PEGASUS FUNDS
Money Market Fund
Treasury Money Market Fund
Municipal Money Market Fund
Michigan Municipal Money Market Fund
SUPPLEMENT
dated September 16, 1996
to
PROSPECTUS
dated September 9, 1996
(As Revised September 16, 1996)
The section entitled "Net Asset Value" has been amended as follows:
The first sentence of the second paragraph has been amended to read as
follows:
The net asset value of each Fund for purposes of pricing purchase and
redemption orders is determined by the Investment Adivser as of 12:00
noon, Eastern Time (with respect to the Municipal Money Market and
Michigan Municipal Money Market Funds) and 3:00 p.m., Eastern Time (with
respect to the Money Market and Treasury Money Market Funds), on each
business day ("Business Day") except: (i) those holidays which the New
York Stock Exchange ("Exchange"), the Investment Adviser or its bank
affiliates observe (currently New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memoria Day (observed), Independence
Day, Labor Day, Columbus Day (observed), Veterans' Day, Thanksgiving Day
and Christmas Day).
<PAGE>
[Prospectus Cover]
[logo] Pegasus Funds
Strength in Investing
P R O S P E C T U S
MONEY MARKET FUNDS
September 16, 1996
Pegasus
Funds
<PAGE>
Pegasus Funds
P.O. Box 5142
Westborough, Massachusetts 01581
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
Prospectus
September 9, 1996
(As Revised September 16, 1996)
Pegasus Funds (the "Trust") is an open-end, management investment company.
Through this Prospectus, investors may invest in any of the following four
separate money market funds (the "Funds"):
The Money Market Fund seeks to provide a high level of current income
consistent with the preservation of capital and liquidity. This Fund will
invest in high quality "money market" instruments.
The Treasury Money Market Fund seeks to provide a high level of current
income consistent with the preservation of capital and liquidity. This Fund
will invest in U.S. Treasury bills, notes and direct U.S. Treasury obligations
having remaining maturities of 13 months or less and repurchase agreements
relating to direct U.S. Treasury obligations.
The Municipal Money Market Fund (formerly, the "Tax-Exempt Money Market
Fund") seeks to provide a high level of current interest income that is exempt
from federal income taxes consistent with the preservation of capital and
liquidity. This Fund will invest in high quality debt obligations issued by or
on behalf of states, territories and possessions of the United States and the
District of Columbia and their respective political subdivisions and
authorities, the interest from which is, in the opinion of bond counsel for
the issuers, exempt from regular federal income tax ("Municipal Obligations").
The Michigan Municipal Money Market Fund (formerly, the "Michigan
Tax-Exempt Money Market Fund") seeks 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. This Fund
will invest 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
Obligations").
The Municipal Money Market Fund and Michigan Municipal Money Market Fund
are sometimes referred to as the "Municipal Funds."
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 Trust 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, FIRST CHICAGO NBD CORPORATION 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 POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE. THE MICHIGAN MUNICIPAL MONEY
MARKET FUND IS CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF MICHIGAN AND
ENTITIES WITHIN THE STATE OF MICHIGAN AND THEREFORE INVESTMENT IN THE FUND MAY
BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
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.
<PAGE>
Table of Contents
3 Highlights
4 Expense Table
5 Background
6 Financial
9 Description of the Funds
11 How to Buy Shares
13 Shareholder Services
14 How to Redeem Shares
17 Management of the Funds
18 Distribution and Shareholder
Services Plans
18 Dividends and Distributions
19 Taxes
20 Performance Information
21 General Information
A-1 Supplemental Information
<PAGE>
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
Investment Objectives and Management Policies
Each Fund's investment objective is set forth on the cover page of this
Prospectus.
Each Fund seeks to maintain its net asset value per share of $1.00, and
values its portfolio securities on the basis of amortized cost. The dollar
weighted average maturity of each Fund is 90 days or less.
Investment Adviser
First Chicago NBD Investment Management Company ("FCNIMCO") is the Investment
Adviser to each of the Funds. Each Fund has agreed to pay the Investment
Adviser an annual fee as set forth under "Management of the Funds."
Description of Classes
Each Fund offers Class A shares and Class I shares. The Money Market Fund
offers Class B shares only through an exchange of Class B shares from one of
the Trust's non-money market investment portfolios. Each share represents an
identical pro rata interest in a Fund's investment portfolio.
Class A shares are sold at net asset value with no sales charge and are
subject to a shareholder servicing fee.
Class B shares are sold at net asset value per share with no front-end
sales charge. Class B shares may be subject to a contingent deferred sales
charge ("CDSC") and are subject to a distribution fee and shareholder
servicing fee.
Class I shares are sold at net asset value with no sales charge to
institutional investors, including banks, such as The First National Bank of
Chicago ("FNBC"), NBD Bank ("NBD"), American National Bank and Trust Company
("ANB") or their affiliates, acting for themselves or in a fiduciary,
advisory, agency, custodial or similar capacity, public agencies and
municipalities.
How To Buy Shares
First Data Investor Services Group, Inc. serves as the Trust's Transfer and
Dividend Disbursing Agent (the "Transfer Agent").
Class A shares and Class B shares may be purchased through a number of
institutions including the Investment Adviser, FNBC, NBD, ANB and their
affiliates, including First Chicago NBD Investment Services, Inc. ("FCNIS"), a
registered broker-dealer, BISYS Fund Services (the "Distributor" or "BISYS")
which serves the Trust as its 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 should contact their institutions
directly for appropriate instructions, as well as for information about
conditions pertaining to their accounts and any related fees.
The minimum initial investment is $2,500. All subsequent investments must
be at least $100.
See "How to Buy Shares" on page 11 of this Prospectus.
Shareholder Services
The Funds offer shareholders certain services and privileges including:
Exchange Privilege and Automatic Investment Plans. Certain services and
privileges may not be available through all Service Agents.
See "Shareholder Services" on page 13 of this Prospectus.
How To Redeem Shares
Generally, investors should contact their representatives at the Investment
Adviser, FNBC, NBD, ANB, their affiliates or the appropriate Service Agent for
redemption instructions. Investors who are not clients of the Investment
Adviser, FNBC, NBD, ANB, their affiliates or a Service Agent may redeem Fund
shares by written request to the Transfer Agent.
See "How to Redeem Shares" on page 14 of this Prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
Expense Table
All Money
Funds Market Fund Only
----- ----------------
Shareholder Transaction Expenses Class A and I Class B
- -------------------------------- ------------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None
Sales Charge on Reinvested Dividends None None
Maximum Deferred Sales Charge Imposed On
Redemptions (as a percentage of the
amount subject to charge) None None*
Redemption Fees None None
Exchange Fees None None
<FN>
- ---------
* No contingent deferred sales load is charged, except that shares of the
Money Market Fund acquired through an exchange of shares offered with a
CDSC will be subject to a CDSC of up to a maximum of 5% upon redemption
in accordance with the Prospectus for the particular B Shares. See "How
to Redeem Shares."
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Total
Management 12b-1 Other Operating
Fees Fees Expenses Expenses(1)
---------- ---- -------- -----------
<S> <C> <C> <C> <C>
Money Market Fund
Class A Shares 0.29% N/A 0.44% 0.73%
Class B Shares 0.29% 0.75% 0.44% 1.48%
Class I Shares 0.29% N/A 0.19% 0.48%
Treasury Money Market Fund
Class A Shares 0.29% N/A 0.43% 0.72%
Class I Shares 0.29% N/A 0.18% 0.47%
Municipal Money Market Fund
Class A Shares 0.30% N/A 0.44% 0.74%
Class I Shares 0.30% N/A 0.19% 0.49%
Michigan Municipal Money
Market Fund
Class A Shares 0.27%(2) N/A 0.48% 0.75%
Class I Shares 0.27%(2) N/A 0.23% 0.50%
<FN>
- ---------
(1) See "How to Buy Shares," "Management of the Funds" and "Distribution and
Shareholder Services Plans." Other Expenses and Total Operating Expenses
for each Fund have been restated to reflect current expenses. With
respect to each Fund, the Investment Adviser has undertaken to waive fees
and reimburse expenses for the current fiscal year to the extent the
total operating expenses applicable to Class A and Class I shares of each
Fund and Class B shares of the Money Market Fund exceed 0.75%, 0.50% and
1.50%, respectively. Without advisory fee waivers, Class A and Class I
Shares of the Michigan Municipal Money Market Fund would be 0.78% and
0.53%, respectively.
(2) Management Fees without waivers would have been 0.30% with respect to
each class of the Michigan Municipal Money Market Fund.
</TABLE>
4
<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 each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund
Class A Shares $7 $23 $41 $ 91
Class B Shares $65/$15** $77/$47** $101/$81** $148
Class I Shares $5 $15 $27 $ 60
Treasury Money
Market Fund
Class A Shares $7 $23 $40 $ 90
Class I Shares $5 $15 $26 $ 59
Municipal Money
Market Fund
Class A Shares $8 $24 $41 $ 92
Class I Shares $5 $16 $27 $ 62
Michigan Municipal
Money Market Fund
Class A Shares $8 $24 $42 $ 93
Class I Shares $5 $16 $28 $ 63
<FN>
- ---------
** Assuming no redemption of Class B shares.
</TABLE>
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 MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
The purpose of the foregoing tables is to assist investors in
understanding the various costs and expenses that an investor in a Fund will
bear, directly or indirectly, the payment of which will reduce investors'
return on an annual basis. The Investment Adviser, FNBC, NBD, ANB and their
affiliates and certain Service Agents may charge their clients fees in
connection with an investment in the Funds which are not reflected in the
foregoing tables.
Background
Shares of each Portfolio, other than the Money Market Portfolio, have been
classified into two separate classes of shares -- Class A shares and Class I
shares. Shares of the Money Market Portfolio have been classified into three
separate classes of shares -- Class A shares, Class B Shares and Class I
shares. As of December 31, 1995, Class B shares had not yet been offered. Each
share represents an equal proportionate interest in the related Fund. Prior to
July 22, 1996, Class A shares and Class I shares had the same expense ratio.
Accordingly, the financial data shown in the tables below under "Financial
Highlights" are identical for the Class A shares and Class I shares in a
Portfolio. Effective July 22, 1996, the Trust began to allocate shareholder
servicing expenses attributable to Class A shares exclusively to such shares.
See "Shareholder Services Plan" under "Distribution and Shareholder Services
Plans" for a description of the impact that the above may have on holders of
Class A shares and Class I shares.
5
<PAGE>
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements contained in their Statement of Additional Information and set
forth certain information concerning the historic investment results of Fund
shares. They present a per share analysis of net investment income and
distributions from net investment income for each of the Funds. The tables
have been derived from the Funds' 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 Funds 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 Fund*
Class A and Class I Shares**
January 4, 1988
(Commencement
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, December 31, December 31, December 31, to December 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>
- ---------
* Prior to September 16, 1996, the Fund was named the Woodward Money Market
Fund.
** As of December 31, 1995, Class B Shares of the Fund had not yet been
offered.
(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 Money Market Fund*
Class A and Class I Shares
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%
<CAPTION>
Municipal Money Market Fund*
Class A and Class I Shares
January 4, 1988
(Commencement of
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Operations) to
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 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>
- ---------
* Prior to September 16, 1996, the names of the Funds were the Woodward
Treasury Money Market Fund and the Woodward Tax-Exempt Money Market Fund.
(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>
Michigan Municipal Money Market Fund*
Class A and Class I Shares
January 23,
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 $ 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>
- ---------
* Until on or about September 23, 1996, the name of the Fund is the Woodward
Michigan Tax-Exempt Money Market Fund.
(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>
Description of the Funds
General
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 twenty-six investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only four portfolios. Under the 1940 Act,
each Fund is classified as a diversified investment portfolio, except for the
Michigan Municipal Money Market Fund which is classified as a non-diversified
portfolio.
Investment Objectives and Policies
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
a vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with the
description of investments in which the Funds may invest, as set forth in
"Supplemental Information."
Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. 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 below.
Each Fund will only purchase "eligible securities" that present minimal
credit risks as determined by the Investment Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities include (i)
obligations issued or guaranteed as to payment of principal and interest by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"); (ii) securities that are rated (at the time of purchase) by
nationally recognized statistical rating organizations ("Rating Agencies") in
the two highest categories for such securities; and (iii) certain securities
that are not so rated but are of comparable quality to rated eligible securi-
ties as determined by the Investment 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 Fund is managed so that the average maturity of all instruments in
the Fund (on a dollar-weighted basis) will not exceed 90 days. In no event
will a Fund 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).
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 a Fund will be able to
maintain a stable net asset value of $1.00 per share.
The Money Market Fund invests in the following high quality "money
market" instruments: (1) U.S. Government Obligations; (2) U.S. dollar denomi-
nated obligations issued or guaranteed by the government of Canada, a Province
of Canada, or an instrumentality or political subdivision thereof; (3) certi-
ficates 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 Corpo-
ration ("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.
The Treasury Money Market Fund will invest in: U.S. Treasury bills,
notes, and direct U.S. Treasury obligations having remaining maturities
of 13 months or less; and repurchase agreements relating to direct U.S.
Treasury obligations.
In accordance with current SEC regulations, the Money Market and Treasury
Money Market Funds 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 Fund 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"
that (i) if rated by more than one 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
9
<PAGE>
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 the Investment Adviser to be of
comparable quality to such securities pursuant to guidelines established by
the Trust's Board of Trustees. In addition, the Money Market Fund will limit
its 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 and Treasury Money Market Funds
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.
The Municipal Money Market Fund will invest in high quality Municipal
Obligations and the Michigan Municipal Money Market Fund will invest in high
quality Michigan Municipal Obligations. Each Fund may also invest in related
repurchase agreements. Income earned by the Fund with respect to repurchase
agreements and securities lending transactions is not exempt from federal
income tax. To the extent acceptable Michigan Municipal Obligations are at any
time unavailable for investment by the Michigan Municipal Money Market Fund,
the Fund will invest primarily in other Municipal Obligations, the interest on
which is, in the opinion of bond counsel, exempt from federal, but not State
of Michigan, income tax.
Municipal Obligations acquired by the Municipal Funds 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 Investment Adviser under guidelines established by the Trust's Board of
Trustees. Where necessary to assure that an instrument is of high quality, the
Funds 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 a Municipal Fund's net assets will be invested in
Municipal Obligations, except in extraordinary circumstances, such as when the
Investment Adviser believes that market conditions indicate that a Fund 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 Fund may invest. This policy is fundamental with
respect to each of the Municipal Funds and may not be changed without the
approval of the holders of a majority of a Fund's outstanding shares. In
addition, with respect to the Michigan Municipal Money Market Fund, at least
65% of its total assets will be invested under normal market conditions in
Michigan Municipal Obligations and the remainder may be invested in securities
that are not Michigan Municipal Obligations and therefore may be subject to
Michigan income taxes. There is no investment limitation on investments in
Municipal Obligations subject to the federal alternative minimum tax. See
"Taxes."
Special Risk Considerations Applicable to the Michigan Municipal
Money Market Fund
The Michigan Municipal Money Market Fund will under normal market conditions
consist of Michigan Municipal Obligations 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 Fund 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.
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.
In addition, the classification of the Fund as a "non-diversified"
investment company means that the proportion of the Fund's assets that may be
invested in the securities of a single issuer is not limited by the 1940 Act.
Since a relatively high percentage of the 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
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regulatory occurrence than the portfolio securities of a diversified fund.
Investment Limitations
Each Fund 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 Fund without the affirmative vote of the
holders of a majority of the Fund'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 Fund may:
1. 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, domestic
bank obligations, 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, and (d) personal credit
and business credit businesses will be considered separate industries.
2. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under 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.
The Money Market, Treasury Money Market and Municipal Money Market Funds
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 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 a Fund, except
that up to 25% of the value of a Fund's total assets may be invested without
regard to these limitations.
The Municipal Money Market Fund and Michigan Municipal Money Market Fund
may not invest less than 80% of their respective 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.
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 Fund's securities will not constitute a violation of the
limitation for purposes of the 1940 Act.
As a matter of non-fundamental policy, the Michigan Municipal Money
Market Fund conducts its operations so as to qualify as a "regulated invest-
ment company" for purposes of the Internal Revenue Code of 1986, as amended
(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 the 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. Govern-
ment securities or the securities of other regulated investment companies).
How to Buy Shares
General Information
Description of Classes
This Prospectus offers investors Class A and Class I shares in the Treasury
Money Market, Municipal Money Market and Michigan Municipal Money Market Funds
and Class A, Class B and Class I shares in the Money Market Fund. Each share
of each Class in a Fund represents an identical pro rata interest in the
Fund's investment portfolio. Class A shares are offered to any investor. The
Money Market Fund offers Class B shares only through an exchange from Class B
shares of one of this Trust's non-money market investment portfolios. Orders
for purchases of Class I shares may be placed only for certain eligible
investors as described below.
Class A shares are sold at net asset value per share and are subject to a
shareholder servicing fee. Class B shares, which are also sold at net asset
value per share, may be subject to a CDSC and are subject to a distribution
fee and shareholder servicing fee.
Class A and Class B shares are offered to
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the general public and may be purchased through a number of institutions,
including the Investment Adviser, FNBC, NBD, ANB and their affiliates, other
Service Agents, and directly through the Distributor.
Class I shares are sold at net asset value with no sales charge and are
sold exclusively to institutional investors, including banks (such as FNBC and
NBD), acting for themselves or in a fiduciary, advisory, agency, custodial or
similar capacity, public agencies and municipalities. Class I shares may not
be purchased directly by individuals, although institutions may purchase
shares for accounts maintained by individuals. Generally, each investor will
be required to open a single master account with the Fund for all purposes. In
certain cases, the Trust may request investors to maintain separate master
accounts for shares held by the investor (i) for its own account, for the
account of other institutions and for accounts for which the institution acts
as a fiduciary, and (ii) for accounts for which the investor acts in some
other capacity. An institution may arrange with the Transfer Agent for
sub-accounting services and will be charged directly for the cost of such
services. Class I shares are not subject to a shareholder servicing fee or
distribution fee.
Class A shares held by investors who, after purchasing Class A shares
establish an account that would be eligible to purchase Class I shares and
place such shares in such account, will convert to Class I shares upon the
establishment of such account, based on their relative net asset values. Class
I shares held by investors who, after purchasing Class I shares for their
accounts withdraw such shares from such accounts, will convert to Class A
shares upon such withdrawal, based on their relative net asset values, and
will be subject to the shareholder servicing fee charged by Class A.
Class B shares will receive lower per share dividends and at any given
time the performance of Class B shares should be expected to be lower than for
shares of each other Class because of the higher expenses borne by Class B
shares. Similarly, Class A shares will receive lower per share dividends and
the performance of Class A shares should be expected to be lower than Class I
shares because of the higher expenses borne by Class A 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.
The minimum initial investment for Class A and Class B shares is $2,500.
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. The Investment Adviser 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. The Funds reserve
the right to reject any purchase order. The Trust may charge a fee of $2 per
month for accounts with balances of less than $2,500. The Trust will notify
shareholders prior to the assessment of such fees.
The minimum initial investment for Class I shares is $1,000,000 or any
lesser amount if, in the Distributor's opinion, the investor has adequate
intent and availability of funds to reach a future level of investment of
$1,000,000. There is no minimum for subsequent purchases. The initial
investment must be accompanied by the Account Application. The Trust reserves
the right to offer Class I shares without regard to the minimum purchase
requirements to qualified or non-qualified employee benefit plans.
Institutions may charge their clients fees in connection with purchases for
the accounts of their clients.
Federal regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See the
Statement of Additional Information for 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").
Share certificates will not be issued. It is not recommended that the
Municipal Money Market or the Michigan Municipal Money Market Funds be used as
a vehicle for Keogh, IRA or other qualified retirement plans.
Net Asset Value
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 "Net Asset Value" in the Statement of Additional
Information.
The net asset value of each Fund for purposes of pricing purchase and
redemption orders is determined by the Investment Adviser as of 3:00 p.m.,
Eastern Time, on each business day ("Business Day") except: (i) those holidays
which the New York Stock Exchange ("Exchange"), the Investment Adviser or its
bank affiliates observe (currently New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
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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 (currently 4:00 p.m. Eastern time) ("Early
Closing Time") in which event the net asset value of each Fund will be
determined and its shares will be priced as of such Early Closing Time.
Shares of each 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
(monies 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.
The assets of each Fund are valued based upon the amortized cost method.
Although the Trust seeks to maintain the net asset value per share of the
Funds at $1.00, there can be no assurance that the net asset value will not
vary.
Class B Shares
Class B shares of the Money Market Fund are available only to the holders of
Class B shares in the Trust's non-money market funds who wish to exchange
their shares in such funds for shares in the Money Market Fund. Class B shares
of the Money Market Fund will automatically convert to Class A shares at the
time the exchanged shares would have converted. The purpose of the conversion
is to relieve the holders of the Class B shares of the higher operating
expenses charged to Class B shares. The conversion from Class B shares to
Class A shares will take place, based on their relative net asset values at
the time of the conversion. After such conversion, a shareholder would hold
Class A shares subject to the operating expenses for Class A shares discussed
above. Upon each conversion of Class B shares that were not acquired through
reinvestment of dividends or distributions, a proportionate amount of Class B
shares that were acquired through reinvestment of dividends or distributions
will likewise automatically convert to Class A shares.
Shareholder Services
The Exchange Privilege and Automatic Investment Plan are available to
shareholders of any Class. However, 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 or the other
investment portfolios of the Trust. 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 may be exchanged without a sales load for shares
of other Funds and investment portfolios of the Trust sold without a
sales load.
B. Shares of Funds may be exchanged for shares of other investment
portfolios of the Trust sold with a sales load, and the applicable
sales load will be deducted.
C. Shares of Funds acquired by a previous exchange from shares of other
investment portfolios of the Trust 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 investment portfolios of the Trust 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. Shareholders must notify the Transfer Agent
of their prior ownership of Fund shares and their account number.
D. Shares of the Money Market Fund acquired through exchange of
Class B shares of the Trust's non-money market funds are subject to a
CDSC upon redemption of the shares in accordance with the Prospectus of
the exchanged shares. Shares of Class B
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shares, 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.
E. 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 Transfer Agent of such eligibility.
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 SEC. 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.
Automatic Investment Plan
The Automatic Investment Plan permits an investor to purchase shares in amounts
of at least $100 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
the first or the fifteenth day of the month. 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 their financial institutions or the Transfer Agent. 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 participation in the Plan or change the amount of purchase at any time by
mailing written notification to the Transfer Agent 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.
Option to Make Systematic Withdrawals
The Systematic Withdrawal Plan permits an investor who owns shares of a Fund
having a minimum value of $10,000 at the time he elects under the Systematic
Withdrawal Plan to 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.
Cross Reinvestment of Dividend Plan
The Trust makes available to investors a Cross Reinvestment of Dividend Plan
pursuant to which an investor who owns shares of any Fund with a minimum value
of $10,000 at the time he elects may have dividends paid by such Fund automati-
cally reinvested into shares of another Fund in which he has invested a minimum
of $1,000. Investors may obtain an application and additional information from
their financial institutions or the Transfer Agent by calling (800) 688-3350.
Pegasus Funds Individual Retirement Custodial Account
Class A and Class B 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 financial institutions or the
Transfer Agent for information as to applications and annual fees. The minimum
investment for an IRA is $250. Investors should also consult their tax advisers
to determine whether the benefits of an IRA are available or appropriate.
How to Redeem Shares
General Information
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 Class I shares must redeem shares by following
instructions pertaining to his account. It is the responsibility of the entity
authorized to act on behalf of such account 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
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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 Trust imposes no charges when shares are redeemed. However, the Trust
may impose a CDSC on redemptions of Class B shares of the Money Market Fund as
described below. Service Agents may charge a nominal fee for effecting
redemptions of Fund shares.
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 SEC. 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 has a sufficient balance in his 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 60 days' written notice if, due to share
redemptions, the account's net asset value decreases to $2,500 or less and
remains so during the notice period.
Redemption Procedures
An investor who has purchased shares through his account at the Investment
Adviser, any of its bank affiliates 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 the Investment Adviser, bank affiliate 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.
If an investor requests that his redemption proceeds be sent to an
address other than the address appearing on the Transfer Agent's records, a
signature guarantee is required. The Transfer Agent usually requires
additional documentation for the sale of shares by a corporation, partnership,
agent or fiduciary, or a surviving joint owner. Contact the Transfer Agent for
more information about where to obtain a signature guarantee.
You may use the Transfer Agent's Telephone Redemption Privilege to redeem
shares from your account, unless you have notified the Transfer Agent of an
address change within the preceding 15 days with the exception of redemptions
to pre-authorized bank accounts. Unless an investor indicates otherwise on the
account application, the Transfer Agent will be authorized to act upon
redemption and transfer instructions received by telephone from a shareholder,
or any person claiming to act as his representative, who can provide the
Transfer Agent with his account registration and address as it appears on the
Transfer Agent's records. With the telephone redemption or exchange privilege,
an investor authorizes the Transfer Agent to act on telephone instructions
from any person representing himself 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
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investor's redemption request being processed at a later time than it would
have been if telephone redemption had been used.
Written Redemption Requests
Investors may redeem shares by written request mailed to the Transfer Agent at
4400 Computer Drive, Westborough, MA 01581-5120. Redemption requests must be
signed by each shareholder, including each owner of a joint account, and each
signature must be guaranteed for redemptions greater than $50,000. 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
A Fund shareholder may request on the Account Application or by later written
request to the Fund that the 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.
Class B Shares -- Money Market Fund
Class B shares of the Money Market Fund acquired through exchange of Class B
shares of the Trust's non-money market funds are subject to a CDSC upon
redemption of the shares at the rate the exchanged shares would have been
charged. For purposes of computing the CDSC and conversion periods, if any,
the length of ownership will be measured from the date of the original
purchase of Class B shares and will include any period of ownership of the
Money Market Fund.
The 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.
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Management of the Funds
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. Information about the Trustees and officers
of the Trust is contained in the Statement of Additional Information.
Investment Adviser and Administrators
FCNIMCO, located at Three First National Plaza, Chicago, Illinois 60670, is
each Fund's Investment Adviser. FCNIMCO is a registered investment adviser and
a wholly-owned subsidiary of FNBC, which in turn is a wholly-owned subsidiary
of First Chicago NBD Corporation, a registered bank holding company. Included
among FCNIMCO'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.
FCNIMCO also acts as investment adviser for other registered investment
company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an
Investment Advisory Agreement dated as of April 12, 1996. Under the Investment
Advisory Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments. Subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, 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.
Under the terms of the Investment Advisory Agreement, the Investment
Adviser is entitled to a monthly fee computed daily and payable monthly,
expressed as a percentage of each Fund's average daily net assets, of 0.30% of
the first $1.0 billion, 0.275% of the next $1 billion and 0.25% of each such
Fund's average daily net assets in excess of $2 billion. Prior to September
16, 1996, NBD served as the Funds' investment adviser. Under the prior
investment advisory agreement NBD was entitled to receive fees for advisory
and administrative services provided to the Funds, computed daily and payable
monthly, at annual rates of: (1) .45% of the first $1.0 billion of each of the
Money Market, Treasury Money Market and Municipal Money Market Fund's average
daily net assets, .425 of the next $1.0 billion, and .40% of each such Fund's
average daily net assets in excess of $2.0 billion; and (ii) .50% of the
average daily net assets of the Michigan Municipal Money Market Fund. In
addition, NBD was entitled to 4/10ths of the gross income earned by a Fund on
each loan of securities (excluding capital gains and losses, if any). For the
fiscal year ended December 31, 1995, the Money Market, Treasury Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds paid NBD
advisory fees at the effective annual rates of .44%, .45%, .45% and .44%,
respectively.
FCNIMCO and BISYS serve as the Trust's Co-Administrators pursuant to an
Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of
the Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement, FCNIMCO and BISYS are entitled jointly to a monthly
administration fee at the annual rate of .15% of each Fund's average daily net
assets.
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 Investment Adviser believes that the Investment Adviser and
NBD may perform the advisory, administrative and custodial services for the
Trust described in this Prospectus, and that the Investment Adviser and its
affiliates, 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 Investment Adviser and NBD from continuing to perform investment
advisory or custodial services for the Trust or require the Investment Adviser
and its affiliates to alter or discontinue the services provided by them to
shareholders.
If the Investment Adviser was prohibited from performing investment
advisory services for the Trust, it is expected that the Board of Trustees
would recommend that shareholders approve a new agreement with
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another entity or entities qualified to perform such services and selected by
the Board. If the Investment 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 Fund 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.
Distributor
The Distributor, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's principal underwriter and distributor of the Funds'
shares.
Transfer and Dividend Disbursing Agent and Custodian
First Data Investor Services Group, Inc., located at 4400 Computer Drive,
Westborough, MA 01581-5120 serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of First Chicago NBD
Corporation, serves as the Trust's custodian (the "Custodian"). NBD is located
at 900 Tower Drive, Troy, Michigan 48098.
Distribution and Shareholder
Services Plans
Class B shares of the Money Market Fund are subject to an annual distribution
fee pursuant to a Distribution Plan. Class A shares of each Fund (and Class B
shares of the Money Market Fund) are subject to an annual service fee pursuant
to a Shareholder Services Plan.
Distribution Plan
(Class B only) Under a Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, the Trust has agreed to pay the Distributor for advertising,
marketing and distributing shares of the Money Market Fund at an aggregate
annual rate not to exceed .75% of the value of the average daily net assets of
Class B shares. The Distributor may pay one or more Service Agents in respect
of these services. The Investment Adviser and its subsidiaries and affiliates
may act as Service Agents and receive fees under the Distribution Plan,
subject to applicable law. The Distributor determines the amount, 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 the Distribution Plan are
payable without regard to actual expenses incurred.
Shareholder Services Plan
(Class A and Class B) Under a Shareholder Services Plan, the Trust pays the
Distributor for the provision of certain services to the holders of Class A
and Class B shares a fee at an annual rate not to exceed .25% of the value of
the average daily net assets of such shares. 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 the Shareholder Services Plan, the Distributor may make payments to
Service Agents in respect of these services. The Investment Adviser and its
subsidiaries and 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.
Dividends and Distributions
The Funds declare dividends from net investment income on each Business Day.
Dividends usually are paid on the last Business Day of each month. Shares
begin accruing dividends on the Business Day on which the purchase order is
effective. The earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding Business Day.
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 Internal Revenue Code of
1986, as amended (the "Code"), in all events in a manner consistent with the
provisions of the 1940 Act. Dividends are automatically reinvested in
additional Fund shares, or fractional shares thereof of the same Class from
which they were paid at net asset value, unless payment in cash is requested.
If cash payment is requested, checks will be mailed within five Business Days
after the last day of each month.
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Taxes
Federal
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in
accordance with the Code.
Each Fund intends to distribute as dividends substantially all of its net
income each year. With the exception of dividends paid by the Municipal Funds,
such dividends will be taxable as ordinary income to each Fund's shareholders
regardless of whether a distribution is received in cash or reinvested in
additional shares. It is anticipated that no part of any distribution by any
of the Funds will be eligible for the dividend received deduction for
corporations. In addition, none of the Funds expects to pay capital gain
dividends within the meaning of the Code.
Any dividends declared in October, November or December with a record
date before the end of the year will be deemed for federal tax purposes to
have been paid by the Fund and received by the shareholders in that year if
such dividends are actually paid on or before January 31 of the following
year.
In the case of the Municipal Funds, dividends derived from tax-exempt
interest income ("exempt-interest dividends") paid by them may be treated by
their shareholders as items of interest excludable from their gross income
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. (See Statement of Additional Information under
"Additional Information Concerning Taxes.")
If the Municipal Funds hold certain so-called "private activity bonds,"
shareholders will need to include as an item of tax preference for the
purposes of the federal alternative minimum tax, that portion of the dividends
paid by a Fund derived from interest received on such bonds. In addition,
corporate shareholders will need to take all exempt-interest dividends into
account in determining certain adjustments for the federal alternative minimum
tax.
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 Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific
reference to their own tax situation.
State and Local
Dividends paid by the Municipal Funds that are derived from interest
attributable to tax-exempt Michigan Municipal Obligations will be exempt from
Michigan income tax, Michigan intangibles tax and Michigan single business
tax. Conversely, to the extent that the Funds' dividends are derived from
interest on obligations other than Michigan Municipal Obligations 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 Funds are unable to predict
in advance the portion of its dividends that will be derived from interest on
Michigan Municipal Obligations, but will mail to its shareholders not later
than sixty days after the close of the Funds' taxable year a written notice
containing information as to the interest derived from Michigan Municipal
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.
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.
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Performance Information
From time to time, in advertisements or in reports to shareholders the
performance of the Funds 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, the performance of a Fund's shares may be compared to data prepared
by Lipper Analytical Services, Inc. The yields of the Money Market and
Treasury Money Market Funds may be compared to the Donoghue's Money Fund
Average, Donoghue's Government Money Fund Average and Donoghue's Treasury
Money Fund Average, which are averages compiled by IBC/Donoghue's Money Fund
Report|Pr, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the
Bank Rate Monitor\T 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 Municipal Funds may be compared to the
Donoghue's Tax-Free Money Fund Average. 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 the Funds.
A Fund's "yield" refers to the income generated by an investment in the
Fund over a seven-day period identified in the advertisement. This income is
then "annualized," i.e., the income generated by the investment during the
respective period is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The Funds may also advertise
their "effective yields" which are 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 Municipal Funds 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 Funds. The "tax-equivalent
yield" will be computed by dividing the tax-exempt portion of a Fund'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 Fund's
yield which is not tax-exempt.
Performance of the Funds is based on historical earnings and will
fluctuate and is not intended to indicate future performance. A Fund's
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 Fund'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 Fund shares will not
be reflected in a Fund's performance calculations.
Historical Performance Information
For the seven day period ended December 31, 1995, the annualized yields and
effective yields for shares of the Money Market, Treasury Money Market,
Municipal Money Market and Michigan Municipal Money Market Funds were 5.37%
and 5.48%, 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 Municipal Money
Market and Michigan Municipal Money Market Funds (assuming a 39.6% federal
income tax rate for both Funds and a 4.4% Michigan income tax rate for the
Michigan Fund) 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.
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General Information
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having twenty-six
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 Funds described herein, the Trust offers the
following investment portfolios:
The Managed Assets Conservative Fund
The Managed Assets Balanced Fund
The Managed Assets Growth Fund
The Equity Income Fund
The Growth Fund
The Small-Cap Opportunity Fund
The Mid-Cap Opportunity Fund
The Intrinsic Value Fund
The Growth and Value Fund
The Equity Index Fund
The International Equity Fund
The Intermediate Bond Fund
The Bond Fund
The Short Bond Fund
The Income Fund
The International Bond Fund
The Municipal Bond Fund
The Intermediate Municipal Bond Fund
The Michigan Municipal Bond Fund
The Cash Management Fund
The U.S. Government Securities Cash Management Fund
The Treasury Prime Cash Management Fund
Each of the above Funds, other than the Cash Management, U.S. Government
Cash Management and Treasury Prime Cash Management Funds, offers three Classes
of shares: Class A, Class B and Class I shares. The Cash Management, U.S.
Government Cash Management and Treasury Prime Cash Management Funds offer two
Classes of shares: Class S and Class I shares. 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 Fund 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 Fund 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 July 31, 1996, NBD held beneficially of record approximately
28.60%, 8.30%, 43.09%, 17.86% and 6.07%, respectively, of the outstanding
shares of the Money Market, Treasury, Municipal Money Market and Michigan
Municipal Money Market Funds, respectively.
Because NBD serves the Trust as Custodian , 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 share-
holders 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 meet-
ing of shareholders as prescribed in Section 16(c) of the 1940 Act.
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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Supplemental Information
Ratings
The ratings of Rating Agencies such as 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 subjec-
tive 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 princi-
pal. Each Fund will rely on the Investment Adviser's judgment, analysis and
experience in evaluating the credit worthiness of an issuer.
U.S. Government Obligations
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. Some of these investments may be
variable or floating rate instruments.
Bank Obligations
Bank obligations include certificates of deposit, time deposits, bankers'
acceptances, fixed time deposits 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. Because the Funds may
invest in securities backed by banks and other financial institutions, changes
in the credit quality of these institutions could cause losses to a Fund and
affect its share price.
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 Fund will not invest in a Eurodollar
obligation if upon making such investment the total Eurodollar obligations
which are not general obligations of domestic parent banks would thereby
exceed 25% of the total assets of the Money Market Fund.
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 nationalization 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).
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.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft
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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.
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 Investment Adviser
to be of comparable quality.
Variable and Floating Rate Obligations
Each Fund 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 Fund 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 Fund to dispose of
instruments if the issuer defaulted on its payment obligation or during
periods that the Fund is not entitled to exercise its demand rights, and the
Fund could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by a Fund will be
subject to the Fund's 10% limitation on illiquid investments when the Fund may
not demand payment of the principal amount within seven days and a reliable
trading market is absent.
Repurchase and Reverse Repurchase Agreements
To increase its income, each Fund 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 Fund will enter into repurchase agreements with
the Investment Adviser, Distributor, or any of their affiliates. Although the
securities subject to repurchase agreements may bear maturities exceeding
thirteen months provided the repurchase agreement itself matures in thirteen
months or less, the Funds generally intend to enter into repurchase agreements
which terminate within seven days after notice by the Funds. 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 Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Each Fund may also obtain funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Funds 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 Fund may decline below the price of the securities it is
obligated to repurchase. Whenever a Fund 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 Fund 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 Fund 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 Fund 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 Investment Adviser's judgment, the income to be earned from
the loan justifies the attendant risks.
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When-Issued Purchases and Forward Commitments
Each Fund may purchase portfolio securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund 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 Fund 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 Funds do not earn income with respect to these
transactions until the subject securities are delivered to the Funds. The
Funds do not intend to purchase when-issued securities for speculative
purposes but only for the purposes of acquiring portfolio securities. Each
Fund'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 Obligations
Municipal Obligations that may be acquired by the Municipal Money Market and
Michigan Municipal Money Market Funds 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. 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
nongovernmental users. 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. The Funds may invest without limitation in such Municipal
Obligations if the Investment Adviser determines that their purchase is
consistent with such Fund's investment objective. (See also "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 authority. 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 Obligations 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."
There are, of course, variations in the quality of Municipal Obligations
both within a particular classification and between classifications, and the
yields on Municipal Obligations 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.
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, the
Funds 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 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
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prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Investment Adviser may
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
Among other securities, the Funds 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 Municipal Funds may purchase from financial institutions
participation interests in Municipal Obligations. A participation interest
gives a Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund'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
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 rating below that which otherwise is
permissible for purchase by a Fund, the security will have an unconditional
demand feature that satisfies the requirements of Rule 2a-7 of the 1940 Act.
For certain participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Fund's participation interest in the Municipal Obligation plus accrued
interest. As to these instruments, the 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. Participation interests that do not
have this demand feature will be considered illiquid investments. See
"Restricted Securities" below.
The Municipal Money Market Fund has no policy of seeking particularly to
invest in Municipal Obligations issued by or within any single state or select
group of states. However, certain states traditionally are sources of large
amounts of Municipal Obligations, e.g., California, Colorado, Florida,
Michigan, New York and Texas. To the extent that the Fund's assets are
invested in Municipal Obligations issued by or from a single state or a few
states, the Fund 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 Fund, and consequently its net asset value, could be
adversely affected.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax and, with respect to
Michigan Municipal Obligations, Michigan income taxes, are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
Tender Option Bonds
The Municipal Funds may invest in tender option bonds. 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 sub-
stantially 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 commence-
ment 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, may consider on an ongoing basis the credit-
worthiness 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.
Stand-By Commitments
The Municipal Funds may acquire "stand-by commitments" with respect to
Municipal Obligations held in their portfolios. Under a stand-by commitment, a
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
A-4
<PAGE>
commitment therefore is subject to the ability of the seller to make payment
on demand. A Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. A 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 securities yield to
investors.
Guaranteed Investment Contracts
The Money Market Fund may make limited investments in guaranteed investment
contracts ("GICs") issued by highly rated U.S. insurance companies. Pursuant
to such contracts, the Fund makes cash contributions to a deposit fund of the
insurance company's general account. The insurance company then credits to the
Fund on a monthly basis guaranteed interest which is based on an 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 Fund 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 Fund will only purchase GICs from issuers which meet
quality and credit standards established by the Investment 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 Fund to be illiquid investments
and subject to the limitation on illiquid investments set forth below.
Restricted Securities
Each Fund will not invest more than 10% of the value of its net 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 Fund), municipal lease/purchase
agreements (in the case of the Municipal Funds) and instruments (including
repurchase agreements, variable and floating rate instruments and time
deposits) that do not provide for payment to a Fund within seven days after
notice and do not have a readily available market. 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 Fund 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 Investment 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 Fund 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 Fund in these securities.
Securities of Other Investment Companies
Within the limits prescribed by the 1940 Act, each Fund 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 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.
Miscellaneous
The Trust will give 30 days notice to investors of any material changes in any
Fund's investment policies.
A-5
<PAGE>
[ Back cover ]
THE PEGASUS
MONEY MARKET MARKET
Money Market Fund
Treasury Money Market Fund
Municipal Money Market Fund
Michigan Municipal Money Market Fund
[logo] PEGASUS FUNDS
Strength in Investing
MMPRO-9/96
<PAGE>
[Prospectus Cover]
[logo] Pegasus Funds
Strength in Investing
P R O S P E C T U S
AUGUST 26, 1996
Pegasus
Funds
<PAGE>
Pegasus Funds
P.O. Box 5142
Westborough, Massachusetts 01581
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3355
Prospectus
AUGUST 26, 1996
Pegasus Funds (the "Trust") is offering in this Prospectus Class A shares,
Class B shares and Class I shares in the following nineteen investment
portfolios (the "Funds"), divided into four general fund types: Asset
Allocation; Equity; Bond; and Municipal Bond:
ASSET ALLOCATION FUNDS BOND FUNDS
The Managed Assets The Intermediate Bond Fund
Conservative Fund
The Bond Fund
The Managed Assets
Balanced Fund The Short Bond Fund
The Managed Assets The Income Fund
Growth Fund
The International Bond Fund
EQUITY FUNDS
The Equity Income Fund MUNICIPAL BOND FUNDS
The Growth Fund The Municipal Bond Fund
The Mid-Cap The Intermediate
Opportunity Fund Municipal Bond Fund
The Small-Cap The Michigan Municipal
Opportunity Fund Bond Fund
The Intrinsic Value Fund
The Growth and Value Fund
The Equity Index Fund
International Equity Fund
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 Trust 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.
Investors should recognize that the share price, yield and investment
return of each Fund fluctuate and are not guaranteed.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION 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 POSSIBLE 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.
<PAGE>
Table of Contents
3 Highlights
4 Expense Table
13 Financial Highlights
28 Description of the Funds
35 How to Buy Shares
39 Shareholder Services
41 How to Redeem Shares
44 Management of the Funds
46 Distribution and Shareholder
Services Plans
46 Dividends and Distributions
47 Taxes
48 Performance Information
51 General Information
A-1 Supplemental Information
<PAGE>
Highlights
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
Investment Objectives and Management Policies
Each Fund's investment objective is set forth on pages 11 and 12 of this
Prospectus.
Investment Adviser
First Chicago NBD Investment Management Company ("FCNIMCO") is the Investment
Adviser to each of the Funds. Each Fund has agreed to pay the Investment
Adviser an annual fee as set forth under "Management of the Funds."
Description of Classes
Each Fund offers Class A shares, Class B shares and Class I shares. Each 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 an initial
sales charge imposed at the time of purchase. The initial sales charge may be
reduced or waived for certain purchases. Class A shares of each Fund are
subject to a shareholder servicing fee.
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 may be subject to a
contingent deferred sales charge ("CDSC") and are subject to a distribution
fee and shareholder servicing fee.
Class I shares are sold at net asset value with no sales charge to
qualified trust, custody and/or agency account clients of The First National
Bank of Chicago ("FNBC"), NBD Bank ("NBD"), American National Bank and Trust
Company ("ANB") or their affiliates and to certain qualified benefit plans or
other programs.
How To Buy Shares
First Data Investor Services Group, Inc. serves as the Trust's Transfer and
Dividend Disbursing Agent (the "Transfer Agent").
Orders for the purchase of Class A and Class B shares may be placed
through a number of institutions including the Investment Adviser, NBD, FNBC,
ANB and their affiliates, including First Chicago NBD Investment Services,
Inc. ("FCNIS"), a registered broker-dealer, BISYS Fund Services ("Distributor"
or "BISYS") which serves the Trust as its 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 (as
defined under "How to Buy Shares") at the Investment Adviser, NBD, First
Chicago NBD Corporation ("FCN"), 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
(as defined under "How to Buy Shares") 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" on page 35 of this Prospectus.
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.
See "Shareholder Services" on page 39 of this Prospectus.
How To Redeem Shares
Generally, investors should contact their representatives at the Investment
Adviser, NBD, FNBC, ANB or appropriate Service Agent for redemption
instructions. Investors who are not clients of the Investment Adviser, NBD,
FNBC, ANB or a Service Agent may redeem Fund shares by written request to the
Transfer Agent.
See "How to Redeem Shares" on page 41 of this Prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
Expense Table
Class A Class B Class I
- --------------------------------------------------------------------------------------------------------
Bond,
Equity Index, International Equity Index,
Short Bond, Bond, Short Bond,
Income, Municipal Income,
Intermediate Bond and Intermediate
Bond and Michigan Bond and
Intermediate Municipal All Intermediate All
Shareholder Municipal Bond Other Municipal Other All
Transaction Expenses Bond Funds Funds Funds Bond Funds Funds Funds
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 3.00% 4.50% 5.00% 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
<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 as
part of an investment of $1 million or more.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Class A Shares
Management Total
Fees 12b-1 Other Operating
After Waivers Fees Expenses Expenses(1)
------------- ----- -------- -----------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund 0.58%(2) None 0.64% 1.22%
Managed Assets Balanced Fund 0.63%(2) None 0.58% 1.21%
Managed Assets Growth Fund 0.20%(2) None 1.00% 1.20%
EQUITY FUNDS:
Equity Income Fund 0.50% None 0.45% 0.95%
Growth Fund 0.60% None 0.44% 1.04%
Mid-Cap Opportunity Fund 0.60% None 0.46% 1.06%
Small-Cap Opportunity Fund 0.70% None 0.50% 1.20%
Intrinsic Value Fund 0.60% None 0.46% 1.06%
Growth and Value Fund 0.60% None 0.45% 1.05%
Equity Index Fund 0.10% None 0.44% 0.54%
International Equity Fund 0.80% None 0.50% 1.30%
BOND FUNDS:
Intermediate Bond Fund 0.40% None 0.45% 0.85%
Bond Fund 0.40% None 0.44% 0.84%
Short Bond Fund 0.35% None 0.47% 0.82%
Income Fund 0.40% None 0.47% 0.87%
International Bond Fund 0.13%(2) None 0.96% 1.09%
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% None 0.45% 0.85%
Intermediate Municipal Bond Fund 0.40% None 0.45% 0.85%
Michigan Municipal Bond Fund 0.40% None 0.54% 0.94%
<FN>
(1) See "How to Buy Shares," "Management of the Funds" and "Distribution and
Shareholder Services Plans." Other Expenses and Total Operating Expenses
for each Fund have been restated to reflect current expenses. Without fee
waivers, which are voluntary and may be terminated at any time, the total
operating expenses applicable to Class A shares of the Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth and
International Bond Funds would have been 1.29%, 1.23%, 1.65% and 1.66%,
respectively. With respect to certain Funds, the Investment Adviser has
undertaken to waive fees and reimburse expenses for the current fiscal
year ending December 31, 1996 to the extent the total operating expenses
applicable to Class A shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and Value,
Equity Index, International Equity, Intermediate Bond, Bond, Short Bond,
Income, International Bond, Municipal Bond, Intermediate Municipal Bond
and Michigan Municipal Bond Funds exceed 1.25%, 1.25%, 1.25%, 1.14%,
1.34%, 1.36%, 1.75%, 1.27%, 1.27%, 0.60%, 1.71%, 1.05%, 1.09%, 0.86%,
1.09%, 1.48%, 0.97%, 0.99% and 0.94%, respectively.
(2) Management fees without waivers would have been 0.65%, 0.65%, 0.65%, and
0.70% with respect to the Managed Assets Conservative, Managed Assets
Balanced, Managed Assets Growth and International Bond Funds,
respectively.
</TABLE>
5
<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 each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $62 $87 $114 $191
Managed Assets Balanced Fund $62 $87 $114 $190
Managed Assets Growth Fund $62 $86 $113 $189
EQUITY FUNDS:
Equity Income Fund $59 $79 $100 $161
Growth Fund $60 $82 $105 $171
Mid-Cap Opportunity Fund $60 $82 $106 $173
Small-Cap Opportunity Fund $62 $86 $113 $189
Intrinsic Value Fund $60 $82 $106 $173
Growth and Value Fund $60 $82 $105 $172
Equity Index Fund $35 $47 $ 59 $ 96
International Equity Fund $63 $89 $118 $200
BOND FUNDS:
Intermediate Bond Fund $38 $56 $ 76 $132
Bond Fund $53 $71 $ 90 $144
Short Bond Fund $38 $55 $ 74 $129
Income Fund $39 $57 $ 77 $134
International Bond Fund $56 $78 $103 $172
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $53 $71 $ 90 $145
Intermediate Municipal Bond Fund $38 $56 $ 76 $132
Michigan Municipal Bond Fund $54 $74 $ 95 $156
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Class B Shares
Management Total
Fees 12b-1 Other Operating
After Waivers Fees Expenses Expenses(1)
------------- ----- -------- -----------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund 0.58%(2) 0.75% 0.64% 1.97%
Managed Assets Balanced Fund 0.63%(2) 0.75% 0.58% 1.96%
Managed Assets Growth Fund 0.20%(2) 0.75% 1.00% 1.95%
EQUITY FUNDS:
Equity Income Fund 0.50% 0.75% 0.45% 1.70%
Growth Fund 0.60% 0.75% 0.44% 1.79%
Mid-Cap Opportunity Fund 0.60% 0.75% 0.46% 1.81%
Small-Cap Opportunity Fund 0.70% 0.75% 0.50% 1.95%
Intrinsic Value Fund 0.60% 0.75% 0.46% 1.81%
Growth and Value Fund 0.60% 0.75% 0.45% 1.80%
Equity Index Fund 0.10% 0.75% 0.44% 1.29%
International Equity Fund 0.80% 0.75% 0.50% 2.05%
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.75% 0.45% 1.60%
Bond Fund 0.40% 0.75% 0.44% 1.59%
Short Bond Fund 0.35% 0.75% 0.47% 1.57%
Income Fund 0.40% 0.75% 0.47% 1.62%
International Bond Fund 0.13%(2) 0.75% 0.96% 1.84%
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% 0.75% 0.45% 1.60%
Intermediate Municipal Bond Fund 0.40% 0.75% 0.45% 1.60%
Michigan Municipal Bond Fund 0.40% 0.75% 0.54% 1.69%
<FN>
(1) See "How to Buy Shares," "Management of the Funds" and "Distribution and
Shareholder Services Plans." Other Expenses and Total Operating Expenses
for each Fund have been restated to reflect current expenses. Without fee
waivers, which are voluntary and may be terminated at any time, the total
operating expenses applicable to Class B shares of the Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth and
International Bond Funds would have been 2.04%, 1.98%, 2.40% and 2.41%,
respectively. With respect to certain funds, the Investment Adviser has
undertaken to waive fees and reimburse expenses for the current fiscal
year ending December 31, 1996 to the extent the total operating expenses
applicable to Class B shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and Value,
Equity Index, International Equity, Intermediate Bond, Bond, Short Bond,
Income, International Bond, Municipal Bond, Intermediate Municipal Bond
and Michigan Municipal Bond Funds exceed 2.00%, 2.00%, 2.00%, 1.89%,
2.09%, 2.11%, 2.50%, 2.02%, 2.02%, 1.35%, 2.46%, 1.80%, 1.84%, 1.61%,
1.84%, 2.23%, 1.72%, 1.74% and 1.69%, respectively.
(2) Management fees without waivers would have been 0.65%, 0.65%, 0.65%, and
0.70% with respect to the Managed Assets Conservative, Managed Assets
Balanced, Managed Assets Growth and International Bond Funds,
respectively.
</TABLE>
7
<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 each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $70/$20* $92/$62* $127/$107* $202
Managed Assets Balanced Fund $70/$20* $92/$62* $127/$107* $201
Managed Assets Growth Fund $70/$20* $92/$62* $126/$106* $200
EQUITY FUNDS:
Equity Income Fund $67/$17* $84/$54* $113/$93* $173
Growth Fund $68/$18* $87/$57* $118/$98* $183
Mid-Cap Opportunity Fund $69/$19* $87/$57* $119/$99* $185
Small-Cap Opportunity Fund $70/$20* $92/$62* $126/$106* $200
Intrinsic Value Fund $69/$19* $87/$57* $119/$99* $185
Growth and Value Fund $68/$18* $87/$57* $118/$98* $184
Equity Index Fund $43/$13* $61/$41* $81/$71* $116
International Equity Fund $71/$21* $95/$65* $131/$111* $211
BOND FUNDS:
Intermediate Bond Fund $46/$16* $71/$51* $98/$88* $152
Bond Fund $66/$16* $81/$51* $107/$87* $160
Short Bond Fund $46/$1* $70/$50* $96/$86* $150
Income Fund $47/$17* $71/$51* $99/$89* $155
International
Bond Fund $69/$19* $88/$58* $120/$100* $188
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $66/$16* $81/$51* $108/$88* $161
Intermediate
Municipal Bond Fund $46/$16* $71/$51* $ 98/$88* $152
Michigan Municipal Bond Fund $67/$17* $84/$54* $112/$92* $171
<FN>
* Assuming no redemption of Class B shares.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Class I Shares
Management Total
Fees 12b-1 Other Operating
After Waivers Fees Expenses Expenses(1)
------------- ------ -------- -----------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund 0.58%(2) None 0.39% 0.97%
Managed Assets Balanced Fund 0.63%(2) None 0.33% 0.96%
Managed Assets Growth Fund 0.20%(2) None 0.75% 0.95%
EQUITY FUNDS:
Equity Income Fund 0.50% None 0.20% 0.70%
Growth Fund 0.60% None 0.19% 0.79%
Mid-Cap Opportunity Fund 0.60% None 0.21% 0.81%
Small-Cap Opportunity Fund 0.70% None 0.25% 0.95%
Intrinsic Value Fund 0.60% None 0.21% 0.81%
Growth and Value Fund 0.60% None 0.20% 0.80%
Equity Index Fund 0.10% None 0.19% 0.29%
International Equity Fund 0.80% None 0.25% 1.05%
BOND FUNDS:
Intermediate Bond Fund 0.40% None 0.20% 0.60%
Bond Fund 0.40% None 0.19% 0.59%
Short Bond Fund 0.35% None 0.22% 0.57%
Income Fund 0.40% None 0.22% 0.62%
International Bond Fund 0.13%(2) None 0.71% 0.84%
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% None 0.20% 0.60%
Intermediate Municipal
Bond Fund 0.40% None 0.20% 0.60%
Michigan Municipal Bond Fund 0.40% None 0.29% 0.69%
<FN>
(1) See "How to Buy Shares," "Management of the Funds" and "Distribution and
Shareholder Services Plans." Other Expenses and Total Operating Expenses
for each Fund have been restated to reflect current expenses. Without fee
waivers, which are voluntary and may be terminated at any time, the total
operating expenses applicable to Class I shares of the Managed Assets
Conservative, Managed Assets Balanced, Managed Assets Growth and
International Bond Funds would have been 1.04%, 0.98%, 1.40% and 1.41%,
respectively. With respect to certain Funds, the Investment Adviser has
undertaken to waive fees and reimburse expenses for the current fiscal
year ending December 31, 1996 to the extent the total operating expenses
applicable to Class I shares of the Managed Assets Conservative, Managed
Assets Balanced, Managed Assets Growth, Equity Income, Growth, Mid-Cap
Opportunity, Small-Cap Opportunity, Intrinsic Value, Growth and Value,
Equity Index, International Equity, Intermediate Bond, Bond, Short Bond,
Income, International Bond, Municipal Bond, Intermediate Municipal Bond
and Michigan Municipal Bond Funds exceed 0.97%, 0.96%, 0.95%, 1.01%,
0.98%, 0.92%, 1.10%, 1.01%, 1.01%, 0.37%, 1.18%, 0.61%, 0.93%, 0.65%,
0.93%, 0.84%, 0.70%, 0.75% and 0.85%, respectively.
(2) Management fees without waivers would have been 0.65%, 0.65%, 0.65%, and
0.70% with respect to the Managed Assets Conservative, Managed Assets
Balanced, Managed Assets Growth and International Bond Funds,
respectively.
</TABLE>
9
<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 each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund $10 $31 $54 $119
Managed Assets Balanced Fund $10 $31 $53 $118
Managed Assets Growth Fund $10 $30 $53 $117
EQUITY FUNDS:
Equity Income Fund $ 7 $22 $39 $ 87
Growth Fund $ 8 $25 $44 $ 98
Mid-Cap Opportunity Fund $ 8 $26 $45 $100
Small-Cap Opportunity Fund $10 $30 $53 $117
Intrinsic Value Fund $ 8 $26 $45 $100
Growth and Value Fund $ 8 $26 $45 $ 99
Equity Index Fund $ 3 $ 9 $16 $ 37
International Equity Fund $11 $34 $58 $129
BOND FUNDS:
Intermediate Bond Fund $ 6 $19 $34 $ 75
Bond Fund $ 6 $19 $33 $ 74
Short Bond Fund $ 6 $18 $32 $ 72
Income Fund $ 6 $20 $35 $ 78
International Bond Fund $ 9 $27 $47 $104
MUNICIPAL BOND FUNDS:
Municipal Bond Fund $ 6 $19 $34 $ 75
Intermediate Municipal Bond Fund $ 6 $19 $34 $ 75
Michigan Municipal Bond Fund $ 7 $22 $39 $ 86
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE INDICATED. THE MANAGED ASSETS GROWTH FUND IS NEW AND THE ABOVE
FIGURES ARE BASED ON ADJUSTMENTS AND EXPENSES EXPECTED TO BE INCURRED DURING
THE FUND'S CURRENT FISCAL YEAR. MOREOVER, WHILE EACH EXAMPLE ASSUMES A 5%
ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
The purpose of the foregoing tables is to assist investors in
understanding the various costs and expenses that an investor in a Fund will
bear, directly or indirectly, the payment of which will reduce investors'
return on an annual basis. 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. The Investment Adviser, NBD, FNBC, ANB and their
affiliates and certain Service Agents may charge their clients fees which are
not reflected in the foregoing table in connection with an investment in the
Funds.
10
<PAGE>
Pegasus Funds
Asset Allocation Funds
These Funds will follow an asset allocation strategy by investing in Equity
Securities (as defined below), Debt Securities (as defined below) and
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 of domestic and foreign issuers ("Cash Equivalent Securities"). "High
quality" money market instruments are money market instruments which are rated
at the time of purchase within the two highest rating categories by a Rating
Agency or which are unrated at such time but are deemed by the Investment
Adviser to be comparable in quality to instruments that are so rated. Such
investments may include obligations of foreign banks and foreign branches of
U.S. banks:
The Managed Assets Conservative Fund seeks to provide long-term total
return; capital appreciation is a secondary consideration.
The Managed Assets Balanced Fund seeks to achieve long-term total return
through a combination of capital appreciation and current income.
The Managed Assets Growth Fund seeks to achieve long-term total return;
current income is a secondary consideration.
Equity Funds
These Funds will invest principally in common stocks, preferred stocks and
convertible securities, including those in the form of depository receipts, as
well as warrants to purchase such securities (collectively, "Equity
Securities"):
The Equity Income Fund seeks to provide income; capital appreciation and
growth of earnings are secondary, but nonetheless important, goals. In seeking
to achieve its objective, this Fund will invest primarily in income-producing
Equity Securities of domestic issuers.
The Growth Fund seeks long-term capital appreciation. In seeking to
achieve its objective, this Fund will invest primarily in Equity Securities of
domestic issuers believed by the Investment Adviser to have above-average
growth characteristics.
The Mid-Cap Opportunity Fund seeks to achieve long-term capital
appreciation. In seeking to achieve its objective, this Fund will invest
primarily in Equity Securities of companies with intermediate market
capitalizations.
The Small-Cap Opportunity Fund seeks long-term capital appreciation. In
seeking to achieve its objective, this Fund will invest primarily in Equity
Securities of companies with small capitalizations.
The Intrinsic Value Fund seeks to provide long-term capital appreciation.
In seeking to achieve its objective, this Fund will invest primarily in Equity
Securities believed by the Investment Adviser to represent a value or
potential worth which is not fully recognized by prevailing market prices.
The Growth and Value Fund seeks to achieve long-term capital growth, with
income a secondary consideration. In seeking to achieve its objective, this
Fund will invest primarily in Equity Securities of larger companies that are
attractively priced relative to their growth potential.
The Equity Index Fund seeks to provide an investment return which
substantially duplicates the price and yield performance of domestically
traded common stock in the aggregate, as represented by the Standard & Poor's
Composite Stock Price Index (the "S&P 500 Index").
The International Equity Fund seeks to achieve long-term capital
appreciation. In seeking to achieve its objective, this Fund will invest
primarily in Equity Securities of foreign issuers.
Bond Funds
These Funds will invest principally in a broad range of debt securities ("Debt
Securities"). Debt Securities in which the Bond Funds normally invest include:
(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; (vi) securities representing interests in pools of assets;
and (vii) 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:
The Intermediate Bond Fund seeks to maximize total rate of return while
providing relative stability of principal by investing predominantly in
intermediate-term Debt Securities. While the Fund may purchase securities with
maturities or average lives of up to 15 years, during normal market
conditions,
11<PAGE>
its average portfolio maturity is expected to be between 3 and 6 years.
The Bond Fund seeks to maximize total rate of return by investing
predominantly in intermediate and long-term Debt Securities. During normal
market conditions, the Fund's average weighted portfolio maturity is expected
to be between 6 and 12 years.
The Short Bond Fund seeks to maximize total rate of return while
providing relative stability of principal. While the Fund may purchase Debt
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 Income Fund seeks to provide as high a level of current income as is
consistent with relative stability of principal. In seeking to achieve its
objective, this Fund will invest primarily in a portfolio of U.S. dollar
denominated investment grade Debt Securities of domestic and foreign issuers
which, under normal market conditions, will have a dollar-weighted average
maturity expected to range between 3 and 10 years.
The International Bond Fund seeks both long-term capital appreciation and
current income. In seeking to achieve its objective, the Fund will invest
primarily in investment grade Debt Securities of foreign issuers.
Municipal Bond Funds
These Funds will invest principally in obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their respective political subdivisions, agencies (including
multi-state agencies), instrumentalities and authorities, the interest from
which is, in the opinion of bond counsel for the issuers, exempt from regular
federal income tax ("Municipal Obligations"):
The Municipal Bond Fund seeks to provide as high a level of current
income exempt from federal income tax as is consistent with relative stability
of principal. In seeking to achieve its objective, this Fund will invest
primarily in a portfolio of investment grade Municipal Obligations without
regard to maturity.
The Intermediate Municipal Bond Fund seeks to provide as high a level of
current income exempt from federal income tax as is consistent with relative
stability of principal. In seeking to achieve its objective, 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 3 and 10 years.
The Michigan Municipal Bond 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.
In seeking to achieve its objective, this Fund will invest primarily in a
portfolio of investment grade debt obligations issued by the State of
Michigan, its political subdivisions, municipalities, corporations,
authorities and certain territories and possessions of the United States, 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
Obligations") without regard to maturity.
12
<PAGE>
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements contained in their Statement of Additional Information and set
forth certain information concerning the historic investment results of Fund
shares. They present a per share analysis of how each Fund's net asset value
has changed during the periods presented. The tables, with respect to the
Managed Assets Conservative, Equity Income, Growth, Small-Cap Opportunity,
Income, International Bond, Municipal Bond and Intermediate Municipal Bond
Funds, have been derived from the financial statements which have been audited
by Ernst & Young LLP, such Funds' independent auditors and, with respect to
the Managed Assets Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and
Value, Equity Index, International Equity, Intermediate Bond, Bond, Short Bond
and Michigan Municipal Bond Funds, have been derived from such Funds'
financial statements which have been audited by Arthur Andersen LLP, the
Trust's independent public accountants, whose reports thereon are 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 Funds
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>
Managed Assets Conservative Fund *
Class A Shares
For the Year Ended December 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(c)
---- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year $ 12.13 $ 13.11 $ 12.68 $ 12.56 $ 10.79 $11.54 $10.66 $ 9.73 $10.75 $10.00
Income from investment
operations:
Net investment income 0.64 0.73 0.72 0.79 0.83 0.86 0.88 0.78 0.70 0.63
Net realized and
unrealized
gains (losses) on
investments 2.48 (0.98) 0.61 0.26 1.77 (0.54) 1.10 0.92 (0.85) .70
Total from investment
operations 3.12 (0.25) 1.33 1.05 2.60 .32 1.98 1.70 (0.15) 1.33
Less distributions:
From net investment
income (0.68) (0.72) (0.72) (0.77) (0.83) (0.88) (0.89) (0.74) (0.77) (0.58)
From net realized
gains (0.03) (0.01) (0.18) (0.16) -- (0.19) (0.21) (0.03) (0.10) --
Total distributions (0.71) (0.73) (0.90) (0.93) (0.83) (1.07) (1.10) (0.77) (0.87) (0.58)
Net asset value,
end of year $ 14.54 $ 12.13 $ 13.11 $ 12.68 $ 12.56 $10.79 $11.54 $10.66 $ 9.73 $10.75
Total return(a) 26.40% (1.92)% 10.70% 8.68% 24.87% 2.94% 19.08% 17.78% (1.73)% 13.59%++
Ratios/Supplemental
Data:
Net assets, end
of period
(000's omitted) $51,997 $44,367 $51,586 $34,262 $14,038 $8,950 $7,407 $5,900 $4,989 $2,212
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% 7.71% 7.74% 7.38% 6.61% 5.90%++
Ratio of expenses
to average
net assets (b) 1.54% 1.67% 1.65% 1.88% 2.16% 2.58% 2.96% 2.62% 2.69% 1.41%++
Ratio of net
investment
income to
average net
assets (b) 4.51% 4.73% 4.28% 4.38% 4.88% 5.13% 4.78% 4.76% 3.92% 4.49%++
Portfolio turnover
rate 8.23% 28.69% 16.40% 22.14% 26.02% 29.97% 49.46% 15.71% 23.99% 15.19%++
<FN>
* The Fund was formerly known as the Prairie Managed Assets Income Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Funds,
which was organized as a Massachusetts business trust. On or about
September 21, 1996, the assets and liabilities of the Prairie Fund are
expected to be transferred to this Fund, which has no prior operating
history. On March 3, 1995, all of the assets and liabilities of the First
Prairie Diversified Asset Fund were transferred to the Prairie Fund. The
financial data provided above for periods prior to such date is for the
First Prairie Diversified Asset Fund.
(a) Total returns as presented do not include any applicable sales load.
(b) 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.
(c) From January 23, 1986 (commencement of operations) to December 31, 1986.
++ Not Annualized.
</TABLE>
13
<PAGE>
Managed Assets Conservative Fund*
Class B and Class I Shares
<TABLE>
<CAPTION>
Class B Class I
--------------------------------- ------------
For the For the For the
Period Ended Period Ended Period Ended
December 31, December 2, December 31,
1995(b) 1994(a) 1995(f)
------------ ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.42 $13.05 $12.42
Income from investment operations:
Net investment income 0.45 0.51 0.57
Net realized and unrealized gains (losses) on
investments 2.17 (0.91) 2.18
Total from investment operations 2.62 (0.40) 2.75
Less distributions:
From net investment income (0.45) (0.54) (0.57)
From net realized gains (0.03) (0.01) (0.03)
Total distributions (0.48) (0.55) (0.60)
Conversion to Class A Shares(c) N/A $12.10
Net asset value, end of period $14.56 N/A $14.57
Total return(d) 21.42%++ (3.13)%++ 22.55%++
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $2,175 $ -- $1,294
Ratio of expenses to average net assets 1.92%+ 1.21%+ 0.77%+
Ratio of net investment income to average net assets 3.89%+ 4.10%+ 5.12%+
Ratio of expenses to average net assets(e) 2.12%+ 2.17%+ 1.22%+
Ratio of net investment income to average net
assets(e) 3.70%+ 3.14%+ 4.66%+
Portfolio turnover rate 8.23%++ 28.69%++ 8.23%+
<FN>
* The Fund was formerly known as the Prairie Managed Assets Income Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Funds, which
was organized as a Massachusetts business trust. On or about September 21,
1996, the assets and liabilities of the Prairie Fund are expected to be
transferred to this Fund, which has no prior operating history.
(a) 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.
(b) For the period March 3, 1995 (re-offering date of Class B Shares) through
December 31, 1995.
(c) 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.
(d) Total returns as presented do not include any applicable redemption charge.
(e) 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.
(f) For the period March 3, 1995 (initial offering of Class I Shares) through
December 31, 1995.
+ Annualized.
++ Not annualized.
N/A Not applicable.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Managed Assets Balanced Fund*
Class A and Class I Shares
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 net 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 (000's omitted) $93,624 $54,167
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%
<FN>
* Prior to August 26, 1996, the Fund was named the Woodward Balanced Fund.
(a) Total returns as presented do not include any applicable sales load.
</TABLE>
15
<PAGE>
Equity Income Fund*, Growth Fund*, Small-Cap Opportunity Fund*
For period Jan. 27, 1995 - Dec. 31, 1995
Class A, Class B and Class I Shares
<TABLE>
<CAPTION>
Class A Class B Class I
--------------------------------- --------------------------------- --------------------------------
Equity Small-Cap Equity Small-Cap Equity Small-Cap
Income Growth Opportunity Income Growth Opportunity Income Growth Opportunity
Fund*(a) Fund*(a) Fund*(a) Fund*(a) Fund*(a) Fund*(a) Fund*(a) Fund*(a) Fund*(a)
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from
investment
operations:
Net investment income 0.36 0.11 0.02 0.29 0.06 (0.03) 0.42 0.15 0.06
Net realized and
unrealized gains on
investments 2.57 2.86 2.45 2.56 2.84 2.40 2.55 2.86 2.44
Total from
investment
operations: 2.93 2.97 2.47 2.85 2.90 2.37 2.97 3.01 2.50
Less distributions:
From net investment
income (0.36) (0.11) (0.02) (0.29) (0.06) -- (0.42) (0.15) (0.06)
In excess of net
investment income (0.01) -- -- -- -- --
From net realized
gains (0.34) (0.89) (0.25) (0.34) (0.89) (0.25) (0.34) (0.89) (0.25)
Total distributions (0.71) (1.00) (0.27) (0.63) (0.95) (0.25) (0.76) (1.04) (0.31)
Net asset value, end
of period $ 12.22 $ 11.97 $ 12.20 $ 12.22 $ 11.95 $12.12 $ 12.21 $ 11.97 $ 12.19
Total return(c)(d) 29.78%++ 29.98%++ 24.80%++ 28.97%++ 29.15%++ 23.76%++ 30.27%++ 30.38%++ 25.08%++
Ratios/Supplemental
Data:
Net assets, end of
period (000's
omitted) $ 2,873 $ 4,329 $ 672 $ 593 $ 268 $ 15 $283,927 $293,944 $92,926
Ratio of expenses to
average net assets 1.11%+ 1.21%+ 1.25%+ 1.90%+ 2.04%+ 2.00%+ 0.65%+ 0.80%+ 0.85%+
Ratio of net
investment
income to
average net assets 3.33%+ 0.86%+ 0.19%+ 2.65%+ 0.02%+ (0.51%)+ 4.08%+ 1.46%+ 0.59%+
Ratio of expenses to
average net
assets(b) 1.44%+ 1.39%+ 2.56%+ 2.65%+ 2.60%+ 9.52%+ 0.77%+ 0.92%+ 1.09%+
Ratio of net
investment income
(loss) to average
net assets (b) 2.99%+ 0.68%+ (1.12%)+ 1.90%+ (0.54%)+ (8.04%)+ 3.96%+ 1.34%+ 0.36%+
Portfolio turnover
rate 44.07%++ 106.02%++ 38.89%++ 44.07%++ 106.02%++ 38.89%++ 44.07%++ 106.02%++ 38.89%++
<FN>
* The Equity Income, Growth and Small-Cap Opportunity Funds were formerly
known as the Prairie Equity Income, Growth and Special Opportunities
Funds, respectively, separate investment portfolios (the "Prairie Funds")
of Prairie Funds, which was organized as a Massachusetts business trust.
On or about September 21, 1996, August 24, 1996 and September 21, 1996,
the assets and liabilities of the respective Prairie Funds are expected to
be transferred to these Funds. The Woodward Equity Income and Small-Cap
Opportunity have no prior operating history and the assets and liabilities
of the Prairie Growth Fund were combined with the assets of a pre-existing
portfolio maintained by the Woodward Growth Fund (formerly known as the
Woodward Capital Growth Fund).
(a) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(b) 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.
(c) Total returns as presented do not include applicable sales load. [Class A
Shares]
(d) Total returns as presented do not include any applicable redemption charge.
[Class B Shares]
+ Annualized.
++ Not annualized.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Mid-Cap Opportunity Fund, Intrinsic Value Fund
Class A and Class I Shares
MID-CAP OPPORTUNITY FUND*
Class A and I Shares
---------------------------------------------------------------------------
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 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 net 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
(000's omitted) $650,952 $524,999 $365,665 $166,423 $108,046
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%
<FN>
* Until on or about September 23, 1996, the names of the Funds are the
Woodward Opportunity Fund and the Woodward Intrinsic Value Fund.
(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>
Mid-Cap Opportunity Fund, Intrinsic Value Fund
Class A and Class I Shares
INTRINSIC VALUE FUND*
Class A and I Shares
--------------------------------------------------------------------------
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 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 net realized gains (0.82) (0.20) (0.59) (0.64) (0.09)
In excess of realized gains
Tax return of capital
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
(000's omitted) $255,885 $220,028 $192,555 $107,261 $77,450
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%
<FN>
* Until on or about September 23, 1996, the names of the Funds are the
Woodward Opportunity Fund and the Woodward Intrinsic Value Fund.
(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>
17
<PAGE>
<TABLE>
<CAPTION>
Growth and Value Fund, Equity Index Fund
Class A and Class I Shares
GROWTH AND VALUE FUND*
Class A and I Shares
---------------------------------------------------------------------------
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 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 (1.17) 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 net 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 (000's omitted) $737,167 $571,371 $429,635 $287,345 $238,086
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>
* Until on or about September 23, 1996, the names of the Funds are the
Woodward Growth/Value Fund and the Woodward Equity Index Fund.
(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>
Growth and Value Fund, Equity Index Fund
Class A and Class I Shares
EQUITY INDEX FUND*
Class A and I Shares
---------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
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:
From net investment income (0.31) (0.30) (0.27) (0.12)
From net realized gains (0.14) (0.23) (0.13) 0.00
In excess of realized gains (0.00) (0.08) 0.00 0.00
Tax return of capital
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(b) 37.35% 1.02% 9.77% 13.61%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $528,203 $340,808 $325,329 $242,058
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%
<FN>
* Until on or about September 23, 1996, the names of the Funds are the
Woodward Growth/Value Fund and the Woodward Equity Index Fund.
(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>
18
<PAGE>
<TABLE>
<CAPTION>
International Equity Fund*, Intermediate Bond Fund*
Class A and Class I Shares
INTERNATIONAL EQUITY FUND
Class A and I Shares
--------------------------------
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 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 net 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 (000's omitted) $107,288 $36,545
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%
<FN>
* Until on or about August 26, 1996 and September 23, 1996, the names of the
Funds are the Woodward International Equity and Intermediate Bond Funds,
respectively.
(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>
<PAGE>
<TABLE>
<CAPTION>
International Equity Fund*, Intermediate Bond Fund*
Class A and Class I Shares
INTERMEDIATE BOND FUND
Class A and I Shares
--------------------------------------------------------------------------
June 1, 1991
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 1992 1995
------------ ------------ ------------ ------------ ---------------
<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 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 net 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 (000's omitted) $405,310 $393,019 $429,790 $220,432 $130,367
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)
Ratio of expenses to average net assets without
reimbursed expenses -- -- -- -- --
Ratio of net investment income to
average net assets
without reimbursed expenses -- -- -- -- --
Portfolio turnover rate 36.47% 54.60% 92.80% 56.30% 7.38%
<FN>
* Until on or about August 26, 1996 and September 23, 1996, the names of the
Funds are the Woodward International Equity and Intermediate Bond Funds,
respectively.
(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>
19
<PAGE>
<TABLE>
<CAPTION>
Bond Fund*, Short Bond Fund*
Class A and Class I Shares
BOND FUND
Class A and I Shares
--------------------------------------------------------------------------
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to 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 net 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 (000's
omitted) $517,566 $427,168 $501,196 $321,758 $237,673
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)
Ratio of expenses to average net
assets without fee waivers/
reimbursed expenses -- -- -- -- --
Ratio of net investment income to
average net assets without fee
waivers/reimbursed expenses -- -- -- -- --
Portfolio turnover rate 41.91% 75.67% 111.52% 90.45% 8.19%
<FN>
* Until on or about August 26, 1996 and September 23, 1996, the names of the
Funds are the Woodward Bond and Short Bond Funds, respectively.
(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>
Bond Fund*, Short Bond Fund*
Class A and Class I Shares
SHORT BOND FUND
Class A and I Shares
---------------------------------
September 17, 1994
Year Ended (Commencement
December 31, of Operations) to
1995 December 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 net 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 (000's
omitted) $163,337 $64,239
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>
* Until on or about August 26, 1996 and September 23, 1996, the names of the
Funds are the Woodward Bond and Short Bond Funds, respectively.
(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>
20
<PAGE>
<TABLE>
<CAPTION>
Income Fund*
Class A, Class B and Class I Shares
Class A Class B
----------------------------------------- ---------------------------
For the For the For the For the For the
Period Ended Year Ended Period Ended Period Ended Period Ended
December 31, January 31, January 31, December 31, December 2,
1995(a) 1995 1994(b) 1995(c) 1994(d)
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.68 $ 8.25 $ 8.36 $ 8.13 $ 8.16
Income from investment operations:
Net investment income 0.44 0.52 0.47 0.24 0.40
Net realized and unrealized gains (losses) on
investments 0.72 (0.57) (0.09) 0.27 (0.55)
Total from investment operations 1.16 (0.05) 0.38 0.51 (0.15)
Less distributions:
From net investment income (0.44) (0.52) (0.47) (0.24) (0.40)
From net realized gains (0.22) -- (0.02) (0.22) --
Total dividends and distributions (0.66) (0.52) (0.49) (0.46) (0.40)
Conversion to Class A Shares(e) N/A $ 7.61
Net asset value, end of period $ 8.18 $ 7.68 $ 8.25 $ 8.18 N/A
Total return: 15.55%(f)++ (0.45)%(f) 5.16%(f)+ 6.41%(g)++ (1.82)%(g)++
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $ 6,095 $ 69 $ 65 $ 259 $ --
Ratio of expenses to average net assets 0.94%+ 0.04% -- 1.60%+ --
Ratio of net investment income to average net assets 5.72%+ 6.70% 5.96%+ 5.00%+ 6.48%+
Ratio of expenses to average net assets (h) 1.15%+ 2.78% 3.67%+ 1.78%+ 2.58%+
Ratio of net investment income to average net
assets (h) 5.51%+ 3.96% 2.29%+ 4.83%+ 3.90%+
Portfolio turnover rate 173.26%++ 71.65% 26.54%++ 173.26%++ 71.65%++
<FN>
* The Fund was formerly known as the Prairie Intermediate Bond Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Intermediate
Bond Fund, which was organized as a Massachusetts business trust. On or
about September 21, 1996, the assets and liabilities of the Prairie Fund
are expected to be transferred to this Fund, which has no prior operating
history.
(a) 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.
(b) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(c) 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.
(d) 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.
(e) 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.
(f) Total returns as presented do not include any applicable sales load.
(g) Total returns as presented do not include any applicable redemption charge.
(h) 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.
N/A Not applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Fund*
Class A, Class B and Class I Shares
Class I
-----------------------------------------
For the For the For the
Period Ended Year Ended Period Ended
December 31, January 31, January 31,
1995(a) 1995 1994(b)
------------ ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.68 $ 8.25 $ 8.36
Income from investment operations:
Net investment income 0.47 0.52 0.47
Net realized and unrealized gains (losses) on
investments 0.72 (0.57) (0.09)
Total from investment operations 1.19 (0.05) 0.38
Less distributions:
From net investment income (0.47) (0.52) (0.47)
From net realized gains (0.22) -- (0.02)
Total dividends and distributions (0.69) (0.52) (0.49)
Conversion to Class A Shares(e)
Net asset value, end of period $ 8.18 $ 7.68 $ 8.25
Total return: 15.90%++ (0.48)% 5.16%++
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $191,930 $7,101 $5,128
Ratio of expenses to average net assets 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 assets (h) 0.67%+ 2.78% 2.64%+
Ratio of net investment income to average net
assets (h) 6.22%+ 3.96% 3.57%+
Portfolio turnover rate 173.26%++ 71.65% 26.54%++
<FN>
* The Fund was formerly known as the Prairie Intermediate Bond Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Intermediate
Bond Fund, which was organized as a Massachusetts business trust. On or
about September 21, 1996, the assets and liabilities of the Prairie Fund
are expected to be transferred to this Fund, which has no prior operating
history.
(a) 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.
(b) For the period March 5, 1993 (commencement of operations) through January
31, 1994.
(c) 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.
(d) 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.
(e) 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.
(f) Total returns as presented do not include any applicable sales load.
(g) Total returns as presented do not include any applicable redemption charge.
(h) 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.
N/A Not applicable.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
International Bond Fund*
Class A Class B Class I
------------ ------------ ------------
For the For the For the
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
1995(a) 1995(a) 1995(a)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $10.00 $ 10.00
Income from investment operations:
Net investment income 0.98 0.91 1.02
Net realized and unrealized gains on investments 1.10 1.16 1.16
Total from investment operations: 2.08 2.07 2.18
Less distributions:
From net investment income (0.98) (0.91) (1.02)
In excess of net investment income (0.01) (0.01) (0.01)
From net realized gains (0.34) (0.34) (0.34)
Total distributions (1.33) (1.26) (1.37)
Net asset value, end of period $10.75 $10.81 $ 10.81
Total return 21.10%(b)++ 20.90%(c)++ 22.13%++
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $ 487 $ 4 $14,504
Ratio of expenses to average net assets 1.33%+ 2.03%+ 0.95%+
Ratio of net investment income to average net
assets 4.91%+ 4.39%+ 5.71%+
Ratio of expenses to average net assets (d) 3.65%+ 8.69%+ 1.93%+
Ratio of net investment income to average net
assets (d) 2.59%+ (2.28%)+ 4.73%+
Portfolio turnover rate 48.03%++ 48.03%++ 48.03%++
<FN>
* The Fund was formerly known as the Prairie International Bond Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Funds, which
was organized as a Massachusetts business trust. On or about September 21,
1996, the assets and liabilities of the Prairie Fund are expected to be
transferred to this Fund, which has no prior operating history.
(a) For the period January 27, 1995 (commencement of operations) through
December 31, 1995.
(b) Total returns as presented do not include any applicable sales load.
(c) Total returns as presented do not include any applicable redemption charge.
(d) 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.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Fund*
Class A Shares
For the For the Year Ended
Period Ended ------------------------------------------
December 31, February 28, February 28, February 28,
1995(a) 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.06 $12.13 $ 13.25 $ 12.49
Income from investment operations:
Net investment income 0.48 0.60 0.63 0.70
Net realized and unrealized gains (losses) on
investments 0.82 (0.07) (0.15) 1.01
Total from investment operations 1.30 0.53 0.48 1.71
Less distributions:
From net investment income (0.48) (0.60) (0.63) (0.70)
From net realized gains (0.24) -- (0.96) (0.25)
In excess of net realized gains on investments -- -- (0.01) --
Total distributions (0.72) (0.60) (1.60) (0.95)
Net asset value, end of period $12.64 $12.06 $ 12.13 $ 13.25
Total return (b) 10.95%++ 4.45% 3.70% 14.37%
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $7,426 $6,840 $ 9,234 $11,290
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%
Ratio of expenses to average net assets (c) 1.04%+ 3.89% 1.44% 1.59%
Ratio of net investment income to average net
assets (c) 4.43%+ 3.18% 3.41% 3.90%
Portfolio turnover rate 69.31%++ 60.78% 175.06% 88.53%
<FN>
* The Fund was formerly known as the Prairie Municipal Bond Fund, a separate
investment portfolio (the "Prairie Fund") of Prairie Municipal Bond Fund,
Inc., which was organized as a Maryland corporation. On or about September
14, 1996, the assets and liabilities of the Prairie Fund are expected to
be transferred to this Fund, and will be combined with the assets of a
pre-existing portfolio maintained by the Fund.
(a) 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.
(b) Total returns as presented do not include any applicable sales load.
(c) 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.
(d) From March 1, 1988 (commencement of operations) to February 28, 1989.
+ Annualized.
++ Not annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Fund*
Class A Shares
For the Year Ended
---------------------------------------------------------
February 29, February 28, February 28, February 28,
1992 1991 1990 1989(d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.10 $11.77 $11.82 $11.94
Income from investment operations:
Net investment income 0.76 0.81 0.81 0.89
Net realized and unrealized gains (losses) on
investments 0.47 0.33 0.28 (0.12)
Total from investment operations 1.23 1.14 1.09 0.77
Less distributions:
From net investment income (0.76) (0.81) (0.81) (0.89)
From net realized gains (0.08) -- (0.33) --
In excess of net realized gains on investments -- -- -- --
Total distributions (0.84) (0.81) (1.14) (0.89)
Net asset value, end of period $12.49 $12.10 $11.77 $11.82
Total return (b) 10.50% 10.13% 9.39% 6.82%+
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $6,591 $ 2,244 $ 1,192 $ 673
Ratio of expenses to average net assets -- -- -- --
Ratio of net investment income to average net assets 5.99% 6.87% 6.60% 7.46%+
Ratio of expenses to average net assets (c) 2.75% 2.75% 2.75% 2.25%+
Ratio of net investment income to average net
assets (c) 3.24% 4.12% 3.85% 5.21%+
Portfolio turnover rate 66.28% 32.40% 85.07% 36.19%++
<FN>
* The Fund was formerly known as the Prairie Municipal Bond Fund, a separate
investment portfolio (the "Prairie Fund") of Prairie Municipal Bond Fund,
Inc., which was organized as a Maryland corporation. On or about September
14, 1996, the assets and liabilities of the Prairie Fund are expected to
be transferred to this Fund, and will be combined with the assets of a
pre-existing portfolio maintained by the Fund.
(a) 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.
(b) Total returns as presented do not include any applicable sales load.
(c) 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.
(d) From March 1, 1988 (commencement of operations) to February 28, 1989.
+ Annualized.
++ Not annualized.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Fund*
Class B and Class I Shares
Class B Class I
For the Period Ended For the Period Ended
----------------------------------------- ---------------------------
December 31, December 2, February 28, December 31, February 28,
1995(a) 1994(b) 1994(c) 1995(d) 1995(e)
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.17 $12.14 $ 12.37 $ 12.06 $ 12.06
Income from investment operations:
Net investment income 0.34 0.41 0.03 0.52 0.05
Net realized and unrealized gains (losses) on
investments 0.72 (0.70) (0.23) 0.81 --
Total from investment operations 1.06 (0.29) (0.20) 1.33 0.05
Less distributions:
From net investment income (0.34) (0.41) (0.03) (0.52) (0.05)
From net realized gains (0.24) -- -- (0.24) --
Total distributions (0.58) (0.41) (0.03) (0.76) (0.05)
Conversion to Class A Shares(f) N/A $11.44 N/A
Net asset value, end of period $12.65 N/A $ 12.14 $ 12.63 $ 12.06
Total return 8.81%(g)++ (4.30)%(g)++ (1.64)%(g)++ 11.20%++ 0.39%++
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $ 238 $ -- $ 2 $240,160 $220,143
Ratio of expenses to average net assets 1.66%+ 3.18%+ 0.50% 0.54%+ 0.65%++
Ratio of net investment income to average net assets 3.61%+ 4.51%+ 4.10% 4.95%+ 5.45%++
Ratio of expenses to average net assets (h) 2.04%+ 5.85%+ 2.91% 0.67%+ 0.79%++
Ratio of net investment income to average net
assets (h) 3.23%+ 1.84%+ 1.69% 4.81%+ 5.31%++
Portfolio turnover rate 69.31%++ 60.78%++ 175.06%++ 69.31%++ 60.78%++
<FN>
* The Fund was formerly known as the Prairie Municipal Bond Fund, a separate
investment portfolio (the "Prairie Fund") of Prairie Municipal Bond Fund,
Inc., which was organized as a Maryland corporation. On or about September
14, 1996, the assets and liabilities of the Prairie Fund are expected to
be transferred to this Fund, and will be combined with the assets of a
pre-existing portfolio maintained by the Fund.
(a) 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.
(b) 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.
(c) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(d) 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.
(e) For the period February 1, 1995 (initial offering date of Class I Shares)
to February 28, 1995.
(f) 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.
(g) Total returns as presented do not include any applicable redemption
charge.
(h) 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.
N/A Not applicable.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Intermediate Municipal Bond Fund*
Class A Shares
For the For the Year Ended
Period Ended ------------------------------------------
December 31, February 28, February 28, February 28,
1995(a) 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.79 $ 12.18 $ 12.79 $ 12.25
Income from investment operations:
Net investment income 0.44 0.55 0.61 0.64
Net realized and unrealized gains (losses) on
investments 0.56 (0.36) 0.01 0.68
Total from investment operations 1.00 0.19 0.62 1.32
Less distributions:
From net investment income (0.44) (0.55) (0.61) (0.64)
From net realized gains (0.10) (0.03) (0.62) (0.14)
Total distributions (0.54) (0.58) (1.23) (0.78)
Net asset value, end of period $ 12.25 $ 11.79 $ 12.18 $ 12.79
Total return (b) 8.58%++ 1.64% 4.94% 11.26%
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $17,777 $17,243 $28,826 $27,885
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%
Ratio of expenses to average net assets (c) 0.97%+ 1.38% 1.27% 1.31%
Ratio of net investment income to average net
assets (c) 4.16%+ 3.64% 3.57% 3.85%
Portfolio turnover rate 44.75%++ 128.02% 167.95% 63.67%
<FN>
* The Fund was formerly known as the Prairie Intermediate Municipal Bond
Fund, a separate investment portfolio (the "Prairie Fund") of Prairie
Funds, which was organized as a Massachusetts business trust. On or about
September 21, 1996, the assets and liabilities of the Prairie Fund are
expected to be transferred to this Fund, which has no prior operating
history. 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 Prairie Fund. The financial data provided above for
such periods is for the Intermediate Series of First Prairie Municipal
Bond Fund, Inc.
(a) 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.
(b) Total returns as presented do not include any applicable sales load.
(c) 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.
(d) From March 1, 1988 (commencement of operations) to February 29, 1989.
+ Annualized.
++ Not annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Intermediate Municipal Bond Fund*
Class A Shares
For the Year Ended
---------------------------------------------------------
February 29, February 28, February 28, February 29,
1992 1991 1990 1989(d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.95 $11.65 $11.43 $ 11.46
Income from investment operations:
Net investment income 0.76 0.80 0.78 0.79
Net realized and unrealized gains (losses) on
investments 0.37 0.31 0.22 (0.03)
Total from investment operations 1.13 1.11 1.00 0.76
Less distributions:
From net investment income (0.76) (0.80) (0.78) (0.79)
From net realized gains (0.07) (0.01) -- --
Total distributions (0.83) (0.81) (0.78) (0.79)
Net asset value, end of period $ 12.25 $11.95 $11.65 $ 11.43
Total return (b) 9.78% 9.94% 9.00% 6.82%+
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $18,310 $7,251 $4,532 $ 2,593
Ratio of expenses to average net assets -- -- -- --
Ratio of net investment income to average net assets 6.15% 6.76% 6.62% 6.83%+
Ratio of expenses to average net assets (c) 1.72% 2.75% 2.75% 2.25%+
Ratio of net investment income to average net
assets (c) 4.43% 4.01% 3.87% 4.58%+
Portfolio turnover rate 86.91% 12.22% 46.68% 101.17%++
<FN>
* The Fund was formerly known as the Prairie Intermediate Municipal Bond
Fund, a separate investment portfolio (the "Prairie Fund") of Prairie
Funds, which was organized as a Massachusetts business trust. On or about
September 21, 1996, the assets and liabilities of the Prairie Fund are
expected to be transferred to this Fund, which has no prior operating
history. 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 Prairie Fund. The financial data provided above for
such periods is for the Intermediate Series of First Prairie Municipal
Bond Fund, Inc.
(a) 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.
(b) Total returns as presented do not include any applicable sales load.
(c) 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.
(d) From March 1, 1988 (commencement of operations) to February 29, 1989.
+ Annualized.
++ Not annualized.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Intermediate Municipal Bond Fund*
Class B and Class I Shares
Class B Class I
For the Period Ended For the Period Ended
-------------------------------------------------------- ---------------------------
December 31, February 28, December 2, February 28, December 31, February 28,
1995(a) 1995(b) 1994(c) 1994(d) 1995(a) 1995(e)
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.80 $ 11.57 $ 12.18 $ 12.32 $ 11.80 $ 11.57
Income from investment operations:
Net investment income 0.37 0.04 0.37 0.03 0.47 0.04
Net realized and unrealized gains
(losses) on investments 0.55 0.23 (0.72) (0.14) 0.55 0.23
Total from investment operations 0.92 0.27 (0.35) (0.11) 1.02 0.27
Less distributions:
From net investment income (0.37) (0.04) (0.37) (0.03) (0.47) (0.04)
From net realized gains (0.10) -- (0.03) -- (0.10) --
Total distributions (0.47) (0.04) (0.40) (0.03) (0.57) (0.04)
Conversion to Class A shares(c) N/A N/A $ 11.43 N/A
Net asset value, end of period $12.25 $ 11.80 N/A $ 12.18 $ 12.25 $ 11.80
Total return 7.75%(f)++ 2.30%(f)++ (2.98)(f)++ (0.93)%(f)++ 8.76%++ 2.37%++
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted) $ 341 $ 6 $ -- $ 12 $373,753 $365,801
Ratio of expenses to average net
assets 1.71%+ 1.36%+ 0.76%+ 0.75%+ 0.55%+ 0.50%+
Ratio of net investment income to
average net assets 3.36%+ 3.72%+ 4.03%+ 1.68%+ 4.78%+ 4.79%+
Ratio of expenses to average net
assets (g) 2.01%+ 1.64%+ 2.00%+ 3.00%+ 0.68%+ 0.60%+
Ratio of net investment income to
average net assets (g) 3.06%+ 3.44%+ 2.79%+ (0.57%)+ 4.65%+ 4.69%+
Portfolio turnover rate 44.75%++ 128.02%++ 128.02%++ 167.95%++ 44.75%++ 128.02%++
<FN>
* The Fund was formerly known as the Prairie Intermediate Municipal Bond
Fund, a separate investment portfolio (the "Prairie Fund") of Prairie
Funds, which was organized as a Massachusetts business trust. On or about
September 21, 1996, the assets and liabilities of the Prairie Fund are
expected to be transferred to this Fund, which has no prior operating
history.
(a) 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.
(b) For the period January 30, 1995 (re-offering date of Class B Shares)
through February 28, 1995.
(c) 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.
(d) For the period February 8, 1994 (initial offering date of Class B Shares)
through February 28, 1994.
(e) For the period February 1, 1995 (initial offering date of Class I Shares)
through February 28, 1995.
(f) Total returns as presented do not include any applicable redemption charge.
(g) 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.
N/A Not applicable.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Bond Fund*
Class A and Class I Shares
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 net 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 (000's omitted) $53,453 $45,263 $42,114
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>
* Until on or about September 23, 1996, the name of the Fund is the Woodward
Michigan Municipal Bond Fund.
(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>
27
<PAGE>
DESCRIPTION OF THE FUNDS
General
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 twenty-six investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, contains only nineteen portfolios. Under the 1940
Act, each Fund is classified as a diversified investment portfolio (the
"Diversified Funds") except for the International Equity, International Bond,
Municipal Bond, Intermediate Municipal Bond and Michigan Municipal Bond Funds
(the "Non-Diversified Funds"), which are each classified as a non-diversified
portfolio.
Investment Objectives and Policies
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of such Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
a vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with the
description of investments in which the Funds may invest, as set forth in
"Supplemental Information."
Asset Allocation Funds
Each Asset Allocation Fund follows an asset allocation strategy by investing
in Equity Securities, Debt Securities and Cash Equivalent 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 --Foreign Securities" below.
The equity portion of each of the Asset Allocation Fund's investments
will be invested primarily in publicly traded stocks of companies incorporated
in the United States, although up to 25% of its total assets may be invested
in the Equity Securities of foreign issuers, either directly or through
Depository Receipts.
The Asset Allocation Funds invest the fixed income portion of their
portfolios of investments in a broad range of Debt Securities rated
"investment grade" or higher at the time of purchase (i.e., 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") (each a "Rating Agency")), or unrated
investments deemed by the Investment 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. Most Debt
Securities acquired by an Asset Allocation Fund will be issued by companies or
governmental entities located within the United States. Up to 15% of the total
assets of a Fund may, however, be invested in dollar-denominated debt
obligations (including Cash Equivalent Securities) of foreign issuers.
28
<PAGE>
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 generally intends to manage the Fund's assets:
<TABLE>
<CAPTION>
Managed Assets Managed Assets Managed Assets
Conservative Fund Balanced Fund Growth Fund
--------------------- --------------------- ---------------------
Benchmark Strategy Benchmark Strategy Benchmark Strategy
Asset Class Percentage Range Percentage Range Percentage Range
- ----------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
25% to 45% to 65% to
Equity Securities: 40% 55% 60% 75% 80% 95%
Debt Securities & Cash 45% to 25% to 5% to
Equivalent Securities: 60% 75% 40% 55% 20% 35%
</TABLE>
Compliance with these percentage requirements may limit the ability of a
Fund to maximize total return. The actual percentage of assets invested in
Equity Securities, Debt Securities and Cash Equivalent Securities will vary
from time to time and may be outside the strategy range, depending on the
judgment of the Investment Adviser as to general market and economic
conditions, trends in yields, interest rates and changes in fiscal and
monetary developments. The Managed Assets Conservative Fund is deemed to be
more "conservative" than the Managed Assets Growth and Managed Assets Balanced
Funds because its benchmark and strategy have a heavier weighting in Debt
Securities and Cash Equivalent Securities and a lighter weighting in Equity
Securities related to the other Asset Allocation Funds.
Each Asset Allocation Fund also may engage in futures and options
transactions and other derivative instruments, such as interest rate and
equity index swaps and foreign exchange transactions, each of which involves
risk. Each Asset Allocation Fund may also lend its portfolio securities,
invest in foreign currency transactions and options on foreign currency
transactions and may invest in currency futures and options on currency
futures for investment or hedging purposes. As permitted under applicable law,
an Asset Allocation Fund may also invest its cash balances in securities
issued by other investment companies. See "Risk Factors" below and
"Supplemental Information."
Equity Funds
The Equity Income, Growth, Mid-Cap Opportunity, Small-Cap Opportunity,
Intrinsic Value, Growth and Value and Equity Index Funds invest primarily in
publicly traded common stocks of companies incorporated in the United States,
although each such Fund may also invest up to 25% of its total assets in the
Equity Securities of foreign issuers, either directly or through Depository
Receipts. The International Equity Fund invests primarily in Equity Securities
of foreign issuers, either directly or through Depository Receipts and similar
securities which may be sponsored or unsponsored. See "Risk Factors --Foreign
Securities" below. In addition, each Equity Fund 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). Each Equity Fund is permitted to invest up to 5%
of its net assets in lower rated convertible securities. The Equity Funds may
also enter into futures contracts and related options and may utilize options
and other derivative instruments such as equity index swaps, each of which
involves risk. Each Equity Fund may also lend its portfolio securities. In
addition, the International Equity Fund may invest in foreign currency and
options on foreign currency transactions. Under normal market conditions, each
Fund expects to invest at least 65% of the value of its total assets in Equity
Securities. Each Equity Fund may hold up to 35% of its total assets in
investment grade Debt Securities and Cash Equivalent Securities and, in the
case of the International Equity Fund, debt securities of foreign issuers,
foreign governments and agencies.
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.
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 may 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.
29
<PAGE>
The Mid-Cap Opportunity Fund invests in Equity Securities of companies
with market capitalizations of $500 million to $3 billion. The Investment
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.
The Small-Cap Opportunity Fund invests in Equity Securities of small
domestic issuers with market capitalizations of $100 million to $1 billion.
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.
The Intrinsic Value Fund invests primarily in Equity Securities of
companies believed by the Investment Adviser to represent a value or potential
worth which is not fully recognized by prevailing market prices. In selecting
investments for the Fund, screening techniques are employed to isolate issues
believed to be attractively priced. The Investment Adviser then evaluates the
underlying earning power and dividend paying ability of these potential
investments. 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.
The Growth and Value Fund invests primarily in Equity Securities of
companies believed by the Investment Adviser to represent a value or potential
worth which is not fully recognized by prevailing market prices. The Fund
invests in companies which the Investment Adviser believes have earnings
growth expectations that exceed those implied by the market's current
valuation. In addition, the Fund seeks to maintain a portfolio of companies
whose earnings will increase at a faster rate than within the general equity
market.
The Equity Index Fund 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 S&P
500 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 Fund seeks to achieve a 95% correlation coefficient between its
performance and that of the S&P 500 Index. Therefore, the Fund's price changes
and total return are expected to closely match movements in the underlying
index. Deviations from the performance of the S&P 500 Index ("tracking error")
may result from shareholder purchases and redemptions of shares of the Fund
that occur daily, as well as from the expenses borne by the Fund, cash
reserves held by the Fund and purchases and sales of securities made by the
Fund to conform its holdings more closely with that of the S&P 500 Index. 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. In the event the
performance of the Fund 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. If substantial deviation in the Fund's
performance were to continue for extended periods, it is expected that the
Board of Trustees would consider possible changes to the Fund's investment
objective.
The Fund will not be managed by using traditional economic, financial or
market analysis. Instead, the Fund 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 Fund based on
both capitalization weighing in the index and industry representation. Larger
market capitalization securities in the S&P 500 Index are added to the Fund
according to their relative weight. Smaller capitalization securities are then
added to the Fund in equal weights according to an analysis of the industry
diversification of the S&P 500 Index. Therefore, while all industry weights in
the Fund are essentially matched to those of the S&P 500 Index, not
necessarily all 500 stocks are held in the Fund. The Fund may invest up to 25%
of its assets in the securities of foreign issuers through Depository
Receipts. Pending investment and to meet anticipated redemption requests, the
Fund may hold up to 5% of its total assets in Cash Equivalent Securities. In
addition, up to 5% of the Fund's total assets may be invested in futures
contracts and related options in an effort to maintain exposure to price
movements in the S&P 500 Index pending investment of funds or while
maintaining liquidity to meet potential shareholder redemptions.
The International Equity Fund will invest primarily
30
<PAGE>
in Equity Securities of foreign issuers located in but not limited to the
United Kingdom and European continent, Japan, other Far East areas and Latin
America. The Fund may also invest in other regions seeking to capitalize on
investment opportunities in other parts of the world.
The Investment Adviser's investment approach to managing the Fund's
assets emphasizes active country selection involving global economic and
political assessments together with valuation analysis of selected countries'
securities markets. In situations where an investment's attractiveness
outweighs prospects for currency weakness, the Investment Adviser may take
suitable hedging measures. An index approach is typically used at the stock
selection level.
The Investment Adviser employs quantitative techniques in conjunction
with its judgment and experience to determine the foreign equity markets that
the Fund will be invested in and the percentage of total assets the Fund will
hold by country. Securities of a country are selected using a
quantitatively-oriented sampling technique intending to generally 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 Fund may also invest in individual Equity Securities which
the Investment Adviser believes offer opportunities for capital appreciation.
The Fund'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 Fund'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.
Bond Funds
Each of the Bond Funds will invest at least 65% of the value of its total
assets under normal market conditions in Debt Securities. When the Investment
Adviser believes it advisable for temporary defensive purposes or in
anticipation of otherwise investing cash positions, each Bond Fund may invest
in Cash Equivalent Securities. Most obligations acquired by the Funds will be
issued by companies or governmental entities located within the United States.
Up to 15% of the total assets of the Bond Funds may be invested in dollar
denominated debt obligations (including Cash Equivalent Securities) of foreign
issuers. The International Bond Fund may invest 100% of its assets on
investments in foreign issuers.
Each Bond Fund also may engage in futures and options transactions and
other derivative instruments, such as interest rate swaps and forward
contracts, and the International Bond Fund may engage in foreign exchange
transactions, each of which involves risk. Each Bond Fund may also lend its
portfolio securities. See "Risk Factors" below and "Supplemental Information."
The Debt Securities in which each Bond Fund, other than the
International Bond Fund, may invest will be rated investment grade at the time
of purchase, or if unrated, will be deemed by the Investment Adviser to be
comparable in quality at the time of purchase to instruments that are so
rated. By so restricting its investments, a Fund's ability to maximize total
rate of return will be limited. Under normal market conditions, at least 65%
of the value of the International Bond Fund's total assets will consist of
Debt Securities rated A or better by Moody's, S&P, Fitch or Duff. The
remainder of the International Bond Fund's assets may be invested in Debt
Securities rated no lower than B by Moody's, S&P, Fitch and Duff. The Fund
also may invest in Debt 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."
The Intermediate Bond Fund invests in a portfolio of U.S. dollar
denominated Debt Securities of domestic and foreign issuers which, under
normal market conditions, will have maturities or average lives of up to 15
years. The Fund's average weighted portfolio maturity is expected to be
between 3 and 6 years.
The Bond Fund invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers. The Fund's average weighted
portfolio maturity is expected to be between 6 and 12 years.
The Short Bond Fund invests in a portfolio of U.S. dollar denominated
Debt Securities of domestic and foreign issuers which, under normal market
conditions, will have maturities or average lives of up to 10 years. The
Fund's average weighted portfolio maturity will be limited to a maximum of 3
years.
The Income Fund invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers which, under normal market
conditions, will have a dollar-weighted average maturity expected to range
between 3 and 10 years.
The International Bond Fund will invest in Debt 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
31
<PAGE>
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. See "Risk Factors --Foreign Securities" below.
Municipal Bond Funds
It is a fundamental policy of each of the Municipal Bond Funds to invest
(except when maintaining a temporary defensive position) at least 80% of the
value of its net assets in Municipal Obligations. From time to time, a
Municipal Bond Fund may invest in an amount not to exceed 20% of the value of
its net assets, or without limitation for temporary defensive purposes, in
taxable Cash Equivalent Securities. Dividends paid by a Municipal Bond Fund
that are attributable to income earned by it from these securities will
be taxable to investors. See "Dividends, Distributions and Taxes."
Municipal Obligations in which the Municipal Bond Funds invest will be
rated at least Baa, MIG-2/ VMIG-2 or Prime 2 (P-2) by Moody's, BBB, SP-2 or
A-2 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 comparable in quality to
instruments that are so rated. The Municipal Bond Funds also may engage in
futures and options transactions and other derivative instruments
transactions, such as interest rate swaps, each of which involves risk. The
Municipal Bond Funds are also permitted to lend their portfolio securities.
See "Risk Factors" below and "Certain Portfolio Securities" in the Appendix.
The Municipal Bond Fund invests in a portfolio of investment grade
Municipal Obligations without regard to maturity.
The Intermediate Municipal Bond Fund invests in a portfolio of
investment grade Municipal Obligations which, under normal market conditions,
will have a dollar-weighted average maturity expected to range between 3 and
10 years.
The Michigan Municipal Bond Fund invests at least 65% of its total
assets under normal market conditions in investment grade Michigan Municipal
Obligations and the remainder may be invested in securities that are not
Michigan Municipal Obligations and therefore may be subject to Michigan income
taxes. See "Taxes." The Fund will invest in Michigan Municipal Obligations and
other securities without regard to maturity.
To the extent that acceptable Michigan Municipal Obligations are at any
time unavailable for investment by the Fund, the Fund will invest primarily in
other Municipal Obligations the interest on which is, in the opinion of bond
counsel, exempt from federal, but not Michigan income taxes.
Special Risk Considerations Applicable
to the Michigan Municipal Bond Fund
The Michigan Municipal Bond Fund will under normal market conditions consist
of Michigan Municipal Obligations 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 Fund 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.
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.
Investment Limitations
Each Fund is subject to a number of investment limitations. Except as noted,
the following investment limitations are matters of fundamental policy and may
not be changed with respect to a particular Fund without the affirmative vote
of the holders of a majority of the Fund'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."
32
<PAGE>
Each Fund may not:
1. 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 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, and (d) personal credit and business credit
businesses will be considered separate industries.
2. Make loans, except that each Fund 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, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
The Diversified Funds 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 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 a Fund, except that up to 25% of the value of a Fund's total
assets may be invested without regard to these limitations.
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 Fund's portfolio securities will not constitute a
violation of such limitation for purposes of the 1940 Act.
Risk Factors
General
Before selecting a Fund in which to invest, the investor should assess the
risks associated with the types of investments made by the Fund. 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. The
following should be read in conjunction with "Supplemental Information,"
beginning on page A-1 of this Prospectus, and the Statement of Additional
Information, which provides a further discussion of securities in which the
Funds may invest and the investment risks associated with these investments.
Equity Securities
(Asset Allocation and Equity Funds only) The securities of 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.
Debt Securities
(All Funds) Investors should be aware that even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities generally are inversely affected by changes in interest
rates and, therefore, are subject to the risk of market price fluctuations.
The values of Debt Securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. Also see "Lower Rated
Securities" below and the Appendix in the Statement of Additional Information.
Municipal Obligations
(Asset Allocation, Bond and the Municipal Bond Funds only) Investors should be
aware that when a Fund's assets are concentrated in obligations payable from
revenues of similar projects or issued by issuers located in the same state,
or in industrial development bonds, it will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated.
Payment on Municipal Obligations held by the Funds relating to certain
projects may be secured by mortgages or deeds of trust. In the event of a
default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments. Moreover, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted Municipal Obligations.
33
<PAGE>
Lower Rated Securities
(International Bond Fund 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). The 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
and unrated debt securities deemed by the Investment Adviser to be comparable
in quality at the time of purchase to instruments that are so rated. Each
Equity Fund is permitted to invest up to 5% of its net assets in lower rated
convertible securities.
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.
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 Debt Securities. Securities rated BBB by S&P, Fitch or
Duff or Baa 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 and may 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. Factors adversely affecting the market price and yield of
lower rated debt securities, including a fund's ability to sell such
securities in a market that may be less liquid than for higher rated
securities, will adversely affect the Fund's net asset value. In addition, the
retail secondary market for these securities may be less 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 Investment Adviser will continually 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 the Appendix in the Statement of
Additional Information for a general description of securities ratings.
Foreign Securities
(Asset Allocation, Equity and Bond Funds) Foreign securities markets, and
especially those of developing countries, generally are not as developed or
efficient as those in the United States. Investment in securities of foreign
issuers, whether made directly or indirectly, involves 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. 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.
Foreign Currency and Foreign Commodity Transactions
(Asset Allocation Funds and the 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 currencies 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.
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
34
<PAGE>
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 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. Mortgage-related securities may be considered a derivative
instrument.
Derivative Instruments
Each Fund 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 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.
Other Investment Considerations
The classification of the Municipal Bond Funds and the International Equity
and International Bond Funds as "non-diversified" investment companies means
that the proportion of each 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. Each Non-Diversified Fund, however, intends
to conduct its operations so as to qualify as a "regulated investment company"
for purposes of the Internal Revenue Code of 1986, as amended (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 the 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 the 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.
HOW TO BUY SHARES
General Information
Description of Classes
This Prospectus offers investors three Classes of shares of each Fund for
investment, Class A, Class B and Class I shares, each of which represents an
identical pro rata interest in a Fund's investment portfolio. Class A shares
and Class B shares are offered to any investor. Orders for purchases of Class
I shares, however, may be placed only for certain eligible investors as
described below. An investor who is not
35
<PAGE>
eligible to purchase Class I shares may choose either Class A or Class B
shares based on which class best suits the investor's needs, given the
offering price, the length of time the investor expects to hold the shares and
any other relevant circumstances.
Class A shares are sold at net asset value per share plus an initial
sales charge imposed at the time of purchase. The initial sales charge may be
reduced or waived for certain purchases. Class A shares of each Fund are
subject to a shareholder servicing fee. 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 may be subject to a CDSC, as described under "How To Redeem Shares"
below, and are subject to a distribution fee and shareholder servicing fee.
See "Distribution Plans and Shareholder Services Plans."
Class A and Class B shares are offered to the general public and may be
purchased through a number of institutions, including NBD, FCNIMCO, FNBC, ANB
and their affiliates, other Service Agents, and directly through the
Distributor.
Class I shares are sold at net asset value with no sales charge and are
sold exclusively to qualified trust, custody and/or agency account clients of
FNBC, NBD or their affiliates ("Fiduciary Accounts"), to qualified retirement,
profit sharing or other employee benefit plans with plan assets of at least
$100 million invested in shares of the Funds or other investment companies or
accounts advised by either NBD or FCNIMCO ("Eligible Retirement Plans"). Class
I shares are not subject to an annual service fee or distribution fee.
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.
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 off-set 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.
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.
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. The Investment Adviser 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. The Funds reserve the
right to reject any purchase order.
If an order is received by the Transfer Agent by the close of trading on
the floor of the New York Stock Exchange (the "Exchange"), or at the Early
Closing Time (as defined below), on any Business Day (as defined below),
shares will be purchased at the public offering price determined as of the
close of trading on the floor of the Exchange (currently 4:00 p.m., Eastern
time) 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 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 the Statement of Additional Information for 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").
Share certificates will not be issued. It is not recommended that the
Municipal Bond Funds be used as vehicles for Keogh, IRA or other qualified
retirement plans.
Net Asset Value
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.
Shares for each Fund 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 the Funds is determined as of
the close of trading on the
36
<PAGE>
floor of the Exchange (currently 4:00 p.m., New York time), on each day the
New York Stock Exchange is open for business (the "Business Days") except: (i)
those holidays which the Exchange observes (currently New Year's Day,
Presidents' Day, Good Friday, Memorial Day, 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 Fund will be
determined and its shares will be priced as of such Early Closing Time.
Securities held by the Funds 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. Debt Securities held by the Funds
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
Investment 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 Investment 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 Fund's open futures contracts will be "marked-to-market."
Class A Shares
Class A shares of each Fund are subject to an annual service fee at the rate
of up to 0.25% 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 upon depositing such shares into such Account,
based on the relative net asset values for shares of each such Class.
The public offering price for Class A shares of each Fund is the net
asset value per share plus a sales load as shown below.
<TABLE>
<CAPTION>
ASSET ALLOCATION FUNDS and EQUITY FUNDS
(OTHER THAN THE EQUITY INDEX FUND)
Total Sales Load
--------------------
Dealers'
As a % of As a % of Reallowance
offering net asset as a % of
price value per offering
Amount of Transaction per share share price
- --------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $50,000 5.00 5.26 4.50
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 and above none none none
</TABLE>
<TABLE>
<CAPTION>
BOND, INTERNATIONAL BOND, MUNICIPAL BOND and
MICHIGAN MUNICIPAL BOND FUNDS
Total Sales Load
--------------------
Dealers'
As a % of As a % of Reallowance
offering net asset as a % of
price value per offering
Amount of Transaction per share share price
- --------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $50,000 4.50 4.71 4.00
$50,000 to less than $100,000 4.00 4.17 3.50
$100,000 to less than $250,000 3.00 3.09 2.50
$250,000 to less than $500,000 2.00 2.04 1.50
$500,000 to less than $1,000,000 1.50 1.52 1.25
$1,000,000 and above none none none
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX, SHORT BOND, INCOME, INTERMEDIATE BOND and INTERMEDIATE MUNICIPAL
BOND FUNDS
Total Sales Load
--------------------
Dealers'
As a % of As a % of Reallowance
offering net asset as a % of
price value per offering
Amount of Transaction per share share price
- --------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $50,000 3.00 3.09 2.75
$50,000 to less than $100,000 2.50 2.56 2.25
$100,000 to less than $250,000 2.00 2.04 1.75
$250,000 to less than $500,000 1.50 1.52 1.25
$500,000 to less than $1,000,000 1.00 1.01 0.75
$1,000,000 and above none none none
</TABLE>
With respect to purchases of $1,000,000 or more of Class A shares or
other purchases of Class A shares made at net asset value (as described below)
of each Fund made through Service Agents, the Distributor may pay such Service
Agents from its own funds a fee of 1.00% for each Fund for the first $2
million of the amount invested, 0.80% of the next $1 million and 0.50%
thereafter to compensate Service Agents for their distribution assistance in
connection with such purchases. In addition, at its expense, the Distributor
may provide additional compensation and promotional incentives to dealers in
connection with the sales of shares of the Funds. Such compensation will
include financial assistance to dealers in connection with conferences, sales
or training programs for their employees, seminars for
37
<PAGE>
the public, advertising campaigns regarding one or more of the Funds, and/or
other special events sponsored by dealers. In some instances, this
compensation will be made available only to certain dealers whose
representatives have sold a significant amount of Shares. Compensation may
also include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. Compensation will also include the
following types of non-cash compensation offered through sales contests: (1)
trips, including the provision of travel arrangements and lodging at vacation
resorts, (2) tickets for entertainment events (such as concerts, cruises, and
sporting events) and (3) merchandise (such as clothing, trophies, clocks, and
pens). Dealers may not use sales of shares to qualify for this compensation to
the extent such may be prohibited by the laws of any self-regulatory agency,
such as the NASD. None of the aforementioned is paid for by the Funds or their
respective shareholders.
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,
and accounts opened by a bank, trust company or thrift institution, acting as
a fiduciary or custodian, for accounts other than 401(k) and other defined
contribution or other retirement plan accounts, 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.
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 FCNIS and 401(k) and other defined
contribution or other retirement plan accounts for which FNBC or its
subsidiaries or affiliates has served as custodian or trustee since at least
June 1, 1995 or NBD or its subsidiaries or affiliates, other than FNBC or ANB,
has served as administrator or trustee since January 1, 1996. Class A shares
are also offered at net asset value to 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.
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. The Investment Adviser will pay a fee of up to
1.5% of the amount invested by a participant in its Investment Architect
Account or any other wrap account to FCNIS, 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 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.
Class A shares also will be offered at net asset value without a sales
load to employees participating in accounts such as 401(k) and other defined
contribution or other retirement plan accounts 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").
If an investor purchases Class A shares without an initial sales charge
as part of an investment of at least $1,000,000 or other method as described
above, and redeems those shares within a certain period after purchase, a CDSC
will be imposed at the time of redemption as described below unless the
investor qualifies for a waiver of the CDSC as described below under "Class B
Shares -- Waiver of CDSC." The terms set forth under "How to Redeem Shares --
Class B Shares -- Contingent Deferred Sales Charge" (other than the amount of
the CDSC and its time periods) are applicable to the Class A shares subject to
a CDSC. The following table sets forth the rates of such CDSC for the
indicated time periods:
38
<PAGE>
<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>
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 4.50% of the offering price (4.71% 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 must notify the Transfer Agent. The reduced sales load is subject to
confirmation of the investor's holdings through a check of appropriate
records.
Class B Shares
The Distributor will 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
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
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.
SHAREHOLDER SERVICES
The Exchange Privilege and Automatic Investment Plan are available to
shareholders of any Class. The Letter of Intent is available only for Class A
shareholders, and the Reinstatement Privilege is available only for Class A
and Class B shareholders. 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 which have been owned for at least 30 days, shares of the same Class
of the other Funds or the other investment portfolios of the Trust. 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 and other investment portfolios of the
Trust 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 and investment
portfolios of the Trust sold without a sales load.
B. Shares of Funds purchased without a sales load may be exchanged for
shares of other Funds and investment portfolios of the Trust 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. To accomplish such an exchange, shareholders must notify the
Transfer Agent of their prior ownership of Fund shares and their account
number.
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<PAGE>
D. Shares of Funds subject to a CDSC that are exchanged for shares of
another Fund or of the Trust's Money Market 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.
E. A qualified or non-qualified employee benefit plan with assets of at
least $1 million or 200 eligible participants 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 Transfer Agent of such eligibility.
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 Transfer Agent, the
Investment Adviser, certain of its affiliates 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 up to the amount
of the signed Letter of Intent (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 $10,000 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. If total purchases
are less than the amount specified, the investor will be notified that a
deduction from escrow to cover the difference between the sales load actually
paid and the sales load applicable to the aggregate purchases actually made
will be assessed. Signing a Letter of Intent does not bind the investor to
purchase, or the Trust to sell, the total 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 in
amounts of at least $100 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, on either the first or the
fifteenth day of the month. 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 Transfer
Agent. 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 the Transfer Agent 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
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<PAGE>
redeemed Class A or Class B shares to purchase, within 120 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 120 days of the
trade date of the redemption. There currently are no restrictions on the
number of times an investor may use this privilege.
Option to Make Systematic Withdrawals
The Systematic Withdrawal Plan permits investors who own shares of a Fund
having a minimum value of $15,000 at the time he elects under the Systematic
Withdrawal Plan to 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.
Cross Reinvestment of Dividend Plan
The Trust makes available to investors a Cross Reinvestment of Dividend Plan
pursuant to which an investor who owns shares of any Fund with a minimum value
of $10,000 at the time he elects may have dividends paid by such Fund
automatically reinvested into shares of another Fund or investment portfolio
of the Trust in which he has invested a minimum of $1,000. Investors may
obtain an application and additional information from their financial
institutions or the Transfer Agent by calling (800) 688-3350.
Pegasus Funds Individual Retirement Custodial Account
Class A and Class B 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 the Transfer Agent
for information as to applications and annual fees. The minimum investment for
an IRA is $250. Investors should also consult their tax advisers to determine
whether the benefits of an IRA are available or appropriate.
HOW TO REDEEM SHARES
General Information
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 Trust
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 has a
sufficient collected balance in his or her account to cover the redemption
request. Prior to the time any redemption is effective,
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<PAGE>
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 30 days' written notice if, due to share
redemptions, the account's net asset value decreases to less than $1,000 and
remains so during the notice period.
Redemption Procedures
An investor who has purchased shares through his account at FCN, its
affiliates 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 FCN,
the Investment Adviser 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.
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee
is required. The Transfer Agent usually requires additional documentation for
the sale of shares by a corporation, partnership, agent or fiduciary, or a
surviving joint owner. See the Transfer Agent for more information about where
to obtain a signature guarantee.
You may use the Transfer Agent's Telephone Redemption Privilege to
redeem shares from your account, unless you have notified the Transfer Agent
of an address change within the preceding 15 days with the exception of
redemptions to pre-authorized bank accounts. Unless an investor indicates
otherwise on the account application, the Transfer Agent will be authorized to
act upon redemption and transfer instructions received by telephone from a
shareholder, or any person claiming to act as his or her representative, who
can provide the Transfer Agent with his or her account registration and
address as it appears on the Transfer Agent's records. With the 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 Trust 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 Trust or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Trust 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 Transfer Agent at
4400 Computer Drive, Westborough, Massachusetts 01581-5120. Redemption
requests must be signed by each shareholder, including each owner of a joint
account, and each signature must be guaranteed for redemptions greater than
$50,000. 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 Exchange's Medallion Program.
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<PAGE>
Class B Shares
Contingent Deferred Sales Charge
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 table sets forth the rates of the CDSC applied for the Funds:
<TABLE>
<CAPTION>
Equity Index, Short Bond,
Income, Intermediate Bond and
Intermediate Municipal
Bond Funds All Other Funds
------------------------------------------------------
Year Since CDSC as a % of Amount CDSC as a % of Amount
Purchase Invested or Redemption Invested or Redemption
Was Made Proceeds Proceeds
- ---------- ---------------------- ----------------------
<S> <C> <C>
First 3.00 5.00
Second 3.00 4.00
Third 2.00 3.00
Fourth 2.00 3.00
Fifth 1.00 2.00
Sixth None 1.00
Seventh * None
Eighth N/A *
<FN>
* Conversion to Class A shares.
</TABLE>
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.
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) at the beginning of the
eighth year (seventh year in the case of the Equity Index, Short Bond, Income,
Intermediate Bond and Intermediate Municipal Bond Funds) 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 Equity Index, Short
Bond, Income, Intermediate Bond and Intermediate Municipal Bond Funds) of the
original purchase. If any exchanges of Class B shares during the eighth year
or seventh year, as the case may be, occurred, the holding period for the
shares exchanged will be counted toward the eighth year or seventh year, as
the case may be. 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.
Upon conversion to Class A shares, Class B shares 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.
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.
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<PAGE>
MANAGEMENT OF THE FUNDS
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. Information about the Trustees and officers
of the Trust is contained in the Statement of Additional Information.
Investment Adviser and Administrators
First Chicago NBD Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670 is each Fund's Investment Adviser.
FCNIMCO 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. FCNIMCO also acts as investment adviser for other accounts and
registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an
Investment Advisory Agreement dated as of April 12, 1996. Under the Investment
Advisory Agreement, FCNIMCO provides the day-to- day management of each Fund's
investments, subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, 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.
Under the terms of the Investment Advisory Agreement, the Investment
Adviser is entitled to a monthly fee as a percentage of each Fund's daily net
assets. Each Fund's current contractual fee for advisory services and
contractual and advisory fee rates for advisory and administrative services
under prior agreements for the fiscal year ended December 31, 1995, is set
forth below.
<TABLE>
<CAPTION>
Effective Rate
Contractual Fee Rate for Advisory
Contractual Fee Rate For Administration and Administrative
Current for Advisory Services Services for Services for
Contractual for Year Ended Year Ended Year Ended
Advisory Fee Rate December 31, 1995 December 31, 1995 December 31, 1995
----------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund 0.65% 0.65% 0.15% 0.45%
Managed Assets Balanced Fund 0.65% 0.75% * 0.57%
Managed Assets Growth Fund 0.65% N/A N/A N/A
EQUITY FUNDS:
Equity Income Fund 0.50% 0.50% 0.15% 0.52%
Growth Fund 0.60% 0.65% 0.15% 0.68%
Mid-Cap Opportunity Fund 0.60% 0.75% * 0.75%
Small-Cap Opportunity Fund 0.70% 0.70% 0.15% 0.61%
Equity Index Fund 0.10% 0.10% * 0.10%
Intrinsic Value Fund 0.60% 0.75% * 0.75%
Growth and Value Fund 0.60% 0.75% * 0.75%
International Equity Fund 0.80% 0.75% * 0.67%
BOND FUNDS:
Intermediate Bond Fund 0.40% 0.65% * 0.65%
Bond Fund 0.40% 0.65% * 0.65%
Short Bond Fund 0.35% 0.65% * 0.59%
Income Fund 0.40% 0.40% 0.15% 0.41%
International Bond Fund 0.70% 0.70% 0.15% 0.21%
MUNICIPAL BOND FUNDS:
Municipal Bond Fund 0.40% 0.40% 0.15% 0.42%
Intermediate Municipal Bond Fund 0.40% 0.40% 0.15% 0.45%
Michigan Municipal Bond Fund 0.40% 0.65% * 0.40%
<FN>
* For the fiscal year ended December 31, 1995, such Funds incurred no separate
administration fee in addition to the advisory fee for administrative
services rendered by NBD under the prior investment advisory agreement.
</TABLE>
44
<PAGE>
Although the fee payable by the International Equity Fund is higher than the
fee payable by other funds, the Investment Adviser believes that it is within
the range of fees payable by funds with comparable investment objectives and
policies.
Claude B. Erb, First Vice President and Director of Investment Planning,
is primarily responsible for the day-to-day management of the Asset Allocation
Funds and the International Bond Fund. Mr. Erb served as Deputy Chief
Investment Officer and Senior Vice President of Trust Services of America and
TSA Capital Management from 1986 through 1992. Mr. Erb joined FCN in 1993.
Chris M. Gassen, Vice President, and F. Richard Neumann, Vice President,
are primarily responsible for the day-to-day management of the Equity Income
and Intrinsic Value Funds. Mr. Gassen joined FCN in 1985 and Mr. Neumann joined
FCN in 1981.
Ronald L. Doyle, First Vice President, and Joseph R. Gatz, Vice
President, are primarily responsible for the day-to-day management of the
Mid-Cap Opportunity and Small-Cap Opportunity Funds. Mr. Doyle joined FCN in
1982 and Mr. Gatz joined FCN in 1986.
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 and Value and Growth Funds. Mr. Beard joined FCN in 1982 and Mr. Konsler
joined FCN in 1973.
Ricardo F. Cipicchio, Vice President, and Mark M. Jackson, Vice
President, are primarily responsible for the day-to-day management of the
Income Fund. Mr. Cipicchio joined FCN in 1989. Mr. Jackson has served as
portfolio manager for Alexander Hamilton Life Insurance Company, 1993-1996, and
as portfolio manager for Public Employees Retirement System of Ohio, 1988-1993.
Mr. Jackson joined FCN in 1996.
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 FCN in 1964
and Mr. Carter joined FCN in 1987.
Douglas S. Swanson, First Vice President, and Mr. Cipicchio are primarily
responsible for the day-to-day management of the Intermediate Bond and Bond
Portfolios. Mr. Swanson joined FCN in 1983.
Mr. Cipicchio and Christopher J. Nauseda, Vice President, are primarily
responsible for the day-to-day portfolio management of the Short Bond Fund. Mr.
Nauseda joined FCN in 1982.
Robert T. Grabowski, First Vice President and manager of the municipal
desk at FCN, is the person primarily responsible for the day-to-day management
of the Municipal Bond and Intermediate Municipal Bond Funds. Mr. Grabowski has
been the manager of the municipal desk at FCN since 1984.
Rebecca L. Gersonde, Vice President, is the person primarily responsible
for the day-to-day management of the Michigan Municipal Bond Fund. Ms. Gersonde
joined FCN in 1982.
FCNIMCO and BISYS serve as the Trust's Co-Administrators pursuant to an
Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of
the Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement, FCNIMCO and BISYS are entitled jointly to a monthly
administration fee at the annual rate of .15% of each Fund's average daily net
assets.
Distributor
BISYS Fund Services, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's principal underwriter and distributor of the Funds'
shares.
Transfer and Dividend Disbursing Agent and Custodian
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581- 5120, serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of FCN Corporation,
serves as the Trust's custodian (the "Custodian"). NBD is located at 900 Tower
Drive, Troy, Michigan 48098.
Expenses
All expenses incurred in the operation of the Trust are borne by such company,
except to the extent specifically assumed by the Trust's service providers.
The expenses borne by the Trust 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
45
<PAGE>
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 and Shareholder Services Plans." 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 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 total return to investors. From
time to time, the Investment Adviser 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 total return to
investors at the time such amounts are waived or assumed, as the case may be.
The Fund will not pay the Investment Adviser at a later time for any amounts
which may be waived, nor will the Fund reimburse the Investment Adviser for
any amounts which may be assumed.
DISTRIBUTION 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 Plan
(Class B only) Under a Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, the Trust has agreed to pay the Distributor for advertising,
marketing and distributing shares of a Fund at an aggregate annual rate not to
exceed .75% of the value of the average daily net assets of Class B shares.
The Distributor may pay one or more Service Agents in respect of these
services. The Investment Adviser and its subsidiaries and affiliates may act
as Service Agents and receive fees under the Distribution Plan. The
Distributor determines the amount, 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 the Distribution Plan are payable without regard to actual
expenses incurred.
Shareholder Services Plan
(Class A and Class B) Under a Shareholder Services Plan, the Trust pays the
Distributor for the provision of certain services to the holders of Class A
and Class B shares a fee at an annual rate of .25% of the value of the average
daily net assets of such shares. 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 the
Shareholder Services Plan, the Distributor may make payments to Service Agents
in respect of these services. The Investment Adviser and its subsidiaries and
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.
DIVIDENDS AND DISTRIBUTIONS
The Managed Assets Balanced, Managed Assets Growth, Growth, Small-Cap
Opportunity, Mid- Cap Opportunity, Intrinsic Value, Growth and Value, Equity
Index and International Equity Funds declare and pay dividends from net
investment income quarterly, usually on the last Business Day of the quarter.
The Bond Funds, the Municipal Bond Funds and the Managed Assets Conservative
and Equity Income Funds declare and pay dividends from net investment income
monthly, usually on the last Business Day of the month.
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.
If cash payment is requested, checks will be mailed within five days.
46
<PAGE>
TAXES
Federal
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in
accordance with the Code.
Each Fund intends to distribute as dividends substantially all of its
net income each year. With the exception of dividends paid by the Municipal
Bond Funds, such dividends will be taxable as ordinary income to each Fund's
shareholders regardless of whether a distribution is received in cash or
reinvested in additional shares. 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 Fund from domestic
corporations for the taxable year.
Dividends derived from capital net gains will be taxable to Fund
shareholders as long-term capital gains, regardless of how long the
shareholders have held the shares and whether such gains are paid in cash or
reinvested in Fund shares.
Any dividends declared in October, November or December with a record
date before the end of the year will be deemed for federal tax purposes to
have been paid by the Fund and received by the shareholders in that year if
such dividends are actually paid on or before January 31 of the following
year.
Shareholders considering buying shares of a Fund on or just before the
record date of a dividend should be aware that the amount of the dividend
payment, 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 Fund 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.
It is expected that dividends and certain interest income earned by the
International Equity and International Bond Funds from foreign securities will
be subject to foreign withholding taxes or other taxes. So long as more than
50% of the value of a Fund's total assets at the close of any taxable year
consists of equity securities of foreign corporations, the Fund may elect to
treat certain foreign taxes paid by it as paid on behalf of its shareholders.
As a consequence, the amount of such foreign taxes paid by a Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be
entitled (a) to credit the shareholder's proportionate amounts of such taxes
against the shareholder's U.S. federal income tax liabilities, or (b) if the
shareholder itemizes his deductions, to deduct such proportionate amounts from
the shareholder's U.S. income, should the shareholder so choose.
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 Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific
reference to their own tax situation.
Municipal Bond Funds
Dividends derived from tax-exempt interest income ("exempt-interest
dividends") paid by the Municipal Bond Funds may be treated by its
shareholders as items of interest excludable from their gross income unless
under the circumstances applicable to the particular shareholder the exclusion
would be disallowed. (See "Additional Information Concerning Taxes" in the
Statement of Additional Information.)
If the Municipal Bond Funds hold certain so-called "private activity
bonds," shareholders will need to include as an item of tax preference for
purposes of the federal alternative minimum tax that portion of the dividends
paid by a Fund derived from interest received on such bonds. In addition,
corporate shareholders will need to take into account all exempt- interest
dividends paid by a Municipal Bond Fund in determining certain adjustments for
the federal alternative minimum tax.
If a shareholder has held shares for six months or less and during that
time received an exempt-interest dividend attributable to those shares, any
loss realized on the sale or exchange of those shares will be disallowed to
the extent of the exempt-interest dividend.
State and Local
Dividends paid by Michigan Municipal Bond Fund that are derived from interest
attributable to tax-exempt Michigan Municipal Obligations will be
exempt from Michigan income tax, Michigan intangibles tax and Michigan single
business tax. Conversely, to the extent that the Fund's dividends are derived
from interest on obligations other than Michi-
47<PAGE>
gan Municipal Obligations 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 Fund is unable to predict in advance the portion of its dividends that
will be derived from interest on Michigan Municipal Obligations, but will mail
to its shareholders not later than sixty days after the close of the Fund's
taxable year a written notice containing information as to the interest
derived from Michigan Municipal 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.
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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance of the Funds 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, the performance of a Fund's shares may be compared to data prepared
by Lipper Analytical Services, Inc. In addition, the performance of the Funds
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 Fund.
A Fund's "yield" refers to the income generated by an investment in a
Fund over a thirty-day period for the Asset Allocation, Bond and Municipal
Bond Funds identified in the advertisement. This income is then "annualized,"
i.e., the income generated by the investment during the respective period is
assumed to be earned and reinvested at a constant rate and compounded
semi-annually and is shown as a percentage of the investment. Each Municipal
Bond Fund 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 Fund. The "tax-equivalent yield" will be
computed by dividing the tax-exempt portion of the Fund's yield by a
denominator consisting of one minus a stated federal income tax rate and
adding the product to that portion, if any, of the Fund's yield which is not
tax-exempt.
The Funds 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 reflects the average annual percentage change in
value of an investment in the Funds 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 a Fund's shares and assume that any dividends
and capital gain distributions made by the Fund during the period are
reinvested in Fund shares. When considering average total return figures for
periods longer than one year, it is important to note that a Fund's 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 the Funds is based on historical earnings and will
fluctuate and is not intended to indicate future performance. The investment
performance of an investment in the Funds will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than their
original cost. A Fund's performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a
48
<PAGE>
stated period of time. Performance data should also be considered in light of
the risks associated with a Fund'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 Fund shares will not be reflected in a Fund's performance
calculations.
Historical Performance Information
Composite performance is set forth below for the Funds or predecessor funds,
as the case may be, for various periods ended December 31, 1995, except as
noted. Total returns for Class A and Class B shares are set forth at net asset
value ("NAV") and the Fund's public offering price or maximum CDSC, as
applicable.
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative Fund
Class A shares (NAV/public offering price)((1)) 26.50%/20.16% 10.89%/9.00% 12.98%/11.82% 11.62%/11.05%((2))
Class B shares (NAV/CDSC)((1)) 25.69%/21.69% 11.40%/9.47%((6)) N/A N/A
Class I shares((7)) 22.55% N/A N/A N/A
Managed Assets Balanced Fund
Class A shares (NAV/public offering price) 23.16%/17.01% N/A N/A N/A
Class I shares 23.16% N/A N/A N/A
EQUITY FUNDS:
Equity Income Fund
Class A shares (NAV/public offering price) 29.78%/23.25% 11.91%/10.00% 14.69%/13.53% 11.42%/10.85%
Class B shares (NAV/CDSC) 28.97%/24.97% 11.12%/10.31% 13.87%/13.75% 10.61%
Class I shares 30.27% 12.45% 15.26% 11.99%
Growth Fund((3))
Class A shares (NAV/public offering price) 29.98%/23.45% 12.35%/10.46% 16.35%/15.17% 12.91%/12.34%
Class B shares (NAV/CDSC) 29.15%/25.15% 11.55%/10.74% 15.51%/15.40% 12.08%
Class I shares 30.38% 12.86% 16.91% 13.48%
Mid-Cap Opportunity Fund
Class A shares (NAV/public offering price) 19.76%/13.77% 12.83%/10.92% 19.34%/18.12% 13.27%/12.69%
Class I shares 19.76% 12.83% 19.34% 13.27%
Small-Cap Opportunity Fund((3))
Class A shares (NAV/public offering price) 24.80%/18.53% 9.63%/7.78% 19.29%/18.08% 13.26%/12.68%
Class B shares (NAV/CDSC) 23.76%/19.76% 8.77%/7.92% 18.38%/18.28% 12.41%
Class I shares 25.08% 10.09% 19.84% 13.82%
Intrinsic Value Fund
Class A shares (NAV/public offering price) 24.38%/18.16% 12.35%/10.45% 15.77%/14.59% 13.85%/13.27%
Class I shares 24.38% 12.35% 15.77% 13.85%
Growth and Value Fund
Class A shares (NAV/public offering price) 28.02%/21.62% 13.57%/11.64% 13.79%/12.62% 12.33%/11.75%
Class I shares 28.02% 13.57% 13.79% 12.33%
Equity Index Fund
Class A shares (NAV/public offering price) 37.36%/33.23% 15.06%/13.89% 16.32%/15.62% 14.50%/14.15%
Class I shares 37.36% 15.06% 16.32% 14.50%
International Equity Fund
Class A shares (NAV/public offering price) 11.47%/5.90% 13.90%/11.97% 8.41%/7.30% N/A
Class I shares 11.47% 13.90% 8.41% N/A
BOND FUNDS:
Intermediate Bond Fund
Class A shares (NAV/public offering price) 19.48%/15.89% 6.66%/5.59% 8.05%/8.05% 8.32%/8.32%
Class I shares 19.48% 6.69% 8.05% 8.32%
49
<PAGE>
Bond Fund
Class A shares (NAV/public offering price) 23.75%/18.18% 8.63%/6.98% 9.59%/8.59% 9.37%/8.87%
Class I shares 23.75% 8.63% 9.59% 9.37%
Short Bond Fund
Class A shares (NAV/public offering price) 10.07%/6.77% 5.31%/4.25% 6.53%/5.89% 7.39%/7.06%
Class I shares 10.07% 5.31% 6.53% 7.39%
Income Fund
Class A shares (NAV/public offering price) 17.19%/13.61% 6.80%/5.65%((4)) N/A N/A
Class B shares (NAV/CDSC) 16.68%/13.68% 7.71%/6.22%((6)) N/A N/A
Class I shares 17.53% 6.91%((4)) N/A N/A
International Bond Fund((3))
Class A shares (NAV/public offering price) 21.09%/15.66% 13.05%/11.36% 11.12%/10.09% N/A
Class B shares (NAV/CDSC) 20.90%/16.90% 12.43%/11.63% 10.42%/10.29% N/A
Class I shares 22.13% 13.77% 11.78% N/A
MUNICIPAL BOND FUNDS:
Municipal Bond Fund
Class A shares (NAV/public offering price) 16.89%/11.67% 8.26%/6.60% 9.20%/8.21% 8.94%/8.30%((5))
Class B shares (NAV/CDSC) 16.22%/12.22% 6.65%/4.64%((6)) N/A N/A
Class I shares 14.20%(8) N/A N/A N/A
Intermediate Municipal Bond Fund((1))
Class A shares (NAV/public offering price) 12.55%/9.21% 6.54%/5.47% 7.72%/7.08% 7.88%/7.46%((5))
Class B shares (NAV/CDSC) 8.40%/5.40% 4.21%/2.68%((6)) N/A N/A
Class I shares 11.33%(9) N/A N/A N/A
Michigan Municipal Bond Fund
Class A shares (NAV/public offering price) 16.50%/11.26% 7.19%/5.56% 7.80%/6.81% 8.00%/7.51%
Class I shares 16.50% 7.19% 7.80% 8.00%
<FN>
(1) 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 Conservative Fund, the
First Prairie Diversified Asset Fund; and for Intermediate Municipal Bond
Fund. The performance information shown is that of the predecessor fund
and the Fund.
(2) From commencement of operations on January 23, 1986.
(3) 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
shown is that of the predecessor fund and the Fund and reflects the
maximum operating expenses charged the Fund as more fully set forth in the
Fee Table above.
(4) From commencement of operations on March 5, 1993.
(5) From commencement of operations on March 1, 1988.
(6) From commencement of operations on February 8, 1994.
(7) No predecessor class existed thus the performance information shown is for
the Class since its initial offering date on March 3, 1995 for the Managed
Assets Conservative Fund.
(8) From date of initial offering on February 1, 1995.
(9) From date of initial offering on January 30, 1995.
</TABLE>
50
<PAGE>
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having twenty-six
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 Funds described herein, the Trust offers the
following investment portfolios: the Money Market, Treasury Money Market,
Municipal Money Market, Michigan Municipal Money Market, Cash Management, U.S.
Government Securities Cash Management and Treasury Prime Cash Management
Funds.
Each Fund contained herein and the Money Market Fund offer three classes
of shares; Class A, Class B and Class I. The Treasury Money Market, Municipal
Money Market and Michigan Money Market Funds offer two classes of shares;
Class A and Class I. The Cash Management, U.S. Government Cash Management and
Treasury Prime Cash Management Funds offer two Classes of shares; Class S and
Class I. Each share has $.10 par value, represents an equal proportionate
interest in the related Fund 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 Fund 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 July 31, 1996, NBD held beneficially of record approximately
88.04%, 89.80%, 80.39%, 81.80%, 83.93%, 88.06%, 89.07%, 84.86%, 87.97%,
91.80%, 67.00% and 42.11%, respectively of the outstanding shares of the
Managed Assets Balanced, Growth, Mid-Cap Opportunity, Intrinsic Value, Growth
and Value, Equity Index, International Equity, Intermediate Bond, Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond Funds, respectively.
Because NBD serves the Trust as Custodian, 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.
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.
51
<PAGE>
SUPPLEMENTAL INFORMATION
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.
Short-Term Investments
Each Fund may hold the types of short-term U.S. Government obligations
described under Asset Allocation Funds above.
U.S. Government Obligations
The Funds 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 Funds 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. 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.
Bank Obligations
Bank obligations in which the Funds may invest 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.
Certain Corporate Obligations
Commercial paper in which the Funds may invest consists of short-term,
unsecured promissory notes issued by domestic or foreign entities to finance
short-term credit needs.
A-1<PAGE>
Variable and Floating Rate Instruments
Each Fund may invest in variable and floating instruments, including without
limitation, 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 Fund to
dispose of the instruments if the issuer defaulted on its payment obligation
or during periods that the Fund is not entitled to exercise demand rights, and
the Fund could, for these or other reasons, suffer a loss with respect to such
instruments. In the absence of an active secondary market, variable and
floating rate instruments (including inverse floaters) will be subject to a
Fund's limitation on illiquid investments. See "Illiquid Securities."
Repurchase and Reverse Repurchase Agreements
To increase its income, each Fund 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
Fund will enter into repurchase agreements with the Investment Adviser, the
Distributor, or any of their affiliates, except as may be permitted by the
SEC. 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 Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Each Fund may also obtain funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Funds 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 Fund may decline below the price of the securities it is
obligated to repurchase.
Lending Portfolio Securities
To increase income or offset expenses, each Fund 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 Fund exceeds one- third of the value of its total assets. Loans of
securities involve risk 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 Investment Adviser's judgment, the income to be earned
from the loan justifies the attendant risks.
Zero Coupon Obligations
Each Fund 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 Investment Adviser will consider the liquidity needs of the
Funds when any investment in zero coupon obligations is made.
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.
When Issued Purchases and Forward Commitments
The Funds 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 Fund to purchase or
A-2<PAGE>
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund 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 Fund'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 Funds do not earn income with respect to
these transactions until the subject securities are delivered to the Funds.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their
investment objectives.
Foreign Securities
Investments by the Asset Allocation, Equity and Bond Funds 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. 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. 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.
Depository Receipts
Each Asset Allocation and Equity Fund may invest in securities of foreign
issuers in the form of American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs") and 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. 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.
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 Asset Allocation, Equity and Bond Funds 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
Each Fund may invest in 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 Fund 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.
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Securities of Investment Companies
Each Fund may invest in securities issued by open and closed-end investment
companies which principally invest in securities in which the Fund invests.
Under the 1940 Act, a 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 net assets with respect to any
one investment company and (iii) 10% of the Funds net 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. 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.
Asset Backed Securities
Asset Backed Securities acquired by the Asset Allocation, Equity and Bond
Funds consist of both mortgage and non-mortgage backed securities. Asset
backed securities held by the Funds 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 Funds, 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 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 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 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"), real estate investment trusts ("REITs") 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. 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. The 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 Funds 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 Funds 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 Funds 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
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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 Investment 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.
The Funds may also invest in non-mortgage backed securities including
interest 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.
Stripped Government Obligations
The Asset Allocation, Bond and Municipal Bond Funds 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 Fund 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 change in interest rates. The yields on a class 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.
Municipal and Related Obligations
Municipal Obligations that may be acquired by the Asset Allocation, Bond and
Municipal Bond Funds may include general obligations, revenue obligations,
notes and moral obligations bonds. Each of these Funds, other than the
Municipal Bond Funds, currently intend to invest no more than 25% of its
respective total assets in Municipal Obligations. 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
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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. From time to time,
the Municipal Bond Funds 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
nongovernmental users. 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. The Municipal Bond Funds may invest without limitation in such
Municipal Obligations if the Investment Adviser determines that their purchase
is consistent with such Fund's investment objective. See "Description of the
Funds -- Risk Factors -- Municipal Obligations." (See also "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 authority. 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 Obligations also include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. The Investment Adviser
will only invest in rated municipal lease/purchase agreements.
There are, of course, variations in the quality of Municipal Obligations
both within a particular classification and between classifications, and the
yields on Municipal Obligations 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.
Each Municipal Bond 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, a
Municipal Bond 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 Bond
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.
Among other securities, the Municipal Bond Funds 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.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issues at the time of issuance. Neither the Funds
nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
Custodial Receipts and Certificates of Participation
The Asset Allocation, Bond and Municipal Bond Funds 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.
Securities acquired by the Municipal Bond Funds may be in the forms of
custodial receipts evidencing rights to receive a specific future interest
payment, principal payment or both on certain Municipal Obligations. Such
securities are held in custody by a bank on behalf of holders of the receipts.
These cus-
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todial 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 Municipal Bond Funds 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 Fund an undivided interest in a pool of
Municipal Obligations. Certificates of participation may have fixed, floating
or variable rates of interest. If a certificate of participation is unrated,
the Investment Adviser will have determined that the instrument is of
comparable quality to those instruments in which the Investment Adviser may
invest pursuant to guidelines approved by the Board of Trustees.
Tender Option Bonds
The Municipal Bond Funds may hold tender option bonds, which are Municipal
Obligations (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.
Stand-By Commitments
The Asset Allocation, Bond and Municipal Bond Funds may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio.
Under a stand-by commitment, a 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. A Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. A 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
securities yield to investors.
Options Transactions
Each Fund is permitted to invest up to 5% of their respective assets,
represented by the premium paid, in the purchase of call and put options.
Options transactions are a form of derivative security.
Each Fund 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 25% 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 25% 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 Fund 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
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anticipated to be higher than the spot price of the currency at the time the
option expires.
Each Fund 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 Fund 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.
Futures Contracts and Options on Futures Contracts
Each Fund may enter into futures contracts and options on future contracts.
The Asset Allocation and Equity Funds may enter into stock index futures
contracts and all Funds may enter into 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. 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. 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. 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.
Foreign Currency Transactions
The Asset Allocation Funds and the International Equity and International Bond
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. 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 Funds. 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 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.
Options on Foreign Currency
The Asset Allocation Funds and the International Equity and International
Bond Funds 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.
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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 Funds 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.
Risks Associated with Futures, Options and Foreign Currency Transactions and
Options
To the extent a Fund is engaging in a futures or option 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 or option used as a hedging device, it is possible that the hedge
will not be fully effective. In futures contracts and options 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 or options 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 and options 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. 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 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.
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 the 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 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 on the contract. In addition,
unless the Fund 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 Fund might realize in trading could be eliminated by
adverse changes in the exchange rate, or the 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.
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Interest Rate and Equity Index Swaps
Each Fund 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 Fund 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.
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.
Illiquid Securities
Each Fund will not knowingly invest more than 15% of the value of its
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 Funds
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 Funds 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 Investment 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 Fund 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 Fund in these securities.
Portfolio Turnover
Generally, the Funds will purchase securities for capital appreciation or
investment income, or both, and not for short-term trading profits. However, a
Fund may sell a portfolio investment soon after its acquisition if the
Investment Adviser believes that such a disposition is consistent with or in
furtherance of the Fund's investment objective. Fund investments may be sold
for a variety of reasons, such as more favorable investment opportunities or
other circumstances. As a result, such Funds are likely to have
correspondingly greater brokerage commissions and other transaction costs
which are borne indirectly by shareholders. Fund 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 rate for the Managed Assets
Growth Fund is not expected to exceed 100%.
A-10
<PAGE>
[ Back cover ]
THE PEGASUS FUNDS
Pegasus Equity Funds
Equity Income Fund
Growth and Value Fund
Equity Index Fund
Intrinsic Value Fund
Growth Fund
Mid-Cap Opportunity Fund
Small Cap Opportunity Fund
International Equity Fund
Pegasus Managed Assets Funds
Managed Asset Conservative Fund
Managed Asset Balanced Fund
Managed Asset Growth Fund
Pegasus Fixed Income Funds
Short Bond Fund
Intermediate Bond Fund
Income Fund
Bond Fund
International Bond Fund
Pegasus Tax-Exempt Fixed Income Funds
Intermediate Municipal Bond Fund
Municipal Bond Fund
Michigan Municipal Bond Fund
[logo] PEGASUS FUNDS
Strength in Investing
PRO-896
<PAGE>
Pegasus Funds
c/o NBD Bank
900 Tower Drive
Troy, Michigan 48098
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
Prospectus
AUGUST 26, 1996
Pegasus Funds (the "Trust") is offering in this Prospectus Class I shares in
the following six investment portfolios (the "Funds"), divided into four
general fund types: Asset Allocation; Equity; Bond; and Money Market. The
Asset Allocation, Equity and Bond Funds are sometimes collectively referred to
as "Non-Money Market Funds."
ASSET ALLOCATION FUNDS BOND FUND
The Managed Assets Conservative Fund The Bond Fund
The Managed Assets Balanced Fund
EQUITY FUNDS MONEY MARKET FUND
The Mid-Cap Opportunity Fund The Money Market Fund
The Growth and Value Fund
Until on or about September 23, 1996, the formal name of Pegasus Funds is
"The Woodward Funds" and the names of the Mid-Cap Opportunity Fund, Growth and
Value Fund and Money Market Fund are Woodward Opportunity Fund, Woodward
Growth/Value Fund and Woodward Money Market Fund, respectively (sometimes
referred to as the "Woodward Portfolios"). With respect to the Woodward Money
Market Fund, prospective investors should refer to the Prospectus for Class I
shares of the Fund, dated April 15, 1996, for any investments they may be
considering in the Fund during the period August 26, 1996 until September 16,
1996 and may call (800) 688-3350 for a copy of that Prospectus or for
additional information.
The Managed Assets Conservative Fund is not expected to commence
investment operations until on or about September 21, 1996 when it is
anticipated that the assets and liabilities of the corresponding investment
portfolio of Prairie Funds, a registered open-end management investment
company, will be transferred to the Fund. Therefore, no shares of the Fund
will be offered until such date.
First Chicago NBD Investment Management Company ("FCNIMCO") serves as
each Fund's investment adviser (the "Investment Adviser").
BISYS Fund Services (the "Distributor" or "BISYS") serves as each Fund's
distributor.
By this Prospectus, Class I shares of each Fund are being offered without
a sales charge to certain qualified employee benefit plans.
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 Trust 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.
Investors should recognize that the share price, yield and investment
return of each Fund fluctuate and are not guaranteed.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION 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 POSSIBLE LOSS OF
PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND 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.
<PAGE>
Table of Contents
3 Highlights
4 Expense Table
6 Financial Highlights
12 Description of the Funds
16 How to Buy Shares
17 How to Exchange Shares
18 How to Redeem Shares
18 Management of the Trust
20 Dividends and Distributions
20 Taxes
21 Performance Information
22 General Information
A-1 Supplemental Information
<PAGE>
Highlights
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.
Investment Objectives and Management Policies
Each Fund's investment objective is set forth on page 5 of this Prospectus.
Investment Adviser
FCNIMCO is the Investment Adviser to the Funds. Each Fund has agreed to
pay the Investment Adviser an annual fee as set forth under
"Management of the Funds."
How To Buy Shares
First Data Investor Services Group, Inc. serves as the Trust's
Transfer and Dividend Disbursing Agent (the "Transfer Agent").
Class I shares are sold at net asset value with no sales charge to
certain qualified benefit plans, among others. Investors purchasing Class I
shares through their Eligible Retirement Plans (as defined under "How to Buy
Shares") should contact such plans directly for appropriate instructions, as
well as for information about conditions pertaining to the plans and any
related fees. Class I shares may be purchased for an Eligible Retirement Plan
only by a custodian, trustee, investment manager or other entity authorized to
act on behalf of such plan.
See "How to Buy Shares" on page 16 of this Prospectus.
How To Redeem Shares
Generally, investors should contact their plan administrator for redemption
instructions.
See "How to Redeem Shares" on page 18 of this Prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
Expense Table
Shareholder Transaction Expenses All Funds
-------------------------------- ---------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Sales Charge on Reinvested Dividends None
Maximum Deferred Sales Charge Imposed On
Redemptions (as a percentage of the amount
subject to charge) None
Redemption Fees None
Exchange Fees None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Total
Fees 12b-1 Other Operating
After Waivers Fees Expenses Expenses(1)
------------- ----- -------- ----------
ASSET ALLOCATION FUNDS:
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund(2) 0.58% None 0.39% 0.97%
Managed Assets Balanced Fund(2) 0.63% None 0.33% 0.96%
EQUITY FUNDS:
Mid-Cap Opportunity Fund 0.60% None 0.21% 0.81%
Growth and Value Fund 0.60% None 0.20% 0.80%
BOND FUNDS:
Bond Fund 0.40% None 0.19% 0.59%
MONEY MARKET FUND:
Money Market Fund(2) 0.29% None 0.19% 0.48%
<FN>
- ---------
(1) See "How to Buy Shares" and "Management of the Funds." Other Expenses and
Total Operating Expenses for each Fund have been restated to reflect
current expenses. Without fee waivers, the total operating expenses
applicable to Class I shares of the Managed Assets Conservative and
Managed Assets Balanced Funds would have been 1.04% and 0.98%,
respectively. With respect to certain Funds, the Investment Adviser has
undertaken to waive fees and reimburse expenses for the current fiscal
year ending December 31, 1996 to the extent the total operating expenses
applicable to Class I shares of the Managed Assets Conservative, Managed
Assets Balanced, Mid-Cap Opportunity, Growth and Value, Bond and Money
Market Funds exceed 0.97%, 0.96%, 0.92%, 1.01%, 0.93% and 0.50%,
respectively.
(2) Management fees without waivers would have been 0.65%, 0.65% and
0.30%with respect to the Managed Assets Conservative, Managed Assets
Balanced and Money Market Funds, 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 each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 0 Years
------ ------- ------- -------
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund $ 10 $31 $54 $119
Managed Assets Balanced Fund $ 10 $31 $53 $118
Mid-Ca Opportunity Fund $ 8 $26 $45 $100
Growth and Value Fund $ 8 $26 $45 $ 99
Bond Fund $ 6 $19 $33 $ 74
Money Market Fund $ 5 $15 $27 $ 60
</TABLE>
4
<PAGE>
THE AMOUNTS LISTED IN THE EXAMPLES SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF 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 MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS
THAN 5%.
The purpose of the foregoing tables is to assist investors in
understanding the various costs and expenses that an investor in a Fund will
bear, directly or indirectly, the payment of which will reduce investors'
return on an annual basis. The examples do not reflect any fees related to an
investor's employee benefit plan.
Pegasus Funds
Asset Allocation Funds
These Funds will follow an asset allocation strategy by investing in Equity
Securities (as defined below), Debt Securities (as defined below) and
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 of domestic and foreign issuers ("Cash Equivalent Securities"). "High
quality" money market instruments are money market instruments which are rated
at the time of purchase within the two highest rating categories by a Rating
Agency or which are unrated at such time but are deemed by the Investment
Adviser to be comparable in quality to instruments that are so rated. Such
investments may include obligations of foreign banks and foreign branches of
U.S. banks:
The Managed Assets Conservative Fund seeks to provide long-term total
return; capital appreciation is a secondary consideration.
The Managed Assets Balanced Fund seeks to achieve long-term total return
through a combination of capital appreciation and current income.
Equity Funds
These Funds will invest principally in common stocks, preferred stocks and
convertible securities, including those in the form of depository receipts, as
well as warrants to purchase such securities (collectively, "Equity
Securities"):
The Mid-Cap Opportunity Fund seeks to achieve long-term capital
appreciation. In seeking to achieve its objective, this Fund will invest
primarily in Equity Securities of companies with intermediate market
capitalizations.
The Growth and Value Fund seeks to achieve long-term capital growth, with
income a secondary consideration. In seeking to achieve its objective, this
Fund will invest primarily in Equity Securities of larger companies that are
attractively priced relative to their growth potential.
Bond Fund
This Fund will invest principally in a broad range of debt securities ("Debt
Securities"). Debt Securities in which the Bond Fund normally invests include:
(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; (vi) securities representing interests in pools of assets;
and (vii) 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:
The Bond Fund seeks to maximize total rate of return by investing
predominantly in intermediate and long-term Debt Securities. During normal
market conditions, the Fund's average weighted portfolio maturity is expected
to be between 6 and 12 years.
Money Market Fund
The Money Market Fund seeks to maintain a net asset value of $1.00 per share
for purchases and redemptions. To do so, the Fund uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940 Act:
The Money Market Fund seeks to provide a high level of current income
consistent with the preservation of capital and liquidity. This Fund will
invest in high quality "money market" instruments described below.
5
<PAGE>
Financial Highlights
The tables below provide supplementary information to the Funds' financial
statements contained in their Statement of Additional Information and set
forth certain information concerning the historic investment results of Fund
shares. They present a per share analysis of how each Fund's net asset value
has changed during the periods presented. The table, with respect to the
Managed Assets Conservative Fund, has been derived from the financial
statements which have been audited by Ernst & Young LLP, such Fund's
independent auditors and, with respect to the Managed Assets Balanced, Mid-Cap
Opportunity, Growth and Value, Bond and Money Market Funds, have been derived
from such Funds' financial statements which have been audited by Arthur
Andersen LLP, the Trust's independent public accountants, whose reports
thereon are 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 Funds 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>
Managed Assets Conservative Fund *
Class I Shares
For the Period
Ended
December 31,
1995(a)
--------------
<S> <C>
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 distributions:
From net investment income (0.57)
From net realized gains (0.03)
Total distributions (0.60)
Net asset value, end of period $14.57
Total return 22.55%++
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) $1,294
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 (b) 1.22%+
Ratio of net investment income to average net
assets (b) 4.66%+
Portfolio turnover rate 8.23%++
<FN>
- ---------
* The Fund was formerly known as the Prairie Managed Assets Income Fund, a
separate investment portfolio (the "Prairie Fund") of Prairie Funds, which
was organized as a Massachusetts business trust. On or about September 21,
1996, the assets and liabilities of the Prairie Fund are expected to be
transferred to this Fund, which has no prior operating history.
(a) For the period March 3, 1995 (initial offering of Class I Shares) through
December 31, 1995.
(b) 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.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Managed Assets Balanced Fund*
Class I Shares
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 net 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 (000's omitted) $93,624 $54,167
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%
<FN>
- ---------
* Prior to August 26, 1996, the Fund was named the Woodward Balanced Fund.
</TABLE>
7
<PAGE>
Mid-Cap Opportunity Fund*
Class I Shares
<TABLE>
<CAPTION>
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 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 net 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
(000's omitted) $650,952 $524,999 $365,665 $166,423 $108,046
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%
<FN>
- ---------
* Until on or about September 23, 1996, the name of the Fund is the Woodward
Opportunity Fund.
(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>
Growth and Value Fund*
Class I Shares
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to December 31,
1995 1994 1993 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 (1.17) 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 net 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 (000's omitted) $737,167 $571,371 $429,635 $287,345 $238,086
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>
- ---------
* Until on or about September 23, 1996, the name of the Fund is the
Woodward Growth/Value Fund.
(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>
<TABLE>
<CAPTION>
Bond Fund*
Class I Shares
June 1, 1991
(Commencement)
Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, to 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 net 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 (000's omitted) $517,566 $427,168 $501,196 $321,758 $237,673
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>
- ---------
* Until on or about August 26, 1996, the name of the Fund is the Woodward
Bond Fund.
(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>
10
<PAGE>
<TABLE>
<CAPTION>
Money Market Fund*
Class I Shares
January 1, 1988
(Commencement)
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended of Operations)
December 31, December 31, December 31, December 31, December 31, December 31, December 31, to December 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
(000's omitted) $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>
- ---------
* Until on or about September 16, 1996, the name of the Fund is the Woodward
Money Market Fund.
(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>
11
<PAGE>
Description of the Funds
General
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 twenty-six investment portfolios, each of which consists
of a separate pool of assets with separate investment objectives and policies.
This Prospectus, however, describes only six portfolios. Under the 1940 Act,
each Fund is classified as a diversified investment portfolio.
Investment Objectives and Policies
The investment objective of a Fund may not be changed without approval of the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. See "General Information." Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
a vote of shareholders. There can be no assurance that a Fund will achieve its
objective. The following sections should be read in conjunction with the
description of investments in which the Funds may invest, as set forth in
"Supplemental Information."
Asset Allocation Funds
Each Asset Allocation Fund follows an asset allocation strategy by investing
in Equity Securities, Debt Securities and Cash Equivalent 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-Foreign Securities" below.
The equity portion of each Asset Allocation Fund's investments will be
invested primarily in publicly traded stocks of companies incorporated in the
United States, although up to 25% of its total assets may be invested in the
Equity Securities of foreign issuers, either directly or through Depository
Receipts.
The Asset Allocation Funds invest the fixed income portion of their
portfolios of investments in a broad range of Debt Securities rated
"investment grade" or higher at the time of purchase (i.e., 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") (each a "Rating Agency")) or unrated
investments deemed by the Investment 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. Most Debt
Securities acquired by an Asset Allocation Fund will be issued by companies or
governmental entities located within the United States. Up to 15% of the total
assets of a Fund may, however, be invested in dollar-denominated debt
obligations (including Cash Equivalent Securities) of foreign issuers.
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 generally intends to manage the Fund's assets:
<TABLE>
<CAPTION>
Managed Assets Managed Assets
Conservative Fund Balanced Fund
----------------------- ------------------------
Benchmark Strategy Benchmark Strategy
Asset Class Percentage Range Percentage Range
----------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Equity Securities: 40% 25% to 55% 60% 45% to 75%
Debt Securities & Cash
Equivalent Securities: 60% 45% to 75% 40% 25% to 55%
</TABLE>
Compliance with these percentage requirements may limit the ability of a
Fund to maximize total return. The actual percentage of assets invested in
Equity Securities, Debt Securities and Cash Equivalent Securities will vary
from time to time and may be outside the strategy range, depending on the
judgment of the Investment Adviser as to general market and economic
conditions, trends in yields, interest rates and changes in fiscal and
monetary developments. The Managed Assets Conservative Fund is deemed to be
more "conservative" than the Managed Assets Balanced Fund because its
benchmark and strategy have heavier weightings in Debt Securities and Cash
Equivalent Securities and lighter weightings in Equity Securities in
comparison to the Managed Assets Balanced Fund.
Each Asset Allocation Fund also may engage in futures and options
transactions and other derivative instruments, such as interest rate and
equity index swaps and foreign exchange transactions, each of which involves
risk. Each Asset Allocation Fund may also lend its portfolio securities,
invest in foreign currency transactions and options on foreign currency
transactions and may invest in currency futures and options on currency
futures for investment or hedging purposes. As permitted under
12
<PAGE>
applicable law, an Asset Allocation Fund may also invest its cash balances in
securities issued by other investment companies. See "Risk Factors" below and
"Supplemental Information."
Equity Funds
The Mid-Cap Opportunity and Growth and Value Funds invest primarily in publicly
traded common stocks of companies incorporated in the United States, although
they may also invest up to 25% of their respective total assets in the Equity
Securities of foreign issuers, either directly or through Depository Receipts.
In addition, each Equity Fund may invest in securities convertible into common
stock, such as certain bonds and preferred stocks, and may invest up to 5% of
its net assets in other types of securities having common stock characteristics
(such as rights and warrants to purchase equity securities). Each Equity Fund
is permitted to invest up to 5% of its net assets in lower rated convertible
securities. The Equity Funds may also enter into futures contracts and related
options and may utilize options and other derivative instruments such as equity
index swaps, each of which involves risk. Each Equity Fund may also lend its
portfolio securities. Under normal market conditions, each Fund expects to
invest at least 65% of the value of its total assets in Equity Securities.
Each Equity Fund may hold up to 35% of its total assets in investment grade
Debt Securities and Cash Equivalent Securities.
The Mid-Cap Opportunity Fund invests in Equity Securities of companies
with market capitalizations of $500 million to $3 billion. The Investment
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.
The Growth and Value Fund invests primarily in Equity Securities of
companies believed by the Investment Adviser to represent a value or potential
worth which is not fully recognized by prevailing market prices. The Fund
invests in companies which the Investment Adviser believes have earnings
growth expectations that exceed those implied by the market's current
valuation. In addition, the Fund seeks to maintain a portfolio of companies
whose earnings will increase at a faster rate than within the general equity
market.
Bond Fund
The Bond Fund invests in a portfolio of U.S. dollar denominated Debt
Securities of domestic and foreign issuers. The Fund's average weighted
portfolio maturity is expected to be between 6 and 12 years.
The Bond Fund will invest at least 65% of the value of its total assets
under normal market conditions in Debt Securities. When the Investment Adviser
believes it advisable for temporary defensive purposes or in anticipation of
otherwise investing cash positions, the Bond Fund may invest in Cash
Equivalent Securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Up to 15%
of the total assets of the Bond Fund may be invested in dollar denominated
debt obligations (including Cash Equivalent Securities) of foreign issuers.
The Bond Fund also may engage in futures and options transactions and
other derivative instruments, such as interest rate swaps and forward
contracts. The Bond Fund may also lend its portfolio securities. See
"Risk Factors" below and "Supplemental Information."
The Debt Securities in which the Bond Fund may invest will be rated
investment grade at the time of purchase, or if unrated, will be deemed by the
Investment Adviser to be comparable in quality at the time of purchase to
instruments that are so rated. By so restricting its investments, the Fund's
ability to maximize total rate of return will be limited.
Money Market Fund
The Money Market Fund invests in the following high quality "money market"
instruments: (1) U.S. Government Obligations (as defined below); (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.
The Money Market Fund seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions. To do so, the 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.
13
<PAGE>
The Money Market Fund will only purchase "eligible securities" that
present minimal credit risks as determined by the Investment Adviser pursuant
to guidelines established by the Trust's Board of Trustees. Eligible
securities include (i) obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"); (ii) securities that are
rated (at the time of purchase) by Rating Agencies in the two highest
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 Investment 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.
The Money Market Fund is managed so that the average maturity of all
instruments in the Fund (on a dollar-weighted basis) will not exceed 90 days.
In no event will the Fund 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).
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 a Fund will be able to
maintain a stable net asset value of $1.00 per share.
Investment Limitations
Each Fund is subject to a number of investment limitations. Except as noted,
the following investment limitations are matters of fundamental policy and may
not be changed with respect to a particular Fund without the affirmative vote
of the holders of a majority of the Fund'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."
Each Fund may not:
1. 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 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, and (d) personal credit and business credit
businesses will be considered separate industries.
2. Make loans, except that each Fund 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, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
4. 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 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 a Fund, except
that up to 25% of the value of a Fund's total assets may be invested without
regard to these limitations.
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 Fund's portfolio securities will not constitute a
violation of such limitation for purposes of the 1940 Act.
Risk Factors
General
Before selecting a Fund in which to invest, the investor should assess the
risks associated with the types of investments made by the Fund. 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. The
following should be read in conjunction with "Supplemental Information"
beginning on page A-1 of this Prospectus, and the Statement of Additional
Information, which provides further discussion of securities in which the
Funds may invest and the investment risks associated with these investments.
14
<PAGE>
Equity Securities
(Asset Allocation and Equity Funds only) The securities of 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.
Debt Securities
(All Funds) Investors should be aware that even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities generally are inversely affected by changes in interest
rates and, therefore, are subject to the risk of market price fluctuations.
The values of Debt Securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. Also, see "Lower Rated
Securities" below and the Statement of Additional Information.
Lower Rated Securities
(Equity 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). The Equity Funds are permitted to invest up to 5% of their
respective net assets in lower rated convertible securities.
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.
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 Debt Securities. Securities rated BBB or Baa by a Rating Agency
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 and may 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. Factors
adversely affecting the market price and yield of these securities, including
a Fund's ability to sell securities in a market that may be less liquid than
the market for higher rated securities, will adversely affect a 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 a Fund to sell certain securities or could
result in lower prices than those used in calculating the Fund's net asset
value. The Investment Adviser will continually 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 the Appendix in the Statement of
Additional Information for a general description of securities ratings.
Foreign Securities
(All Non-Money Market Funds only) Foreign securities markets, and especially
those of developing countries, generally are not as developed or efficient as
those in the United States. Investment in securities of foreign issuers,
whether made directly or indirectly, involves 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. 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.
Foreign Currency and Foreign Commodity Transactions
(Asset Allocation 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
15
<PAGE>
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 profits or force the 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 (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 a
Fund might realize in trading could be eliminated by adverse changes in the
exchange rate, or a 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 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. Mortgage-related securities may be considered a derivative
instrument.
Derivative Instruments
(All Non-Money Market Funds only) Each Fund 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 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.
HOW TO BUY SHARES
General Information
All orders to purchase shares must be made through your employer's qualified
benefit plan. For more information on how to purchase shares of the Funds
through your employer's plan or limitations on the amount that may be
purchased, please consult your employer.
Class I shares are sold at net asset value to qualified retirement,
profit sharing or other employee benefit plans with plan assets of at least
$100 million invested in shares of the Funds or other investment companies or
accounts advised by either NBD Bank ("NBD") or FCNIMCO ("Eligible Retirement
Plans"). Class I shares are not subject to an annual service fee, distribution
fee or a sales charge.
Share certificates will not be issued.
Net Asset Value
As to each Fund, net asset value per Class I share 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.
Non-Money Market Funds. The net asset value per Class I share of each
Fund for purposes of pricing and redemption orders is determined by the
Investment Adviser as of the close of trading on the floor of the New York
Stock Exchange ("Exchange") (currently 4:00 p.m., Eastern Time) on each day
the Exchange is open for business (a "Business Day") except: (i) those
holidays which the Exchange observes (currently New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day); and (ii) those business days on which the
16
<PAGE>
Exchange closes prior to the close of its regular trading hours ("Early
Closing Time") in which event the net asset value of each Fund will be
determined and its shares will be priced as of such Early Closing Time.
If an order is received by the Transfer Agent by the close of trading on
the floor of the Exchange or at the Early Closing Time on any Business Day,
shares of the Non-Money Market Funds will be purchased at the net asset value
determined as of such time on that day. Otherwise, shares will be purchased at
the net asset value determined as of the close of trading on the floor of the
Exchange (or at the Early Closing Time) on the next Business Day.
Securities held by the Non-Money Market Funds which are traded on a
recognized U.S. stock exchange are valued 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 Investment 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. Debt Securities held by the Funds
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
Investment 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 Investment 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 Fund's open futures contracts will be "marked-to-market."
Money Market Fund. The net asset value per Class I share for purposes of
pricing purchase and redemption orders is determined by the Investment Adviser
as of 3:00 p.m., Eastern Time, on each Business Day except: (i) those holidays
which the Exchange, the Investment Adviser or its bank affiliates observe
(currently New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day); and (ii) those Business
Days on which the Exchange closes at an Early Closing Time in which event the
net asset value of the Fund will be determined and its shares will be priced
as of such Early Closing Time.
Shares of the 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 (monies of member banks within the Federal Reserve System which
are held in 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.
The assets of the Money Market Fund are valued based upon the amortized
cost method. Although the Trust seeks to maintain the net asset value per
share of the Fund at $1.00, there can be no assurance that the net asset value
will not vary.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your employer's qualified benefit
plan, you may exchange Class I shares of the Funds at net asset value. Please
contact your plan administrator or the Transfer Agent for information on how
to exchange your shares.
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 SEC. 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.
17
<PAGE>
HOW TO REDEEM SHARES
General Information
Subject to any restrictions imposed by your employer's qualified benefit plan,
you may sell your shares through the plan to the Trust on any Business Day (as
described under "How to Buy Shares"). For more information on how to redeem
shares of the Funds through your employer's plan, including any charges that
may be imposed by the plan, please consult your employer.
An investor may request redemption of his or her shares by following
instructions pertaining to his or her plan. It is the responsibility of the
entity authorized to act on behalf of the investor's 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 above. 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 SEC rules. The Funds will only redeem shares for
which payment has been received.
MANAGEMENT OF THE TRUST
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. Information about the Trustees and officers
of the Trust is contained in the Statement of Additional Information.
Investment Adviser and Administrators
First Chicago NBD Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670 is each Fund's Investment Adviser.
FCNIMCO 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 ("FCN"), a registered bank holding
company. FCNIMCO also acts as investment adviser for other accounts and
registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an
Investment Advisory Agreement dated as of April 12, 1996. Under the Investment
Advisory Agreement, FCNIMCO provides the day-to-day management of each Fund's
investments, subject to the overall authority of the Trust's Board of Trustees
and in conformity with Massachusetts law and the stated policies of the Trust,
FCNIMCO is responsible for making investment decisions for the Trust, 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.
18
<PAGE>
Under the terms of the Investment Advisory Agreement, the Investment
Adviser is entitled to a monthly fee as a percentage of each Fund's daily net
assets. Each Fund's current contractual fee for advisory services and
contractual and advisory fee rates for advisory and administrative services
under prior agreements for the fiscal year ended December 31, 1995 are set
forth below.
<TABLE>
<CAPTION>
Effective Rate
Contractual Fee Rate for Advisory
Contractual Fee Rate For Administration and Administrative
Current for Advisory Services Services for Services for
Contractual for Year Ended Year Ended Year Ended
Advisory Fee Rate December 31, 1995 December 31, 1995 December 31, 1995
----------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets
Conservative Fund 0.65% 0.65% 0.15% 0.45%
Managed Assets Balanced Fund 0.65% 0.75% * 0.57%
EQUITY FUNDS:
Mid-Cap Opportunity Fund 0.60% 0.75% * 0.75%
Growth and Value Fund 0.60% 0.75% * 0.75%
BOND FUNDS:
Bond Fund 0.40% 0.65% * 0.65%
MONEY MARKET FUNDS:
Money Market Fund .30% .45% * 0.44%
of first $1 of first $1
billion,.275% billion,.425%
of next $1 of next $1
billion,.25% of billion, .40% of
amount in excess amount in excess
of $2 billion of $2 billion
<FN>
- ---------
* For the fiscal year ended December 31, 1995, such Funds incurred no
separate administration fee in addition to the advisory fee for
administrative services rendered by NBD under the prior investment
advisory agreement.
</TABLE>
Claude B. Erb, First Vice President and Director of Investment Planning,
is primarily responsible for the day-to-day management of the Asset Allocation
Funds. Mr. Erb served as Deputy Chief Investment Officer and Senior Vice
President of Trust Services of America and TSA Capital Management from 1986
through 1992. Mr. Erb joined FCN in 1993.
Ronald L. Doyle, First Vice President, and Joseph R. Gatz, Vice President,
are primarily responsible for the day-to-day management of the Mid-Cap Oppor-
tunity Fund. Mr. Doyle joined FCN in 1982 and Mr. Gatz joined FCN in 1986.
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 and Value Fund. Mr. Beard joined FCN in 1982 and Mr. Konsler joined FCN
in 1973.
Douglas S. Swanson, First Vice President, and Ricardo F. Cipicchio, Vice
President, are primarily responsible for the day-to-day management of the Bond
Fund. Mr. Swanson joined FCN in 1983. Mr. Cipicchio joined FCN in 1989.
FCNIMCO and BISYS serve as the Trust's Co-Administrators pursuant to an
Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of
the Trust's Board in accordance with Massachusetts law. Under the terms of the
Administration Agreement, FCNIMCO and BISYS are entitled jointly to a monthly
administration fee at the annual rate of .15% of each Fund's average daily net
assets.
Distributor
BISYS Fund Services, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's principal underwriter and distributor of the Funds'
shares.
Transfer and Dividend Disbursing Agent and Custodian
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent. NBD, which is a wholly-owned subsidiary of FCN, serves as
the Trust's custodian (the "Custodian"). NBD conducts its custody services on
behalf of the Trust at 900 Tower Drive, Troy, Michigan 48098.
19
<PAGE>
Expenses
All expenses incurred in the operation of the Trust are borne by it, except to
the extent specifically assumed by the Trust's service providers. The expenses
borne by the Trust 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. Expenses attributable
to a particular Fund are charged against the assets of that Fund; 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,
will have the effect of reducing the total return to investors. From time to
time, the Investment Adviser 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 total return to investors at
the time such amounts are waived or assumed, as the case may be. The Fund will
not pay the Investment Adviser at a later time for any amounts which may be
waived, nor will the Fund reimburse the Investment Adviser for any amounts
which may be assumed.
DIVIDENDS AND
DISTRIBUTIONS
The Managed Assets Balanced, Mid-Cap Opportunity, and Growth and Value Funds
declare and pay dividends from net investment income quarterly, usually on the
last Business Day of the quarter. The Managed Assets Conservative and Bond
Funds declare and pay dividends from net investment income monthly, usually on
the last Business Day of the month.
The Money Market Fund declares dividends from net investment income on
each of its Business Days. Dividends usually are paid on the last Business Day
of each month. Shares begin accruing dividends on the Business Day on which
the purchase order is effective. The earnings for Saturday, Sunday and
holidays are declared as dividends on the preceding Business Day.
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.
If cash payment is requested, checks will be mailed within five Business Days
after the last day of each month.
TAXES
Each Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally will relieve the Funds of liability for
federal income taxes to the extent their earnings are distributed in
accordance with the Code.
Each Fund intends to distribute as dividends substantially all of its net
income each year. Such dividends will be taxable as ordinary income to each
Fund's shareholders regardless of whether a distribution is received in cash
or reinvested in additional shares. Dividends derived from net capital gains
will be taxable to Fund shareholders as long-term capital gains, regardless of
how long the shareholders have held the shares and whether such gains are paid
in cash or reinvested in Fund shares. Distributions by the Funds to employee
benefit plans that qualify for tax-exempt treatment under federal income tax
laws will not be subject to current taxation.
The foregoing discussion summarizes some of the important tax
considerations generally affecting the Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific
reference to their own tax situation.
20
<PAGE>
PERFORMANCE
INFORMATION
From time to time, in advertisements or in reports to shareholders the
performance of the Funds 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, the performance of a Fund's shares may be compared to data prepared
by Lipper Analytical Services, Inc. In addition, the performance of the Funds
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. The yields of the Money
Market Fund may be compared to the Donoghue's Money Fund Average which is an
average 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. 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 Fund.
In the case of the Asset Allocation and Bond Funds, "yield" refers to the
income generated by an investment in the Fund over a thirty-day period
identified in the advertisement. This income is then "annualized," i.e., the
income generated by the investment during the respective period is assumed to
be earned and reinvested at a constant rate and compounded semi-annually and
is shown as a percentage of the investment.
In the case of the Money Market Fund, "yield" refers to the income
generated by an investment in the Fund over a seven-day period identified in
the advertisement. This income is then "annualized," i.e., the income
generated by the investment during the respective period is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The Fund 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 Non-Money Market Funds 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 reflects the average annual percentage
change in value of an investment in a Fund 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 a Fund's shares and assume that any
dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares. When considering average total return figures
for periods longer than one year, it is important to note that a Fund's 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 the Funds is based on historical earnings and will
fluctuate and is not intended to indicate future performance. The investment
performance of an investment in the Non-Money Market Funds will fluctuate so
that a shareholder's shares, when redeemed, may be worth more or less than
their original cost. A Fund's 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 Fund's portfolio composition, quality,
maturity, operating expenses and market conditions. Any fees charged by
employee benefit plans directly to their participants in connection with
investments in Fund shares will not be reflected in a Fund's performance
calculations.
Historical Performance Information
Composite performance is set forth below for the Class I shares of the Funds
or predecessor funds, as the case may be, for various periods ended December
31, 1995, except as noted.
21
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUNDS:
Managed Assets Conservative
Fund(1) 22.55% N/A N/A N/A
Managed Assets Balanced Fund 23.16% N/A N/A N/A
EQUITY FUNDS:
Mid-Cap Opportunity Fund 19.76% 12.83% 19.34% 13.27%
Growth and Value Fund 28.02% 13.57% 13.79% 12.33%
BOND FUND:
Bond Fund 23.75% 8.63% 9.59% 9.37%
<FN>
- ---------
(1) No predecessor class existed; thus, the performance information shown is
for the Class since its initial offering date on March 3, 1995 for the
Managed Assets Conservative Fund.
For the seven day period ended December 31, 1995, the annualized yields
and effective yields for the Class I shares of the Money Market Fund were
5.37% and 5.48%, respectively.
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on April 21, 1987
under a Declaration of Trust. The Trust is a series fund having twenty-six
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 Funds described herein, the Trust offers the
following investment portfolios:
The Managed Assets Growth Fund
The Equity Income Fund
The Growth Fund
The Small-Cap Opportunity Fund
The Intrinsic Value Fund
The Equity Index Fund
The International Equity Fund
The Intermediate Bond Fund
The Short Bond Fund
The Income Fund
The International Bond Fund
The Municipal Bond Fund
The Intermediate Municipal Bond Fund
The Michigan Municipal Bond Fund
The Treasury Money Market Fund
The Municipal Money Market Fund
The Michigan Municipal Money Market Fund
The Cash Management Fund
The U.S. Government Securities Cash Management Fund
The Treasury Prime Cash Management Fund
Each Fund described herein and the Managed Assets Growth, Equity Income,
Growth, Small-Cap Opportunity, Intrinsic Value, Equity Index, International
Equity, Intermediate Bond, Short Bond, Income, International Bond, Municipal
Bond, Intermediate Municipal Bond and Michigan Municipal Bond Funds offer
three classes of shares: Class A, Class B and Class I. The Treasury Money
Market, Municipal Money Market and Michigan Money Market Funds offer two
classes of shares: Class A and Class I. The Cash Management, U.S. Government
Cash Management and Treasury Prime Cash Management Funds offer two Classes of
shares: Class S and Class I. 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 Fund 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 Fund 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 July 31, 1996, NBD held beneficially of record approximately
89.04%, 80.39%, 83.93% and 87.97% of the outstanding shares of the Managed
Assets Balanced, Mid-Cap Opportunity, Growth and Value, and Bond Funds,
respectively.
Because NBD serves the Trust as Custodian, 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
22
<PAGE>
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.
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.
23
<PAGE>
Supplemental
Information
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.
Short-Term Investments
Each Non-Money Market Fund may hold the types of Cash Equivalent Securities
described under Asset Allocation Funds above.
U.S. Government Obligations
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. Some of these investments may be
variable or floating rate instruments.
The Non-Money Market Funds 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.
Bank Obligations
Bank obligations include certificates of deposit, time deposits, bankers'
acceptances, fixed time deposits 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. Because the Funds may
invest in securities backed by banks and other financial institutions, changes
in the credit quality of these institutions could cause losses to a Fund and
affect its share price.
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 Fund will not invest in a Eurodollar
obligation if upon making such investment the total Eurodollar obligations
which are not general obligations of domestic parent banks would thereby
exceed 25% of the total assets of the Money Market Fund.
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 nationalization 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
A-1
<PAGE>
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).
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.
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 Investment Adviser
to be of comparable quality.
Guaranteed Investment Contracts
Each Fund may make limited investments in guaranteed investment contracts
("GICs") issued by highly rated U.S. insurance companies. Pursuant to such
contracts, a Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund 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 Fund 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 Fund will only purchase GICs from issuers which meet quality and
credit standards established by the Investment 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 Funds to be illiquid investments and
subject to the limitation on illiquid investments set forth below.
Variable and Floating Rate Obligations
Each Non-Money Market Fund may invest in variable and floating instruments,
including without limitation, 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 Money Market Fund may purchase rated and unrated variable and floating
rate obligations that have stated maturities in excess of 13 months but, in any
event, permit the Fund 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 Fund to
dispose of the instruments if the issuer defaulted on its payment obligation
or during periods that the Fund is not entitled to exercise demand rights, and
the Fund could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by a Fund will be
subject to the Fund's limitation on illiquid investments when the Fund may not
demand payment of the principal amount within seven days and a reliable
trading market is absent.
Repurchase and Reverse Repurchase
Agreements
To increase its income, each Fund may agree to purchase portfolio securities
from financial institutions subject to the seller's agreement to repurchase
A-2
<PAGE>
them at a mutually agreed-upon date and price ("repurchase
agreements"). No Fund will enter into repurchase agreements with the
Investment Adviser, the Distributor, or any of their affiliates, except as may
be permitted by the SEC. Although the securities subject to repurchase
agreements may bear maturities exceeding thirteen months provided the
repurchase agreement itself matures in thirteen months of less, the Funds
generally intend to enter into repurchase agreements which terminate within
seven days after notice by the Funds. 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 Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations.
Each Fund may also obtain funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Funds 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 Fund may decline below the price of the securities it is
obligated to repurchase. Whenever a Fund 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 Fund 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 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 Fund exceeds one-third
of the value of its total assets. Loans of securities involve risk 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. In the event a Fund 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 Investment Adviser's judgment, the income to be earned from
the loan justifies the attendant risks.
Zero Coupon Obligations
Each Non-Money Market Fund 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 Investment Adviser will consider the liquidity
needs of the Funds when any investment in zero coupon obligations is made.
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.
When-Issued Purchases and Forward
Commitments
Each Fund may purchase portfolio securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund 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 Fund 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 Funds do not earn income with respect to these
transactions until the subject securities are delivered to the Funds. The
Funds do not intend to engage in when-issued purchases and forward commitments
for speculative purposes but only for the purposes of acquiring
A-3
<PAGE>
portfolio securities. Each Fund's when-issued purchases and forward
commitments are not expected to exceed 25% of the value of its total assets
absent unusual market conditions.
Foreign Securities
Investments by the Non-Money Market Funds 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. 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. 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.
Depository Receipts
Each Asset Allocation and Equity Fund may invest in securities of foreign
issuers in the forms of American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs") 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.
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 Non-Money Market Funds 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
Each Non-Money Market Fund may invest in 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 Fund 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.
Securities of Other Investment Companies
Each Non-Money Market Fund may invest in securities issued by open and
closed-end investment companies which principally invest in securities in
which the Fund invests. The Money Market Fund 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. Under the 1940 Act, a Fund's
investment in such securities, subject to certain exceptions, currently is
limited to (i) 3% of the total voting stock of any one
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investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net 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, if any. 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.
Asset Backed Securities
Asset Backed Securities acquired by the Non-Money Market Funds consist of both
mortgage and non-mortgage backed securities. Asset backed securities 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 Funds, 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 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 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 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"), real estate investment trusts ("REITs") 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. 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. The 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 Funds 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 Funds 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 Funds 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 Investment Adviser's opinion equivalent in
credit quality to such rating. Mortgage backed securities issued by private
issuers, whether or not
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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. The Asset Allocation and Bond Funds may also invest in
non-mortgage backed securities including interest 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.
Stripped Government Obligations
The Asset Allocation and Bond Funds 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 Fund 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 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.
Municipal and Related Obligations
Municipal Obligations that may be acquired by the Asset Allocation and
Bond Funds may include general obligations, revenue obligations, notes and
moral obligations bonds. Each of these Funds currently intends to invest no
more than 25% of its total assets in Municipal Obligations. 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 authori-
ties) 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 a special purpose
public authority. If the issuer of a moral obligation bond is unable to meet
its debt service obligations from current revenues, it may
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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 Obligations also include municipal lease/purchase agreements which
are similar to installment purchase contracts for property or equipment issued
by municipalities. The Investment Adviser will only invest in rated municipal
lease/purchase agreements.
There are, of course, variations in the quality of Municipal Obligations
both within a particular classification and between classifications, and the
yields on Municipal Obligations 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.
Custodial Receipts and Certificates of Participation
The Asset Allocation and Bond Funds 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.
Stand-By Commitments
The Asset Allocation and Bond Funds may acquire "stand-by commitments" with
respect to Municipal Obligations held in their portfolios. Under a stand-by
commitment, a 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. A Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. A 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 securities yield to
investors.
Options Transactions
Each Non-Money Market Fund is permitted to invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options.
Options transactions are a form of derivative security.
Each Non-Money Market Fund 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
25% 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 25% 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 Non-Money Market Fund 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 Non-Money Market Fund 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 Non-Money Market Fund may purchase and sell call and put options on
stock indices listed on U.S. securities exchanges or traded in the
over-the-counter market. A stock index fluctuates with changes
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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 indices in an industry or market segment, rather than movements in the
price of a particular stock.
Futures Contracts and Options on Futures
Contracts
Each Non-Money Market Fund may enter into futures contracts and options on
future contracts. The Asset Allocation and Equity Funds may enter into stock
index futures contracts and all Non-Money Market Funds may enter into 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. 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. 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.
Foreign Currency Transactions
The Asset Allocation 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. 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 Funds. 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 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 an agreement to exchange an amount
of a currency the Fund 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 Fund contracted to receive in the exchange.
Options on Foreign Currency
The Asset Allocation Funds 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 Funds may use
foreign currency options for the same purposes as forward currency exchange
and futures transactions, as described herein. See also "Options Transactions"
above.
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Risks Associated with Futures, Options and
Foreign Currency Transactions and Options
To the extent a Non-Money Market Fund is engaging in a futures or options
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 or options used as a hedging device, it
is possible that the hedge will not be fully effective. In futures contracts
and options 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 and options 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 and options by a Non-Money Market 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. See "Illiquid Securities" below. 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 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.
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 a Fund of unrealized
profits or force the 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 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 on the contract. In addition,
unless the Fund 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 Fund might realize in trading could be eliminated by
adverse changes in the exchange rate, or the 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.
Interest Rate and Equity Index Swaps
Each Non-Money Market Fund may enter into interest rate swaps and equity index
swaps, to the extent described under "Description of the Funds-Management
Policies," in pursuit of its investment objective. 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
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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 Non-Money Market Fund 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.
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 Non-Money Market 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.
Illiquid Securities
The Non-Money Market Funds will not knowingly invest more than 15% of the
value of their respective net assets in securities that are illiquid and the
Money Market Fund will not knowingly invest more than 10% of the value of its
net 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, GICs and time deposits) that do not provide for payment to the
Funds 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.
Each Fund 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 Investment 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 Fund 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 Fund in these securities.
Portfolio Turnover
Generally, the Non-Money Market Funds will purchase securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with or in furtherance of the Fund's investment objective. Fund
investments may be sold for a variety of reasons, such as more favorable
investment opportunities or other circumstances. As a result, such Funds are
likely to have correspondingly greater brokerage commissions and other
transaction costs which are borne indirectly by shareholders. Fund 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.).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 9, 1996
(as revised September 16, 1996)
for
CLASS A, CLASS B AND CLASS I SHARES OF THE
MONEY MARKET FUND
AND
CLASS A AND CLASS I SHARES
OF THE
TREASURY MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
MICHIGAN MUNICIPAL MONEY MARKET FUND
of
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
(800) 688-3350
This Statement of Additional Information ("Additional
Statement") is meant to be read in conjunction with the Pegasus Funds'
Prospectus dated September 9, 1996 (as revised September 16, 1996) pertaining
to all classes of shares of the Funds listed above (the "Prospectus") (each, a
"Fund" and collectively, the "Funds"), as it may be revised from time to time,
and is incorporated by reference in its entirety into that Prospectus. Because
this Additional Statement is not itself a prospectus, no investment in shares
of the Funds should be made solely upon the information contained herein.
Copies of the Funds' Prospectus may be obtained from any office of the
Distributor by writing or calling the Distributor or the Trust at the address
or telephone number listed above. Capitalized terms used but not defined
herein have the same meanings as in the Prospectus.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Investment Objectives, Policies and Risk Factors.................. 1
Net Asset Value................................................... 9
Additional Purchase and Redemption Information ................... 10
Description of Shares............................................. 11
Additional Information Concerning Taxes........................... 13
Management........................................................ 17
Independent Public Accountants.................................... 25
Counsel........................................................... 26
Additional Information on Performance............................. 26
Appendix A........................................................ A-1
Financial Statements.............................................. FS-1
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INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following policies supplement the Funds' respective
investment objectives and policies as set forth in the Prospectus.
Additional Information on Fund 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 Funds may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Investment Adviser is responsible for making decisions with
respect to and placing orders for all purchases and sales of portfolio
securities for each Fund.
The annualized portfolio turnover rate for each Fund 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 Funds are made
from dealers, underwriters and issuers. The Funds currently do not expect to
incur any brokerage commission expense on such transactions because money
market instruments are generally traded on a "net" basis by dealers 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.
The Funds 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 Fund will engage in this practice, however, only when the Investment
Adviser, in its sole discretion, believes such practice to be otherwise in the
Fund's interests.
For the fiscal years ended December 31, 1995, 1994 and 1993,
the Funds incurred no brokerage commissions.
<PAGE>
The Advisory Agreement for the Funds provides that, in
executing portfolio transactions and selecting brokers or dealers, the
Investment Adviser will seek to obtain the best overall terms available for
each Fund. In assessing the best overall terms available for any transaction,
the Investment 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
Investment Adviser to cause a Fund 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 Investment 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 Investment Adviser to the
Funds. 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 Investment
Adviser and does not reduce the advisory fees payable by the Funds. The
Trustees will periodically review any commissions paid by the Funds to
consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. 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 Investment
Adviser. Conversely, a Fund 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 Investment Adviser, the
Distributor 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 under the
1940 Act. In addition, a Fund will not purchase securities during the
existence of any underwriting or selling group relating thereto of which the
Distributor or the Investment Adviser, or an affiliated person of any of them,
is a member, except to the extent permitted under the 1940 Act. Under certain
circumstances, the Funds 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 Fund are made independently from
those for the other Funds and for any other investment companies and accounts
advised or managed by the Investment Adviser. Such other investment companies
and accounts may also invest in the same securities as the Funds. To the
extent permitted by law, the Investment Adviser may
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aggregate the securities to be sold or purchased for the Funds 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 Funds 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
Investment Adviser believes to be equitable to each Fund and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by the Fund.
Eligible Securities
Each Fund may purchase "eligible securities" that present
minimal credit risks as determined by the Investment 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
Investment 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 Investment Adviser to be of comparable quality to securities which are so
rated.
Bank Obligations
In accordance with their respective investment objectives, the
Funds 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 Funds invest in
obligations of foreign banks or foreign branches of U.S. banks only where the
Investment 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.
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<PAGE>
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 Investment 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 Funds, the Investment 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 Fund to dispose of instruments if the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund 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 Funds may invest from time to time in securities issued by
other investment companies which invest in high quality, short term debt
securities. The Funds intend to limit their investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of a Fund's total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of a Fund'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 Fund or the Trust as a whole.
Lending Securities
When a Fund 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 Fund 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 Prospectus generally equals the price paid by a Fund 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
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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 Funds under the 1940 Act. At the time a Fund 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 Fund may decline
below the price of the securities it is obligated to repurchase.
When-Issued Purchases and Forward Commitments
A Fund 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
Fund 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 Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund 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 Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Municipal and Related Obligations
As stated in their Prospectus, the Municipal Money Market and
Michigan Municipal Money Market Funds may invest in Municipal Obligations.
There are, of course, variations in the quality of Municipal Obligations, both
within a particular classification and between classifications, and the yields
on Municipal Obligations 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 Obligations by Rating Agencies represent their opinions as to the
quality of Municipal Obligations. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and Municipal
Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations with the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
its purchase by a Fund, a Municipal Obligation may cease to be rated or its
rating may be reduced below the minimum rating
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<PAGE>
required for purchase by the Fund. The Investment Adviser will consider such
an event in determining whether the Fund should continue to hold the
obligation.
The payment of principal and interest on most Municipal
Obligations purchased by the Funds will depend upon the ability of the issuers
to meet their obligations. For the purpose of diversification under 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.
An issuer's obligations under its Municipal Obligations 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
any laws that 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
Obligations may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Obligations held by the Funds 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 Obligations at the time of original issuance. 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 Obligations. 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 with respect to
the federal income tax status of interest on Municipal Obligations in general,
or which proposals, if any, might be enacted. Such proposals, if enacted,
might materially adversely affect the availability of Municipal Obligations
for investments by the Municipal Money Market and Michigan Municipal Money
Market Funds and their liquidity and value. In such event, the Board of
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Trustees would reevaluate the Funds' investment objectives and policies and
consider changes in their structure or possible dissolution.
Special Risk Considerations Applicable to the Michigan Municipal Money Market
Fund
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 Money Market
Fund in Michigan Municipal Securities and the cyclical nature of the economy
of the state of Michigan may adversely affect the liquidity of the Fund.
Stand-By Commitments
The Municipal Money Market and Michigan Municipal Money Market
Funds may acquire "stand-by commitments" with respect to Municipal Obligations
they hold. Under a stand-by commitment, a dealer agrees to purchase at the
Fund's option specified Municipal Obligations at a specified price. Stand-by
commitments may be exercisable by the Funds at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Funds may pay for a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Obligations which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). Neither the
Municipal Money Market Fund nor the Michigan Municipal Money Market Fund 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 Funds intend to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Investment Adviser's opinion,
present minimal credit risks. A Fund's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment. Thus, the
risk of loss to the Funds 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 Funds will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The
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<PAGE>
acquisition of a stand-by commitment will not affect the valuation or assumed
maturity of the underlying Municipal Obligations 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 Fund
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 Fund 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
Prospectus, the Funds 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 Fund (as defined under Description of
Shares below).
None of the Funds may:
1. 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,
domestic bank obligations, 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, and
(d) personal credit and business credit businesses will be considered separate
industries.
2. Purchase or sell real estate, except that each Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
3. Invest in commodities, except that each Fund may purchase
and sell options, forward contracts, futures contracts, including without
limitation those relating to indices, as consistent with a Fund's investment
objective and policies.
4. 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 acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer
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<PAGE>
thereof in accordance with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
In addition to the above fundamental limitations, the Funds are
subject to the following non-fundamental limitations, which may be changed
without a shareholder vote.
None of the Funds may:
1. 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 under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except, as consistent with a Fund's investment
objective and policies, for transactions in options on securities or indices
of securities, futures contracts and options on futures contracts and in
similar investments.
3. 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 Fund's transactions in futures contracts and
related options and in options on securities or indices of securities and
similar instruments, and (b) each Fund may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
5. Invest more than 10% of its total assets in illiquid
securities.
No Fund intends to purchase securities while its outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
its total assets. Securities held in escrow or separate accounts in connection
with a Fund's investment practices are not deemed to be pledged for purposes
of this limitation.
In order to permit the sale of a Fund's shares in certain
states, the Trust may make commitments with respect to a Fund more restrictive
than the investment policies and limitations described above and in its
Prospectus. Should the Trust determine that any such commitment is no longer
in the best interests of a particular Fund, it will revoke the commitment by
terminating sales of the Fund's shares in the state involved and, in the case
of investors in Texas, give notice of such action.
NET ASSET VALUE
Each Fund 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
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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 Fund would receive if it sold the securities.
Pursuant to Rule 2a-7, each Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to purchase
securities having remaining deemed maturities of 13 months or less, 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
Fund'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 Fund'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 may 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 Fund'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 Funds calculate their dividends based on daily net
investment income. Expenses of each Fund are accrued daily. As each Fund'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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered and sold on a continuous basis
by the Trust's distributor, BISYS Fund Services ("BISYS") acting as agent.
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.
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(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 Prospectus under
"Redemption of Shares," the Trust may redeem shares involuntarily to reimburse
the Funds 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 Fund shares as provided in the Prospectus 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
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 Fund, shareholders of a particular Fund would be entitled to
receive the assets available for distribution belonging to such Fund. If there
are any assets, income, earnings, proceeds, funds or payments, which are not
readily identifiable as belonging to any particular Fund, the Trustees shall
allocate them among any one or more of the Funds 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 Fund affected by the matter. A Fund is affected by
a matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. 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 Fund only if approved by a majority of the outstanding shares of
such Fund. However, the Rule also provides that the
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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 Funds.
When used in the Prospectus 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 Fund, 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
Fund.
As of August 31, 1996, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower drive, 10th Floor, Troy, Michigan 48098, held of record
28.60%, 43.09%, 17.86% and 6.07%, respectively, of the outstanding shares of
the Money Market, Treasury Money Market, Municipal Money Market and Michigan
Municipal Money Market Funds, respectively. The Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of each of
these Funds. Futhermore, as of August 31, 1996, with respect to the Money
Market, Treasury Money Market, Municipal Money Market, Michigan Municipal
Money Market Funds the following persons may have beneficially owned of record
5% or more of the outstanding shares of such Funds:
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Name of Fund Name and Address Class Owned
------------ ---------------- ------------
<S> <C> <C>
Money Market Fund Automated Cash Management System 22.70%
Class I 900 Tower Drive
10th Floor
Troy, MI 48098
Treasury Money Market Automated Cash Management System 14.48%
Fund 900 Tower Drive
Class I 10th Floor
Troy, MI 48098
Confederated Life - General 42.73%
260 Interstate North
Atlanta, GA 30339
Detroit, MI 48243
Treasury Money Market Don Barden 23.31%
Fund 400 Renaissance Center, Suite 2400
Class A Detroit, MI 48243
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<CAPTION> Percentage of
Name of Fund Name and Address Class Owned
------------ ---------------- ------------
<S> <C> <C>
Municipal Money Automated Cash Management System 8.97%
Market Fund 900 Tower Drive
Class I 10th Floor
Troy, MI 48098
Barbara Giles 5.74%
1 Possum Road
Weston, MA 02193
Municipal Money Phillip L. Rubright 13.33%
Market Fund 1740 Edgewood
Class A Berkley, MI 48072
</TABLE>
When issued for payment as described in the Funds' Prospectus
and this Additional Statement, shares of the Funds 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 Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Funds or their shareholders, and the discussion here and
in the Prospectus 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 Fund is treated as a separate corporate entity under the
Code and intends to qualify as a regulated investment company. As a regulated
investment company, each Fund is exempt from federal income tax on its net
investment income and realized capital gains which it distributes to
shareholders, provided that it distributes an amount equal to at
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least the sum of (a) 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any, for the year) and (b) 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to the Distribution Requirement, each Fund must
satisfy certain requirements with respect to the source of its income for a
taxable year. At least 90% of the gross income of each Fund 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 Fund'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 Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated as derived
with respect to the Fund'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 Fund 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 Fund'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 Fund'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 Fund 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 Fund 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 Fund's taxable year.
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
-14-
<PAGE>
marginal rate of 28%. For corporations, long term capital gains and ordinary
income are both taxable at a maximum marginal rate of 35%.
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 Fund 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 Fund 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 Obligations) would be taxable as ordinary income to shareholders to
the extent of the Fund's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
Each Fund 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 Fund 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 Funds' 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 Funds 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 Funds and their shareholders under such
laws may differ from their treatment under federal income tax laws.
As described above and in the Prospectus, the Municipal Money
Market and Michigan Municipal Money Market Funds are designed to provide
investors with current tax-exempt interest income. The Funds 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 Funds 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 Funds' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Funds may not be appropriate investments for entities
which are "substantial users" of facilities financed by private activity
-15-
<PAGE>
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 (a) 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,
(b) who occupies more than 5% of the usable area of such facilities, or (c)
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 Municipal Fund's policy is to pay each year as federal
exempt-interest dividends substantially all of its Municipal Obligations
interest income net of certain deductions. In order for a Fund 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
Fund's assets must consist of exempt-interest obligations. After the close of
its taxable year, the Fund 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 the Fund cannot exceed the excess of the amount of interest
exempt from tax under Section 103 of the Code received by the Fund 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 the Fund 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 Funds' 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 Prospectus, dividends paid by a Fund that are
derived from interest attributable to tax-exempt Michigan Municipal
Obligations will be exempt from Michigan income tax, Michigan intangibles tax
and Michigan single business tax. Conversely, to the extent that a Fund's
dividends are derived from interest on obligations other than Michigan
Municipal Obligations 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
-16-
<PAGE>
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 Fund 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 Fund 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 Municipal Money
Market and Michigan Municipal Money Market Funds and their shareholders. No
attempt has been made to present a detailed explanation of the Michigan state
tax treatment of the Funds or their shareholders, and this discussion is not
intended as a substitute for careful planning. Accordingly, potential
investors in the Funds should consult their tax advisers with respect to the
application of such taxes to the receipt of Fund dividends and as to their own
Michigan state tax situation, in general.
MANAGEMENT
Trustees and Officers of the Trust
The names of the Trustees and executive officers of the Trust,
their ages and their principal occupations for the last five years are set
forth below. Each Trustee has an address at Pegasus Funds, c/o NBD Bank, 900
Tower Drive, Troy, Michigan 48098. Each Trustee also serves as a trustee of
the Pegasus Variable Annuity Fund, a registered investment company advised by
the Investment Adviser.
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); Trustee, Pegasus Variable Annuity Fund.
He is 70 years old.
-17-
<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 (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); Trustee, Pegasus
Variable Annuity Fund. He is 53 years old.
John P. Gould, Trustee, Chairman of the Board
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, Pegasus Variable Annuity Fund. He is 57 years old.
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, Pegasus Variable Annuity Fund.
She is 48 years old.
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); Trustee, Pegasus
Variable Annuity Fund. He is 65 years old.
Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis, Indiana;
Trustee, Pegasus Variable Annuity Fund. He is 67 years old.
-18-
<PAGE>
*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 (1981-1985);
Trustee, Pegasus Variable Annuity Fund. He is 61 years old.
Mark A. Dillion, Vice President
An employee of the Distributor. He is 33 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining the
Distributor Ms. Metz was a supervisor at Alliance Capital Management L.P. in
New York. She is 29 years old and her address is 3435 Stelzer Road, Columbus,
Ohio 43219-3035.
D'Ray Brewer, Treasurer
An employee of the Distributor. She is 37 years old and her address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia, Pennsylvania. He
is 53 years old, and is address is 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107
* Denotes Interested Trustee
---------------------------------------
For as long as the Distribution Plan described in "Distribution
and Shareholder Services Plans" remains in effect, the Trustees of the Trust
who are not "interested persons" of the Trust, as defined in the 1940 Act,
will be selected and nominated by the Trustees who are not "interested
persons" of the Trust.
Each Trustee receives from the Trust and the Pegasus 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 Pegasus Variable Annuity Fund based on their relative net
-19-
<PAGE>
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 Trust.
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, ++ $21,250 $21,250(2)+
Trustee
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 meetings,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Pegasus Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Ms. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of investment companies in the Fund Complex from which the
Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $24,437.50, $21,250, $21,250, and
$21,250 accrued during the Pegasus Funds' fiscal year ended December 31, 1995
for Messrs. Heenan, Pallone, Sutherland and Tuttle, respectively.
- --------------------------------
</TABLE>
-20-
<PAGE>
Investment Adviser
Information about the Investment Adviser and its duties and
compensation as investment adviser is contained in the Prospectus. In
addition, the investment adviser 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). The adviser has informed the Trust's Board of Trustees that
neither the adviser nor any of its affiliates has engaged in any transactions
involving loans of the Trust's portfolio securities in which it received any
compensation since the inception of the Trust and will not do so unless
permitted by the SEC or SEC staff.
The Investment Adviser's own investment portfolios 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
the Investment Adviser's own investment portfolios will not be made. The
Investment Adviser's and its affiliates respective commercial banking
departments 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.
For the fiscal years ended December 31, 1995, 1994 and 1993,
the Trust paid NBD fees for advisory and administrative services under the
previous investment advisory agreement with NBD on behalf of each Fund as
follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Money Market Fund $7,225,557 $5,926,507 $6,731,880
Treasury Money Market Fund $3,248,535 $2,576,661 $2,995,099
Municipal Money Market Fund $2,458,246 $2,391,633 $2,373,107
Michigan Municipal Money Market Fund $ 496,026 $ 344,733 $ 274,780
</TABLE>
For the fiscal year ended December 31, 1995, NBD voluntarily
waived its fees in the amount of $61,221 with respect to the Michigan
Municipal Money Market Fund.
Investment decisions for the Trust and other fiduciary accounts
are made by FCNIMCO solely from the standpoint of the independent interest of
the Trust and such other fiduciary accounts. FCNIMCO performs independent
analyses of publicly available information, the results of which are not made
publicly available. In making investment decisions for the Trust, FCNIMCO does
not obtain information from any other divisions or departments of its or its
affiliates' or otherwise, which is not publicly available. FCNIMCO executes
transactions for the Trust only with unaffiliated dealers but such dealers may
be customers of the Investment Adviser's affiliates. The Investment Adviser
may make bulk purchases of securities for the Trust and for other customer
accounts (but
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<PAGE>
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.
FCNIMCO has agreed as Investment 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 Fund'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, the Investment Adviser
is obligated to manage the investment of each Fund'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.
The Investment Adviser 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 the Investment Adviser.
Under the Advisory Agreement, the Investment Adviser 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 the Investment Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations under the Agreement.
Administrators
Pursuant to an Administration Agreement dated as of April 12,
1996 with the Trust, FCNIMCO and BISYS assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement, FCNIMCO and BISYS are entitled jointly
to a monthly administration fee at the annual rate of .15% of each Fund's
average daily net assets.
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<PAGE>
The Trust has agreed that neither FCNIMCO nor BISYS will 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 the agreement with FCNIMCO or BISYS
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of FCNIMCO or BISYS in the performance of their
obligations or from reckless disregard by any of them of their obligations and
duties under the Administration Agreement.
In addition, the Administration Agreement provides that if, in any
fiscal year, the aggregate expenses of a Fund exceed the expense limitation of
any state having jurisdiction over the Fund, FCNIMCO and BISYS will bear such
excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not subject to
reduction as the value of a Fund's net assets increases.
Distribution and Shareholder Servicing Plans
As stated in the Prospectus under "Distribution and Shareholder
Servicing Plans," the Trust may enter into Servicing Agreements with Service
Agents which may include the Investment Adviser and its affiliates. The
Servicing Agreements provide that the Service Agents will render shareholder
administrative support services to their customers who are the beneficial
owners of Fund shares in consideration for the Funds' payment of up to .25%
(on an annualized basis) of the average daily net asset value of the shares
beneficially owned by such customers and held by the Service Agents and, at
the Trust's option, it may reimburse the Service Agents' out-of-pocket
expenses. Such services may include: (i) processing dividend and distribution
payments from a Fund; (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
Service Agents are prohibited from engaging in any activity primarily intended
to result in the sale of Fund shares. However, Service 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 Fund shares.
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 Trust's Board of Trustees has adopted
such a plan (the "Plan") with respect to the Money Market Fund's Class B
Shares, pursuant to which the Fund pays the Distributor
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<PAGE>
a fee of up to 0.75% of the average daily net asset value attributable to such
Shares for advertising, marketing and distributing such Shares and for the
provision of certain services to the holders of such Shares. Under the Plan,
the Distributor may make payments to certain financial institutions,
securities dealers and other financial industry professionals (collectively,
"Service Agents") in respect of these services. The Board of Trustees believes
that there is a reasonable likelihood that the Plan will benefit the Fund and
the holders of such Shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended under the Plan and in connection with the
Trust's arrangements with Service 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 Plan and the Trust's arrangements
with Service Agents under Shareholder Servicing Agreements must be approved by
a majority of the Board of Trustees (including a majority of the Disinterested
Trustees).
As stated in the Prospectus for the Funds, the Trust has
implemented the Servicing Plan described above with respect to Class A and
Class B shares of the Funds only and the Plan with respect to Class B shares
of the Funds only. The Trust will enter into shareholder servicing agreements
with Service Agents pursuant to which they provide services to their customers
who beneficially own Class A and Class B shares of the Funds in consideration
for the payment of up to .25% (on an annualized basis) of the average daily
net asset value of such shares. The Trust has allocated the Servicing Fees
which are attributable to the Class A and Class B shares exclusively to such
shares and the Distribution Fees which are attributable to the Class B shares
exclusively to such shares.
Custodian and Transfer Agent
As Custodian for the Trust, NBD (i) maintains a separate account
or accounts in the name of each Fund, (ii) collects and makes disbursements of
money on behalf of each Fund, (iii) collects and receives all income and other
payments and distributions on account of the portfolio securities of each
Fund, and (iv) makes periodic reports to the Trust's Board of Trustees
concerning the Trust's operations.
For its services as Custodian, NBD is entitled to receive from
the 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 charges for master control and master settlement
accounts.
-24-
<PAGE>
First Data Investor Services Group, Inc., located at 4400
Computer Drive, Westborough, MA 01581-5120 serves as the Trust's Transfer and
Dividend Disbursing Agent.
Distributor
The shares of the Funds are offered on a continuous basis through
BISYS, which acts under the Distribution Agreement as Distributor for the
Trust. As stated in the Prospectus, the Trust will allocate distribution fees
which are attributable to the Class B shares of the Money Market Fund
exclusively to such shares.
Prior to September 14, 1996, the shares of the Funds were offered
on a continuous basis through First of Michigan Corporation ("FoM") and Essex
National Securities, Inc. ("Essex") as co-distributors of the Fund. For the
fiscal years ended December 31, 1995, 1994 and 1993, the Funds paid FoM and
Essex for their services the following fees:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
-------------------------- ---------------------------- --------------------------
Fees to FoM Fees to Essex Fees to FoM Fees to Essex* Fees to FoM Fees to Essex
----------- ------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $119,933 $32,940 $90,197 $25,515 $230,601 N/A
Treasury Money Market Fund $ 52,950 $ 805 $39,127 $ 7,935 $100,651 N/A
Municipal Money Market Fund $ 40,084 $ 4,142 $32,631 $ 7,950 $ 79,747 N/A
Michigan Municipal Money Market Fund $ 7,261 $ 3,205 $ 4,129 $ 1,656 $ 8,312 N/A
<FN>
- ----------------------
* Co-Distribution Agreement with Essex commenced on April 20, 1994.
</TABLE>
For the fiscal years ended December 31, 1995, 1994 and 1993,
neither FoM nor Essex incurred any expenses with respect to the Funds for the
printing and mailing of prospectuses to other than current shareholders.
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 Additional Statement and the financial
highlights included in the Prospectus have been audited by Arthur Andersen
LLP, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
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<PAGE>
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, yield and total return of each class of shares
of each Fund 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 Funds' Prospectus, 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 Fund'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 Funds' calculations of yields. In
addition, the Municipal Money Market and Michigan Municipal Money Market Funds
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 Fund 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
and effective yields for each of the Funds and the tax equivalent annualized
and effective yields for the Municipal Money Market and Michigan Municipal
Money Market Funds (assuming a 39.6% federal income tax rate for both Funds
and a 4.4% Michigan income tax rate for the Michigan Municipal Money Market
Fund) were as follows:
-26-
<PAGE>
<TABLE>
<CAPTION>
7-Day 7-Day 7-Day 7-Day
Annualized Effective Tax-Equivalent Tax-Equivalent
Yield Yield Annualized Yield Effective Yield
---------- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
Money Market Fund 5.37% 5.48% N/A N/A
Treasury Money Market Fund 5.23% 5.42% N/A N/A
Municipal Money Market Fund 3.90% 4.10% 6.46% 6.79%
Michigan Municipal Money Market Fund 3.81% 3.97% 6.85% 7.14%
</TABLE>
-27-
<PAGE>
Other Performance Information
The Funds may 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 Fund's performance with
other measures of investment return. For example, in comparing the Funds'
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 Funds 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 Funds may 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 Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid
in cash.
The Funds 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 Fund (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 Fund), 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 Fund. The
Funds may also include in advertisements charts, graphs or drawings which
compare the investment objective, return potential, relative stability and/or
growth possibilities of the Fund 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
Fund. In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
a Fund 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.
-28-
<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 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.
A-1
<PAGE>
"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.
"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:
A-2
<PAGE>
"F-1+" - Securities possesses exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possesses 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 possesses 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 possesses 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 possesses 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.
"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.
A-3
<PAGE>
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 which possesses a particularly strong credit
feature are 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.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
A-4
<PAGE>
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 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.
A-5
<PAGE>
"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 absence
of an "r" symbol should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
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 possesses 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.
A-6
<PAGE>
"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 possesses 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 occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possesses the strongest investment attributes are designated
by the symbols, Aa1, A1, Ba1 and B1.
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.
A-7
<PAGE>
"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.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" 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:
A-8
<PAGE>
"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, such that 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.
A-9
<PAGE>
"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
possesses 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-10
<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-11
<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>
FS-1
<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>
FS-2
<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>
FS-3
<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>
FS-4
<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>
FS-5
<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
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
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>
FS-6
<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
FS-7
<PAGE>
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
FS-8<PAGE>
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>
FS-9
<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>
FS-10
<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
FS-11
<PAGE>
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>
FS-12
<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
FS-13
<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%
FS-14
<PAGE>
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
FS-15
<PAGE>
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.
** 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>
FS-16<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
FS-17
<PAGE>
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>
FS-18
<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.
FS-19
<PAGE>
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.
FS-20
<PAGE>
(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.
FS-21
<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>
FS-22
<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>
FS-23
<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.
FS-24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 26, 1996
for
CLASS A, CLASS B AND CLASS I SHARES
OF THE
MANAGED ASSETS CONSERVATIVE FUND
MANAGED ASSETS BALANCED FUND
MANAGED ASSETS GROWTH FUND
EQUITY INCOME FUND
GROWTH FUND
MID-CAP OPPORTUNITY FUND
SMALL-CAP OPPORTUNITY FUND
INTRINSIC VALUE FUND
GROWTH AND VALUE FUND
EQUITY INDEX FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE BOND FUND
BOND FUND
SHORT BOND FUND
INCOME FUND
INTERNATIONAL BOND FUND
MUNICIPAL BOND FUND
INTERMEDIATE MUNICIPAL BOND FUND
MICHIGAN MUNICIPAL BOND FUND
of
PEGASUS FUNDS
P.O. Box 5142
Westborough, Massachusetts 01581
(800) 688-3350
This Statement of Additional Information ("Additional
Statement") is meant to be read in conjunction with Pegasus Funds' Prospectus
dated August 26, 1996 pertaining to all classes of shares of the Funds listed
above (the "Prospectus") (each, a "Fund" and collectively, the "Funds"), as it
may be revised from time to time, and is incorporated by
<PAGE>
reference in its entirety into that Prospectus. Because this Additional
Statement is not itself a prospectus, no investment in shares of the Funds
should be made solely upon the information contained herein. Copies of the
Funds' Prospectus may be obtained from any office of the Distributor by
writing or calling the Distributor or the Trust at the address or telephone
number listed above. Capitalized terms used but not defined herein have the
same meanings as in the Prospectus.
-2-
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objectives, Policies and Risk Factors ...................... 1
Net Asset Value ....................................................... 19
Additional Purchase and Redemption Information ........................ 19
Description of Shares ................................................. 22
Additional Information Concerning Taxes ............................... 31
Management ............................................................ 34
Independent Public Accountants ........................................ 44
Counsel ............................................................... 45
Additional Information on Performance ................................. 45
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 Funds' respective
investment objectives and policies as set forth in the Prospectus.
Additional Information on Fund 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 Funds may invest.
Portfolio Transactions
Subject to the general supervision of the Trust's Board of
Trustees, the Investment Adviser is responsible for making decisions with
respect to and placing orders for all purchases and sales of portfolio
securities for each Fund.
The annualized portfolio turnover rate for each Fund 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 Funds 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 Funds to receive favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio
decisions, and the Funds may engage in short term trading to achieve their
respective investment objectives.
Purchases of money market instruments by the Funds are made
from dealers, underwriters and issuers. The Funds 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-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.
<PAGE>
The Funds 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 Fund will engage in this practice, however, only when the Investment
Adviser, in its sole discretion, believes such practice to be otherwise in the
Fund's interests.
Total brokerage commissions paid by the Funds for the fiscal
years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Managed Assets Conservative Fund $ 13,601 $ 47,110 $ 29,826
Managed Assets Balanced Fund $ 81,178 $123,890 N/A
Equity Income Fund $ 379,012 N/A N/A
Growth Fund $ 929,747 N/A N/A
Mid-Cap Opportunity Fund $ 866,286 $683,613 $330,962
Small-Cap Opportunity Fund $ 178,632 N/A N/A
Intrinsic Value Fund $ 209,816 $325,912 $320,121
Growth and Value Fund $ 504,214 $519,412 $423,124
Equity Index Fund $ 137,443 $169,830 $ 98,588
International Equity Fund $ 72,856 $ 4,492 N/A
</TABLE>
The Bond Funds and Municipal Bond Funds incurred no brokerage
commissions for the fiscal years ended December 31, 1995, 1994 and 1993. As of
the date hereof, the Managed Assets Growth Fund had not commenced investment
operations.
The Advisory Agreement for the Funds provides that, in executing
portfolio transactions and selecting brokers or dealers, the Investment
Adviser will seek to obtain the best overall terms available for each Fund. In
assessing the best overall terms available for any transaction, the Investment
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 Investment Adviser to cause a
Fund 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 Investment 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 Investment
-2-
<PAGE>
Adviser to the Funds. 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 Investment
Adviser and does not reduce the advisory fees payable by the Funds. The
Trustees will periodically review any commissions paid by the Funds to
consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. 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 Investment
Adviser. Conversely, a Fund 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 Investment Adviser, the
Distributor 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 under the
1940 Act. In addition, a Fund will not purchase securities during the
existence of any underwriting or selling group relating thereto of which the
Distributor or the Investment Adviser, or an affiliated person of any of them,
is a member, except to the extent permitted under the 1940 Act. Under certain
circumstances, the Funds 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 Fund are made independently from
those for the other Funds and for any other investment companies and accounts
advised or managed by the Investment Adviser. Such other investment companies
and accounts may also invest in the same securities as the Funds. To the
extent permitted by law, the Investment Adviser may aggregate the securities
to be sold or purchased for the Funds 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 Funds 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 Investment Adviser
believes to be equitable to each Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained or sold
by the Fund.
-3-
<PAGE>
Equity Securities
Equity Securities are generally selected by the Asset Allocation
and Equity Funds 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
focuses on the industry or the economy. In the Investment 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.
Equity Index Fund
The Investment Adviser believes that a sampling methodology
allows the Fund 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 Fund.
Under normal market conditions, the Fund invests substantially
all of its total assets in the common stocks that comprise the S&P 500 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 S&P 500 Index, the Investment Adviser may be
required to sell some or all of the common stock of such issuer then held by
the Fund. Sales of portfolio securities may be made at times when, if the
Investment Adviser is not required to effect purchases and sales of portfolio
securities in accordance with the S&P 500 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 Investment
Adviser is 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 S&P 500
Index. The Fund may receive from time to time as part of a "spin-off" or
corporate restructuring of an issuer included in the S&P 500 Index, securities
that are themselves outside of the S&P 500 Index. Such securities will be
disposed of by the Fund in due course consistent with the Fund's investment
objective.
Debt Securities
The Investment Adviser selects Debt Securities based on
anticipated interest rate changes and the use of active management strategies
which may include sector rotation, intra-sector adjustments and yield curve
and convexity considerations. Sector rotation involves the Investment Adviser
selecting among different economic or industry sectors based upon apparent or
relative attractiveness. Thus at times a sector offers yield
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advantages relative to other sectors. An intra-sector adjustment occurs when
the Investment Adviser determines to select a particular issue within a
sector. Yield curve considerations involve the Investment 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 Investment 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 Investment Adviser
to obtain an additional return when interest rates change dramatically.
In acquiring particular Debt Securities, the Investment Adviser
may 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 Investment
Adviser's analysis of these and other factors, a Fund's holdings of issues in
particular industry sectors may be overweighted or underweighted when compared
to the relative industry weightings in recognized indices. The value of the
Funds can be expected to vary inversely with changes in prevailing interest
rates.
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 Asset Allocation, Bond and
Municipal Bond Funds may purchase securities registered in the STRIPS program.
Under the STRIPS program, the Funds 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 Asset Allocation, Bond and Municipal Bond Funds
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
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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.
As described in the Prospectus, such Funds 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. See "Mortgage Backed Securities."
Custodial Receipts and Certificates of Participation
For certain certificates of participation, the Asset Allocation,
Bond and Municipal Bond Funds will have the right to demand payment, on not
more than 30 days' notice, for all or any part of each Fund's participation
interest, plus accrued interest. As to these instruments, each Fund intends to
exercise its rights 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).
Bank Obligations
In accordance with their respective investment objectives, each
Fund 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 Funds invest in
obligations of foreign banks or foreign branches of U.S. banks only where the
Investment 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. Except as provided in the Prospectus for the International
Bond Fund, bonds and other short term obligations (if not rated as commercial
paper) purchased by the Funds must be rated BBB or Baa, or higher,
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by a Rating Agency, respectively, or if unrated, be of comparable investment
quality in the judgment of the Investment Adviser.
Variable and Floating Rate Instruments
With respect to variable and floating rate obligations that may
be acquired by each Fund, the Investment 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 Fund to dispose of instruments if the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss
with respect to such instruments.
Lending Securities
When a Fund 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 Fund 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 Prospectus generally equals the price paid by a Fund 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
a Fund under the 1940 Act. At the time a Fund 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 Fund may decline below the
price of the securities it is obligated to repurchase.
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American Depository Receipts ("ADRs")
The Asset Allocation and Equity Funds 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 Fund 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
Fund 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 Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund 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 Fund'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 Asset Allocation, Equity and Bond Funds 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 Funds. 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
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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 ("Pcs"), 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 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.
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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 Asset Allocation
and Bond Funds 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. VRMs are mortgages
which reset their interest rate periodically with changes in open market
interest rates. To the extent that a Fund is actually invested in VRMs, its
interest income will vary with changes in the applicable interest rate on
pools of VRMs. GPM and GEM pools maintain constant interest rates, with
varying levels of principal repayment over the life of the mortgage.
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 a
Fund. The compounding effect from reinvestments of monthly payments received
by a Fund will increase its yield to shareholders, compared to bonds that pay
interest semi-annually.
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Real Estate Investment Trusts
The Managed Assets Balance Fund may invest in equity real estate
investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in commercial real estate properties. Investments in REITs may
subject the Fund to certain risks. REITs may be affected by changes in the
value of the underlying property owned by the trust. REITs are dependent upon
specialized management skill, may not be diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for the beneficial tax treatment available to REITs under
the Code and to maintain exemption from the 1940 Act. As a shareholder in a
REIT, the Fund would bear, along with other shareholders, its pro rata portion
of the REIT's operating expenses. These expenses would be in addition to the
advisory and other expenses the Fund bears directly in connection with its own
operations.
Foreign Currency Transactions
When the Asset Allocation Funds, International Equity Fund and
International Bond Fund enter into a currency transaction, it will deposit, if
so required by applicable regulations, with the Custodian cash or readily
marketable securities in a segregated account of a Fund in an amount at least
equal to the value of the Fund's total assets committed to the consummation of
the forward contract.
At or before the maturity of a forward contract, a 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 security and engages in an offsetting transaction, at the
time of execution of the offsetting transaction, the Fund 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, 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 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 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 generally is
anticipated, a Fund may not be able to contract to sell the currency at a
price above the
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devaluation level it anticipates. The requirements for qualification as a
regulated investment company under the Code, may cause the Fund 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 Prospectus, each Fund 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 Fund'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 Fund 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 Fund'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 Fund 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 Fund 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
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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 Fund will
write an option on a particular security only if the Investment Adviser
believes that a liquid secondary market will exist on an exchange for options
of the same series which will permit the Fund to make a closing purchase
transaction in order to close out its position.
When a Fund writes a covered call option, an amount equal to the
net premium (the premium less the commission) received by the Fund is included
in the liability section of the Fund'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 Fund 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 Fund 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 Fund
will realize a gain or loss. If a secured put option is exercised, the amount
paid by the Fund involved for the underlying security will be partially offset
by the amount of the premium previously paid to the Fund. Premiums from
expired options written by a Fund 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.
Stock Index Options
The Asset Allocation and Equity Funds may purchase and write put
and call options on stock indices listed on U.S. securities exchanges or
traded in the over-the-counter market. The International Equity Fund may also
purchase and write put and call options on stock indices listed on foreign
securities exchange. A stock index fluctuates with changes in the market
values of the stocks included in the index.
Options on stock indices 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
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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.
Convertible Securities
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.
Warrants
Each Asset Allocation and Equity Fund 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 underlying securities.
Municipal and Related Obligations
To the extent consistent with their investment objectives, the
Asset Allocation, Bond and Municipal Bond Funds may invest in Municipal
Obligations. There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations 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 Obligations by Rating Agencies
represent their opinions as to the quality of Municipal Obligations. It should
be emphasized, however, that ratings are general and are not absolute
standards of quality, and Municipal Obligations with the same maturity,
interest rate and rating may have different yields while Municipal Obligations
with the same maturity and interest rate with different ratings may have the
same yield. Subsequent to its
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purchase by a Fund, a Municipal Obligation may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Investment Adviser may consider such an event in determining whether the Fund
should continue to hold the obligation.
The payment of principal and interest on most Municipal
Obligations purchased by a Fund will depend upon the ability of the issuers to
meet their obligations. For the purpose of diversification under 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.
An issuer's obligations under its Municipal Obligations 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
any laws, that 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
Obligations may be materially adversely affected by litigation or other
conditions.
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.
Certain of the Municipal Obligations held by the Funds 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 Obligations at the time of original issuance. 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.
The Municipal Bond Funds will purchase tender option bonds only
when the Investment Adviser 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,
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that Fund expects to be able to value the tender option bond at par; however,
the value of the instrument will be monitored by the Investment Adviser to
assure that is valued at fair value.
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 Obligations. 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 Obligations in general, or which
proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of Municipal Obligations for
investments by the Funds and their liquidity and value. In such event, the
Board of Trustees would re-evaluate the Funds' investment objectives and
policies and consider changes in their structure or possible dissolution.
Stand-By Commitments
The Asset Allocation, Bond and Municipal Bond Funds may acquire
"stand-by commitments" with respect to Municipal Obligations they hold. Under
a stand-by commitment, a dealer agrees to purchase at the Fund's option
specified Municipal Obligations at a specified price. Stand-by commitments may
be exercisable by the Funds at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Funds may pay for a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Obligations which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). The Funds may
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 Funds intend to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Investment Adviser's opinion,
present minimal credit risks. A Fund's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment. Thus, the
risk of loss to the Funds 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.
-16-
<PAGE>
The Funds 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 Obligations 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 Fund 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 Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
Derivative Securities
The Investment Adviser will evaluate the risks presented by the
derivative instruments purchased by the Funds, and will determine, in
connection with its day-to-day management of the Funds, how they will be used
in furtherance of the Funds' investment objectives. It is possible, however,
that the Investment Adviser's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Funds
will, because of the risks discussed above, incur loss as a result of their
investments in derivative instruments.
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectus, the Funds 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 Fund (as defined under "Description of
Shares" below).
None of the Funds may:
1. Purchase or sell real estate, except that each Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with a
Fund's investment objective and policies: each Fund, other than the
Intermediate Bond Fund, may purchase and sell options, forward contracts,
futures contracts, including without limitation those relating to indices, and
options on futures contracts or indices; and each Fund may purchase publicly
traded securities of companies engaging in whole or in part in such
activities; and the Intermediate Bond Fund will not purchase or sell commodity
contracts, or invest in oil, gas or mineral exploration or development
programs, except that it 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.
-17-
<PAGE>
3. 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 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 Fund's investment objective, policies and limitations may be deemed
to be underwriting.
In addition to the above fundamental limitations, the Funds are
subject to the following non-fundamental limitations, which may be changed
without a shareholder vote:
None of the Funds may:
1. 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 under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except, as consistent with a Fund's investment
objective and policies, for transactions in options on securities or indices
of securities, futures contracts and options on futures contracts and in
similar investments.
3. 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 Fund's transactions in futures contracts and related options
and in options on securities or indices of securities and similar instruments,
and (b) each Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
5. Invest more than 15% of its total assets in illiquid
securities.
No Fund intends to purchase securities while its outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
its total assets. Securities held in escrow or separate accounts in connection
with a Fund's investment practices are not deemed to be pledged for purposes
of this limitation.
In order to permit the sale of a Fund's shares in certain
states, the Trust may make commitments with respect to a Fund more restrictive
than the investment policies and limitations described above and in its
Prospectus. Should the Trust determine that any such commitment is no longer
in the best interests of a particular Fund, it will revoke the commitment by
terminating sales of the Fund's shares in the state involved and, in the case
of investors in Texas, give notice of such action.
-18-
<PAGE>
NET ASSET VALUE
The net asset value per share of each Fund is calculated by
adding the value of all portfolio securities and other assets belonging to the
Fund, subtracting the liabilities charged to the Fund, and dividing the result
by the number of shares of the Fund outstanding. "Assets which belong to" a
Fund consist of the consideration received upon the issuance of shares of the
Fund 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 Fund are charged with the direct
liabilities of the Fund and with a share of the general liabilities of the
Trust which are normally allocated in proportion to the relative net asset
values of all of the Trust's Funds at the time of allocation. Subject to the
provisions of the Trust Instrument, 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 Fund are conclusive.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered and sold on a continuous basis
by the Trust's distributor, BISYS Fund Services ("BISYS"), acting as agent.
An illustration of the computation of the public offering price
per Class A share of the Funds, based on the value of each Fund's total net
assets and total number of shares outstanding on December 31, 1995, is as
follows:
TABLE
<TABLE>
<CAPTION>
Managed Assets Managed Assets Mid-Cap Intrinsic Growth and International
Balanced Fund Growth Fund* Opportunity Fund Value Fund Value Fund Equity Fund
------------- ------------ ---------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets $9,935,441 $1,000 $72,283,574 $17,911,179 $50,993,329 $1,001,722
---------- ------ ---------- ----------- ----------- ----------
Number of Shares
Outstanding 883,936 100 4,771,193 1,506,407 3,874,873 90,654
========== ====== ========== =========== ========== ==========
Net Asset Value Per Share $11.24 $10.00 $15.15 $11.89 $13.11 $11.09
---------- ------ ---------- ----------- ----------- ----------
Sales Charge, 5.00 percent
of offering price (5.26
percent of net asset value
per share) $0.59 $0.53 $0.8 $0.63 $0.69 $0.58
---------- ------ ---------- ----------- ----------- ----------
Offering Price to Public $11.83 $10.53 $15.95 $12.52 $13.85 $11.63
========== ====== ========== =========== ========== ==========
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Michigan
International Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net Assets ............... $31,655,078 $486,840 $7,425,897 $20,966,758
----------- -------- ---------- -----------
Number of Shares
Outstanding .............. 3,030,354 45,289 587,619 1,977,996
=========== ======= ========= ===========
Net Asset Value Per Share $10.45 $10.75 $12.64 $10.60
----------- -------- ---------- -----------
Sales Charge, 4.50 percent
of offering price (4.69
percent of net asset value
per share) ............... $0.49 $0.51 $0.60 $0.50
----------- -------- ---------- -----------
Offering Price to Public.. $10.94 $11.26 $13.24 $11.10
=========== ======= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Managed Assets Small-Cap
Conservative Equity Income Growth Opportunity
Fund Fund Fund Fund
-------------- ------------- ------ -----------
<S> <C> <C> <C> <C>
Net Assets...................... $51,996,986 $2,872,994 $4,329,204 $671,776
----------- ---------- ---------- --------
Number of Shares Outstanding.... 3,576,517 235,161 361,669 55,070
=========== ========== ========== ========
Net Asset Value Per Share....... $14.54 $12.22 $11.97 $12.20
----------- ---------- ---------- --------
Sales Charge, 5.00 percent of
offering price (5.26 percent
of net asset value per share)... $0.77 $0.38 $0.63 $0.64
----------- ---------- ---------- --------
Offering Price to Public........ $15.31 $12.60 $12.60 $12.84
=========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Equity Short Intermediate
Index Intermediate Bond Income Municipal
Fund** Bond Fund Fund Fund Bond Fund
------ ------------ ----- ------ -------------
<S> <C> <C> <C> <C> <C>
Net Assets................. $4,023,991 $11,839,097 $762,544 $6,094,679 $17,776,872
---------- ----------- -------- ---------- -----------
Number of Shares
Outstanding................ 284,381 1,141,668 74,540 744,997 1,451,741
========== =========== ======== ========== ===========
Net Asset Value Per Share.. $14.15 $10.37 $10.23 $8.18 $12.25
---------- ----------- -------- ---------- -----------
Sales Charge, 3.00 per
cent of offering price
(3.01 percent of net
asset value per share)..... $0.44 $0.32 $0.32 $0.25 $0.38
---------- ----------- -------- ---------- -----------
Offering Price to Public... $14.59 $10.69 $10.55 $8.43 $12.63
========== =========== ======== ========== ===========
<FN>
* Amounts disclosed are a hypothetical illustration of the computation of
the public offering price, based on the value of the Fund's total
assets equal to $1,000, total number of shares outstanding equal to 100
shares and net asset value equal to $10.00.
-20-
<PAGE>
** The Fund charged no sales load for the period ended December 31, 1995.
Amounts disclosed are a hypothetical illustration of the computation of
the public offering price, based on the value of the Fund's total
assets, total number of shares outstanding and net asset value as of
December 31, 1995.
</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 Prospectus under
"Redemption of Shares," the Trust may redeem shares involuntarily to reimburse
the Funds 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 Fund shares as provided in the Prospectus 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.
-21-
<PAGE>
Total sales charges paid by shareholders of the Funds for the
fiscal years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Managed Assets Balanced Fund $37,984 $286,056 N/A
Managed Assets Growth Fund N/A N/A N/A
Mid-Cap Opportunity Fund $122,061 $544,053 $1,266,118
Intrinsic Value Fund $17,964 $87,757 $249,653
Growth and Value Fund $92,788 $431,841 $735,713
Equity Index Fund $0 $0 $0
International Equity Fund $13,659 $0 N/A
Intermediate Bond Fund $7,877 $41,775 $391,744
Bond Fund $30,433 $203,760 $1,215,391
Short Bond Fund $2,848 $0 N/A
Michigan Municipal Bond Fund $105,322 $151,042 N/A
</TABLE>
DESCRIPTION OF SHARES
The Trust is an unincorporated business trust organized under
Massachusetts law on April 21, 1987. The Trust's Declaration of Trust
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 Fund, shareholders of a particular Fund would be entitled to
receive the assets available for distribution belonging to such Fund. If there
are any assets, income, earnings, proceeds, funds or payments, which are not
readily identifiable as belonging to any particular Fund, the Trustees shall
allocate them among any one or more of the Funds 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 Fund affected by the matter. A Fund is affected by
a matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the
-22-
<PAGE>
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 Fund only if approved by a majority of the outstanding shares of such Fund.
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 Funds.
When used in the Prospectus 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 Fund, 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
Fund.
As of July 31, 1996, the name and address, number and
percentage of class ownership of each person who owned of record 5% or more of
any class of shares of the Managed Assets Conservative, Equity Income, Growth,
Small-Cap Opportunity, Income, International Bond, Municipal Bond, and
Intermediate Municipal Bond Funds is set forth below.
-23-
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund Name and Address of Class Owned
- ------------ ---------------- --------------
<S> <C> <C>
Managed Assets Donaldson Lufkin & Jenrette
Conservative Fund Securities Corporation
Class B P.O. Box 2052
Jersey City, NJ 07303-2052 17.90%
Managed Assets Eagle & Co.
Conservative Fund American National Bank
Class I 1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 99.40%
Equity Income Fund Corelink Financial Services
Class B P.O. Box 4054
Concord, CA 94524-4054 15.70%
Equity Income Fund Eagle & Co.
Class I American National Bank
1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 97.50%
Growth Fund Corelink Financial Services
Class A P.O. Box 4054
Concord, CA 94524-4054 12.30%
First Chicago-Discretionary
Wheaton Office
218 Wesley St. Suite 2030 14.40%
Growth Fund Corelink Financial Services
Class B P.O. Box 4054
Concord, CA 94524-4054 46.10%
Donaldson Lufkin & Jenrette
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052 16.50%
Growth Fund Eagle & Co.
Class I American National Bank
1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 97.50%
Small-Cap
Opportunity Fund
Class A
First Chicago
Wheaton Office
218 Wesley St. Suite 2030 15.50%
Small-Cap George F. Woll V &
Opportunity Fund George F. Woll Jr JTWROS
Class B 15610 Crest View Lane
Granada Hills, CA 91344-3110 26.30%
Donaldson Lufkin & Jenrette
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052 55.30%
-24-
<PAGE>
Concord Holding Corporation
125 West 55th Street - 11th Floor
New York, NY 10019 8.60%
Small-Cap Eagle & Co.
Opportunity Fund American National Bank
Class I 1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 96.70%
Income Fund First Chicago
Class A Wheaton Office
218 Wesley St. Suite 2030 15.90%
Corelink Financial Services
P.O. Box 4054
Concord, CA 94524-4054 .60%
Income Fund Corelink Financial Services
Class B P.O. Box 4054
Concord, CA 94524-4054 24.50%
Donaldson Lufkin & Jenrette
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052 24.10%
Income Fund Eagle & Co.
Class I American National Bank
1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 95.90%
International First Chicago
Bond Fund Wheaton Office
Class A 218 Wesley St. Suite 2030 30.80%
Donaldson Lufkin & Jenrette
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052 5.20%
International Concord Holding Corporation
Bond Fund 125 West 55th Street - 11th Floor
Class B New York, NY 10019 100.00%
International Eagle & Co.
Bond Fund American National Bank
Class I 1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 49.80%
Trussel & Co.
900 Tower Drive
Troy, MI 48098 47.90%
Municipal Jane M. Cook
Bond Fund Separate Property
Class A 509 Riggs Circle
Mesquite, TX 75149-5844 7.00%
Hardis A. Ueland
317 Patricia Lane
Bartlett, IL 60103-3033 5.40%
-25-
<PAGE>
Municipal Donaldson Lufkin & Jenrette
Bond Fund Securities Corporation
Class B P.O. Box 2052
Jersey City, NJ 07303-2052 65.20%
Municipal Eagle & Co.
Bond Fund American National Bank
Class I 1 North LaSalle Street, 3rd Floor
Chicago, IL 60690 99.10%
Intermediate Donaldson Lufkin & Jenrette
Municipal Bond Securities Corporation
Fund P.O. Box 2052
Class B Jersey City, NJ 07303-2052 69.20%
Intermediate Eagle & Co.
Municipal American National Bank
Bond Fund 1 North LaSalle Street, 3rd Floor
Class I Chicago, IL 60690 26.40%
</TABLE>
As of June 18, 1996, Trussal & Co., a nominee of NBD's Trust
Division, 900 Tower Drive, 10th Floor, Troy, Michigan 48098, held of record
90.82%, 97.41%, 88.69%, 93.05%, 92.21%, 98.81%, 97.55%, 97.03%, 94.71%,
99.50%, 87.84% and 64.69%, respectively, of the outstanding shares of the
Managed Assets Balanced, Growth, Mid-Cap Opportunity, Intrinsic Value, Growth
and Value, Equity Index, International Equity, Intermediate Bond, Bond, Short
Bond, Municipal Bond and Michigan Municipal Bond Funds, respectively. The
Trustees and officers of the Trust, as a group, owned less than 1% of the
outstanding shares of each Fund. Furthermore, as of July 31, 1996, with
respect to the Managed Assets Balanced, Growth, Mid-Cap Opportunity, Intrinsic
Value, Growth and Value, Equity Index, International Equity, Intermediate
Bond, Bond, Short Bond, Municipal Bond and Michigan Municipal Bond Funds, the
following persons may have beneficially owned 5% or more of the outstanding
shares of such Funds:
<TABLE>
<CAPTION>
Number of Percent of
Name of Fund Shares Outstanding Shares
------------ --------- ------------------
<S> <C> <C>
Managed Assets Balanced Fund-Class I
NBD Bancorp, Inc. Employees' Savings and Investment Plan 1,949,372.6100 22.35%
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Dickinson/Wright Target Benefit 1,041,167.8960 11.94%
500 Woodward Avenue, Suite 4000
Detroit, MI 48226
Albert Kahn and Associates 443,969.1160 5.09%
7430 Second Avenue
Detroit, MI 48202
-26-
<PAGE>
Kelly Retirement Plus Trust Fund 863,427.7140 9.90%
999 West Big Beaver Road
Troy, MI 48084
Managed Assets Balanced Fund-Class A
Donaldson, Lufkin & Jenrette 52,276.3670 6.03%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Growth Fund-Class I
Employees Retirement Plan of 3,352,543.6330 21.30%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Growth Fund-Class A
Donaldson, Lufkin & Jenrette 64,539.9020 15.43%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Mid-Cap Opportunity Fund-Class I
NBD Bancorp, Inc. Employees' Savings and Investment Plan 3,982,209.4870 10.83%
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Employees Retirement Plan 4,032,543.6550 10.96%
of NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Mid-Cap Opportunity Fund-Class A
Donaldson, Lufkin & Jenrette 392,421.6830 8.59%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Mac and Company
Mutual Funds Operations
P.O. Box 3198 308,964.5590 6.77%
Pittsburgh, PA 15230
Intrinsic Value Fund - Class I
Employees Retirement Plan of 4,303,572.3300 19.58%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
-27-
<PAGE>
Intrinsic Value Fund - Class A
Donaldson, Lufkin & Jenrette 180,017.1860 12.17%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Growth and Value Fund-Class I
NBD Bancorp, Inc. Employees' Savings and Investment Plan 4,333,910.7180 9.06%
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
Growth and Value Fund-Class A
Donaldson, Lufkin & Jenrette 436,060.5290 11.43%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Equity Index Fund-Class I
Whirlpool 14,460,185.6440 9.56%
2000 M-63 North
Benton Harbor, MI 49022
Oakland County Retirement System 3,291,535.9980 6.73%
1200 N. Telegraph
Pontiac, MI 48053
Consumer Power Union Welfare Benefit 4,144,019.9950 8.47%
212 W. Michigan Avenue
Jackson, MI 49201
McGregor Fund 3,088,215.1280 6.31%
333 West Fort Street
Detroit, MI 48226
Equity Index Fund-Class A
Donaldson, Lufkin & Jenrette 152,020.3460 35.53%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
BTM Corporation Pension Plan 43,529.2980 10.17%
Attn: Douglas Archer
300 Davis Road
Marysville, MI 48040
International Equity Fund-Class I
Employees Retirement Plan of 4,993,077.2400 32.28%
NBD Bank
Trust Administration
611 Woodward Avenue
Detroit, MI 48232
-28-
<PAGE>
International Equity Fund-Class A
Donaldson, Lufkin & Jenrette 22,423.1410 17.97%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Catherine J. Karbum
20135 Elwood
Beverly Hills, MI 48026 8,650.3920 6.93%
Intermediate Bond Fund-Class I
RL Polk 1,890,311.8530 5.12%
1155 Brewery Park
Detroit, MI 48202
Intermediate Bond Fund-Class A
Donaldson, Lufkin & Jenrette 135,182.2420 12.25%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Bond Fund-Class I
Henry Ford Investment Management Account 9,284,437.9810 18.08%
600 Fisher Building
Detroit, MI 48202
Short Bond Fund-Class I
The Wellness Plan 2,343,112.8860 14.09%
6500 John C. Lodge
Detroit, MI 48202
The Wellness Plan Self Ins. Fund
6500 John C. Lodge
Detroit, MI 48202 1,874,064.0700 11.27%
Kresge Foundation
3215 W. Big Beaver
P.O. Box 3151 4,044,108.6810 24.31%
Troy, MI 48007-3151
Short Bond Fund-Class A
Donaldson, Lufkin & Jenrette 29,187.1120 36.03%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
Benjamin J. Soleau 5,038.6510 6.22%
543 Adams
Plymouth, MI 48170
Richard A. Poel 5,708.6490 7.05%
10 Lakeview Drive
Beale AFB, CA 95903
Richard L. Foersterling 17,814.2620 21.99%
1256 Penniman
Plymouth, MI 48170
-29-
<PAGE>
Municipal Bond Fund-Class I
Charles J. Lefler Revocable Trust 620,328.3250 7.52%
39740 Walker Court
Northville, MI 48167
Consumer Power 2,010,825.8840 24.39%
212 W. Michigan Avenue
Jackson, MI 49201
Municipal Bond Fund-Class A
Donaldson, Lufkin & Jenrette 65,903.1510 5.77%
Securities Corporation
One Pershing Plaza
Jersey City, NJ 07399
John G. Mathias 75,751.3600 6.64%
535 South Plymouth
Inverness, IL 60067
Michigan Municipal Bond Fund - Class I
Carol Lefler Revocable Trust 209,878.6350 5.96%
39740 Walker Court
Northville, Mi 48167
Michigan Municipal Bond Fund - Class A
James J. Donahey 101,309.3300 5.43%
421 Highland
Ann Arbor, MI 48104
</TABLE>
When issued for payment as described in the Funds' Prospectus
and this Additional Statement, shares of the Funds 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, her 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.
-30-
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
Taxes In General
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Funds or their shareholders, and the discussion here and
in the Prospectus 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 Fund is treated as a separate corporate entity under the
Code and intends to qualify as a regulated investment company. As a regulated
investment company, each Fund is exempt from federal income tax on its net
investment income and realized capital gains which it distributes to
shareholders, provided that it distributes an amount equal to at least the sum
of (a) 90% of its investment company taxable income (net investment income and
the excess of net short-term capital gain over net long-term capital loss, if
any, for the year) and (b) 90% of its net tax-exempt interest income, if any,
for the year (the "Distribution Requirement") and satisfies certain other
requirements of the Code that are described below. Distributions of investment
company taxable income and net tax-exempt interest income made during taxable
year or, under specified circumstances, within twelve months after the close
of the taxable year will satisfy the Distribution Requirement.
In addition to the Distribution Requirement, each Fund must
satisfy certain requirements with respect to the source of its income for a
taxable year. At least 90% of the gross income of each Fund 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 Fund'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 Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated as derived
with respect to the Fund'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 Fund 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 Fund'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)
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<PAGE>
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund'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 Fund 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 Fund 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 Fund's taxable year. Upon the sale or
exchange of Fund shares, if a 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 marginal
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 marginal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum marginal rate of 35%.
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 Fund 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 Fund 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 Obligations) would be taxable as ordinary income to shareholders to
the extent of the Fund's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
Each Fund 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
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<PAGE>
Fund 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 Funds' 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 Funds 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 Funds and their shareholders under such
laws may differ from their treatment under federal income tax laws.
As described above and in the Prospectus, the Municipal Bond
Funds are designed to provide investors with current tax-exempt interest
income. The Funds 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
Funds 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 Fund's
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed to them. In addition, the Funds 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 (a) 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, (b) who occupies more than 5% of the
usable area of such facilities, or (c) 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 Municipal Bond Fund's policy is to pay each year as
federal exempt- interest dividends substantially all of its Municipal
Obligations interest income net of certain deductions. In order for the Fund
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 Fund's assets must consist of exempt-interest obligations. After the
close of its taxable year, the Fund 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 the Fund cannot exceed the excess of the amount of
interest exempt from tax under Section 103 of the Code received by the Fund
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 the Fund 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.
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<PAGE>
A percentage of the interest on indebtedness incurred by a
shareholder to purchase or carry a Municipal Bond Fund's 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.
MANAGEMENT
Trustees and Officers of the Trust
The names of the Trustees and executive officers of the Trust,
their ages and their principal occupations for the last five years are set
forth below. Each Trustee has an address at the Pegasus Funds, c/o NBD Bank,
900 Tower Drive, Troy, Michigan 48098. Each Trustee also serves as a trustee
of the Pegasus Variable Annuity Fund, a registered investment Company advised
by the Investment Adviser.
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); Trustee, Pegasus Variable Annuity Fund.
He is 70 years old.
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 (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); Trustee, Pegasus
Variable Annuity Fund. He is 53 years old.
John P. Gould, Trustee, Chairman of the Board
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, Pegasus Variable Annuity Fund. He is 57 years old.
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<PAGE>
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, Pegasus Variable Annuity Fund.
She is 48 years old.
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); Trustee, Pegasus
Variable Annuity Fund. He is 65 years old.
Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis, Indiana;
Trustee, Pegasus Variable Annuity Fund. He is 67 years old.
*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 (1981-1985);
Trustee, Pegasus Variable Annuity Fund. He is 61 years old.
Mark A. Dillion, Vice President
An employee of the Distributor. He is 33 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining the Distributor
Ms. Metz was a supervisor at Alliance Capital Management L.P. in New York. She
is 29 years old and her address is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
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<PAGE>
D'Ray Brewer, Treasurer
An employee of the Distributor. She is 37 years old and her address is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia, Pennsylvania. He
is 53 years old, and is address is 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107
* Denotes Interested Trustee
----------------------------
For as long as the plan described in the section captioned
"Distribution and Shareholder Services Plans" remains in effect, the Trustees
of the Trust who are not "interested persons" of the Trust, as defined in the
1940 Act, will be selected and nominated by the Trustees who are not
"interested persons" of the Trust.
Each Trustee receives from the Trust and the Pegasus 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 Pegasus 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 Trust.
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ended December 31, 1995:
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<PAGE>
<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)+
Marilyn McCoy, Trustee *** $30,000(4)+
Julius L. Pallone, Trustee ++ $21,250 $21,250(2)+
Donald G. Sutherland, ++ $21,250 $21,250(2)+
Trustee
Donald L. Tuttle, Trustee ++ $21,250 $21,250(2)+
- ----------
<FN>
* Amount does not include reimbursed expenses for attending Board meetings,
which are estimated to be approximately $350 for all Trustees as a group.
** The Fund Complex consists of the Trust, Pegasus Variable Annuity Fund,
Prairie Funds, Prairie Institutional Funds, Prairie Intermediate Bond Fund and
Prairie Municipal Bond Fund, Inc.
*** Mr. Gould and Ms. McCoy were not trustees of the Trust during the fiscal
year ended December 31, 1995.
+ Total number of investment companies in the Fund Complex from which the
Trustee receives compensation for serving as a trustee.
++ Deferred compensation in the amounts of $21,500, $21,500, and $21,500
accrued during the Pegasus Funds' fiscal year ended December 31, 1995 for
Messrs. Pallone, Sutherland and Tuttle, respectively.
</FN>
</TABLE>
- ----------
Investment Adviser
Information about the Investment Adviser and its duties and
compensation as investment adviser is contained in the Prospectus. In
addition, the investment adviser 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). The adviser has informed the Trust's Board of Trustees that
neither the adviser nor any of its affiliates has engaged in any transactions
involving loans of the Trust's portfolio securities in which it received any
compensation since the inception of the Trust and will not do so unless
permitted by the SEC or SEC staff.
The Investment Adviser's own investment portfolios may include
bank certificates of deposit, bankers' acceptances, corporate debt
obligations, equity securities
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<PAGE>
and other investments any of which may also be purchased by the Trust. Joint
purchase of investments for the Trust and for the Investment Adviser's own
investment portfolios will not be made. The Investment Adviser's and its
affiliates' respective commercial banking departments 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.
For the fiscal years ended December 31, 1995, 1994 and 1993, the
Trust paid NBD fees for advisory and administrative services under the
previous investment advisory agreement with NBD on behalf of each Fund as
follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Managed Assets Balanced Fund $ 570,525 $ 260,903 N/A
Mid-Cap Opportunity Fund $4,490,930 $3,670,337 $1,926,219
Intrinsic Value Fund $1,817,833 $1,615,375 $1,119,400
Growth and Value Fund $4,951,664 $4,032,266 $2,624,744
Equity Index Fund $ 411,792 $ 329,438 $ 308,549
International Equity Fund $ 529,312 $ 20,568 N/A
Intermediate Bond Fund $2,650,418 $2,718,286 $2,127,982
Bond Fund $3,121,267 $3,200,907 $2,588,697
Short Bond Fund $ 650,298 $ 112,091 N/A
Michigan Municipal Bond Fund $ 327,020 $ 286,599 $ 0
</TABLE>
For the fiscal years ended December 31, 1995, 1994 and 1993, NBD
reimbursed the Trust for certain expenses on behalf of the Michigan Municipal
Bond Fund as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Michigan Municipal Bond Fund $119,481 $120,000 $83,732
</TABLE>
For the fiscal years ended December 31, 1995, 1994 and 1993, NBD
voluntarily waived advisory fees on behalf of the Michigan Municipal Bond Fund
as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Michigan Municipal Bond Fund N/A $108,612 $146,227
</TABLE>
Prior to the Managed Assets Conservative, Equity Income, Growth,
Small-Cap Opportunity, Income, International Bond, Municipal Bond and
Intermediate Municipal Bond Funds' current advisory agreement, FCNIMCO
provided advisory services to such Funds.
For the fiscal period from January 17, 1995 (effective date of
the following Funds' investment advisory agreement with FCNIMCO) through
December 31, 1995, the Funds paid FCNIMCO fees for advisory services and
FCNIMCO voluntarily waived advisory fees as follows:
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<PAGE>
<TABLE>
<CAPTION>
Annual Fee
Payable As a %
of Average Advisory Fees Advisory Fees
Daily Net Assets Paid Waived
---------------- ------------- -------------
<S> <C> <C> <C>
Managed Assets Conservative Fund .65% $ 142,517 $178,658
Equity Income Fund .50% $ 829,039 $277,716
Growth Fund .65% $1,399,749 $314,740
Small-Cap Opportunity Fund .70% $ 318,920 $168,733
Income Fund .40% $ 426,638 $185,678
International Bond Fund .70% $ 10,617 $ 68,517
Municipal Bond Fund .40% $ 565,821 $304,953
Intermediate Municipal Bond Fund .40% $ 938,654 $429,888
</TABLE>
Prior to January 17, 1995, FNBC provided management services to
the Managed Assets Conservative, Income, Municipal Bond and Intermediate
Municipal Bond Funds pursuant to a management agreement (the "Prior Management
Agreement"). Under the terms of the Prior Management Agreement, the Funds
agreed to pay FNBC a monthly fee at the annual rate of .65%, .60%, .40% and
.40% of the value of each respective 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 Funds to FNBC pursuant
to various undertakings by FNBC.
Investment decisions for the Trust and other fiduciary accounts
are made by FCNIMCO solely from the standpoint of the independent interest of
the Trust and such other fiduciary accounts. FCNIMCO performs independent
analyses of publicly available information, the results of which are not made
publicly available. In making investment decisions for the Trust, FCNIMCO does
not obtain information from any other divisions or departments of its or its
affiliates or otherwise, which is not publicly available. FCNIMCO executes
transactions for the Trust only with unaffiliated dealers but such dealers may
be customers of the Investment Adviser's affiliates. The Investment Adviser
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.
FCNIMCO has agreed as Investment 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 Fund'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.
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<PAGE>
Under the terms of the Advisory Agreement, the Investment Adviser
is obligated to manage the investment of each Fund's assets in accordance with
applicable laws and regulations.
The Investment Adviser 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 the Investment Adviser.
Under the Advisory Agreement, the Investment Adviser 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 the Investment Adviser in the
performance of its duties or from its reckless disregard of its duties and
obligations under the Agreement.
Administrators
Pursuant to an Administration Agreement dated as of April 12,
1996 with the Trust, FCNIMCO and BISYS assist in all aspects of the Trust's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement, FCNIMCO and BISYS are entitled jointly
to a monthly administration fee at the annual rate of .15% of each Fund's
average daily net assets.
For the fiscal period ended December 31, 1995, except as
otherwise noted, each of the Managed Assets Conservative, Equity Income,
Growth, Small-Cap Opportunity, Income, International Bond, Managed Bond and
Intermediate Managed Bond Funds paid FCNIMCO fees for administrative services,
under the Funds' prior administration agreement, as follows:
-40-
<PAGE>
<TABLE>
<CAPTION>
Administration Administration
Fees Paid Fees Waived
-------------- --------------
<S> <C> <C>
Managed Assets Conservative Fund $ 70,857 $ 0
Equity Income Fund $332,027 $ 0
Growth Fund $395,652 $ 0
Small-Cap Opportunity Fund $104,497 $ 0
Income Fund $229,619 $ 0
International Bond Fund $ 12,551 $4,407
Municipal Bond Fund $310,972 $ 0
Intermediate Municipal Bond Fund $475,635 $ 0
</TABLE>
The Trust has agreed that neither FCNIMCO nor BISYS will 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 the agreement with FCNIMCO
or BISYS relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of FCNIMCO, or BISYS in the performance
of their obligations or from reckless disregard by any of them of their
obligations and duties under the Administration Agreement.
In addition, the Administration Agreement provides that if, in
any fiscal year, the aggregate expenses of a Fund exceed the expense
limitation of any state having jurisdiction over the Fund, FCNIMCO and BISYS
will bear such excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not
subject to reduction as the value of the Funds' net assets increases.
Distribution and Shareholder Servicing Plans
As stated in the Prospectus, the Trust may enter into Servicing
Agreements with Service Agents which may include the Investment Adviser and
its affiliates. The Servicing Agreements provide that the Service Agents will
render shareholder administrative support services to their customers who are
the beneficial owners of Fund shares in consideration for the Funds' payment
of up to .25% (on an annualized basis) of the average daily net asset value of
the shares beneficially owned by such customers and held by the Service Agents
and, at the Trust's option, it may reimburse the Service Agents' out-of-pocket
expenses. Such services may include: (i) processing dividend and distribution
payments from a Fund; (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
Service Agents are prohibited from engaging in any activity primarily intended
to result in the sale of Fund shares. However, Service Agents other than banks
may be requested to provide marketing assistance (e.g.,
-41-
<PAGE>
forwarding sales literature and advertising to their customers) in connection
with the distribution of Fund shares.
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 Trust's Board of Trustees has adopted
such a plan (the "Plan") with respect to each Fund's Class B Shares, pursuant
to which each Fund pays the Distributor a fee of up to 0.75% of the average
daily net asset value attributable to such Shares for advertising, marketing
and distributing such Shares and for the provision of certain services to the
holders of such Shares. Under the Plan, the Distributor may make payments to
certain financial institutions, securities dealers and other financial
industry professionals (collectively, "Service Agents") in respect of these
services. The Board of Trustees believes that there is a reasonable likelihood
that the Plan will benefit each Fund and the holders of such Shares.
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended under the Plan and in connection with the
Trust's arrangements with Service 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 Plan and the Trust's arrangements
with Service Agents under the Shareholder Servicing Agreements must be
approved by a majority of the Board of Trustees (including a majority of the
Disinterested Trustees).
As stated in the Prospectus for the Funds, the Trust has
implemented the Servicing Plan described above with respect to Class A and
Class B shares of the Funds only and the Plan with respect to Class B shares
of the Funds only. The Trust will enter into shareholder servicing agreements
with Service Agents pursuant to which services to their customers who
beneficially own Class A and Class B shares of the Funds in consideration for
the payment of up to .25% (on an annualized basis) of the average daily net
asset value of such shares. The Trust has allocated the Servicing Fees which
are attributable to the Class A and Class B shares exclusively to such shares
and the Distribution Fees which are attributable to the Class B shares
exclusively to such shares.
Custodian and Transfer Agent
As Custodian for the Trust, NBD (i) maintains a separate account
or accounts in the name of each Fund, (ii) collects and makes disbursements of
money on behalf of each Fund, (iii) collects and receives all income and other
payments and distributions on
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<PAGE>
account of the portfolio securities of each Fund, and (iv) makes periodic
reports to the Trust's Board of Trustees concerning the Trust's operations.
For its services as Custodian, NBD is entitled to receive from
the Funds at the following annual rates based on the aggregate market value of
such Funds' 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 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, $35 for each
option transaction requiring escrow receipts and $20 for all other security
transactions.
First Data Investor Services Group, Inc. serves as the Trust's
transfer agent pursuant to the Transfer Agency Agreement.
Distributor
The shares of the Funds are offered on a continuous basis through
BISYS, which acts under the Distribution Agreement as Distributor for the
Trust. As stated in the Prospectus, the Trust will allocate distribution fees
which are attributable to the Class B shares in a Fund exclusively to such
shares.
Prior to August 26, 1996, the shares of the Funds were offered on
a continuous basis through First of Michigan Corporation ("FoM") and Essex
National Securities, Inc. ("Essex") as co-distributors of the Fund. For the
fiscal years ended December 31, 1995, 1994 and 1993, the Managed Assets
Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and Value, Equity
Index, International Equity, Intermediate Bond, Bond, Short Bond, and Michigan
Municipal Bond Funds paid FoM and Essex for their services the following fees:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
-------------------------- --------------------------- --------------------------
Fees to FoM Fees to Essex Fees to FoM Fees to Essex* Fees to FoM Fees to Essex
----------- ------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Managed Assets Balanced Fund $ 3,804 $ 7,344 $ 1,284 $ 5,646 N/A N/A
Mid-Cap Opportunity Fund $29,940 $50,523 $19,861 $40,223 $25,518 N/A
Intrinsic Value Fund $12,119 $12,521 $ 8,798 $10,418 $14,822 N/A
Growth and Value Fund $33,011 $34,229 $21,826 $27,976 $34,731 N/A
Equity Index Fund $20,590 $ 664 $13,455 $ 2,876 $30,631 N/A
International Equity Fund $ 3,676 $ 387 N/A N/A N/A N/A
Intermediate Bond Fund $20,388 $ 8,391 $17,302 $10,763 $32,525 N/A
Bond Fund $26,762 $24,725 $20,668 $27,439 $39,354 N/A
Short Bond Fund $ 5,002 $ 163 $ 377 $ 537 N/A N/A
Michigan Municipal Bond Fund $ 2,516 $16,695 $ 1,814 $16,068 $2,250 N/A
<FN>
- ----------
* Co-Distribution Agreement with Essex commenced on April 20, 1994.
</TABLE>
-43-
<PAGE>
For the fiscal years ended December 31, 1995, 1994 and 1993,
neither FoM nor Essex incurred any expenses with respect to the Funds for the
printing and mailing of prospectuses to other than current shareholders.
Prior to September 21, 1996, the Managed Assets Conservative,
Equity Income, Small-Cap Opportunity, Income, International Bond and
Intermediate Municipal Bond Funds, prior to September 14, 1996, the Municipal
Bond Fund and prior to August 26, 1996, the Growth Fund, were distributed by
Concord Financial Group, Inc. Except as otherwise noted, for the period
January 17, 1995 (commencement of operations) through December 31, 1995, the
fees paid pursuant to such Funds' distribution plan with respect to Class B
shares of the indicated Fund were as follows:
<TABLE>
<CAPTION>
Amount of
Fees Paid
---------
<S> <C>
Managed Assets Conservative Fund $5,831
Equity Income Fund $1,283
Growth Fund $ 670
Small-Cap Opportunity Fund $ 56
Income Fund $ 563
International Bond Fund $ 30
Municipal Bond Fund $ 600
Intermediate Municipal Bond Fund $ 824
</TABLE>
Except as otherwise noted, for the period January 17, 1995
(commencement of operations) through December 31, 1995, the fee paid under the
Shareholder Services Plan with respect to Class A and Class B of the indicated
Fund was as follows:
<TABLE>
<CAPTION>
Amount of Fees Paid
-----------------------
Class A Class B
------- -------
<S> <C> <C>
Managed Assets Conservative Fund $112,993 $1,837
Equity Income Fund $ 2,475 $ 407
Growth Fund $ 4,568 $ 219
Small-Cap Opportunity Fund $ 741 $ 18
Income Fund $ 5,960 $ 198
International Bond Fund $ 632 $ 39
Municipal Bond Fund $ 16,461 $2,240
Intermediate Municipal Bond Fund $ 38,833 $3,950
</TABLE>
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 Prospectus, with
respect to the Managed Assets Conservative, Equity Income, Growth, Small-Cap
Opportunity, Income, International Bond, Municipal Bond and Intermediate
Municipal Bond Funds, have been derived from the financial statements which
-44-
<PAGE>
have been audited by Ernst & Young LLP, and, with respect to the Managed
Assets Balanced, Mid-Cap Opportunity, Intrinsic Value, Growth and Value,
Equity Index, International Equity, Intermediate Bond, Bond, Short Bond and
Michigan Municipal Bond Funds, have been derived from such Funds' financial
statements which 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 firms 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, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of shares of
each Fund and the yield of each class of shares of the Asset Allocation, Bond
and Municipal Bond Funds 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.
Yield Calculations. A Fund's yield is calculated by dividing
the Fund'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 Fund's net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
This calculation can be expressed as follows:
a-b
Yield = 2 [(---- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
-45-
<PAGE>
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities held by a Fund is recognized by accruing 1/360 of the stated
dividend rate of the security each day that the security is in the portfolio.
Each Fund 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, for the Managed Assets Conservative, Managed
Assets Balanced, Equity Income, Intermediate Bond, Bond, Short Bond, Income,
International Bond, Municipal Bond, Intermediate Municipal Bond and Michigan
Municipal Bond Funds were as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
With Sales Load Without Sales Load
--------------- ------------------
<S> <C> <C> <C> <C>
Managed Assets Conservative Fund 3.01% 3.15% 2.45% 3.59%
Equity Income Fund 3.11% 3.26% 2.45% 3.74%
Intermediate Bond Fund 5.51% 5.79% N/A 5.79%
Bond Fund 5.86% 6.16% N/A 6.16%
Short Bond Fund 5.24% 5.40% N/A 5.40%
Income Fund 5.06% 5.21% 4.43% 5.55%
International Bond Fund 3.60% 3.77% 2.98% 4.33%
Municipal Bond Fund 4.02% 4.21% 3.33% 4.63%
Intermediate Municipal Bond Fund 3.65% 3.76% 2.83% 4.12%
Michigan Municipal Bond Fund 3.45% 3.73% N/A 3.73%
</TABLE>
In addition, the Municipal Bond Funds may advertise their
standardized "tax-equivalent yield," which is 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.
-46-
<PAGE>
The tax-equivalent yields for the Municipal Bond Funds for the
30-day period ended December 31, 1995 (assuming a 39.6% federal tax rate for
each Fund and a 4.4% Michigan income tax rate for the Michigan Municipal Bond
Fund) were as follows:
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
With Sales Load Without Sales Load
--------------- ------------------
<S> <C> <C> <C> <C>
Municipal Bond Fund 6.66% 6.97% 5.51% 7.67%
Intermediate Municipal Bond Fund 6.04% 6.22% 4.69% 6.82%
Michigan Municipal Bond Fund 5.71% 6.18% N/A 6.18%
</TABLE>
Total Return Calculations. Each Fund 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,
expressed in terms of years.
The Funds 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
-47-
<PAGE>
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 Fund'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 Fund's average annual total return may
reflect the deduction of the maximum sales load imposed on purchases.
The average annual total returns for the Funds for the one year
period ended December 31, 1995 (if applicable) and the period since
commencement of operations are shown below:
<TABLE>
<CAPTION>
Average Aggregate Aggregate
Annual Total Total
Average Annual Average Annual Total Return Return From Return From
Total Return Total Return From Inception Average Annual Inception Inception
For One Year For One Year Through Total Return From Through Through
Ended Ended 12/31/95 Inception 12/31/95 12/31/95
12/31/95 12/31/95 (with Through (with (with-
(with Deduction (without Deduc- Deduction of 12/31/95 (without Deduction of out Deduction
of Maximum tion for Any Maximum Sales Deduction for Any Maximum Sales for Any Sales
Sales Charge) Sales Charge) Charge) Sales Charge) Charge) Charge)
------------- ------------- -------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Managed Assets
Conservative Fund
Inception:
Class A - 1/23/86 20.16% 26.38% 11.03% 11.61% 183.04% 198.05%
Class B - 3/3/95 N/A N/A N/A N/A 16.61% 21.61%
Class I - 3/3/95 N/A N/A N/A N/A N/A 22.55%
Managed Assets
Balanced Fund
Inception: 1/1/94
Class A 17.01% 23.16% 7.08% 9.86% 14.67% 20.70%
Class I N/A 23.16% N/A 9.86% N/A 20.70%
Equity Income Fund
Inception: 3/31/67
Class A 23.25% 29.78% 9.43% 9.63% 1237.91% 1310.22%
Class B 24.97% 28.97% 8.82% 8.82% 1039.41% 1039.41%
Class I N/A 30.27% N/A 10.20% N/A 1538.13%
Growth Fund
Inception: 5/31/68
Class A 23.45% 29.98% 7.26% 7.45% 591.37% 627.60%
Class B 25.15% 29.15% 6.66% 6.66% 492.71% 492.71%
Class I N/A 30.27% N/A 10.20% N/A 1538.03%
Mid-Cap Opportunity Fund
Inception: June 1, 1991
Class A 13.90% 19.90% 13.51% 14.79% 78.89% 88.30%
Class I N/A 19.90% N/A 14.79% N/A 88.30%
Small-Cap Opportunity Fund
Inception: 6/30/72
Class A 18.53% 24.80% 8.56% 8.79% 589.51% 625.78%
Class B 19.76% 23.76% 7.98% 508.48% 7.98% 508.48%
Class I N/A 25.08% N/A 9.35% N/A 719.07%
</TABLE>
-48-
<PAGE>
<TABLE>
<CAPTION>
Total Total
Average Annual Aggregate Aggregate
Average Annual Average Annual Total Return Return From Return From
Total Return Total Return From Inception Average Annual Inception Inception
For One Year For One Year Through Total Return From Through Through
Ended 12/31/95 Ended 12/31/95 12/31/95 (with Inception Through 12/31/95 (with 12/31/95 (with-
(with Deduction (without Deduc- Deduction of 12/31/95 (without Deduction of out Deduction
of Maximum tion for Any Maximum Sales Deduction for Any Maximum Sales for Any Sales
Sales Charge) Sales Charge) Charge) Sales Charge) Charge) Charge)
------------- ------------- -------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Intrinsic Value Fund
Inception: June 1, 1991
Class A 18.16% 24.38% 10.28% 11.52% 56.68% 64.92%
Class I N/A 24.38% N/A 11.52% N/A 64.92%
Growth and Value Fund
Inception: June 1, 1991
Class A 21.62% 28.02% 9.71% 10.94% 53.01% 61.05%
Class I N/A 28.02% N/A 10.94% N/A 61.05%
Equity Index Fund
Inception: June 1, 1992
Class A 37.35% 37.35% 14.54% 14.54% 62.19% 62.19%
Class I N/A 37.35% 14.54% 14.54% 62.19% 62.19%
International Equity Fund
Inception: December 3, 1994
Class A 5.90% 11.47% 5.50% 10.66% 5.95% 11.53%
Class I N/A 11.47% N/A 10.66% N/A 11.53%
Intermediate Bond Fund
Inception: June 1, 1991
Class A 13.80% 19.48% 6.65% 7.78% 34.35% 41.05%
Class I N/A 19.48% N/A 7.78% N/A 41.05%
Bond Fund
Inception: June 1, 1991
Class A 17.86% 23.75% 8.28% 9.43% 44.03% 51.22%
Class I N/A 23.75% N/A 9.43% N/A 51.22%
Short Bond Fund
Inception: September 17, 1994
Class A 6.77% 10.07% 5.27% 7.78% 6.85% 10.16%
Class I N/A 10.07% N/A 7.78% N/A 10.16%
Income Fund
Inception:
Class A - 3/5/93 13.61% 17.19% 5.65% 6.80% 16.82% 20.45%
Class B - 5/31/95 N/A N/A N/A N/A 3.40% 6.40%
Class I - 3/5/93 N/A 17.53% N/A 6.91% N/A 20.79%
International Bond Fund
Inception: 9/30/89
Class A 15.66% 21.09% 10.81% 11.74% 90.10% 100.27%
Class B 16.90% 20.90% 11.01% 11.01% 92.29% 92.29%
Class I N/A 22.13% N/A 11.61% N/A 98.25%
Municipal Bond Fund
Inception: March 1, 1988
Class A 11.67% 16.89% 8.30% 8.94% 86.92% 95.68%
Class B N/A N/A N/A N/A 3.64% 8.64%
Class I N/A N/A N/A N/A N/A 14.20%
Intermediate Municipal
Bond Fund
Inception: March 1, 1988
Class A 9.21% 12.55% 7.46% 7.88% 75.86% 81.22%
Class B N/A N/A N/A N/A 7.22% 10.22%
Class I N/A N/A N/A N/A N/A 11.33%
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
Total Total
Average Annual Aggregate Aggregate
Average Annual Average Annual Total Return Return From Return From
Total Return Total Return From Inception Average Annual Inception Inception
For One Year For One Year Through Total Return From Through Through
Ended 12/31/95 Ended 12/31/95 12/31/95 (with Inception Through 12/31/95 (with 12/31/95 (with-
(with Deduction (without Deduc- Deduction of 12/31/95 (without Deduction of out Deduction
of Maximum tion for Any Maximum Sales Deduction for Any Maximum Sales for Any Sales
Sales Charge) Sales Charge) Charge) Sales Charge) Charge) Charge)
------------- ------------- -------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michigan Municipal
Bond Fund
Inception:
February 1, 1993
Class A 10.96% 16.49% 5.09% 6.82% 16.00% 21.74%
Class I N/A 16.49% N/A 6.82% N/A 21.74%
</TABLE>
Other Performance Information
The Funds may 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 Fund's performance with
other measures of investment return. For example, in comparing the Funds'
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 Funds 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 Funds do not, for these purposes, deduct from the initial
value invested any amount representing sales charges. The Funds 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.
From time to time, references to the Funds may appear in
advertisements and sales literature for certain products or services, offered
by the Investment Adviser, its affiliates or others, through which it is
possible to invest in one or more of the Funds, such as the Investment
Architect wrap account, the Pegasus Pathmaker Variable Annuity, and First
Choice and First Choice Select 401(k) products.
The Funds may 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 Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid
in cash.
The Funds 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 Fund (such as
value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer, automatic accounting rebalancing, the
-50-
<PAGE>
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 Fund), 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 Fund. The Funds may also include in advertisements charts,
graphs or drawings which compare the investment objective, return potential,
relative stability and/or growth possibilities of the Fund 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 Fund. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to
be derived by an investment in a Fund 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.
-51-
<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 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
A-1
<PAGE>
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.
"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:
A-2
<PAGE>
"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.
"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.
A-3
<PAGE>
"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:
"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.
A-4
<PAGE>
"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.
"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
A-5
<PAGE>
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 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.
A-6
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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 occur 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-7
<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 of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A-8
<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" 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.
A-9
<PAGE>
"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.
"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.
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<PAGE>
"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-11
<PAGE>
APPENDIX B
As stated in their Prospectus, each of the Funds may enter into
futures contracts and 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, a Fund 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 hedge against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, 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 a Fund, 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 without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund'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 Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund 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 Fund would deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance
B-1
<PAGE>
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. A Fund may trade in any futures contract for which there exists a
public market, including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund 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 Fund tends to move in concert with the futures market prices of
long-term United States Treasury bonds ("Treasury bonds"). The Investment
Adviser wishes to hedge 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 Investment Adviser believes that, because of an
anticipated rise in interest rates, the value will decline to 95. The Fund
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 more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The Investment 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 hedged, 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 Fund 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. A Fund might 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. A Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would
be
B-2
<PAGE>
endeavoring at the same time to hedge the effect of all or part of an expected
increase in market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Investment Adviser wishes to
hedge 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 Investment
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. A Fund might enter into futures contracts purchases of
Treasury bonds for an equivalent price of 98. At the same time, the Fund
could, for example, 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 Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
purchase.
The Investment 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 a Fund 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 a Fund 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 indices, 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 indices, such as the Standard &
Poor's 100 or indices based on an industry or market segment, such as oil and
gas stocks.
B-3
<PAGE>
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 Asset Allocation and Equity Funds may sell index futures
contracts in order to hedge against a decrease in market value of its
portfolio securities that might otherwise result from a market decline. A Fund
may do so either to hedge the value of its portfolio as a whole, or to hedge
against declines, occurring prior to sales of securities, in the value of the
securities to be sold. Conversely, the Funds may purchase index futures
contracts in anticipation of purchases of securities. In a substantial
majority of these transactions, the Funds 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 Funds may utilize index futures contracts in
anticipation of changes in the composition of their portfolio holdings. For
example, in the event that a Fund 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 Fund may also sell futures contracts in connection with
this strategy, in order to hedge 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 Fund at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Fund 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
B-4
<PAGE>
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
If, however, the market moved in the opposite direction, that
is, market value decreased and the Fund had entered into an anticipatory
purchase hedge, or market value increased and the Fund had hedged its stock
portfolio, the results of the Fund's transactions in stock index futures would
be as set forth below.
B-5
<PAGE>
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 = $25,000 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
B-6
<PAGE>
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Fund'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 Fund 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 Fund 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 Fund will be entitled to receive
from the broker a variation margin payment equal to that increase in value.
Conversely, where a Fund has purchased a futures contract and the price of the
futures contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At any time prior
to expiration of the futures contract, the Investment 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 Fund'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 Fund, and the
Fund 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 Fund 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 Fund 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 Fund 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 Fund may buy or sell futures contracts in
a greater dollar amount than the dollar amount of securities being hedged
B-7
<PAGE>
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, or if otherwise deemed to be appropriate by the Investment Adviser.
Conversely, a Fund 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 Investment Adviser. It
is also possible that, where a Fund 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 Fund may decline. If this occurred, the Fund 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 Fund 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 Fund 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 Fund 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
Fund, 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 Fund's Custodian and/or in a margin account with a broker to collateralize
the position and thereby ensure that the use of such futures is unleveraged.
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 offsetting transactions which could distort the
normal relationship between the cash and futures markets. 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.
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 Investment 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
Fund 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
B-8
<PAGE>
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 Fund 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 Fund is also subject to the
Investment Adviser's ability to predict correctly movements in the direction
of the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund 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 Fund 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 Fund may have to sell securities at a time when it may be
disadvantageous to do so.
V. Options on Futures Contracts
Each Fund 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
B-9
<PAGE>
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 Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). Although
permitted by their investment policies, the Funds 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 Fund at the close of the
Fund'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 Fund holds the futures contract ("the
40%-60% rule"). The amount of any capital gain or loss actually realized by a
Fund 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 Fund
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 Fund, 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 Fund 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 Fund'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 Fund 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
B-10
<PAGE>
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 Fund 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 Fund
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 Funds' 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
Fund which are not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks) will be
B-11
<PAGE>
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 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 Fund'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>
[ INTENTIONALLY LEFT BLANK ]
FS-1
<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>
FS-2
<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>
FS-3
<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>
FS-4
<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>
FS-5
<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>
FS-6
<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>
FS-7
<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
FS-8
<PAGE>
------------
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>
FS-9
<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
-------------
FS-10
<PAGE>
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
-------------
FS-11
<PAGE>
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>
FS-12
<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
------------
FS-13
<PAGE>
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>
FS-14
<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
------------
FS-15
<PAGE>
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>
FS-16
<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
FS-17
<PAGE>
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
FS-18
<PAGE>
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
-----------
FS-19
<PAGE>
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
-----------
FS-20
<PAGE>
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
-----------
FS-21
<PAGE>
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
-----------
FS-22
<PAGE>
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>
FS-23
<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.
FS-24
<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.
FS-25
<PAGE>
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.
FS-26
<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>
FS-27
<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>
FS-28
<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.
FS-29
<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>
FS-30
<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>
FS-31
<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.
FS-32
<PAGE>
[ INTENTIONALLY LEFT BLANK ]
FS-33
<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>
FS-34
<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>
FS-35
<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>
FS-36
<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
----------
FS-37
<PAGE>
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
FS-38
<PAGE>
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
FS-39
<PAGE>
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
FS-40
<PAGE>
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
FS-41
<PAGE>
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
FS-42
<PAGE>
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
----------
FS-43
<PAGE>
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
FS-44
<PAGE>
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>
FS-45
<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>
FS-46
<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.
FS-47
<PAGE>
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.
FS-48
<PAGE>
(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.
FS-49
<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>
FS-50
<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>
FS-51
<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>
FS-52
<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.
FS-53
<PAGE>
<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>
FS-54
<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>
FS-55
<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>
FS-56
<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
FS-57
<PAGE>
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
------------
FS-58
<PAGE>
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
------------
FS-59
<PAGE>
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
FS-60
<PAGE>
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
------------
FS-61
<PAGE>
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
FS-62
<PAGE>
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
------------
FS-63
<PAGE>
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
FS-64
<PAGE>
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>
FS-65
<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
FS-66
<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.
FS-67
<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>
FS-68
<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>
FS-69
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Equity Index Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The Woodward Equity Index Fund as
of December 31, 1995, and the related statement 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
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 Equity Index Fund as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the 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.
FS-70
<PAGE>
[ INTENTIONALLY LEFT BLANK ]
FS-71
<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>
FS-72
<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>
FS-73
<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>
FS-74
<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>
FS-75
<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>
FS-76
<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>
FS-77
<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>
FS-78
<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
FS-79
<PAGE>
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
FS-80
<PAGE>
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
FS-81
<PAGE>
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
------------
FS-82
<PAGE>
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>
FS-83
<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.
FS-84
<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
FS-85
<PAGE>
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
FS-86
<PAGE>
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
FS-87
<PAGE>
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>
FS-88
<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.
FS-89
<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
FS-90
<PAGE>
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
FS-91
<PAGE>
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>
FS-92
<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.
FS-93
<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
-----------
FS-94
<PAGE>
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
FS-95
<PAGE>
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
-----------
FS-96
<PAGE>
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>
FS-97
<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
FS-98
<PAGE>
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>
FS-99
<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.
FS-100
<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.
FS-101<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>
FS-102
<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.
FS-103
<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>
FS-104
<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>
FS-105
<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>
FS-106
<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>
FS-107
<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.
FS-108
<PAGE>
[ INTENTIONALLY LEFT BLANK ]
FS-109
<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.
FS-110
<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.
FS-111
<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.
FS-112
<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.
FS-113
<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.
FS-114
<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.
FS-115
<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.
FS-116
<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.
FS-117
<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.
FS-118
<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.
FS-119
<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.
FS-120
<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.
FS-121
<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.
FS-122
<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.
FS-123
<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.
FS-124
<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.
FS-125
<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.
FS-126
<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.
FS-127
<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.
FS-128
<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.
FS-129
<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.
FS-130
<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.
FS-131
<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.
FS-132
<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.
FS-133
<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.
FS-134
<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.
FS-135
<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.
FS-136
<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.
FS-137
<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.
FS-138
<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.
FS-139
<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.
FS-140
<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.
FS-141
<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.
FS-142
<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.
FS-143
<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.
FS-144
<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.
FS-145
<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.
FS-146
<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.
FS-147
<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.
FS-148
<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.
FS-149
<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.
FS-150
<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.
FS-151
<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.
FS-152
<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.
FS-153
<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.
FS-154
<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.
FS-155
<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.
FS-156
<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.
FS-157
<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.
FS-158
<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.
FS-159
<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.
FS-160
<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.
FS-161
<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.
FS-162
<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.
FS-163
<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.
FS-164
<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.
FS-165
<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.
FS-166
<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.
FS-167
<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.
FS-168
<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.
FS-169
<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.
FS-170
<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.
FS-171
<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.
FS-172
<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.
FS-173
<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.
FS-174
<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.
FS-175
<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.
FS-176
<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.
FS-177
<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.
FS-178
<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.
FS-179
<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.
FS-180
<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.
FS-181
<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.
FS-182
<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.
FS-183
<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.
FS-184
<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.
FS-185
<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.
FS-186
<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.
FS-187
<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.
FS-188
<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.
FS-189
<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.
FS-190
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
FS-191
<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.
FS-192
<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.
FS-193
<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.
FS-194
<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.
FS-195
<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.
FS-196
<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.
FS-197
<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.
FS-198
<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.
FS-199
<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.
FS-200
<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.
FS-201
<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.
FS-202
<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.
FS-203
<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.
FS-204
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
FS-205
<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.
FS-206
<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.
FS-207
<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.
FS-208
<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.
FS-209
<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.
FS-210
<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.
FS-211
<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.
FS-212
<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.
FS-213
<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:
FS-214
<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,
FS-215
<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
FS-216
<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
FS-217
<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
FS-218
<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
FS-219
<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.
FS-220
<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>
FS-221
<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>
FS-222
<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.
FS-223
<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>
FS-224
<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>
FS-225
<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>
FS-226
<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>
FS-227
<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>
FS-228
<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>
FS-229
<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>
FS-230
<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>
FS-231
<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>
FS-232
<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>
FS-233
<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>
FS-234
<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.
FS-235
<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>
FS-236
<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.
FS-237
<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.
FS-238
<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.
FS-239
<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.
FS-240
<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.
FS-241
<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.
FS-242
<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.
FS-243
<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.
FS-244
<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.
FS-245
<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.
FS-246
<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.
FS-247
<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.
FS-248
<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.
FS-249
<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.
FS-250
<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.
FS-251
<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.
FS-252
<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.
FS-253
<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.
FS-254
<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.
FS-255
<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.
FS-256
<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.
FS-257
<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.
FS-258
<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
FS-259
