.88%
Portfolio turnover.............. 8.23% 28.69% 16.40% 22.14% 26.02%
Net assets, end of period (000's
omitted)...................... $51,997 $44,367 $51,586 $34,262 $14,038
</TABLE>
- -----------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
See Notes to Financial Statements.
151
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Period Ended
December 31, December 2,
1995(2) 1994(1)
------------ ------------
<S> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period............... $12.42 $13.05
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.45 0.51
Net realized and unrealized gains (losses) on
investments..................................... 2.17 (0.91)
------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS... 2.62 (0.40)
------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income........................ (0.45) (0.54)
From net realized gains on investments............ (0.03) (0.01)
------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (0.48) (0.55)
------ ------
Net change in net asset value...................... 2.14 (0.95)
------ ------
Conversion to Class A Shares(3).................... NA 12.10
------ ------
Net Asset Value, End of Period..................... $14.56 $ --
====== ======
- ----------------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 21.42%++ (3.13)%++
- ----------------------------------------------------
- ----------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------------
Ratio of expenses to average net assets............ 1.92%+ 1.21%+
Ratio of net investment income to average net as-
sets............................................. 3.89%+ 4.10%+
Ratio of expenses to average net assets*........... 2.12%+ 2.17%+
Ratio of net investment income to average net as-
sets*............................................ 3.70%+ 3.14%+
Portfolio turnover................................. 8.23%++ 28.69%++
Net assets, end of period (000's omitted).......... $2,175 $ --
</TABLE>
- -----------
(1) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares under the then-current sales load schedule and
such shares converted to Class A Shares.
(2) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(3) On December 2, 1994, the Fund terminated its offering of Class B shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
152
<PAGE>
PRAIRIE FUNDS
MANAGED ASSETS INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period Ended
December 31,
1995(1)
------------
<S> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period............................. $12.42
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... 0.57
Net realized and unrealized gains on investments................ 2.18
------
TOTAL INCOME FROM INVESTMENT OPERATIONS........................ 2.75
------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income...................................... (0.57)
From net realized gains on investments.......................... (0.03)
------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............................. (0.60)
------
Net change in net asset value.................................... 2.15
------
Net Asset Value, End of Period................................... $14.57
======
- ------------------------------------------------------------------
TOTAL RETURN 22.55%++
- ------------------------------------------------------------------
- ------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------
Ratio of expenses to average net assets.......................... 0.77%+
Ratio of net investment income to average net assets............. 5.12%+
Ratio of expenses to average net assets*......................... 1.22%+
Ratio of net investment income to average net assets*............ 4.66%+
Portfolio turnover............................................... 8.23%++
Net assets, end of period (000's omitted)........................ $1,294
</TABLE>
- -----------
(1) For the period March 3, 1995, (initial offering date of Class I Shares)
through December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
153
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of Period........ $10.00 $10.00 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.14 0.36 0.11
Net realized and unrealized gains on in-
vestments................................ 1.50 2.57 2.86
------ ------ ------
TOTAL INCOME FROM INVESTMENT OPERATIONS... 1.64 2.93 2.97
------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................. (0.14) (0.36) (0.11)
In excess of net investment income......... -- (0.01) --
From net realized gains on investments and
foreign currency transactions............ -- (0.34) (0.89)
------ ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS......... (0.14) (0.71) (1.00)
------ ------ ------
Net change in net asset value............... 1.50 2.22 1.97
------ ------ ------
Net Asset Value, End of Period.............. $11.50 $12.22 $11.97
====== ====== ======
- ----------------------------------------------
TOTAL RETURN (EXCLUDES SALES CHARGE) 16.48%++ 29.78%++ 29.98%++
- ----------------------------------------------
- ----------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------
Ratio of expenses to average net assets..... 1.26%+ 1.11%+ 1.21%+
Ratio of net investment income to average
net assets................................ 2.45%+ 3.33%+ 0.86%+
Ratio of expenses to average net assets*.... 3.15%+ 1.44%+ 1.39%+
Ratio of net investment income (loss) to av-
erage net assets*......................... 0.56%+ 2.99%+ 0.68%+
Portfolio turnover.......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted)... $8,356 $2,873 $4,329
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
154
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$10.00 $10.00 $10.00 $10.00
-------- ------ ------ ------
0.02 0.10 0.57 0.98
2.45 1.40 1.20 1.10
-------- ------ ------ ------
2.47 1.50 1.77 2.08
-------- ------ ------ ------
(0.02) (0.09) (0.57) (0.98)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- ------ ------ ------
(0.27) (0.34) (0.96) (1.33)
-------- ------ ------ ------
2.20 1.16 0.81 0.75
-------- ------ ------ ------
$12.20 $11.16 $10.81 $10.75
======== ====== ====== ======
24.80%++ 15.16%++ 18.22%++ 21.10%++
1.25%+ 1.50%+ 1.02%+ 1.33%+
0.19%+ 1.19%+ 5.94%+ 4.91%+
2.56%+ 1.96%+ 1.57%+ 3.65%+
(1.12)%+ 0.72%+ 5.39%+ 2.59%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$ 672 $2,749 $1,847 $ 487
</TABLE>
See Notes to Financial Statements.
155
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
For the Period Ended December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- ------- -------
<S> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period....... $10.00 $10.00 $ 10.00
------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. 0.13 0.29 0.06
Net realized and unrealized gains on in-
vestments............................... 1.45 2.56 2.84
------ ------ -------
TOTAL INCOME FROM INVESTMENT OPERATIONS.. 1.58 2.85 2.90
------ ------ -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................ (0.13) (0.29) (0.06)
In excess of net investment income........ -- -- --
From net realized gains on investments and
foreign currency transactions........... -- (0.34) (0.89)
------ ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS........ (0.13) (0.63) (0.95)
------ ------ -------
Net change in net asset value.............. 1.45 2.22 1.95
------ ------ -------
Net Asset Value, End of Period............. $11.45 $12.22 $ 11.95
====== ====== =======
- ---------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 15.83%++ 28.97%++ 29.15%++
- ---------------------------------------------
- ---------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------
Ratio of expenses to average net assets.... 2.00%+ 1.90%+ 2.04%+
Ratio of net investment income (loss) to
average net assets....................... 1.69%+ 2.65%+ 0.02%+
Ratio of expenses to average net assets*... 6.84%+ 2.65%+ 2.60%+
Ratio of net investment income (loss) to
average net assets*...................... (3.15)%+ 1.90%+ (0.54)%+
Portfolio turnover......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted).. $ 833 $ 593 $ 268
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. if such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
156
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
------------- ------------- ------- -------------
<S> <C> <C> <C>
$10.00 $10.00 $10.00 $10.00
-------- ------ ------ ------
(0.03) 0.05 0.50 0.91
2.40 1.39 1.20 1.16
-------- ------ ------ ------
2.37 1.44 1.70 2.07
-------- ------ ------ ------
-- (0.05) (0.50) (0.91)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- ------ ------ ------
(0.25) (0.30) (0.89) (1.26)
-------- ------ ------ ------
2.12 1.14 0.81 0.81
-------- ------ ------ ------
$12.12 $11.14 $10.81 $10.81
======== ====== ====== ======
23.76%++ 14.52%++ 17.41%++ 20.90%++
2.00%+ 2.28%+ 1.87%+ 2.03%+
(0.51)%+ 0.40%+ 5.22%+ 4.39%+
9.52%+ 3.83%+ 3.91%+ 8.69%+
(8.04)%+ (1.15)%+ 3.19%+ (2.28)%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$ 15 $ 193 $ 61 $ 4
</TABLE>
See Notes to Financial Statements.
157
<PAGE>
PRAIRIE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Managed Equity
Assets Income Growth
Fund(1) Fund(2) Fund(2)
------- -------- --------
<S> <C> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period........ $10.00 $ 10.00 $ 10.00
------ -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.22 0.42 0.15
Net realized and unrealized gains on in-
vestments................................ 1.46 2.55 2.86
------ -------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS... 1.68 2.97 3.01
------ -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................. (0.22) (0.42) (0.15)
In excess of net investment income......... -- -- --
From net realized gains on investments and
foreign currency transactions............ -- (0.34) (0.89)
------ -------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS......... (0.22) (0.76) (1.04)
------ -------- --------
Net change in net asset value............... 1.46 2.21 1.97
------ -------- --------
Net Asset Value, End of Period.............. $11.46 $ 12.21 $ 11.97
====== ======== ========
- ---------------------------------------------
TOTAL RETURN 16.90%++ 30.27%++ 30.38%++
- ---------------------------------------------
- ---------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------
Ratio of expenses to average net assets..... 0.80%+ 0.65%+ 0.80%+
Ratio of net investment income to average
net assets................................ 3.06%+ 4.08%+ 1.46%+
Ratio of expenses to average net assets*.... 4.12%+ 0.77%+ 0.92%+
Ratio of net investment income (loss) to av-
erage net assets*......................... (0.26)%+ 3.96%+ 1.34%+
Portfolio turnover.......................... 2.25%++ 44.07%++ 106.02%++
Net assets, end of period (000's omitted)... $ 411 $283,927 $293,944
</TABLE>
- -----------
(1) For the period April 3, 1995 (commencement of operations) through December
31, 1995.
(2) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(3) For the period March 3, 1995 (commencement of operations) through December
31, 1995.
(4) For the period February 10, 1995 (commencement of operations) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
158
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Special International International
Opportunities Equity Bond Bond
Fund(2) Fund(3) Fund(4) Fund(2)
- ------------- ------------- ------- -------------
<S> <C> <C> <C>
$ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------
0.06 0.14 0.61 1.02
2.44 1.40 1.20 1.16
-------- -------- -------- -------
2.50 1.54 1.81 2.18
-------- -------- -------- -------
(0.06) (0.12) (0.61) (1.02)
-- -- -- (0.01)
(0.25) (0.25) (0.39) (0.34)
-------- -------- -------- -------
(0.31) (0.37) (1.00) (1.37)
-------- -------- -------- -------
2.19 1.17 0.81 0.81
-------- -------- -------- -------
$ 12.19 $ 11.17 $ 10.81 $ 10.81
======== ======== ======== =======
25.08%++ 15.62%++ 18.57%++ 22.13%++
0.85%+ 1.05%+ 0.70%+ 0.95%+
0.59%+ 1.70%+ 6.48%+ 5.71%+
1.09%+ 1.38%+ 0.87%+ 1.93%+
0.36%+ 1.36%+ 6.31%+ 4.73%+
38.89%++ 5.65%++ 156.11%++ 48.03%++
$92,926 $101,448 $125,401 $14,504
</TABLE>
See Notes to Financial Statements.
159
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the
Period Ended Year Ended Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning of Period.... $ 7.68 $ 8.25 $ 8.36
------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income.................. 0.44 0.52 0.47
Net realized and unrealized gains
(losses) on investments.............. 0.72 (0.57) (0.09)
------ ------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS.......................... 1.16 (0.05) 0.38
------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income............. (0.44) (0.52) (0.47)
From net realized gains on investments. (0.22) -- (0.02)
------ ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS..... (0.66) (0.52) (0.49)
------ ------ ------
Net change in net asset value........... 0.50 (0.57) (0.11)
------ ------ ------
Net Asset Value, End of Period.......... $ 8.18 $ 7.68 $ 8.25
====== ====== ======
- -----------------------------------------
TOTAL RETURN (EXCLUDES SALES CHARGE) 15.55%++ (0.45)% 5.16%+
- -----------------------------------------
- -----------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------
Ratio of expenses to average net assets. 0.94%+ 0.04% --
Ratio of net investment income to
average net assets.................... 5.72%+ 6.70% 5.96%+
Ratio of expenses to average net as-
sets*................................. 1.15%+ 2.78% 3.67%+
Ratio of net investment income to
average net assets*................... 5.51%+ 3.96% 2.29%+
Portfolio turnover...................... 173.26%++ 71.65% 26.54%++
Net assets, end of period (000's omit-
ted).................................. $6,095 $ 69 $ 65
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
160
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Period Ended
December 31, December 2,
1995(1) 1994(2)
------------ ------------
<S> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period............... $ 8.13 $ 8.16
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.24 0.40
Net realized and unrealized gains (losses) on
investments..................................... 0.27 (0.55)
------ ------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS... 0.51 (0.15)
------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income........................ (0.24) (0.40)
From net realized gains on invesments............. (0.22) --
------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (0.46) (0.40)
------ ------
Net change in net asset value...................... 0.05 (0.55)
------ ------
Conversion to Class A Shares(3).................... NA 7.61
------ ------
Net Asset Value, End of Period..................... $ 8.18 $ --
====== ======
- ----------------------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 6.41%++ (1.82)%++
- ----------------------------------------------------
- ----------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------------
Ratio of expenses to average net assets............ 1.60%+ --
Ratio of net investment income to average net as-
sets............................................. 5.00%+ 6.48%+
Ratio of expenses to average net assets*........... 1.78%+ 2.58%+
Ratio of net investment income to average net as-
sets*............................................ 4.83%+ 3.90%+
Portfolio turnover................................. 173.26%++ 71.65%++
Net assets, end of period (000's omitted).......... $ 259 $ --
</TABLE>
- -----------
(1) For the period May 31, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective February 1, 1995, the Fund changed its fiscal
year end from January 31 to December 31.
(2) For the period February 8, 1994 (initial offering date of Class B Shares)
through December 2, 1994. On December 2, 1994, the Fund terminated its
offering of Class B Shares and such shares converted to Class A Shares.
(3) On December 2, 1994, the Fund terminated the offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
161
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the
Period Ended Year Ended Period Ended
December 31, January 31, January 31,
1995(1) 1995 1994(2)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period... $ 7.68 $ 8.25 $ 8.36
-------- ------ ------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income................. 0.47 0.52 0.47
Net realized and unrealized gains
(losses) on investments............. 0.72 (0.57) (0.09)
-------- ------ ------
TOTAL INCOME FROM INVESTMENT
OPERATIONS......................... 1.19 (0.05) 0.38
-------- ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income............ (0.47) (0.52) (0.47)
From net realized gains on invesments. (0.22) -- (0.02)
-------- ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS.... (0.69) (0.52) (0.49)
-------- ------ ------
Net change in net asset value.......... 0.50 (0.57) (0.11)
-------- ------ ------
Net Asset Value, End of Period......... $ 8.18 $ 7.68 $ 8.25
======== ====== ======
- ----------------------------------------
TOTAL RETURN 15.90%++ (0.48)% 5.16%++
- ----------------------------------------
- ----------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------
Ratio of expenses to average net as-
sets................................. 0.55%+ 0.04% --
Ratio of net investment income to
average net assets................... 6.34%+ 6.70% 6.21%+
Ratio of expenses to average net as-
sets*................................ 0.67%+ 2.78% 2.64%+
Ratio of net investment income to
average net assets*.................. 6.22%+ 3.96% 3.57%+
Portfolio turnover..................... 173.26%++ 71.65% 26.54%++
Net assets, end of period (000's omit-
ted)................................. $191,930 $7,101 $5,128
</TABLE>
- -----------
(1) For the period February 1, 1995 through December 31, 1995. Effective
February 1, 1995, the Fund changed its fiscal year end from January 31 to
December 31.
(2) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
162
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Year Ended
Period Ended ---------------------------------------------------
December 31, February 28, February 28, February 28, February 29,
1995(1) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Begin-
ning of Period....... $ 11.79 $ 12.18 $ 12.79 $ 12.25 $ 11.95
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income. 0.44 0.55 0.61 0.64 0.76
Net realized and
unrealized gains
(losses) on invest-
ments............... 0.56 (0.36) 0.01 0.68 0.37
------- ------- ------- ------- -------
TOTAL INCOME FROM
INVESTMENT
OPERATIONS......... 1.00 0.19 0.62 1.32 1.13
------- ------- ------- ------- -------
LESS DIVIDENDS AND DIS-
TRIBUTIONS:
From net investment
income.............. (0.44) (0.55) (0.61) (0.64) (0.76)
From net realized
gains on invest-
ments............... (0.10) (0.03) (0.62) (0.14) (0.07)
------- ------- ------- ------- -------
TOTAL DIVIDENDS AND
DISTRIBUTIONS...... (0.54) (0.58) (1.23) (0.78) (0.83)
------- ------- ------- ------- -------
Net change in net asset
value................ 0.46 (0.39) (0.61) 0.54 0.30
------- ------- ------- ------- -------
Net Asset Value, End of
Period............... $ 12.25 $ 11.79 $ 12.18 $ 12.79 $ 12.25
======= ======= ======= ======= =======
- ------------------------
TOTAL RETURN (EXCLUDES
SALES CHARGE) 8.58%++ 1.64% 4.94% 11.26% 9.78%
- ------------------------
- ------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------
Ratio of expenses to
average net assets... 0.83%+ 0.29% 0.06% -- --
Ratio of net investment
income to average net
assets............... 4.30%+ 4.73% 4.78% 5.16% 6.15%
Ratio of expenses to
average net assets*.. 0.97%+ 1.38% 1.27% 1.31% 1.72%
Ratio of net investment
income to average net
assets*.............. 4.16%+ 3.64% 3.57% 3.85% 4.43%
Portfolio turnover..... 44.75%++ 128.02% 167.95% 63.67% 86.91%
Net assets, end of
period
(000's omitted)...... $17,777 $17,243 $28,826 $27,885 $18,310
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
163
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
----------------------------------------------------
December 31, February 28, December 2, February 28,
1995(1) 1995(2) 1994(3) 1994(4)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Begin-
ning of Period........ $11.80 $ 11.57 $ 12.18 $ 12.32
------ ------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 0.37 0.04 0.37 0.03
Net realized and
unrealized gains
(losses) on
investments.......... 0.55 0.23 (0.72) (0.14)
------ ------- ------- --------
TOTAL INCOME (LOSS)
FROM INVESTMENT
OPERATIONS.......... 0.92 0.27 (0.35) (0.11)
------ ------- ------- --------
LESS DIVIDENDS AND DIS-
TRIBUTIONS:
From net investment in-
come................. (0.37) (0.04) (0.37) (0.03)
From net realized gains
on investments....... (0.10) -- (0.03) --
------ ------- ------- --------
TOTAL DIVIDENDS AND
DISTRIBUTIONS....... (0.47) (0.04) (0.40) (0.03)
------ ------- ------- --------
Net change in net asset
value................. 0.45 0.23 (0.75) (0.14)
------ ------- ------- --------
Conversion to Class A
shares(3)............. NA NA 11.43 NA
------ ------- ------- --------
Net Asset Value, End of
Period................ $12.25 $ 11.80 $ -- $ 12.18
====== ======= ======= ========
- -------------------------
TOTAL RETURN (EXCLUDES
REDEMPTION CHARGE) 7.75%++ 2.30%++ (2.98)++ (0.93)%++
- -------------------------
- -------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Ratio of expenses to av-
erage net assets...... 1.71%+ 1.36%+ 0.76%+ 0.75%+
Ratio of net investment
income to average net
assets................ 3.36%+ 3.72%+ 4.03%+ 1.68%+
Ratio of expenses to
average net assets*... 2.01%+ 1.64%+ 2.00%+ 3.00%+
Ratio of net investment
income (loss) to
average net assets*... 3.06%+ 3.44%+ 2.79%+ (0.57)%+
Portfolio turnover...... 44.75%++ 128.02%++ 128.02%++ 167.95%++
Net assets, end of pe-
riod (000's omitted).. $ 341 $ 6 $ -- $ 12
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(3) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
(4) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
164
<PAGE>
PRAIRIE FUNDS
INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
December 31, February 28,
1995(1) 1995(2)
------------ ------------
<S> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period.............. $ 11.80 $ 11.57
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................ 0.47 0.04
Net realized and unrealized gains on investments. 0.55 0.23
-------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS......... 1.02 0.27
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income....................... (0.47) (0.04)
From net realized gains on investments........... (0.10) --
-------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (0.57) (0.04)
-------- --------
Net change in net asset value..................... 0.45 0.23
-------- --------
Net Asset Value, End of Period.................... $ 12.25 $ 11.80
======== ========
- ---------------------------------------------------
TOTAL RETURN 8.76%++ 2.37%++
- ---------------------------------------------------
- ---------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------------
Ratio of expenses to average net assets........... 0.55%+ 0.50%+
Ratio of net investment income to average net as-
sets............................................ 4.78%+ 4.79%+
Ratio of expenses to average net assets*.......... 0.68%+ 0.60%+
Ratio of net investment income to average net as-
sets*........................................... 4.65%+ 4.69%+
Portfolio turnover................................ 44.75%++ 128.02%++
Net assets, end of period (000's omitted)......... $373,753 $365,801
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period February 1, 1995 (initial offering date of Class I Shares)
through February 28, 1995.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
165
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Year Ended
Period Ended ---------------------------------------------------
December 31, February 28, February 28, February 28, February 29,
1995(1) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value,
Beginning of Period.. $12.06 $12.13 $13.25 $ 12.49 $12.10
------ ------ ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income. 0.48 0.60 0.63 0.70 0.76
Net realized and
unrealized gains
(losses) on
investments......... 0.82 (0.07) (0.15) 1.01 0.47
------ ------ ------ ------- ------
TOTAL INCOME FROM
INVESTMENT
OPERATIONS......... 1.30 0.53 0.48 1.71 1.23
------ ------ ------ ------- ------
LESS DIVIDENDS AND
DISTRIBUTIONS:
From net investment
income.............. (0.48) (0.60) (0.63) (0.70) (0.76)
From net realized
gains on
investments......... (0.24) -- (0.96) (0.25) (0.08)
In excess of net
realized gains on
investments......... -- -- (0.01) -- --
------ ------ ------ ------- ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS...... (0.72) (0.60) (1.60) (0.95) (0.84)
------ ------ ------ ------- ------
Net change in net asset
value................ 0.58 (0.07) (1.12) 0.76 0.39
------ ------ ------ ------- ------
Net Asset Value, End of
Period............... $12.64 $12.06 $12.13 $ 13.25 $12.49
====== ====== ====== ======= ======
- ------------------------
TOTAL RETURN (EXCLUDES
SALES CHARGE) 10.95%++ 4.45% 3.70% 14.37% 10.50%
- ------------------------
- ------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------
Ratio of expenses to
average net assets... 0.89%+ 1.98% -- -- --
Ratio of net investment
income to average net
assets............... 4.57%+ 5.09% 4.85% 5.49% 5.99%
Ratio of expenses to
average net assets*.. 1.04%+ 3.89% 1.44% 1.59% 2.75%
Ratio of net investment
income to average net
assets*.............. 4.43%+ 3.18% 3.41% 3.90% 3.24%
Portfolio turnover..... 69.31%++ 60.78% 175.06% 88.53% 66.28%
Net assets, end of
period
(000's omitted)...... $7,426 $6,840 $9,234 $11,290 $6,591
</TABLE>
- -----------
(1) For the period March 1, 1995 through December 31, 1995. Effective March 1,
1995, the Fund changed its fiscal year end from February 28 to December
31.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
166
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
----------------------------------------
December 31, December 2, February 28,
1995(1) 1994(2) 1994(3)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period. $ 12.17 $12.14 $ 12.37
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............... 0.34 0.41 0.03
Net realized and unrealized gains
(losses) on investments........... 0.72 (0.70) (0.23)
------- ------ -------
TOTAL INCOME FROM INVESTMENT
OPERATIONS....................... 1.06 (0.29) (0.20)
------- ------ -------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income.......... (0.34) (0.41) (0.03)
From net realized gains on invest-
ments............................. (0.24)
------- ------ -------
TOTAL DIVIDENDS AND DISTRIBUTIONS.. (0.58) (0.41) (0.03)
------- ------ -------
Net change in net asset value........ 0.48 (0.70) (0.23)
------- ------ -------
Conversion to Class A Shares(4)...... NA 11.44 NA
------- ------ -------
Net Asset Value, End of Period....... $ 12.65 $ NA $ 12.14
======= ====== =======
- --------------------------------------
TOTAL RETURN (EXCLUDES REDEMPTION
CHARGE) 8.81%++ (4.30)%++ (1.64)%++
- --------------------------------------
- --------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------
Ratio of expenses to average net
assets............................. 1.66%+ 3.18%+ 0.50%+
Ratio of net investment income to
average net assets................. 3.61%+ 4.51%+ 4.10%+
Ratio of expenses to average net
assets*............................ 2.04%+ 5.85%+ 2.91%+
Ratio of net investment income to
average net assets*................ 3.23%+ 1.84%+ 1.69%+
Portfolio turnover................... 69.31%++ 60.78%++ 175.06%++
Net assets, end of period (000's
omitted)........................... $ 238 $ -- $ 2
</TABLE>
- -----------
(1) For the period April 4, 1995 (re-offering date of Class B Shares) through
December 31, 1995. Effective March 1, 1995, the Fund changed its fiscal
year end from February 28 to December 31.
(2) For the period March 1, 1994 through December 2, 1994. On December 2,
1994, the Fund terminated its offering of Class B Shares and such shares
converted to Class A Shares.
(3) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(4) On December 2, 1994, the Fund terminated its offering of Class B Shares
under the then-current sales load schedule and such shares converted to
Class A Shares.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
NA Not applicable.
See Notes to Financial Statements.
167
<PAGE>
PRAIRIE MUNICIPAL BOND FUND, INC.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended
-------------------------------
December 31, February 28,
1995(1) 1995(2)
------------ ------------
<S> <C> <C>
CLASS I SHARES:
Net Asset Value, Beginning of Period.......... $ 12.06 $ 12.06
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.52 0.05
Net realized and unrealized gains on invest-
ments...................................... 0.81 --
-------- --------
TOTAL INCOME FROM INVESTMENT OPERATIONS..... 1.33 0.05
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income................... (0.52) (0.05)
From net realized gains on investments....... (0.24) --
-------- --------
TOTAL DIVIDENDS AND DISTRIBUTIONS........... (0.76) (0.05)
-------- --------
Net change in net asset value................. 0.57 --
-------- --------
Net Asset Value, End of Period................ $ 12.63 $ 12.06
======== ========
- -----------------------------------------------
TOTAL RETURN 11.20%++ 0.39%++
- -----------------------------------------------
- -----------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------------
Ratio of expenses to average net assets....... 0.54%+ 0.65%+
Ratio of net investment income to average net
assets...................................... 4.95%+ 5.45%+
Ratio of expenses to average net assets*...... 0.67%+ 0.79%+
Ratio of net investment income to average net
assets*..................................... 4.81%+ 5.31%+
Portfolio turnover............................ 69.31%++ 60.78%++
Net assets, end of period (000's omitted)..... $240,160 $220,143
</TABLE>
- -----------
(1) For the period March 1, 1995, through December 31, 1995. Effective March
1, 1995, the Fund changed its fiscal year end from February 28 to December
31.
(2) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
168
<PAGE>
PRAIRIE FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year................... $0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income...... 0.0498 0.0379 0.0249 0.0283 0.0498
Net realized and unrealized
gains (losses) on
investments.............. 0.0001 (0.0083) (0.0001) -- --
------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS... 0.0499 0.0296 0.0248 0.0283 0.0498
------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income. (0.0498) (0.0379) (0.0249) (0.0283) (0.0498)
------- -------- -------- -------- --------
Increase due to voluntary
capital contribution from
an affiliate of the In-
vestment Adviser (Note
3(d))..................... -- 0.0080 -- -- --
------- -------- -------- -------- --------
Net change in net asset val-
ue........................ 0.0001 (0.0003) (0.0001) -- --
------- -------- -------- -------- --------
Net Asset Value, End of
Year...................... $0.9997 $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000
======= ======== ======== ======== ========
- -----------------------------
TOTAL RETURN 5.09% 3.86%* 2.52% 2.87% 5.10%
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------
Ratio of expenses to average
net assets................ 0.78% 0.86% 0.74% 0.91% 0.90%
Ratio of net investment
income to average net
assets.................... 4.97% 3.73% 2.48% 2.87% 4.97%
Ratio of expenses to average
net assets**.............. 1.07% 0.88% 0.88% 0.91% 0.90%
Ratio of net investment
income to average net
assets**.................. 4.67% 3.71% 2.34% 2.87% 4.97%
Net assets, end of period
(000's omitted)........... $57,264 $116,353 $154,613 $548,733 $990,897
</TABLE>
- -----------
* Had the Portfolio not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
2.83%.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
169
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year.................. $ 0.9998 $ 1.0001 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OP-
ERATIONS:
Net investment income..... 0.0514 0.0355 0.0274 0.0313 0.0543
Net realized and
unrealized gains (loss-
es) on investments...... 0.0100 (0.0109) 0.0001 -- --
-------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS.. 0.0524 0.0246 0.0275 0.0313 0.0543
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRI-
BUTIONS:
From net investment in-
come.................... (0.0514) (0.0355) (0.0274) (0.0313) (0.0543)
From net realized gains on
investments............. (0.0006) (0.0002) -- -- --
-------- -------- -------- -------- --------
TOTAL DIVIDENDS AND
DISTRIBUTIONS......... (0.0520) (0.0357) (0.0274) (0.0313) (0.0543)
-------- -------- -------- -------- --------
Increase due to voluntary
capital contribution from
an affiliate of the
Investment Adviser (Note
3(d)).................... -- 0.0108 -- -- --
-------- -------- -------- -------- --------
Net change in net asset
value.................... 0.0004 (0.0003) 0.0001 -- --
-------- -------- -------- -------- --------
Net Asset Value, End of
Year..................... $ 1.0002 $ 0.9998 $ 1.0001 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
- ----------------------------
TOTAL RETURN 5.33% 3.63%* 2.77% 3.18% 5.57%
- ----------------------------
- ----------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------
Ratio of expenses to
average net assets....... 0.79% 1.02% 0.94% 0.98% 0.97%
Ratio of net investment
income to average net
assets................... 5.12% 3.51% 2.76% 3.17% 5.42%
Ratio of expenses to
average net assets**..... 1.07% 1.02% 0.99% 0.98% 0.97%
Ratio of net investment
income to average net
assets**................. 4.83% 3.51% 2.71% 3.17% 5.42%
Net assets, end of period
(000's omitted).......... $203,994 $119,400 $162,623 $260,865 $456,791
</TABLE>
- -----------
* Had the Portfolio not had a capital contribution by an affiliate of the
Investment Adviser during the period, the total return would have been
2.61%.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
170
<PAGE>
PRAIRIE FUNDS
MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS-- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Ended
December 31,
1995(1)
--------------
<S> <C>
CLASS B SHARES:
Net Asset Value, Beginning of Period........................... $1.0000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................................... 0.0162
Net realized and unrealized gains on investments.............. 0.0008
-------
TOTAL INCOME FROM INVESTMENT OPERATIONS...................... 0.0170
-------
LESS DIVIDENDS AND DISTRIBUTIONS:
From net investment income.................................... (0.0162)
From net realized gains on investments........................ (0.0006)
-------
TOTAL DIVIDENDS AND DISTRIBUTIONS........................... (0.0168)
-------
Net change in net asset value.................................. 0.0002
-------
Net Asset Value, End of Period................................. $1.0002
=======
- -----------------------------------------------------------------
TOTAL RETURN 1.69%++
- -----------------------------------------------------------------
- -----------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------------------------------
Ratio of expenses to average net assets........................ 1.51%+
Ratio of net investment income to average net assets........... 4.33%+
Ratio of expenses to average net assets*....................... 2.02%+
Ratio of net investment income to average net assets*.......... 3.82%+
Net assets, end of period (000's omitted)...................... $ 65
</TABLE>
- -----------
(1) For the period May 20, 1995 (initial offering of Class B Shares) through
December 31, 1995.
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratios would have been
as indicated.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
171
<PAGE>
PRAIRIE FUNDS
MUNICIPAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Net Asset Value, Beginning
of Year................... $ 0.9997 $ 0.9999 $ 0.9999 $ 0.9999 $ 0.9999
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPER-
ATIONS:
Net investment income...... 0.0322 0.0234 0.0174 0.0236 0.0413
Net realized and unrealized
gains (losses) on
investments.............. 0.0001 (0.0002) -- -- --
-------- -------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS... 0.0323 0.0232 0.0174 0.0236 0.0413
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBU-
TIONS:
From net investment income. (0.0322) (0.0234) (0.0174) (0.0236) (0.0413)
-------- -------- -------- -------- --------
Net change in net asset val-
ue........................ 0.0001 (0.0002) -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of
Year...................... $ 0.9998 $ 0.9997 $ 0.9999 $ 0.9999 $ 0.9999
======== ======== ======== ======== ========
- -----------------------------
TOTAL RETURN 3.26% 2.36% 1.75% 2.38% 4.21%
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------
Ratio of expenses to average
net assets................ 0.70% 0.68% 0.79% 0.95% 0.98%
Ratio of net investment
income to average net
assets.................... 3.21% 2.33% 1.74% 2.38% 4.11%
Ratio of expenses to average
net assets*............... 0.94% 0.93% 0.95% 0.96% 0.98%
Ratio of net investment
income to average net
assets*................... 2.97% 2.08% 1.58% 2.37% 4.11%
Net assets, end of period
(000's omitted)........... $228,511 $173,130 $177,698 $210,000 $233,675
</TABLE>
- -----------
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
See Notes to Financial Statements.
172
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
Prairie Funds
Prairie Municipal Bond Fund, Inc.
Prairie Intermediate Bond Fund
The Members of the Boards and Shareholders
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Prairie Funds (comprising,
respectively, the Managed Assets Income, Managed Assets, Equity Income,
Growth, Special Opportunities, International Equity, Bond, International Bond,
Intermediate Municipal Bond, U.S. Government Money Market, Money Market and
Municipal Money Market Funds), Prairie Municipal Bond Fund, Inc. and Prairie
Intermediate Bond Fund (collectively, the "Funds") as of December 31, 1995 and
the related statements of operations for the periods then ended, and the
statements of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1995 by correspondence with the custodians and
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Prairie Funds, Prairie Municipal Bond
Fund, Inc. and Prairie Intermediate Bond Fund at December 31, 1995, the
results of their operations for the periods then ended, and the changes in
their net assets and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 23, 1996
173
<PAGE>
PRAIRIE FUNDS
- -------------------------------------------------------------------------------
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
- -------------------------------------------------------------------------------
On November 28, 1995, a special meeting of the shareholders of Prairie
Funds, Prairie Intermediate Bond Fund and Prairie Municipal Bond Fund, Inc.
was held to consider the approval of a new Investment Management agreement
between the Funds and First Chicago Investment Management Company.
The shareholders approved the new Investment Management Agreement with
respect to each Fund as follows:
<TABLE>
<CAPTION>
Portfolio In Favor Opposed Abstain
--------- ----------- ------- ---------
<S> <C> <C> <C>
Managed Assets Income Fund..................... 3,484,255 29,569 48,108
Managed Assets Fund............................ 338,203 0 1,984
Equity Income Fund............................. 20,277,924 289,304 1,689,065
Growth Fund.................................... 23,688,705 159,270 151,624
Special Opportunities Fund..................... 6,783,521 0 646,622
International Equity Fund...................... 7,743,043 0 3,978
Intermediate Bond Fund......................... 21,827,738 96,649 519,659
Bond Fund...................................... 9,402,335 242,037 1,301,595
International Bond Fund........................ 1,063,692 0 47,663
Intermediate Municipal Bond Fund............... 30,202,480 23,546 215,217
Municipal Bond Fund, Inc. ..................... 18,802,091 76,798 633,190
U.S. Government Money Market Fund.............. 26,654,820 473,493 1,021,928
Money Market Fund.............................. 88,655,004 509,609 3,096,509
Municipal Money Market Fund.................... 130,175,915 939,563 4,252,834
</TABLE>
In addition, the shareholders of the International Equity Fund were asked to
consider a new Sub-Investment Advisory Agreement between First Chicago
Investment Management Company and ANB Investment Management and Trust Company.
The shareholders approved the Sub-Investment Advisory Agreement with respect
to the International Equity Fund as follows:
<TABLE>
<CAPTION>
Portfolio In Favor Opposed Abstain
--------- --------- ------- --------
<S> <C> <C> <C>
International Equity Fund......................... 7,747,021 0 0
</TABLE>
174
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
175
<PAGE>
-----------------
PRAIRIE FUNDS FIRST CLASS
c/o First Chicago Investment U.S. Postage
Management Company (FCIMCO) PAID
Three First National Plaza, MS 0334 Hudson, MA
Chicago, IL 60670-0334 Permit No. 19
-----------------
