As filed with the Securities and Exchange Commission on June 13, 1996
Registration No. 33-13990/811-5148
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 31
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 31
THE WOODWARD FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o NBD Bank
900 Tower Drive
P.O. Box 7058
Troy, Michigan 48007-7058
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(313) 259-0729
W. Bruce McConnel, III
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
-1-
<PAGE>
Registrant has previously registered an indefinite number of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940. Registrant's Rule 24f-2 Notice
for the fiscal year ended December 31, 1995 was filed on February 27, 1996.
-2-
<PAGE>
CROSS REFERENCE SHEET
Class A, Class B and Class I Shares of the Pegasus
Money Market Fund and Class A and I Shares
of the Pegasus Treasury Money Market, Municipal Money Market and
Michigan Municipal Money Market Funds, Respectively
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page.................................... Cover page
2. Synopsis...................................... Expense Summary;
Background
3. Financial Highlights.......................... Financial
Highlights;
Performance and
Yield Information
4. General Description of
Registrant.................................... Cover Page;
Introduction;
Investment
Objectives,
Policies and Risk
Factors; Other
Investment
Policies; Other
Information
5. Management of Registrant ..................... Management
6. Capital Stock and Other
Securities.................................... Purchase of
Shares; Redemption
of Shares;
Shareholder
Services;
Dividends and
Distributions;
Taxes; Management;
Other Information
7. Purchase of Securities
Being Offered................................. Purchase of
Shares;
Shareholder
Services;
Management
8. Redemption or Repurchase...................... Redemption of
Shares;
Shareholder
Services
9. Pending Legal Proceedings..................... Inapplicable
-3-
<PAGE>
PROSPECTUS _______, 1996
- ------------------------------------------------------------------------------
PEGASUS FUNDS
c/o NBD Bank
P.O. Box 7058
Troy, Michigan 48007-7058
24 Hour yield and performance information
Purchase and Redemption orders:
(800) 688-3350
- ------------------------------------------------------------------------------
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").
NBD Bank ("NBD") and First Chicago Investment Management Company
("FCIMCO") serve as each Fund's investment adviser (collectively, the
"Investment Advisers").
BISYS Fund Services (the "Distributor" or "BISYS") serves as each Fund's
distributor.
By this Prospectus, Class A shares and Class I shares of each Fund and
Class B shares of the Money Market Fund are being offered. Class A shares are
offered to any investor and are offered without a sales charge. Class B shares
of the Money Market Fund are only offered through an exchange of Class B
shares of one of the Trust's non-money market investment portfolios and
are subject to the contingent deferred sales charge applicable to the shares
that were exchanged and a 12b-1 distribution fee. Class I shares are offered
without a sales charge and are sold only to institutional investors, including
banks, such as The First National Bank of Chicago ("FNBC"), 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.
<PAGE>
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, THE FIRST NATIONAL BANK OF
CHICAGO, NBD BANK, THEIR PARENT COMPANY OR THEIR 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
HIGHLIGHTS................................................................. i
EXPENSE TABLE.............................................................iii
FINANCIAL HIGHLIGHTS. .................................................... v
DESCRIPTION OF THE FUNDS.................................................. 1
HOW TO BUY SHARES......................................................... 5
SHAREHOLDER SERVICES...................................................... 7
HOW TO REDEEM SHARES...................................................... 9
MANAGEMENT OF THE FUNDS................................................... 11
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS............................... 14
DIVIDENDS AND DISTRIBUTIONS............................................... 15
TAXES..................................................................... 15
PERFORMANCE INFORMATION................................................... 17
GENERAL INFORMATION....................................................... 18
APPENDIX..................................................................A-1
<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. The differences in objectives and policies among the Funds
determine the types of portfolio securities in which each Fund invests and can
be expected to affect each Fund's yield and the degree of risk to which each
Fund is subject.
Investment Advisers
NBD and FCIMCO are the Investment Advisers to each of the Funds. Each
Fund has agreed to pay the Investment Advisers an annual fee as set forth
under "Management of the Funds."
Alternative Purchase Methods
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 FNBC, NBD, ANB or their
affiliates, acting for themselves or in a fiduciary, advisory, agency,
custodial or similar capacity, public agencies and municipalities.
See "How to Buy Shares" and "How to Redeem Shares."
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 shares and Class B shares may be
placed through a number of institutions including the Investment Advisers,
FNBC, ANB and their affiliates, including First NBD Investment Services, Inc.
("FNIS"), a registered broker-dealer, the Distributor and certain banks,
securities dealers and other industry professionals such as investment
advisers, accountants and estate planning firms (collectively, "Service
Agents").
Investors purchasing Class I shares 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."
i
<PAGE>
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."
How To Redeem Shares
Generally, investors should contact their representatives at the
Investment Advisers, FNBC, ANB, their affiliates or the appropriate Service
Agent for redemption instructions. Investors who are not clients of the
Investment Advisers, FNBC, ANB, their affiliates or a Service Agent may redeem
Fund shares by written request to the Transfer Agent.
See "How to Redeem Shares."
ii
<PAGE>
<TABLE>
<CAPTION>
EXPENSE TABLE
All Money
Funds Market Fund Only
----- ----------------
<S> <C> <C>
Shareholder Transaction Expenses Class A and I Class B
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)
Example
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) except where
noted, redemption at the end of each period:
Management Total
Contractual Fees Operating
Management After 12b-1 Other Expenses 1 3 5 10
Fees Waivers Fees Expenses * Year Years Years Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
Class A Shares 0.30% 0.29% N/A 0.46% 0.75% $ 8 $24 $42 $ 93
Class B Shares 0.30% 0.29% 0.75% 0.46% 1.50% $65/$15** $77/$47** $102/$82** $149
Class I Shares 0.30% 0.29% N/A 0.21% 0.50% $ 5 $16 $28 $ 63
Treasury Money Market
Fund 0.30% 0.30% N/A 0.43% 0.73% $ 7 $23 $41 $ 91
Class A Shares 0.30% 0.30% N/A 0.18% 0.48% $ 5 $15 $27 $ 60
Class I Shares
Municipal Money Market
Fund 0.30% 0.30% N/A 0.44% 0.74% $ 8 $24 $41 $ 92
Class A Shares 0.30% 0.30% N/A 0.19% 0.49% $ 5 $16 $27 $ 62
Class I Shares
Michigan Municipal Money
Market Fund
Class A Shares 0.30% 0.27% N/A 0.48% 0.75% $ 8 $24 $42 $ 93
Class I Shares 0.30% 0.27% N/A 0.23% 0.50% $ 5 $16 $28 $ 63
<FN>
==============================================================================
* After expense reimbursements or fee waivers.
** Assuming no redemption of Class B shares.
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%.
</TABLE>
iii
<PAGE>
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 Advisers, FNBC, 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.
See "How to Buy Shares," "Management of the Funds" and "Distribution
Plans 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 Advisers have 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.
iv
<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
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>
- ------------------------------
(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>
v
<PAGE>
<TABLE>
<CAPTION>
Treasury Money Market Fund
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%
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Municipal Money Market Fund
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>
- ------------------------------
(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>
vii
<PAGE>
<TABLE>
<CAPTION>
Michigan Municipal Money Market Fund
January 23,
1991
(Commence-
ment 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>
- ------------------------------
(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>
viii
<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 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
Each Fund's investment objective is set forth on the cover page of this
Prospectus. 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 section should be read in conjunction with "Certain
Portfolio Securities" in the Appendix.
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 Advisers 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
securities as determined by the Investment Advisers. 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
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
<PAGE>
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 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 Advisers 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.
The Michigan Municipal Money Market Fund will invest in high quality
Michigan Municipal Obligations and 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 Fund, the Fund invests 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 Money Market Fund or
Michigan Municipal Money Market Fund 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
Advisers 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 each of the Municipal Money Market and Michigan Municipal
Money Market Fund's net assets will be invested in Municipal Obligations,
except in extraordinary circumstances, such as when the Investment Advisers
believe 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 the
Municipal Money Market and Michigan Municipal Money Market 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
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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.
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 Fund in Michigan Municipal Obligations and
the cyclical nature of the economy of the State of Michigan may adversely
affect the liquidity of the Fund.
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 regulatory occurrence than
the portfolio securities of a diversified fund.
Other Investment Considerations
Investment decisions for each Fund are made independently from those of
the other investment companies or investment advisory accounts that may be
advised by the Investment Advisers. However, if such other investment
companies or managed accounts are prepared to invest in, or desire to dispose
of, securities in which a Fund invests at the same time as the Fund, available
investments or opportunities for sales will be allocated equitably to each of
them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Fund or the price paid or received
by a Fund.
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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 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 generally may not at the end of each fiscal quarter, with respect
to 50% of its total assets, invest more than 5% of its assets in the
securities of any one issuer, except U.S. Government obligations or securities
of other regulated investment companies.
In order to permit the sale of a Fund's shares in certain states, the
Funds may make commitments more restrictive than the investment policies and
limitations described above. Should a Fund
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determine that any such commitment is no longer in the best interests of the
Fund, it will revoke the commitment by terminating sales of its shares in the
state involved.
HOW TO BUY SHARES
Alternative Purchase Options
This Prospectus offers investors Class A and Class I shares in the
Treasury Money Market, Municipal Money Market and Michigan Municipal Money
Market Funds for investment, 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 the general public and may be
purchased through a number of institutions, including FCN, the Investment
Advisers, ANB and their affiliates, other Service Agents, and directly through
the Distributor.
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
automatically 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 automatically 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 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.
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 Advisers and
Service Agents may impose initial or subsequent investment minimums which are
higher or lower than those specified
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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 Advisers as of 12:00 noon
and 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
Advisers or their 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
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.
The assets in 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.
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.
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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 Advisers. 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 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.
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<PAGE>
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 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.
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 $5,000 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 in which he has invested
a minimum of $500. Investors may obtain an application and additional
information from their financial institutions or the Transfer Agent by calling
800-688-3350.
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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,
FCIMCO or any of their bank affiliates 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
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 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 Securities and Exchange
Commission. However, if an investor has purchased Fund shares by check or
through the Automatic Investment Plan and subsequently submits a written
redemption request to the Transfer Agent, the redemption proceeds will be
transmitted to the investor promptly upon bank clearance of the investor's
purchase check or Automatic Investment Plan order, which may take up to eight
business days or more. In addition, the Fund will not honor Redemption Checks
for a period of eight business days after receipt by the Transfer Agent of the
purchase check or Automatic Investment Plan order against which such
redemption is requested. These procedures will not apply if the investor
otherwise has a sufficient 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 $400 or less and
remains so during the notice period.
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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.
Redemption Procedures
An investor who has purchased shares through his account at the
Investment Advisers, any of their 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 Advisers, 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 sells shares having a net asset value of $50,000 or more,
the signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
Contact the Transfer Agent for more information about where to obtain a
signature guarantee. 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.
An investor may use the Transfer Agent's Telephone Redemption Privilege
to redeem shares valued up to $50,000 from an account, unless the investor has
notified the Transfer Agent of an address change within the preceding 15 days.
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 investor's redemption request
being processed at a later time than it would have been if telephone
redemption had been used.
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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.
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. The Trustees and executive officers of
the Trust and their principal occupations for the last five years are set
forth below. Each Trustee has an address at the Trust, c/o NBD Bank, 611
Woodward Avenue, Detroit, Michigan 48226.
*Earl I. Heenan, Jr., Chairman and President
Director (since 1951), Vice Chairman (1988-1995) and President
(1955-1988), Detroit Mortgage & Realty Company; President (1989-1992) and
Trustee (since 1966), Cottage Hospital of Grosse Pointe (affiliate of Henry
Ford Health System); Trustee, Henry Ford Health Sciences Center (since 1987);
Trustee, Henry Ford Continuing Care Corporation (since 1980); Trustee, Earhart
Foundation (since 1980); Trustee, Pegasus Variable Annuity Fund. He is 77
years old.
*Eugene C. Yehle, Trustee and Treasurer
Retired; Director of Investor Relations and Pension Investments, Dow
Chemical Company (1972-1985); Trustee, Alma College (since 1978); Trustee
(since 1977) and Chairman (since 1983), Charles J. Strosacker Foundation;
Trustee (1989-1993), Higgins Lake Foundation; Trustee, Pegasus Variable
Annuity Fund. He is 75 years old.
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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 (since 1986), Polymer Technologies, Inc.; President, Florence
Development Company (1987-1990); Chairman (since 1994) and Director (since
1992), 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
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
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
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Advisers, Inc. (1990-1991); Director, Federal Home Loan Bank of Indianapolis
(1981 to 1985); Trustee, Pegasus Variable Annuity Fund. He is 61 years old.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath, Philadelphia,
Pennsylvania. He is 53 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
* Denotes Interested Trustee.
--------------------------------
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. Additional
information about the officers of the Trust and on the compensation paid by
the Trust to its Trustees and officers is included in the Statement of
Additional Information.
Investment Advisers and Administrators
First Chicago Investment Management Company, located at Three First
National Plaza, Chicago, Illinois 60670, and NBD Bank, located at 611 Woodward
Avenue, Detroit, Michigan 48226, are each Fund's Investment Advisers. FCIMCO
is a registered investment adviser and a wholly-owned subsidiary of The First
National Bank of Chicago ("FNBC"), which in turn is a wholly-owned subsidiary
of First Chicago NBD Corporation, a registered bank holding company. NBD is a
wholly-owned subsidiary of First Chicago NBD Corporation. NBD has been in the
business of providing such services since 1933. Included among NBD's accounts
are pension and profit sharing funds for major corporations and state and
local governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. NBD also acts as investment
adviser for other registered investment company portfolios.
FCIMCO and NBD serve as Investment Advisers for the Trust pursuant to an
Investment Advisory Agreement dated as of _________, 1996. Under the
Investment Advisory Agreement, FCIMCO and NBD provide 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, FCIMCO and NBD are 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
Advisers are entitled jointly 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
________, 1996, NBD served as the Trust's 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 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.
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FCIMCO, NBD and BISYS serve as the Trust's Co-Administrators pursuant to
an Administration Agreement with the Trust dated as of ______, 1996. Under the
Administration Agreement, FCIMCO, NBD 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, FCIMCO,
NBD 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 Advisers and the Trust believe that the Investment
Advisers may perform the advisory, administrative and custodial services for
the Trust described in this Prospectus, and that the Investment Advisers,
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 Advisers
from continuing to perform investment advisory or custodial services for the
Trust or require the Investment Advisers to alter or discontinue the services
provided by them to shareholders.
If the Investment Advisers were prohibited from performing investment
advisory or custodial services for the Trust, it is expected that the Board of
Trustees would recommend that shareholders approve new agreements with another
entity or entities qualified to perform such services and selected by the
Board. If the Investment Advisers or their 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 serves as the Trust's custodian (the "Custodian").
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.
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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 Advisers and their 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 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 Advisers and their
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 _____ Business Days
after the last day of each month.
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.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for such
year. In general, a Fund's investment company taxable income will be its
taxable income, subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term
capital
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loss, if any, for such year. Each Fund intends to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Most such dividends will be taxable as
ordinary income to each taxable Fund's shareholders who are not currently
exempt from federal income taxes regardless of whether a distribution is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) In the case of the
Municipal Money Market and Michigan Municipal Money Market Funds, dividends
derived from tax-exempt interest income ("exempt-interest dividends") paid by
each such Fund may be treated by their shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular shareholder the exclusion
would be disallowed. (See Statement of Additional Information under
"Additional Information Concerning Taxes.") An exempt-interest dividend is any
dividend or part thereof (other than a capital gain dividend) paid by the
Municipal Money Market and Michigan Municipal Money Market Funds and
designated as an exempt-interest dividend in a written notice mailed to their
shareholders not later than sixty days after the close of such Funds' taxable
year that does not exceed in its aggregate the net Municipal Obligations
interest received by such Funds for the taxable year. 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.
If the Municipal Money Market and Michigan Municipal Money Market Funds
should hold certain private activity bonds issued after August 7, 1986,
shareholders must include, as an item of tax preference, the portion of
dividends paid by the Funds that is attributable to interest on such bonds in
their federal alternative minimum taxable income for purposes of determining
liability (if any) for the alternative minimum tax applicable to individuals
and corporations. Corporate shareholders must also take all exempt-interest
dividends into account in determining certain adjustments for alternative
minimum tax purposes. Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
Dividends declared in October, November or December of any year payable
to shareholders of record on a specified date in such months will be deemed
for federal tax purposes to have been paid by the Fund and received by the
shareholders and paid by a Fund on December 31 of such year, if such dividends
are paid during January of the following year.
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 Money Market and Michigan Municipal Money
Market 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
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containing information as to the interest derived from Michigan Obligations
and exempt from Michigan income tax, Michigan intangibles tax and Michigan
single business tax.
Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income
under other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
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. 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, respectively, which are averages compiled by
IBC/Donoghue's Money Fund Report, a widely recognized independent publication
that monitors the performance of money market funds, or to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. The yields of the Municipal Money Market and
Michigan Municipal Money Market 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 a
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 Municipal Money Market and
Michigan Municipal Money Market 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
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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 the 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.
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
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
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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 ____________, 1996, ____ held beneficially of record approximately
_____ of the outstanding shares of the ___________________ Funds,
respectively.
Because NBD serves the Trust as both Custodian and as an Investment
Adviser, the Trustees have established a procedure requiring three annual
verifications, two of which are unannounced, of all investments held pursuant
to the Custodian Agreement, to be conducted by the Trust's independent
accountants.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's By-Laws provide that special meetings of shareholders of any Series
shall be called at the written request of shareholders entitled to cast at
least 10% of the votes of a Series entitled to be cast at such meeting. The
Trust also stands ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the 1940
Act.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Funds' official sales literature in connection with the offer of the Funds'
shares, and, if given or made, such other information or representations must
not be relied upon as having been authorized. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
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APPENDIX
Certain Portfolio Securities
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 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 Advisers also
will evaluate such obligations and the ability of their issuers to pay
interest and principal. Each Fund will rely on the Investment Advisers'
judgment, analysis and experience in evaluating the credit worthiness of an
issuer. In this evaluation, the Investment Advisers will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the quality of the issuer's
management and regulatory matters. It also is possible that a Rating Agency
might not timely change the rating on a particular issue to reflect subsequent
events. Once the rating of a security held by a Fund has been changed, the
Investment Advisers will consider all circumstances deemed relevant in
determining whether such Fund should continue to hold the security.
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.
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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 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 Advisers 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 Advisers, 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.
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<PAGE>
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 Advisers' judgment, the income to
be earned from the loan justifies the attendant risks.
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 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.
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<PAGE>
The Funds may invest without limitation in such Municipal Obligations if the
Investment Advisers determine 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.
The Municipal Money Market and Michigan Municipal Money Market Funds 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
prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Investment Advisers 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.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Funds and thus
reduce the available yield. Shareholders of the Funds should consult their tax
advisers concerning the effect of these provisions on an investment in the
Fund. Proposals that may restrict or eliminate the income tax exemption for
interest on Municipal Obligations may be introduced in the future. If any such
proposal were enacted that would reduce the availability of Municipal
Obligations for investment by either of these Funds so as to adversely affect
its shareholders, the Board would reevaluate the affected Fund's investment
objective and policies and submit possible changes in the Fund's structure to
shareholders for their consideration. If legislation were enacted that would
treat a type of Municipal Obligation as taxable, the Funds would treat such
security as a permissible taxable investment within the applicable limits set
forth herein.
The Municipal Money Market and Michigan Municipal Money Market Funds may
purchase from financial institutions participation interests in Municipal
Obligations. A participation interest gives the
A-4
<PAGE>
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 Security. These instruments may have fixed, floating or variable
rates of interest, with remaining maturities of 13 months or less as
determined in accordance with SEC regulations (although the securities held by
the financial institution may have longer maturities). If the participation
interest is unrated, or has been given a rating below that which otherwise is
permissible for purchase by the 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 Advisers will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
Tender Option Bonds - The Municipal Money Market and Michigan Municipal
Money Market 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
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 Advisers, on behalf of a Fund, may
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. Investments in tender option bonds may be subject to a
Fund's limitation on illiquid investments. See "Restricted Securities" below.
Stand-By Commitments - The Municipal Money Market and Michigan Municipal
Money Market 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
A-5
<PAGE>
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.
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 (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 Advisers. 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 total assets in securities that are illiquid. Illiquid
investments may include securities having legal or contractual restrictions on
resale or no readily available market, GICs (in the case of the Money Market
Fund), municipal lease/purchase agreements (in the case of the Municipal Money
Market and Michigan Municipal Money Market 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 Advisers, 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, the
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-6
<PAGE>
CROSS REFERENCE SHEET
Class A, Class B and Class I Shares of the Pegasus
Money Market Fund and Class A and I Shares
of the Pegasus Treasury Money Market, Municipal Money Market and
Michigan Municipal Money Market Funds, Respectively
Statement of Additional
Form N-1A Part B Item Information Caption
- --------------------- -----------------------
10. Cover Page................................... Cover Page
11. Table of Contents............................ Table of Contents
12. General Information and History.............. Description of Shares
13. Investment Objectives and Policies........... Investment Objective,
Policies and Risk
Factors
14. Management of Registrant..................... Management
15. Control Persons and Principal................ Description of Shares
Holders of Securities
16. Investment Advisory and Other Services....... Management
17. Brokerage Allocation and other Practices..... Investment Objective,
Policies and Risk
Factors
18. Capital Stock and Other Securities........... Net Asset Value;
Additional Purchase
and Redemption
Information;
Description of Shares
19. Purchase, Redemption and Pricing............. Net Asset Value
of Securities Being Offered
Additional Purchase and
Redemption Information
20. Tax Status................................... Additional Information
Concerning Taxes
21. Underwriters................................. Not Applicable
22. Calculation of Performance Data.............. Additional Information
on Performance
23. Financial Statements......................... Audited Financial
Statements
-11-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_____________, 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
c/o NBD Bank
P.O. Box 7058
Troy, Michigan 48007-7058
This Statement of Additional Information ( "Additional
Statement") is meant to be read in conjunction with the Pegasus Funds'
Prospectus dated _____________, 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..................
Net Asset Value...................................................
Additional Purchase and Redemption Information....................
Description of Shares.............................................
Additional Information Concerning Taxes...........................
Management........................................................
Independent Public Accountants....................................
Counsel...........................................................
Additional Information on Performance.............................
Appendix A........................................................ A-1
Appendix B........................................................ B-1
Financial Statements.............................................. FS-1
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<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 Advisers are responsible for, make decisions with
respect to, and place 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.
For the fiscal years ended December 31, 1995, 1994 and 1993,
the Funds incurred no brokerage commissions.
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
Advisers, in their sole discretion, believe such practice to be otherwise in
the Fund's interests.
<PAGE>
The Advisory Agreement for the Funds provides that, in
executing portfolio transactions and selecting brokers or dealers, the
Investment Advisers will seek to obtain the best overall terms available for
each Fund. In assessing the best overall terms available for any transaction,
the Investment Advisers shall consider factors they deem 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 Advisers 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 Advisers determine 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 Advisers 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
Advisers 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
Advisers. 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 Advisers, 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 Advisers, 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.
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<PAGE>
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 Advisers. Such other investment companies
and accounts may also invest in the same securities as the Funds. To the
extent permitted by law, the Investment Advisers 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 Advisers
believe 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 Advisers 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 Advisers ("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 Advisers to be of comparable quality to securities which are so
rated. The Board of Trustees will approve or ratify any purchases by each Fund
of securities that are rated by only one Rating Agency or that qualify under
(3) above.
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<PAGE>
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 Advisers deem the instrument to present minimal credit risks, such
investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. All investments in
bank obligations are limited to the obligations of financial institutions
having more than $1.0 billion in total assets at the time of purchase.
Commercial Paper
Commercial paper, including variable and floating rate notes
and other short term corporate obligations, must be rated in one of the two
highest categories by at least two Rating Agencies, or if not rated, must have
been independently determined by the Investment Advisers 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 Advisers 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.
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<PAGE>
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 Prospectuses 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 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.
-5-
<PAGE>
Municipal and Related Obligations
As stated in their Prospectus, the Municipal Money Market and
Michigan Municipal Money Market Funds may invest in Municipal Obligations
including general obligation securities, revenue securities, notes, and moral
obligation bonds, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal 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 required for purchase by the
Fund. The Investment Advisers 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. The District of Columbia, each state, each
possession and territory of the United States, each of their political
subdivisions, agencies, instrumentalities and authorities and each state
agency of which a state is a member is a separate "issuer" as that term is
used in this Additional Statement and in the Prospectus. The non-governmental
user of facilities financed by a private activity bond is also considered to
be an "issuer". An issuer's obligations under its Municipal 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. In the event that the
issuer defaults with respect to interest or principal payments, the insurer
will be notified and will be required to make payment to the bondholders.
There is, however, no guarantee that the insurer will meet its
-6-
<PAGE>
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 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 Municipal Money Market and Michigan Municipal Money Market
Funds and their liquidity and value. In such event the Board of Trustees would
reevaluate the Funds' investment objectives and policies and consider changes
in their structure or possible dissolution.
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 Advisers' opinion,
present minimal credit risks. The Funds' 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
-7-
<PAGE>
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 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 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 each Fund may purchase
and sell options, forward contracts, futures contracts, including without
limitation those relating to indices, and options on futures contracts or
indices as consistent with a Fund's investment objective and policies.
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:
-8-
<PAGE>
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 by the 1940 Act.
2. Write or sell put options, call options, straddles, spreads,
or any combination thereof, except for transactions in options on securities
or indices of securities, futures contracts and options on futures contracts
and in similar investments.
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.
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
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<PAGE>
appropriate to value a security by the amortized cost method, the security
will be valued either by market quotations, or by fair value as determined by
the Board of Trustees. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the
securities. The value of portfolio securities held by the Funds will vary
inversely to changes in prevailing interest rates. Thus, if interest rates
have increased from the time a security was purchased, such security, if sold,
might be sold at a price less than its cost. Similarly, if interest rates have
declined from the time a security was purchased, such security, if sold, might
be sold at a price greater than its purchase cost. In either instance, if the
security is held to maturity, no gain or loss will be realized.
Pursuant to Rule 2a-7, each Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to purchase
securities having remaining maturities of 13 months or less only, and to
invest only in securities determined by the Board of Trustees to be of high
quality with minimal credit risks. The Board of Trustees has established
procedures designed to stabilize, to the extent reasonably possible, each
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 has agreed to take such
corrective actions as it deems necessary and appropriate to eliminate or
reduce, to the extent reasonably practicable, any such dilution or unfair
results. These actions may include selling portfolio securities prior to
maturity to realize capital gains or losses or to shorten a 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. Daily net investment income consists of (1) accrued
interest and other income plus or minus amortized purchase discount or
premium, (2) plus or minus all realized gains and losses on portfolio
securities and (3) minus accrued expenses allocated to that Fund. 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.
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<PAGE>
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, Inc. ("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. (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.
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<PAGE>
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 the holders of 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, class or series, 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, class or series.
-12-
<PAGE>
[insert 5% information]
To the Trust's knowledge, there were no persons who
beneficially owned 5% or more of the outstanding shares of the
_______________________ Funds as of ____________, 1996.
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.
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<PAGE>
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. In order to so
qualify, each Fund must satisfy, in addition to the distribution requirement
described in the Prospectus, certain requirements with respect to the source
of its income for a taxable year. At least 90% of the gross income of each F
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
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<PAGE>
within the meaning of this requirement. However, any other income which is
attributable to realizedmarket 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 nominal
rate of 39.6%; however, because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An
individual's long term capital gains are taxable at a maximum nominal rate of
28%. For corporations, long term capital gains and ordinary income are both
taxable at a maximum nominal rate of 35% (or at a maximum effective marginal
rate of 39% in the case of corporations having taxable income between $100,000
and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each 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."
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<PAGE>
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 bonds
or "related persons" thereof. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses a part
of such facilities in his trade or business and whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities, or who
occupies more than 5% of the usable area of such facilities or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S Corporation
and its shareholders.
Each 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
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<PAGE>
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 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
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<PAGE>
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 Trustees and executive officers of the Trust, their ages
and their principal occupations for the last five years are set forth in the
Prospectus. Each Trustee has an address at the Pegasus Funds, c/o NBD Bank,
611 Woodward Avenue, Detroit, Michigan 48226. Each Trustee also serves as a
trustee of the Pegasus Variable Annuity Fund, a registered investment company
advised by the Investment Advisers.
For so 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
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 :
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<TABLE>
<CAPTION>
(3)
Total Compensation
(2) From Fund and Fund
Aggregate Complex**
(1) Compensation Paid to
Name of Board Member from Fund* Board 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., ++
Chairman and President $24,437.50 $24,437.50(2)+
Marilyn McCoy, Trustee
*** $30,000(4)+
Julius L. Pallone, Trustee ++
$21,250 $21,250(2)+
Donald G. Sutherland, ++
Trustee $21,250 $21,250(2)+
Donald L. Tuttle, Trustee ++
$21,250 $21,250(2)+
Eugene C. Yehle, Trustee
and Treasurer $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 $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>
- --------------------------------
Investment Advisers
Information about the Investment Advisers and their duties and
compensation as investment adviser is contained in the Prospectus.
For the fiscal year ended December 31, 1995, 1994 and 1993, the
Trust paid NBD fees for advisory services with respect to each Fund as
follows:
-19-
<PAGE>
<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.
The Investment Advisers' 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
NBD's own investment portfolio will not be made. NBD and FCIMCO's 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.
Investment decisions for the Trust and other fiduciary accounts
are made by NBD and FCIMCO's respective trust investment divisions solely from
the standpoint of the independent interest of the Trust and such other
fiduciary accounts. NBD and FCIMCO's respective trust investment divisions
perform independent analyses of publicly available information, the results of
which are not made publicly available. In making investment decisions for the
Trust, personnel of NBD and FCIMCO's respective trust investment divisions do
not obtain information from any other division or department of the Investment
Advisers or otherwise, which is not publicly available. NBD and FCIMCO's
respective trust investment divisions execute transactions for the Trust only
with unaffiliated dealers but such dealers may be customers of other divisions
of the Investment Advisers. The Investment Advisers 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.
-20-
<PAGE>
NBD and FCIMCO have agreed as Investment Advisers that they
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
Advisers are obligated to manage the investment of each Fund's assets in
accordance with applicable laws.
The Investment Advisers 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 Advisers.
Under the Advisory Agreement, the Investment Advisers are 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 Advisers in the
performance of their duties or from reckless disregard of their duties and
obligations under the Agreement.
Administrators
Pursuant to an Administration Agreement dated as of
___________, 1996 with the Trust, FCIMCO, NBD 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, FCIMCO, NBD and BISYS
are entitled jointly to a monthly administration fee at the annual rate of
.15% of each Fund's average daily net assets.
-21-
<PAGE>
The Trust has agreed that neither FCIMCO, NBD 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 FCIMCO,
NBD or BISYS relates, except for a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of FCIMCO, NBD 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, FCIMCO, NBD and
BISYS will bear such excess expense to the extent required by state law.
The aggregate of the fees payable to FCIMCO, NBD and BISYS is
not subject to reduction as the value of the 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 Advisers and their 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.
-22-
<PAGE>
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 BISYS 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, BISYS 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 Plans and the purposes for which the
expenditures were made. In addition, such Plans 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 Plans 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 who 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.
-23-
<PAGE>
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.
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 Trust's shares 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 ____________, 1996, the Trust's shares were offered on
a continuous basis through First of Michigan Corporation ("FoM") and Essex
National Securities, Inc. ("Essex") as co-distributors of the Trust. For the
fiscal years ended December 31, 1995, 1994 and 1993, the Funds paid FoM and
Essex for their services the following fees:
-24-
<PAGE>
<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>
- ----------------------
* Distribution agreement with Essex commenced on April 20, 1994.
</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 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.
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
-25-
<PAGE>
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>
The Funds may also from time to time include in advertisements,
sales literature, communications to shareholders and other materials
("Literature") total return figures that are not calculated according to the
formulas set forth above in order to compare more accurately a 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 also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a 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.
-27-
<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 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.
"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 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.
"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.
A-4
<PAGE>
"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 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.
A-5
<PAGE>
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of 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.
A-6
<PAGE>
The following summarizes the long-term debt ratings used by Duff
& Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred
dividends. Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future 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.
A-7
<PAGE>
"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" - 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.
A-8
<PAGE>
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.
"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.
A-9
<PAGE>
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality
and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
ASSETS:
Investment in securities:
At cost $1,619,765,599
==============
At amortized cost (Note 2) $1,624,604,821
Cash 109
Interest receivable 16,341,428
Deferred organization costs, net (Note 2) --
Prepaids and other 298,771
--------------
TOTAL ASSETS 1,641,245,129
--------------
LIABILITIES:
Payable for securities purchased --
Accrued investment advisory fee 743,967
Accrued distribution fees 16,841
Accrued custodial fee 2,795
Dividends payable 738,061
Accounts payable and accrued expenses 48,651
--------------
TOTAL LIABILITIES 1,550,315
--------------
NET ASSETS $1,639,694,814
==============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 163,969,481
Additional paid-in capital 1,475,725,333
--------------
TOTAL NET ASSETS $1,639,694,814
==============
Net asset value and redemption price per share $ 1.00
==============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $469,488,613 $921,604,627 $566,354,408 $126,549,715
============ ============ ============ ============
At amortized cost (Note 2) $469,643,055 $921,643,450 $564,592,007 $126,237,472
Cash 320 104 52,509 1,897
Interest receivable 5,112,013 6,544,562 5,203,797 1,139,798
Deferred organization costs, net (Note 2) -- 6,063 -- --
Prepaids and other 41,286 295,486 13,394 61,485
------------ ------------ ------------ ------------
TOTAL ASSETS 474,796,674 928,489,665 569,861,707 127,440,652
------------ ------------ ------------ ------------
LIABILITIES:
Payable for securities purchased -- -- 5,000,000 5,273,510
Accrued investment advisory fee 195,644 340,328 225,584 51,173
Accrued distribution fees 3,417 5,377 3,880 1,222
Accrued custodial fee 685 869 3,312 690
Dividends payable 210,856 413,557 190,363 39,832
Accounts payable and accrued expenses 9,217 34,032 25,092 17,283
------------ ------------ ------------ ------------
TOTAL LIABILITIES 419,819 794,163 5,448,231 5,383,710
------------ ------------ ------------ ------------
NET ASSETS $474,376,855 $927,695,502 $564,413,476 $122,056,942
============ ============ ============ ============
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 47,437,686 $ 92,769,550 $ 56,441,348 $ 12,205,694
426,939,169 834,925,952 507,972,128 109,851,248
Additional paid-in capital ------------ ------------ ------------ ------------
$474,376,855 $927,695,502 $564,413,476 $122,056,942
TOTAL NET ASSETS ============ ============ ============ ============
Net asset value and redemption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
MONEY MARKET
FUND
------------
<S> <C>
INVESTMENT INCOME (Note 2): $98,415,963
-----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 7,225,557
Distribution fees 152,873
Professional fees 48,970
Custodial fee 60,686
Shareholder servicing agent fees 450,637
Marketing expenses 102,871
Amortization of deferred organization expenses --
Registration, filing fees and other expenses 398,210
Less:
Waived investment advisory fee --
-----------
NET EXPENSES 8,439,804
-----------
NET INVESTMENT INCOME $89,976,159
===========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6%
===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 1995
MICHIGAN
TREASURY TAX-EXEMPT TAX-EXEMPT
GOVERNMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (Note 2): $26,262,034 $42,755,302 $21,196,396 $3,921,289
----------- ----------- ----------- ----------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 1,987,590 3,248,535 2,458,246 496,026
Distribution fees 34,919 53,755 44,226 10,466
Professional fees 48,970 48,970 48,970 48,970
Custodial fee 8,370 12,919 41,886 11,132
Shareholder servicing agent fees 60,644 298,599 86,193 82,305
Marketing expenses 36,670 41,925 42,552 34,396
Amortization of deferred organization expenses -- 8,021 -- 8,277
Registration, filing fees and other expenses 82,327 128,542 173,183 54,166
Less:
Waived investment advisory fee -- -- -- (61,221)
----------- ----------- ----------- ----------
NET EXPENSES 2,259,490 3,841,266 2,895,256 684,517
----------- ----------- ----------- ----------
NET INVESTMENT INCOME $24,002,544 $38,914,036 $18,301,140 $3,236,772
=========== =========== =========== ==========
RATIO OF TOTAL EXPENSES TO TOTAL INVESTMENT INCOME 8.6% 9.0% 13.7% 17.5%
=========== =========== =========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET FUND GOVERNMENT FUND
----------------- ---------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 89,976,159 $ 54,437,913 $ 24,002,544 $ 15,570,185
Distributions to shareholders from net investment
income (89,976,159) (54,437,913) (24,002,544) (15,570,185)
---------------- ---------------- --------------- ---------------
Net increase in net assets from operations -- -- -- --
---------------- ---------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (at $1.00 per share):
Proceeds from shares sold 15,430,620,141 11,950,595,231 7,866,220,550 4,177,408,097
Net asset value of shares issued in reinvestment of
distributions to shareholders 20,938,255 15,065,218 5,511,007 3,599,166
---------------- ---------------- --------------- ---------------
15,451,558,396 11,965,660,449 7,871,731,557 4,181,007,263
Less: payments for shares redeemed (15,134,903,898) (11,969,313,007) (7,818,562,738) (4,106,464,145)
---------------- ---------------- --------------- ---------------
Net increase (decrease) in net assets from capital
share transactions 316,654,498 (3,652,558) 53,168,819 74,543,118
---------------- ---------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 316,654,498 (3,652,558) 53,168,819 74,543,118
NET ASSETS:
Beginning of year 1,323,040,316 1,326,692,874 421,208,036 346,664,918
---------------- ---------------- --------------- ---------------
End of year $ 1,639,694,814 $ 1,323,040,316 $ 474,376,855 $ 421,208,036
================ ================ =============== ===============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
TREASURY TAX-EXEMPT MICHIGAN TAX-EXEMPT
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
----------------- ----------------- -----------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- ------------- -------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 38,914,036 $ 23,209,709 $ 18,301,140 $ 12,879,849 $ 3,236,772 $ 1,621,567
Distributions to
shareholders from net
investment income (38,914,036) (23,209,709) (18,301,140) (12,879,849) (3,236,772) (1,621,567)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets from operations -- -- -- -- -- --
--------------- --------------- --------------- --------------- ------------- -------------
FROM CAPITAL SHARE
TRANSACTIONS
(at $1.00 per share):
Proceeds from
shares sold 6,284,582,300 3,163,540,997 2,777,275,094 3,097,740,398 293,836,102 229,739,020
Net asset value of
shares issued in
reinvestment of
distributions to
shareholders 5,449,979 6,513,927 2,421,757 2,353,656 2,029,545 1,022,699
--------------- --------------- --------------- --------------- ------------- -------------
6,290,032,279 3,170,054,924 2,779,696,851 3,100,094,054 295,865,647 230,761,719
Less: payments for
shares redeemed (6,148,030,955) (3,239,233,694) (2,766,019,376) (3,048,064,052) (252,448,579) (204,679,038)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
--------------- --------------- --------------- --------------- ------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS 142,001,324 (69,178,770) 13,677,475 52,030,002 43,417,068 26,082,681
NET ASSETS:
Beginning of year 785,694,178 854,872,948 550,736,001 498,705,999 78,639,874 52,557,193
--------------- --------------- --------------- --------------- ------------- -------------
End of year $ 927,695,502 $ 785,694,178 $ 564,413,476 $ 550,736,001 $ 122,056,942 $ 78,639,874
=============== =============== =============== =============== ============= =============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Cost
Description Face Amount (Note 2)
----------- ----------- --------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 16.98%
Allstate Life Insurance Co. Master Note, 5.93%,
1/2/96 $ 5,000,000 $ 5,000,000
American General Finance, Inc. Master Note, 5.85%,
1/2/96 15,000,000 15,000,000
Commonwealth Life Insurance Co. Master Note, 6.03%,
1/2/96 5,000,000 5,000,000
Peoples Security Life Insurance Co. Master Note,
6.03%, 1/2/96 5,000,000 5,000,000
Sun Life Insurance Co. of America Master Note,
6.13%, 1/2/96 10,000,000 10,000,000
Transamerica Finance Group, Inc. Master Note,
5.85%, 1/2/96 25,000,000 25,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 56,503,093 56,503,093
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 77,000,000 77,000,000
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) 73,407,000 73,407,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 4,000,000 4,000,000
--------------
275,910,093
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.52%
Federal Farm Credit Bank, 5.60%, 7/1/96 13,950,000 13,930,941
Federal Home Loan Bank:
5.63%, 6/26/96 12,000,000 11,992,746
5.98%, 8/14/96 5,000,000 5,000,000
Federal National Mortgage Assn. Deb., 8.75%,
6/10/96 2,000,000 2,025,084
Federal National Mortgage Assn. Medium Term Note:
5.97%, 5/16/96 4,000,000 4,002,877
5.71%, 6/10/96 9,000,000 8,994,375
Student Loan Marketing Assn., 6.05%, 6/30/96 27,500,000 27,528,471
--------------
73,474,494
--------------
COMMERCIAL PAPER -- 44.37%
Abbey National North America, 5.64%, 3/6/96 29,980,000 29,677,951
Accor, 5.74%, 2/15/96 8,000,000 7,943,000
AESOP Funding Corp., 5.82%, 1/22/96 15,000,000 14,949,250
Allomon Funding Corp.:
5.78%, 1/12/96 10,000,000 9,982,369
5.77%, 1/25/96 10,135,000 10,096,149
Alpine Securitization Corp., 5.76%, 2/13/96 8,000,000 7,945,342
American Express Credit Corp., 5.69%, 2/27/96 20,000,000 19,821,400
Avnet, Inc., 5.72%, 2/16/96 7,500,000 7,445,567
B.A.T. Capital Corp., 5.77%, 1/23/96 10,000,000 9,964,861
Barton Capital Corp., 5.80%, 1/26/96 17,000,000 16,931,764
Bass Finance (C.I.) Ltd., 5.71%, 2/14/96 10,815,000 10,740,052
BCI Funding Corp., 5.74%, 2/9/96 19,980,000 19,856,623
BEAL Cayman Ltd., 5.73%, 2/23/96 19,980,000 19,812,923
Clipper Receivables Corp., 5.76%, 1/17/96 20,000,000 19,948,889
Corporate Receivables Corp., 5.81%, 1/5/96 17,000,000 16,989,026
Echlin, Inc., 5.76%, 1/18/96 15,000,000 14,959,342
Eksportfinans A/S, 5.54%, 1/8/96 6,060,000 6,053,484
Electronic Data Systems Corp., 5.56%, 3/21/96 5,000,000 4,939,000
Engelhard Corp., 5.75%, 1/19/96 10,970,000 10,938,571
English China Clays PLC:
5.78%, 1/22/96 10,000,000 9,966,400
5.73%, 2/20/96 10,000,000 9,921,111
5.70%, 3/1/96 10,254,000 10,157,442
Enterprise Funding Corp.:
5.76%, 1/12/96 6,451,000 6,439,666
5.76%, 1/16/96 13,072,000 13,040,652
5.76%, 2/9/96 9,000,000 8,944,230
Explorer Pipeline Co.:
5.76%, 1/24/96 7,775,000 7,746,487
5.78%, 1/30/96 10,500,000 10,451,365
5.72%, 2/16/96 10,000,000 9,927,422
Franklin Resources, Inc., 5.73%, 2/20/96 8,000,000 7,936,889
Greenwich Funding Corp.:
5.76%, 1/8/96 10,000,000 9,988,819
5.78%, 1/11/96 10,000,000 9,983,972
Halifax Building Society, 5.77%, 1/3/96 10,000,000 9,996,794
Hercules, Inc., 5.60%, 6/21/96 10,000,000 9,739,611
International Lease Finance Corp., 5.76%, 1/9/96 12,730,000 12,713,734
International Securitization Corp.:
5.78%, 2/2/96 17,000,000 16,913,111
5.52%, 6/10/96 9,530,000 9,300,277
New Center Asset Trust, 5.78%, 1/31/96 20,000,000 19,904,167
Pacific Dunlop Holdings, Inc., 5.75%, 2/21/96 10,000,000 9,919,250
Pacific Dunlop Ltd., 5.67%, 1/23/96 5,000,000 4,982,736
Pooled Accounts Receivable Capital Corp.:
5.83%, 1/9/96 11,000,000 10,985,773
6.02%, 1/25/96 10,160,000 10,119,360
Preferred Receivables Funding Corp.:
5.73%, 2/2/96 15,975,000 15,894,060
5.75%, 2/21/96 8,050,000 7,984,996
Premium Funding, Inc.:
5.78%, 2/7/96 10,113,000 10,053,235
5.79%, 2/14/96 11,162,000 11,083,556
Ranger Funding Corp., 5.75%, 1/12/96 13,000,000 12,977,199
San Paolo U.S. Financial Co., 5.68%, 3/15/96 10,970,000 10,843,498
Sheffield Receivables Corp., 5.73%, 2/1/96 12,980,000 12,916,290
St. Michael Finance Ltd.:
5.75%, 2/20/96 9,272,000 9,198,597
5.64%, 3/5/96 5,694,000 5,637,516
5.64%, 3/8/96 10,000,000 9,896,150
Sunbelt-Dix, Inc.:
5.76%, 1/30/96 4,000,000 3,981,537
5.79%, 2/13/96 11,980,000 11,897,721
5.71%, 3/5/96 12,000,000 11,879,467
5.67%, 3/25/96 5,250,000 5,181,400
Sweden (Kingdom of):
5.71%, 2/16/96 15,000,000 14,891,325
5.72%, 3/1/96 6,980,000 6,914,039
5.73%, 3/12/96 10,000,000 9,888,175
TI Group, Inc., 5.70%, 3/4/96 17,000,000 16,832,210
U.S. Borax & Chemical Corp., 5.73%, 2/1/96 5,000,000 4,975,458
Windmill Funding Corp.:
6.02%, 1/16/96 10,000,000 9,975,000
5.82%, 1/24/96 15,000,000 14,944,417
WMX Technologies, Inc., 5.50%, 9/9/96 15,480,000 14,905,692
--------------
720,826,369
--------------
NOTES -- 17.27%
American Express Centurion Bank, 5.82%, A/R,
1/17/96 15,000,000 15,000,652
Associates Corp. of North America Debenture, 7.50%,
10/15/96 28,850,000 29,222,978
Associates Corp. of North America Euro Dollar
Debenture, 10.50%, 3/12/96 7,378,000 7,424,686
Boatmens National Bank of St. Louis, 6.00%, A/R,
6/12/96 20,000,000 20,000,000
Comerica Bank, 5.70%, 9/3/96 13,000,000 12,991,077
First Bank, NA, 5.96%, 3/4/96 27,500,000 27,499,558
First Union National Bank N. C., 5.76%, 2/2/96 5,000,000 5,000,000
Ford Motor Credit Co. Medium Term Notes:
6.25%, A/R, 5/10/96 12,000,000 12,013,087
14.00%, 7/5/96 5,000,000 5,198,163
9.10%, 7/18/96 5,000,000 5,083,739
Huntington National Bank, 5.67%, A/R, 8/29/96 30,000,000 29,988,082
J.P. Morgan, 5.75%, 8/7/96 29,980,000 29,986,992
PNC Bank, 5.65%, 9/18/96 20,000,000 19,996,215
Seattle First National Bank, 5.51%, 6/14/96 10,000,000 10,000,000
Smithkline Beecham Corp., 5.25%, 1/16/96 2,425,000 2,423,784
Society National Bank Cleveland Ohio Medium Term
Note, 6.875%, 10/15/96 23,500,000 23,683,821
Trust Company Bank, 6.50%, 3/21/96 25,000,000 24,994,577
-----------
280,507,411
-----------
CERTIFICATES OF DEPOSIT -- 15.44%
Bayerische Landesbank Girozentrale, 6.00%, 9/12/96 10,000,000 10,000,000
Bayerische Vereinsbank AG, 5.95%, 7/22/96 29,980,000 29,980,000
Canadian Imperial Bank of Commerce, 5.95%, 10/23/96 24,980,000 24,980,000
Dresdner Bank AG, 7.00%, 2/5/96 15,000,000 15,000,000
Harris Trust & Savings Bank, 5.72%, 2/29/96 14,975,000 14,975,000
National Westminster Bank PLC, 5.83%, 1/12/96 15,000,000 15,000,045
PNC Bank Corp., 5.74%, 9/30/96 20,000,000 19,985,384
Royal Bank of Canada:
6.60%, 4/3/96 2,980,000 2,980,399
6.55%, 4/9/96 8,000,000 8,000,000
Societe Generale:
7.05%, 2/14/96 20,000,000 20,000,000
6.80%, 3/1/96 5,000,000 5,000,000
Toronto-Dominion Bank, Euro:
6.80%, 3/11/96 24,980,000 24,987,939
5.84%, 11/7/96 30,000,000 30,000,000
Wachovia Bank of Georgia, NA, 5.85%, 1/10/96 10,000,000 10,000,000
Wachovia Bank of North Carolina, 7.13%, 1/26/96 20,000,000 19,997,687
--------------
250,886,454
--------------
TIME DEPOSIT -- 1.42%
Mitsubishi Bank, 12.00%, 1/2/96 23,000,000 23,000,000
--------------
23,000,000
--------------
TOTAL INVESTMENTS $1,624,604,821
==============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- --------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 45.05%
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) $73,569,000 $ 73,569,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 6.00% 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 1/18/96 through 9/10/02 at various
interest rates ranging from 0.00% to 8.26%, all
held at the Bank of New York) 23,000,000 23,000,000
Yamaichi, Revolving Repurchase Agreement, 6.00%,
1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 12/31/95
through 8/15/05 at various interest rates ranging
from 0.00% to 11.625%, all held at Chemical Bank) 115,000,000 115,000,000
------------
211,569,000
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 54.95%
U.S. Treasury Securities -- 4.28%
U.S. Treasury Notes:
4.375%, 8/15/96 5,000,000 4,957,174
7.000%, 9/30/96 15,000,000 15,150,150
------------
20,107,324
------------
Agency Obligations -- 50.67%
Federal Farm Credit Bank:
5.78%, A/R, 2/9/96 25,000,000 24,998,664
6.61%, 4/12/96 4,000,000 4,006,934
6.39%, 4/17/96 10,000,000 10,022,719
5.59%, A/R, 6/7/96 10,000,000 9,998,338
5.60%, 11/1/96 10,000,000 10,002,747
Federal Home Loan Bank:
6.85%, 2/28/96 24,000,000 24,012,415
6.30%, 3/1/96 2,500,000 2,474,042
5.05%, 6/7/96 6,000,000 5,983,328
5.90%, 7/25/96 5,000,000 5,000,000
5.98%, 8/14/96 19,000,000 19,000,000
6.00%, 8/16/96 2,000,000 2,000,411
4.84%, 8/26/96 5,000,000 4,976,737
5.77%, 11/20/96 10,000,000 9,998,229
Federal Home Loan Mortgage Corp., 6.79%, 2/20/96 15,000,000 14,999,678
Federal National Mortgage Assn., 5.58% 2/21/96 8,400,000 8,334,074
Federal National Mortgage Assn. Medium Term Note:
5.50%, A/R, 1/26/96 25,000,000 24,998,973
5.71%, 6/10/96 5,000,000 4,998,939
5.50%, 6/12/96 18,000,000 17,969,843
Student Loan Marketing Assn.:
6.13%, A/R, 6/30/96 12,500,000 12,490,660
6.06%, A/R, 7/1/96 11,700,000 11,700,000
6.05%, A/R, 10/4/96 10,000,000 10,000,000
------------
237,966,731
------------
TOTAL INVESTMENTS $469,643,055
============
<FN>
A/R -- Adjustable Rate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized Cost
Description Face Amount (Note 2)
----------- ----------- -------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 82.74%
Aubrey Langston, Revolving Repurchase Agreement,
5.92%, 1/2/96 (secured by various U.S. Treasury
obligations with maturities ranging from 8/31/97
through 11/15/05 at various interest rates
ranging from 4.75% to 13.75%, all held at
Chemical Bank) $43,000,000 $ 43,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 5.82%, 1/2/96 (secured by various U.S.
Treasury obligations with maturities ranging from
5/15/96 through 8/15/23 at various interest rates
ranging from 0.00% to 8.875%, all held at the
Custodial Trust Co.) 215,000,000 215,000,000
Daiwa Securities America, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 4/30/96 through 11/15/01 at various
interest rates ranging from 0.00% to 15.75%, all
held at the Bank of New York) 43,000,000 43,000,000
First Boston, Inc., Revolving Repurchase Agreement,
5.85%, 1/2/96 (secured by various U.S. Treasury
Notes with maturities ranging from 11/15/96
through 2/15/03 at various interest rates ranging
from 4.375% to 6.25%, all held at Chemical Bank) 36,000,000 36,000,000
Lehman Brothers, Inc., Revolving Repurchase
Agreement, 5.92%, 1/2/96 (secured by U.S.
Treasury Note, 5.875%, 7/31/97, held at Chemical
Bank) 43,000,000 43,000,000
Morgan Stanley & Co., Inc., Revolving Repurchase
Agreement, 5.87%, 1/2/96 (secured by U.S.
Treasury Note, 6.125%, 5/31/97, held at the Bank
of New York) 43,000,000 43,000,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 216,533,000 216,533,000
Nikko Securities Co. International, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 7/31/96 through 8/15/00 at various
interest rates ranging from 0.00% to 8.75%, all
held at the Bank of New York) 40,000,000 40,000,000
Nomura Securities International, Inc., Revolving
Repurchase Agreement, 5.96%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 8/31/97 through 5/15/01 at various
interest rates ranging from 0.00% to 6.00%, all
held at the Bank of New York) 40,000,000 40,000,000
Sanwa BGK Securities Co., L.P., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
U.S. Treasury Note, 5.50%, 11/15/98, held at the
Bank of New York) 43,000,000 43,000,000
------------
762,533,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 17.26%
U.S. Treasury Securities -- 17.26%
Principal Strip from U.S. Treasury Bond due
5/15/96 5,000,000 4,897,685
U.S. Treasury Bill, 6.26%, 3/7/96 3,000,000 2,965,955
U.S. Treasury Notes:
4.000%, 1/31/96 8,000,000 7,988,924
4.625%, 2/15/96 10,000,000 9,976,935
7.875%, 2/15/96 35,000,000 35,049,857
7.500%, 2/29/96 15,000,000 15,016,012
5.500%, 4/30/96 20,000,000 19,970,088
5.875%, 5/31/96 10,000,000 10,001,983
7.875%, 7/15/96 2,000,000 2,021,778
6.125%, 7/31/96 7,000,000 7,013,918
7.875%, 7/31/96 4,000,000 4,046,593
4.375%, 8/15/96 14,000,000 13,873,585
8.000%, 10/15/96 15,000,000 15,256,312
4.375%, 11/15/96 5,000,000 4,943,974
7.250%, 11/15/96 6,000,000 6,086,851
------------
159,110,450
------------
TOTAL INVESTMENTS $921,643,450
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Alabama -- 1.05%
Alabama HFA Mulit-Family CP:
12/1/13 VMIG 1 3.50% $ 3,200,000 $ 3,200,000
12/1/13 VMIG 1 3.60% 2,700,000 2,700,000
Alaska -- 7.97%
Anchorage Electric Utilities (MBIA Insured)
12/1/15 Aaa 7.63% 11,100,000 11,423,545
Valdez Marine Terminal--Arco Transportation:
CP, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
CP, 5/1/31 VMIG 1 3.55% 3,900,000 3,900,000
CP, 5/1/31 VMIG 1 3.75% 1,700,000 1,700,000
VRDB, 5/1/31 VMIG 1 3.50% 8,000,000 8,000,000
Valdez Marine Terminal--Exxon Pipeline Co. VRDB,
10/1/25 P 1 5.95% 12,000,000 12,000,000
Arizona -- 1.00%
Chandler IDR VRDB--Parsons Municipal Services,
12/15/09 A 1+ 4.25% 3,600,000 3,600,000
Maricopa Co. School District GO Unlimited Tax Series
A, 7/1/96 Aa 3.75% 2,000,000 2,000,952
Colorado -- 2.87%
Adams Co. IDR VRDB--City View Park, 12/1/15 A 1+ 5.20% 3,000,000 3,000,000
Englewood HFA Multi-Family VRDN--Mark Project,
12/15/97 A 1+ 5.25% 2,000,000 2,000,000
Lakewood Multi-Family Housing (FGIC Insured)
VRDB--St. Moritz & Diamond Head, 10/1/07 VMIG 1 4.00% 8,250,000 8,250,000
Moffat Co. PCR VRDB, 7/1/10 VMIG 1 4.65% 3,000,000 3,000,000
Delaware -- 1.35%
Delaware EDC VRDB--Hospital Billing Series B, 12/1/15 VMIG 1 5.25% 7,600,000 7,600,000
Florida -- 1.58%
Florida GO Unlimited Tax, 7/1/08 Aaa 7.20% 3,270,000 3,355,215
Florida HFA Multi-Family (MBIA Insured) VRDB--Lake
Northdale, 6/1/07 Aaa 3.75% 5,595,000 5,595,000
Georgia -- 2.56%
Cobb Co. Housing Multi-Family VRDB--Pittco Frey
Associates Project, 6/1/23 VMIG 1 5.20% 5,900,000 5,900,000
College Park IDR VRDB-- Marriott Corp., 8/1/15 Aa 3 6.10% 1,200,000 1,200,000
Fulton Co. Development IDR VRDN--Palisades West Ltd.,
9/1/96 Aaa 5.15% 2,235,000 2,235,000
Georgia Municipal Gas Authority--Southern Portfolio I
Project, 4/1/96 VMIG 1 3.75% 5,100,000 5,100,000
Hawaii -- 2.41%
Hawaii Dept. of Budget & Finance Mortgage:
VRDN--Kuakini Medical Center, 7/1/04 VMIG 1 3.75% 4,000,000 4,000,000
VRDB--Wilcox Memorial Hospital, 7/1/18 VMIG 1 5.95% 2,100,000 2,100,000
Hawaii State Housing Finance & Development Corp.
VRDB--Rental Housing Systems, 7/1/24 VMIG 1 5.15% 7,500,000 7,500,000
Illinois -- 8.50%
Chicago GO Tender Notes, 10/31/96 VMIG 1 3.75% 6,100,000 6,100,000
Chicago O'Hare International Airport--American
Airlines VRDB:
Series C, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Series D, 12/1/17 P 1 6.10% 15,000,000 15,000,000
Illinois GO, 4/1/06 AA- 7.13% 1,000,000 1,022,317
Illinois State Sales Tax, 6/15/15 Aaa 7.63% 6,950,000 7,132,216
Illinois State Toll Highway Authority, VRDB 1/1/10 VMIG 1 5.05% 300,000 300,000
Northwest Suburban Municipal Joint Account (MBIA
Insured)--Water Agency Supply System, 5/1/03 Aaa 7.20% 3,440,000 3,490,557
Indiana -- 3.40%
Jasper Co. PCR CP--Northern Indiana Public Services,
11/1/16 VMIG 1 3.70% 2,000,000 2,000,000
Mt. Vernon PCR CP--General Electric Project,
12/1/04 P 1 3.50% 6,900,000 6,900,000
12/1/04 P 1 3.70% 2,790,000 2,790,000
Rockport Pollution Control (AMBAC Insured)
VRDB--AEP Generating Co., 7/1/25 Aaa 5.95% 5,500,000 5,500,000
VRDB--Indiana Michigan Power Co., 6/1/25 Aaa 5.00% 2,000,000 2,000,000
Kansas -- 1.18%
Olathe GO Unlimited Tax, 5/1/96 MIG 1 4.50% 6,700,000 6,700,000
<PAGE>
Kentucky -- 0.53%
Mason Co. PCR E. Kentucky Power VRDB--CFC Power
National Rural Utilities B-1, 10/15/14 P 1 4.65% 3,000,000 3,000,000
Maryland -- 1.06%
Baltimore PCR VRDN-- SCM Plants, 2/1/00 A 1+ 5.10% 6,000,000 6,000,000
Michigan -- 12.87%
Clinton Township EDC (MBIA Insured) VRDB Sisters of
Charity St. Joseph, 5/1/13 VMIG 1 5.00% 300,000 300,000
Dearborn EDC VRDB--Oakbrook Common:
3/1/23 A 1 5.10% 2,300,000 2,300,000
3/1/25 A 1 5.10% 200,000 200,000
Delta Co. EDC--Mead Escanaba Paper:
Series D, 12/1/23 P 1 6.00% 4,200,000 4,200,000
Series F, 12/1/23 P 1 6.10% 4,300,000 4,300,000
Farmington Hills EDR VRDB--Brookfield Building
Associates, 11/1/10 A 1 5.20% 2,000,000 2,000,000
Grand Rapids EDC VRDB--Amway, 12/1/06 A 1 5.10% 3,600,000 3,600,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 5,870,000 5,870,000
Kent Hospital VRDB--Butterworth Hospital, 1/15/20 VMIG 1 5.40% 2,600,000 2,600,000
Meridian Limited Obligation EDC VRDN--Service
Merchandise Co., 12/15/99 A 1+ 4.00% 500,000 500,000
Michigan State Building Authority, 10/1/96 AA- 3.75% 5,000,000 5,005,297
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 8,900,000 8,900,000
Michigan State Hospital VRDB--Mt. Clemens Hospital,
8/15/15 VMIG 1 5.00% 4,600,000 4,600,000
Michigan State HDA VRDB:
Laurel Valley, 12/1/07 VMIG 1 5.10% 400,000 400,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 2,800,000 2,800,000
Michigan State Job Development Authority
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 5,800,000 5,800,000
PCR VRDB--Mazda Motor Corp., 10/1/08 VMIG 1 5.25% 4,500,000 4,500,000
Michigan State Strategic Fund VRDB--Allen Group, Inc.
11/1/25 VMIG 1 5.00% 400,000 400,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 1,200,000 1,200,000
12/1/27 VMIG 1 5.90% 11,610,000 11,610,000
Minnesota -- 1.60%
Hennepin Co. GO, 12/1/06 VMIG 1 5.15% 5,000,000 5,000,000
Rochester GO Various Sales Tax, 11/1/99 **N/R 5.00% 100,000 100,000
St. Paul Housing & Redevelopment Authority VRDB,
12/1/12 A 1+ 3.80% 3,900,000 3,900,000
Mississippi -- 1.45%
Perry Co. PCR VRDB--Leaf River Forest, 10/1/12 P 1 5.30% 8,200,000 8,200,000
Missouri -- 1.44%
Independence Water Utility Improvements CP 11/1/16 VMIG 1 3.40% 2,400,000 2,400,000
Missouri State Environmental Improvement Energy
Research PCR--Union Electric Co.:
Series A, 6/1/14 P 1 4.00% 1,000,000 1,000,000
Series B, 6/1/14 P 1 4.00% 4,750,000 4,750,217
Nevada -- 2.64%
Clark Co. Airport Improvement (MBIA Insured) VRDB,
7/1/12 VMIG 1 5.15% 8,600,000 8,600,000
Clark Co. PCR VRDB--Nevada Power Co. 10/1/23 A 1+ 5.00% 6,300,000 6,300,000
New Hampshire -- 0.32%
New Hampshire IDR VRDB--Oerlikon-Burlhe USA, 7/1/13 A 1+ 3.75% 1,800,000 1,800,000
New Jersey -- 0.22%
Rutgers State University, 5/1/96 AA 4.25% 1,220,000 1,221,741
New York -- 1.95%
New York City GO (MBIA Insured) VRDB 8/15/22 VMIG 1 5.90% 11,000,000 11,000,000
North Carolina -- 2.67%
North Carolina Eastern Municipal Power Agency--Power
System, 1/1/15 Aaa 7.75% 15,000,000 15,000,000
Ohio -- 2.40%
Cincinnati/Hamilton Co. EDR, 8/1/15 **N/R 3.90% 3,150,000 3,150,000
Columbus Electric System VRDB, 9/1/09 A 1 3.90% 1,400,000 1,400,000
Franklin Co. IDR VRDN--Capital South Community
Redevelopment, 12/1/05 **N/R 4.10% 700,000 700,000
Ohio Environmental Improvements CP, U.S. Steel Corp.,
5/1/11 P 1 5.50% 8,300,000 8,300,000
Oregon -- 2.41%
Medford Hospital VRDB--Rogue Valley Manor, 12/1/15 VMIG 1 5.20% 4,000,000 4,000,000
Port Morrow VRDB--General Elecitric, 10/1/13 P 1 6.00% 5,700,000 5,700,000
Tualatin Hills Parks & Recreation TRAN, 6/28/96 SP 1+ 4.25% 3,875,000 3,882,320
Pennsylvania -- 5.01%
Allegheny Co. Industrial Development VRDB--United
Jewish Federation:
Series B, 10/1/25 VMIG 1 5.25% 10,000,000 10,000,000
Series C, 10/1/15 VMIG 1 5.25% 1,100,000 1,100,000
Delaware Co. IDR (FGIC Insured) CP--Philadelphia
Electric, 12/1/12 VMIG 1 3.40% 2,400,000 2,400,000
Montgomery Co. Higher Education Health Authority
VRDB--Philadelphia Presbytery 7/1/25 VMIG 1 5.25% 5,000,000 5,000,000
Schuylkill Co. IDR VRDB--Westwood Energy 11/1/09 P 1 6.25% 6,800,000 6,800,000
Upper Allegheny Joint Sanitary Authority, 9/1/26 MIG 1 4.50% 3,000,000 3,001,004
South Carolina -- 2.57%
Richland Co. Schoold District TAN GO Unlimited Tax,
4/15/96 MIG 1 4.00% 8,300,000 8,305,660
South Carolina GO State Capital Improvement, 2/1/96 Aaa 7.30% 3,500,000 3,509,443
South Dakota -- 0.48%
South Dakota HDA, 5/1/96 Aa 1 3.90% 2,715,000 2,715,000
Tennessee -- 2.13%
Knox Co. Board IDR VRDB--Service Merchandise Co.,
Inc., 12/15/08 A 1+ 4.00% 800,000 800,000
Metropolitan Government Nashville & Davidson Co.,
6/15/06 AA 6.50% 6,000,000 6,142,843
Metropolitan Government Nashville & Davidson Co.,
VRDB--Nashville Apartments 9/1/15 Aa 3 5.15% 5,100,000 5,100,000
Texas -- 10.02%
Austin Utilities System CP, 4/9/96 P 1 3.65% 5,400,000 5,400,000
Houston Water & Sewer System (MBIA Insured) 12/1/16 Aaa 7.13% 3,000,000 3,150,445
North Central HCFA VRDB--YMCA Dallas 6/1/21 VMIG 1 5.65% 5,600,000 5,600,000
Texas Hospital Equipment Finance Council (MBIA
Insured) VRDN, 4/7/05 VMIG 1 5.45% 8,045,000 8,045,000
Texas Small Business IDR VRDB--Texas Public
Facilities Capital Access, 7/1/26 VMIG 1 5.20% 2,300,000 2,300,000
Texas State Higher Education Authority (FGIC Insured)
VRDB--Educational Equipment & Improvements, 12/1/25 VMIG 1 5.15% 2,510,000 2,510,000
Texas State Public Finance Authority:
10/1/96 Aa 6.40% 3,000,000 3,061,190
CP, 8/20/96 P 1 3.75% 5,000,000 5,000,000
Texas TRAN, 8/30/96 MIG 1 4.75% 12,750,000 12,812,314
Texas Transportation CP, 8/20/96 P 1 3.65% 5,000,000 5,000,000
Tyler Health Facilities Development Corp. CP--East
Texas Medical Center Regional Health, 11/1/25 VMIG 1 3.65% 3,700,000 3,700,000
Utah -- 3.01%
Intermountain Power Agency, 7/1/17 Aaa 7.75% 4,700,000 4,889,980
Salt Lake Co. PCR--VRDB--Pacific Corp. 2/1/08 P 1 5.95% 12,100,000 12,100,000
Vermont -- 1.87%
Vermont Educational Health Agency, 11/1/27 A 1+ 3.80% 5,975,000 5,975,000
Vermont Student Assistance Corp. VRDN, 1/1/04 VMIG 1 3.75% 4,600,000 4,600,000
Virginia -- 0.48%
Loudoun Co. IDR VRDB, 11/1/24 A 1 6.45% 2,700,000 2,700,000
Washington -- 1.88%
Port Townsend IDR VRDB--Townsend Paper Corp., 3/1/09 VMIG 1 5.15% 5,100,000 5,100,000
Seattle Municipal Light & Power Co., 11/1/15 VMIG 1 3.50% 5,500,000 5,500,000
West Virginia -- 0.48%
Raleigh Co. Health Care System VRDB, 9/1/06 VMIG 1 5.25% 2,700,000 2,700,000
Wisconsin -- 5.70%
Milwaukee School Order Notes Series B, 8/22/96 MIG 1 4.50% 15,000,000 15,046,050
Waukesha School District TRAN, 8/23/96 SP 1 4.25% 14,000,000 14,020,236
Wisconsin State Transportation Transit Improvements,
7/1/02 AAA 7.90% 3,000,000 3,123,465
Wyoming -- 1.42%
Lincoln Co. PCR VRDB--Pacificorp Project, 1/1/16 VMIG 1 3.40% 8,000,000 8,000,000
------------
TOTAL INVESTMENTS $564,592,007
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
Individual Development & Export
IDA -- Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
Unit Priced Daily Adjustable Tax
UPDATE -- Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
<PAGE>
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD FUNDS
WOODWARD MICHIGAN TAX-EXEMPT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Interest Cost
Description Rating* Rate*** Face Amount (Note 2)
----------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Michigan -- 99.24%
Ann Arbor EDC Ltd. Obligation VRDN--Webers
Industries, 5/1/00 **N/R 5.20% $ 930,000 $ 930,000
Bruce Township Hospital (MBIA Insured) VRDB--Sisters
of Charity St. Joseph:
Series A, 5/1/18 VMIG 1 3.70% 3,000,000 3,000,000
Series B, 5/1/18 VMIG 1 5.00% 800,000 800,000
Dearborn EDC Ltd. Obligation VRDB--Oakbrook Common,
3/1/25 A 1 5.10% 800,000 800,000
Delta Co. EDC--Mead Escanaba Paper Co.:
Series B, 12/1/23 P 1 3.60% 1,600,000 1,600,000
Series E, 12/1/23 P 1 6.10% 3,600,000 3,600,000
Detroit Downtown Development Authority
VRDB--Millender Center Project, 12/1/10 VMIG 1 5.30% 4,500,000 4,500,000
Detroit Sewage Disposal (MBIA Insured) Series B,
7/1/96 Aaa 5.00% 4,750,000 4,781,575
Detroit Tax Increment Revenue VRDB, 10/1/10 A 1 5.25% 4,200,000 4,200,000
Eaton Inter School District TAN, 4/4/96 **N/R 3.95% 1,245,000 1,245,299
Farmington Hills EDC Ltd. Obligation VRDB--Brookfield
Building Assn., L P, 11/1/10 A 1 5.20% 1,135,000 1,135,000
Ferndale Schools GO Unlimited Tax, 5/1/06 Aaa 7.00% 1,075,000 1,087,371
Flint Hospital Building Authority VRDB--Hurley
Medical Center, Series B, 7/1/15 VMIG 1 5.60% 5,000,000 5,000,000
Grand Traverse Hospital VRDB--Munson Medical Center
Series A, 12/1/15 Aaa 7.63% 1,000,000 1,050,748
Grosse Point Public Library TAN, 4/3/96 **N/R 3.60% 990,000 990,291
Holland EDC VRDB--Thrifty Holland, Inc., 3/1/13 A 1 3.90% 1,300,000 1,300,000
Ingham Co. EDC VRDB--Martin Luther Memorial Home,
Inc., 4/1/22 A 1+ 5.20% 500,000 500,000
Kalamazoo Co. EDC VRDB--Industrial & Economic
Development WBC Properties Ltd., 9/1/15 **N/R 5.60% 1,000,000 1,000,000
Kalamazoo Public Library TAN, 4/1/96 **N/R 3.60% 2,190,000 2,190,358
Kent Hospital VRDB--Butterworth Hospital Series A,
1/15/20 VMIG 1 5.40% 300,000 300,000
L'Anse Creuse Public Schools GO Unlimited Tax, 5/1/96 AA 5.75% 1,000,000 1,004,629
Leelanau Co. EDC Ltd. Obligation--American Community
Mutual Insurance Co., 6/15/06 **N/R 3.90% 1,060,000 1,060,000
Livonia EDC AMT VRDB--Foodland Distributors, 12/1/11 VMIG 1 5.20% 1,000,000 1,000,000
Macomb Township EDC Ltd. Obligation AMT VRDN--ACR
Industries, 1/1/03 VMIG 1 5.10% 1,050,000 1,050,000
Meridian EDC Ltd. Obligation VRDB--Hannah
Technologies, 11/15/14 A 1+ 4.25% 2,500,000 2,500,000
Michigan Municipal Bond Authority:
Series A, 5/3/96 SP 1+ 5.00% 2,000,000 2,004,832
Series B, 7/3/96 SP 1+ 4.50% 4,000,000 4,014,133
Michigan Public Power Agency (AMBAC Insured)--Belle
River Project, 1/1/96 Aaa 7.00% 3,000,000 3,000,000
Michigan State Building Authority:
Series I, 10/1/96 AA- 3.75% 2,000,000 2,000,000
University & College Improvements, 10/1/96 AA- 4.30% 5,235,000 5,253,942
University of Michigan Hospital, 12/1/96 Aaa 7.88% 665,000 702,565
Michigan State Comprehensive Transportation, 8/1/05 AA- 7.63% 1,940,000 1,951,707
Michigan State Hospital Henry Ford Health Series A,
11/15/96 Aa 4.00% 1,070,000 1,073,510
5/1/00 Aaa 7.35% 2,055,000 2,095,912
5/1/08 Aaa 8.00% 1,310,000 1,344,864
Michigan State Hospital VRDB--Hospital Equipment Loan
Program:
12/1/23 VMIG 1 5.20% 1,600,000 1,600,000
12/1/23 VMIG 1 5.20% 400,000 400,000
Michigan State HDA VRDB, 4/1/19 A+ 1 5.00% 1,000,000 1,000,000
Michigan State HDA Ltd. Obligation VRDB--
Laurel Valley, 12/1/07 VMIG 1 5.10% 800,000 800,000
Shoal Creek, 10/1/07 VMIG 1 5.10% 200,000 200,000
Michigan State Job Development Authority IDR:
VRDN--Sugar Sebewa, 9/1/00 Aa 3 5.15% 2,600,000 2,600,000
VRDN--Hitachi Metals, 1/1/04 Aa 3 4.00% 1,800,000 1,800,000
VRDB--Gordon Food Service, 8/1/15 Aaa 5.00% 2,200,000 2,200,000
Michigan State Job Development Authority PCR
VRDB--Mazda Motors Mfg. USA Corp., 10/1/08 VMIG 1 5.25% 1,500,000 1,500,000
Michigan State Strategic Fund IDR VRDB--Allen Group,
Inc., 11/1/25 VMIG 1 5.00% 600,000 600,000
Michigan State Strategic Fund PCR VRDN--Consumers
Power Co., 9/1/00 A 1+ 5.15% 3,000,000 3,000,000
Michigan State Strategic Fund Ltd. Obligation--
Environmental Research, Series B, 6/1/11 VMIG 1 4.35% 1,280,000 1,280,000
Michigan State Strategic Fund Ltd. Obligation AMT:
VRDN--Alpha Tech, Inc., 10/1/97 P 1 5.50% 6,000,000 6,000,000
VRDN--Michigan & Wayne Disposal Inc., 4/1/99 A 1 5.35% 1,500,000 1,500,000
VRDB--West Riverbank, 11/1/06 A 1 5.20% 1,100,000 1,100,000
VRDB--Dennenlease L C, 4/1/10 **N/R 5.15% 2,395,000 2,395,000
VRDB--Ironwood Plastics, Inc., 11/1/11 **N/R 5.15% 1,275,000 1,275,000
VRDB--Molmec Inc., 12/1/14 **N/R 5.35% 1,500,000 1,500,000
VRDB--CEC Products Co., 6/1/15 **N/R 5.35% 3,300,000 3,300,000
VRDB--Detroit Edison Co., 9/1/30 P 1 6.00% 5,000,000 5,000,000
Michigan State Strategic Fund Ltd. Obligation
VRDN--Freezer Services, 10/1/97 **N/R 5.30% 760,000 760,000
Michigan State Trunk Line Highway & Transit
Improvements:
7/1/96 AA- 7.00% 500,000 508,041
11/15/96 AA- 5.25% 500,000 506,136
Michigan State Underground Storage Tank VRDN, 12/1/04 VMIG 1 5.15% 2,900,000 2,900,000
Oakland Co. EDC--Corners Shopping Center, 8/1/15 A 1+ 4.10% 530,000 530,000
Oakland Co. EDC Ltd. Obligation AMT--Orchard Maple
Project, 11/15/16 **N/R 4.00% 615,000 615,000
Plymouth Township EDC VRDN--Key International
Manufacturing, Inc., 7/1/04 **N/R 4.00% 3,750,000 3,750,000
Van Buren Township EDC AMT VRDN--Daikin Clutch USA
Inc., 3/1/97 Aa 3 5.50% 3,000,000 3,000,000
University of Michigan Hospital VRDB:
12/1/19 VMIG 1 5.90% 2,800,000 2,800,000
12/1/27 VMIG 1 5.90% 790,000 790,000
------------
125,275,913
------------
PUERTO RICO -- 0.76%
Commonwealth of Puerto Rico (FGIC Insured) GO
Unlimited Tax, 7/1/96 Aaa 7.80% 500,000 521,705
Puerto Rico Public Buildings Authority--Public
Education & Health Facilities, 7/1/12 Aaa 8.00% 425,000 439,854
961,559
------------
TOTAL INVESTMENTS $126,237,472
============
<FN>
Investment Abbreviations
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Moody's when rated, otherwise Standard & Poor's.
** N/R investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1995.
</TABLE>
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Funds (Woodward) was organized as a Massachusetts business
trust on April 21, 1987 and registered under the Investment Company Act of
1940, as amended, as an open-end investment company. As of December 31, 1995
Woodward consisted of seventeen separate series of which there were five money
market funds (Money Market Funds), as described below.
Woodward Money Market Fund
Woodward Government Fund
Woodward Treasury Money Market Fund
Woodward Tax-Exempt Money Market Fund
Woodward Michigan Tax-Exempt Money Market Fund
The Money Market Funds commenced operations on January 4, 1988, except
for the Michigan Tax-Exempt Money Market Fund and the Treasury Money Market
Fund, which commenced operations on January 23, 1991 and January 1, 1993,
respectively.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed
by the Money Market Funds in preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. Following generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Investments
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, the Money
Market Funds utilize the amortized cost method to determine the carrying value
of investment securities. Under this method, investment securities are valued
for both financial reporting and federal tax purposes at amortized cost and
any discount or premium is amortized from the date of acquisition to maturity.
The use of this method results in a carrying value which approximates market
value. Market value is determined based upon quoted market prices or dealer
quotes.
Investment security purchases and sales are accounted for on the trade
date.
Woodward invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD Bank (NBD), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Woodward's investments in securities subject to
repurchase agreements: 1) the value of the underlying collateral is required
to equal or exceed 102% of the funds advanced under the repurchase agreement
including accrued interest; 2) collateral is marked to market daily by NBD to
assure its value remains at least equal to 102% of the repurchase agreement
amount; and 3) funds are not disbursed by Woodward or its agent unless
collateral is presented or acknowledged by the collateral custodian.
The Tax-Exempt and Michigan Tax-Exempt Funds invest in a majority of
instruments whose stated maturity is greater than one year, but whose rate of
interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying Financial Statements.
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), NBD or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of
record at such close. Such dividends are paid monthly.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. Woodward monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of the funds or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Pursuant to
their Distribution Agreement with Woodward, FoM is entitled to receive a fee
at the annual rate of .025% of the aggregate average net assets invested in
the Money Market Funds' first $400 million and .005% of such assets in excess
of $400 million. Fees of FoM under the Distribution Agreement are allocated
among the Funds based on the relative net asset values. Essex is entitled to
receive a fee at the annual rate of .10% of the aggregate average net assets
of Woodward's investment portfolios, attributable to investments by clients of
Essex.
NBD is the investment advisor pursuant to the Advisory Agreement. For
its advisory services to Woodward, NBD is entitled to a fee, computed daily
and payable monthly. Under the Advisory Agreement, NBD also provides Woodward
with certain administrative services, such as maintaining Woodward's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
A reorganization of Woodward and The Prairie Funds is being considered
by the Board of Trustees of both funds. In connection with the proposed
reorganization, the Board of Trustees of Woodward and the Board of Trustees of
Prairie must approve certain reorganization agreements. The transaction is
intended to be effected as a tax-free reorganization under the Internal
Revenue Code, so that none of the Funds' shareholders will recognize taxable
gains or losses as a result of the reorganization. A proxy
statement/prospectus describing the reorganization and the reasons therefore
will be sent to shareholders.
NBD, FoM, and Essex have agreed that they may waive their fees in whole
or in part; and, if in part, may specify the particular fund to which such
waiver relates as may be required to satisfy any expense limitation imposed by
state securities laws or other applicable laws. At present, no restrictive
expense limitation is imposed on Woodward. Restrictive limitations could be
imposed as a result of changes in current state laws and regulations in those
states where Woodward has qualified its shares, or by a decision of the
Trustees to qualify the shares in other states having restrictive expense
limitations. For the year ended December 31, 1995, NBD waived $61,221 of the
advisory fee for the Michigan Tax-Exempt Money Market Fund.
NBD is also compensated for its services as Woodward's Custodian,
Transfer Agent and Dividend Disbursing Agent, and is reimbursed for certain
out of pocket expenses incurred on behalf of Woodward.
On March 10, 1994, Woodward adopted The Woodward Funds Deferred
Compensation Plan (the "Plan"), an unfunded, nonqualified deferred
compensation plan. The Plan allows an individual Trustee to elect to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions is as follows:
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Fund Fund Fund Fund Fund
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases $58,940,462,599 $5,440,529,005 $7,317,697,881 $2,744,829,205 $388,242,330
Sales & Maturities $58,634,036,261 $5,389,053,887 $7,177,784,932 $2,723,533,379 $337,049,476
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee rates
payable to NBD, and amounts paid to NBD, FoM, and Essex pursuant to the
agreements described in Note 3 for the year ended December 31, 1995. The rates
shown are stated as a percentage of each Fund's average net assets.
<TABLE>
<CAPTION>
Michigan
Treasury Tax-Exempt Tax-Exempt
Money Market Government Money Market Money Market Money Market
Effective Date Fund Fund Fund Fund Fund
-------------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Expense Rates:
January 1 0.50% 0.51% 0.53% 0.53% 0.69%
May 11 0.52% 0.51% 0.53% 0.53% 0.69%
November 9 0.52% 0.52% 0.53% 0.53% 0.69%
December 1 0.52% 0.52% 0.55% 0.53% 0.69%
NBD Advisory Fee:
Net Assets--
Up to $1.0 billion 0.45% 0.45% 0.45% 0.45% 0.50%
$1.0 to $2.0 billion 0.425% 0.425% 0.425% 0.425% 0.50%
Over $2.0 billion 0.40% 0.40% 0.40% 0.40% 0.50%
Amounts Paid:
Advisory Fee to NBD $7,225,557 $1,987,590 $3,248,535 $2,458,246 $496,026
Distribution Fee to FoM and Essex $ 152,873 $ 34,919 $ 53,755 $ 44,226 $ 10,466
Other Fees & Out of Pocket Expenses to NBD $ 341,111 $ 55,012 $ 150,481 $ 92,713 $ 30,134
Expenses Waived:
Advisory Fee to NBD -- -- -- -- $(61,221)
</TABLE>
(6) Portfolio Composition
Although the Tax-Exempt Money Market Fund has a diversified investment
portfolio, the Fund has investments in excess of 10% of its total investments
in the states of Michigan and Texas. The Michigan Tax-Exempt Money Market Fund
does not have a diversified portfolio since 99% of its investments are within
the state of Michigan. Such concentrations within particular states may subject
the funds more significantly to economic changes occurring within those states.
<PAGE>
THE WOODWARD FUNDS
MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment
income and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0549 $ 0.0378 $ 0.0281 $ 0.0347 $ 0.0579
Distributions From Net Investment Income $ (0.0549) $ (0.0378) $ (0.0281) $ (0.0347) $(0.0579)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.63% 3.86% 2.85% 3.58% 5.95%
Ratios to Average Net Assets:
Expenses 0.51% 0.47% 0.49% 0.52% 0.50%
Net Investment Income 5.49% 3.78% 2.81% 3.47% 5.79%
Net Assets, End of Year
(in 000's) $1,639,695 $1,323,040 $1,326,693 $1,095,354 $775,521
<CAPTION>
Government Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0544 $ 0.0372 $ 0.0277 $ 0.0357 $ 0.0564
Distributions From Net Investment Income $(0.0544) $(0.0372) $(0.0277) $(0.0357) $(0.0564)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.57% 3.77% 2.81% 3.63% 5.79%
Ratios to Average Net Assets:
Expenses 0.51% 0.51% 0.51% 0.51% 0.50%
Net Investment Income 5.44% 3.72% 2.77% 3.57% 5.64%
Net Assets, End of Year
(in 000's) $474,377 $421,208 $346,665 $261,614 $288,369
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury
Money Market Fund
---------------------------------------------
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net Investment Income $ 0.0539 $ 0.0370 $ 0.0273
Distributions From Net Investment Income $(0.0539) $(0.0370) $(0.0273)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00
Total Return 5.53% 3.77% 2.77%
Ratios to Average Net Assets:
Expenses 0.53% 0.50% 0.50%
Net Investment Income 5.39% 3.70% 2.73%
Net Assets, End of Year
(in 000's) $927,696 $785,694 $854,873
<CAPTION>
Tax-Exempt Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0335 $ 0.0242 $ 0.0196 $ 0.0264 $ 0.0422
Distributions From Net Investment Income $(0.0335) $(0.0242) $(0.0196) $(0.0264) $(0.0422)
Net Asset Value at Beginning and End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.41% 2.45% 1.98% 2.70% 4.30%
Ratios to Average Net Assets:
Expenses 0.53% 0.51% 0.51% 0.53% 0.52%
Net Investment Income 3.35% 2.42% 1.96% 2.64% 4.22%
Net Assets, End of Year
(in 000's) $564,413 $550,736 $498,706 $379,431 $227,808
<CAPTION>
Michigan Tax-Exempt
Money Market Fund
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 0.0329 $ 0.0235 $ 0.0181 $ 0.0237 $ 0.0353
Distributions From Net Investment Income $(0.0329) $(0.0235) $(0.0181) $(0.0237) $(0.0353)
Net Asset Value at Beginning and End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 3.32% 2.38% 1.83% 2.40% 3.83%(a)
Ratios to Average Net Assets:
Expenses 0.69% 0.67% 0.65% 0.64% 0.65%(a)
Net Investment Income 3.30% 2.35% 1.81% 2.37% 3.77%(a)
Expenses without fee waiver 0.76% 0.75% -- -- --
Net Investment Income without fee waiver 3.23% 2.28% -- -- --
Net Assets, End of Period
(in 000's) $122,057 $ 78,640 $ 52,557 $ 52,960 $ 38,885
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Money Market Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Money Market Funds of THE
WOODWARD FUNDS (comprising, as indicated in Note 1, the Money Market,
Government, Treasury Money Market, Tax-Exempt Money Market and Michigan
Tax-Exempt Money Market Funds) as of December 31, 1995, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended or
from inception (as indicated in Note 1) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1995, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the Money Market Funds of
The Woodward Funds as of December 31, 1995, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended and the financial highlights for each of the five
years in the period then ended or from inception (as indicated in Note 1)
through December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A of the Registration Statement
are the following audited tables:
(i) Financial Highlights for the fiscal years
ended December 31, 1995, 1994, 1993, 1992,
1991, 1990, 1989 and 1988 with respect to
the Woodward Money Market and Tax-Exempt Money
Market Funds;
(ii) Financial Highlights for the fiscal years ended
December 31, 1995, 1994, 1993, 1992 and 1991 with
respect to the Woodward Michigan Tax-Exempt Money
Market Fund; and
(iii) Financial Highlights for the fiscal years ended
December 31, 1995, 1994, and 1993 with respect to
the Woodward Treasury Money Market
Fund.
C-1
<PAGE>
(2) Included in Part B of the Registration Statement
are the following audited financial statements:
(i) With respect to the Woodward Money Market,
Government, Treasury Money Market, Tax-Exempt
Money Market and Michigan Tax-Exempt Money
Market Funds:
Report of Independent Public Accountants
for the fiscal year ended December 31,
1995;
Statements of Assets and Liabilities -
December 31, 1995;
Statements of Operations for the year
ended December 31, 1995;
Statement of Changes in Net Assets for
the years ended December 31, 1995
and 1994;
Portfolio of Investments- December 31,
1995;
Notes to Financial Statements.
(ii) Financial Highlights for the fiscal years
ended December 31, 1995, 1994, 1993, 1992
and 1991 with respect to the Woodward
Money Market, Government, Tax-Exempt Money
Market and Michigan Tax-Exempt Money
Market Funds; and
(iii) Financial Highlights for the fiscal years
ended December 31, 1995, 1994 and 1993
with respect to the Woodward Treasury
Money Market Fund.
C-2
<PAGE>
(b) Exhibits:
(1) (a) Amended and Restated Declaration of Trust
dated as of May 1, 1992 is incorporated
herein by reference to exhibit (1)(b) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form
N-1A filed with the Commission on
September 8, 1992.
(2) Bylaws of Registrant is incorporated herein
by reference to exhibit (2) of Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on July 24, 1987.
(3) None.
(4) None.
(5) (a) Form of Co-Advisory Agreement among Regis-
trant, NBD Bank ("NBD") and First Chicago
Investment Management Company ("FCIMCO") is
incorporated herein by reference to exhibit
(5)(a) of Post-Effective Amendment No. 28 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
April 5, 1996.
C-3
<PAGE>
(b) Advisory Agreement between Registrant and
NBD dated November 28, 1995 is
incorporated herein by reference to
exhibit (5)(b) of Post-Effective Amendment
No. 28 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 5, 1996.
(c) Form of Sub-Advisory Agreement among NBD,
FCIMCO and ANB Investment Management and
Trust Company ("ANB-IMC") is incorporated
herein by reference to exhibit (5)(c)
of Post-Effective Amendment No. 30 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
April 15, 1996.
(6) (a) Form of Distribution Agreement between
Registrant and BISYS Fund Services ("BISYS")
is incorporated herein by reference to
exhibit (6)(a) of Post-Effective Amendment
No. 28 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 5, 1996.
(b) Distribution Agreement dated March 15, 1995
among Registrant, FoM and Essex relating to
Series A, B, C, M, N, O, P, Q, R, S, T, U and
V is incorporated herein by reference to
exhibit (6)(a) of Post-Effective Amendment
No. 25 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on July 28, 1995.
(7) Deferred Compensation Plan is incorporated
herein by reference to exhibit (7) of
Post-Effective Amendment No. 30 to the
Registrant's Registration Statement on Form
N-1A filed with the Commission on April 15,
1996.
C-4
<PAGE>
(8) (a) Amended and Restated Custodian Agreement
dated May 16, 1989 between Registrant and
National Bank of Detroit for Series A, B, C,
H, I, J, K and L of the Registrant is
incorporated herein by reference to exhibit
(8)(b) of Post-Effective Amendment No. 3 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
April 30, 1990.
(b) Addendum No. 1 dated January 23, 1991 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward Michigan Tax-Exempt Money Market
Fund (Series M) is incorporated herein by
reference to exhibit (8)(c) of Post-Effective
Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on February 28, 1991.
(c) Addendum No. 2 dated April 28, 1992 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward Equity Index Fund (Series N) is
incorporated herein by reference to exhibit
(8)(d) of Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
September 8, 1992.
(d) Addendum No. 3 dated January 1, 1993 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward Treasury Money Market Fund (Series
O) is incorporated herein by reference to
exhibit (8)(e) of Post-Effective Amendment
No. 14 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 29, 1993.
(e) Addendum No. 4 dated February 1, 1993 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward Municipal Bond Fund (Series P) and
the Woodward Michigan Municipal Bond Fund
(Series Q) is incorporated herein by
reference to exhibit (8)(f) of Post-Effective
Amendment No. 14 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on April 29, 1993.
(f) Addendum No. 5 dated January 1, 1994 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
C-5
<PAGE>
Woodward Balanced Fund (Series R) is
incorporated herein by reference to exhibit
(8)(g) of Post-Effective Amendment No. 22 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on July
29, 1994.
(g) Addendum No. 6 dated July 1, 1994 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward Capital Growth and Short Bond Funds
(Series S and U) is incorporated herein by
reference to exhibit (8)(h) of Post-Effective
Amendment No. 23 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on January 27, 1995.
(h) Addendum No. 7 dated November 30, 1994 to the
Amended and Restated Custodian Agreement
between Registrant and NBD relating to the
Woodward International Equity Fund (Series T)
is incorporated herein by reference to
exhibit (8)(i) of Post-Effective Amendment
No. 25 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on July 28, 1995.
(i) Form of Addendum No. 8 to the Amended and
Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
Cash Management, U.S. Government Securities
Cash Management, Treasury Prime Cash
Management, Equity Income, Small Cap
Opportunity, Intermediate Municipal Bond,
Income, International Bond, Managed Assets
Conservative, Managed Assets Growth and Major
Markets Funds is incorporated herein by
reference to exhibit (8)(i) of Post-Effective
Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on April 5, 1996.
(j) Form of Addendum No. 9 to the Amended and
Restated Custodian Agreement between
Registrant and NBD relating to the Woodward
U.S. Government Income Fund (Series V) is
incorporated herein by reference to exhibit
(8)(k) of Post-Effective Amendment No. 17 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
November 1, 1993.
(k) Global Custody Agreement dated November 21,
1994 between Barclays Bank, PLC and NBD
C-6
<PAGE>
relating to Series A, B, C, M, N, O, P, Q,
R, S, T, U and V is incorporated herein by
reference to exhibit (8)(k) of
Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on
Form N-1A filed with the Commission on
July 28, 1995.
(9) (a) Form of Co-Administration Agreement among the
Registrant, NBD, FCIMCO and BISYS is
incorporated herein by reference to exhibit
(9)(a) of Post-Effective Amendment No. 28 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
April 5, 1996.
(b) Amended and Restated Transfer Agency and
Dividend Disbursement Agreement dated May 16,
1989 between Registrant and NBD (formerly,
National Bank of Detroit) for Series A, B, C,
H, I, J, K and L of the Registrant is
incorporated herein by reference to exhibit
(9)(b) of Post-Effective Amendment No. 3 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
April 30, 1990.
(c) Addendum No. 1 dated January 23, 1991 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Michigan Tax-Exempt Money Market Fund
(Series M) is incorporated herein by
reference to exhibit (9)(c) of Post-Effective
Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on February 28, 1991.
(d) Addendum No. 2 dated April 28, 1992 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Equity Index Fund (Series N) is incorporated
herein by reference to exhibit (9)(d) of
Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form
N-1A filed with the Commission on September
8, 1992.
(e) Addendum No. 3 dated January 1, 1993 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Treasury Money Market Fund (Series O) is
incorporated herein by reference to exhibit
C-7
<PAGE>
(9)(e) of Post-Effective Amendment No. 14 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on April
29, 1993.
(f) Addendum No. 4 dated February 1, 1993 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Municipal Bond Fund (Series P) and the
Woodward Michigan Municipal Bond Fund (Series
Q) is incorporated herein by reference to
exhibit (9)(f) of Post-Effective Amendment
No. 14 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 29, 1993.
(g) Addendum No. 5 dated January 1, 1994 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Balanced Fund (Series R) is incorporated
herein by reference to exhibit (9)(g) of
Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form
N-1A filed with the Commission on July 29,
1994.
(h) Addendum No. 6 dated July 1, 1994 to the
Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between
Registrant and NBD relating to the Woodward
Capital Growth, International Equity and
Short Bond Funds (Series S, T and U) is
incorporated herein by reference to exhibit
(9)(h) of Post-Effective Amendment No. 23 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
January 27, 1995.
(i) Form of Addendum No. 7 to the Amended and
Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant and
NBD relating to the Woodward Cash Management
Fund, Treasury Prime Cash Management Fund and
U.S. Government Securities Cash Management
Fund is incorporated herein by reference to
exhibit (9)(i) of Post-Effective Amendment
No. 28 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 5, 1996.
(j) Form of Addendum No. 8 to the Amended and
Restated Transfer Agency and Dividend
C-8
<PAGE>
Disbursement Agreement between Registrant
and NBD relating to the Woodward Managed
Assets Conservative Fund, Managed Assets
Growth Fund, Equity Income Fund, Small-Cap
Opportunity Fund, International Major
Markets Fund, Income Fund, International
Bond Fund and Intermediate Municipal Bond
Fund is incorporated herein by reference
to exhibit (9)(j) of Post-Effective
Amendment No. 30 to Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 15, 1996.
(k) Form of Broker-Dealer Agreement between
FoM and Broker-Dealers is incorporated
herein by reference to exhibit (9)(c) of
Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on
Form N-1A filed with the Commission on
March 2, 1989.
(l) Bank Agreement between FoM and BHC
Securities, Inc. dated June 15, 1992 is
incorporated herein by reference to exhibit
(9)(h) of Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
September 8, 1992.
(m) Bank Agreement between FoM and NBD
Securities, Inc. dated June 8, 1992 is
incorporated herein by reference to exhibit
(9)(i) of Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on
September 8, 1992.
(n) Revised Shareholder Services Plan including
form of Service Agreement adopted by the
Board of Trustees on November 16, 1993 is
incorporated herein by reference to exhibit
(9)(t) of Post-Effective Amendment No. 22 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on July
29, 1994.
(o) Shareholder Services Plan including form of
Service Agreement with respect to Class A
Shares is incorporated herein by reference
to exhibit (9)(p) of Post-Effective
Amendment No. 30 to Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 15, 1996.
(p) Shareholder Administrative Services Plan
including form of Service Agreement is
incorporated herein by reference to exhibit
(9)(q) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 15, 1996.
C-9
<PAGE>
*(10) Opinion of Drinker Biddle & Reath, counsel
for the Registrant.
(11) (a) Consent of Arthur Andersen LLP.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) Letter dated May 8, 1987 from FoM to the
effect that its purchase of shares of the
Registrant will be made for investment
purposes without any present intention of
redeeming or reselling, is incorporated
herein by reference to exhibit (13) of Pre-
Effective Statement No. 1 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on July 24, 1987.
(14) None.
(15) (a) Revised Service and Distribution Plan
relating to Registrant's distribution
expenses pursuant to Rule 12b-1, effective
April 20, 1994, is incorporated herein by
reference to exhibit (15)(l) of Post-
Effective Amendment No. 22 of the
Registrant's Registration Statement on Form
N-1A filed with the Commission on July 29,
1994.
(b) Distribution Plan for Class B Shares is
incorporated herein by reference to exhibit
(15)(b) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 15, 1996.
(c) Form of Distribution and Services Plan
including form of Agreement (relating
to the Cash Management Funds) is
incorporated herein by reference to
exhibit (9)(n) of Post-Effective Amendment
No. 28 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on April 5, 1996.
(16) (a) Schedules of Performance Computations are
incorporated herein by reference to
exhibit (16) of Post-Effective Amendment
No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on February 28, 1991.
(b) Schedules of Performance Computations with
respect to the Woodward Michigan Tax-Exempt
Money Market Fund, Growth/Value Fund,
Opportunity Fund, Intrinsic Value Fund,
Intermediate Bond Fund and Bond Fund are
incorporated herein by reference to
Exhibit (16)(b) of Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A filed
with the Commission on December 3, 1991.
[FN]
- ---------
* Registrant's Rule 24f-2 Notice and related Opinion of Counsel
relating to Series A, B, C, H, I, J, K, L, M, N, O, P, Q, R, S, T and
U was filed with the SEC on February 27, 1996.
C-10
<PAGE>
(c) Schedules of Performance Computations with
respect to the Woodward Equity Index Fund and
the Woodward Treasury Money Market Fund are
incorporated herein by reference to Exhibit
16(c) of Post-Effective Amendment No. 14 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on April
29, 1993.
(d) Schedules of Performance Computations with
respect to the Woodward Municipal Bond Fund
and Woodward Michigan Municipal Bond Fund are
incorporated herein by reference to Exhibit
16(d) of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement on
Form N-1A filed with the Commission on July
30, 1993.
(e) Schedules of Performance Computations with
respect to the Woodward Balanced Fund are
incorporated herein by reference to
Exhibit 16(e) of Post-Effective Amendment
No. 22 to the Registrant's Registration
Statement on Form N-1A filed with the
Commission on July 29, 1994.
(f) Schedules of Performance Computations with
respect to the Woodward Capital Growth and
Short Bond Funds are incorporated herein by
reference to exhibit (16)(f) of Post-
Effective Amendment No. 23 to the
Registrant's Registration Statement on Form
N-1A filed with the Commission on January 27,
1995.
(g) Schedules of Performance Computations with
respect to the Woodward International
Equity Fund is incorporated herein by
reference to exhibit (16)(g) of
Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on
Form N-1A filed with the Commission on
July 28, 1995.
(17) None.
(18) (a) Rule 18f-3 Plan is incorporated herein by
reference to exhibit (18)(a) of Post-Effective
Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A
filed with the Commission on April 15, 1996.
(b) Amended Rule 18f-3 Plan is incorporated herein
by reference to exhibit (18)(b) of
Post-Effective Amendment No. 30 to the
Registrant's Registration Statement on Form N-1A
filed with the Commission on April 15, 1996.
(27) Financial Data Schedules.
C-11
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees. However,
under the Investment Company Act of 1940, NBD Bank may be deemed a controlling
person of the Registrant because such entity possesses or shares investment or
voting power with respect to more than 25% of the outstanding shares of the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth information as to all record
holders of Registrant's securities as of May 31, 1996:
<TABLE>
<CAPTION>
Number
of
Record
Title of Class Holders
-------------- -------
<S> <C>
Series A Shares of beneficial interest ($.10 par value) 1,314
Series B Shares of beneficial interest ($.10 par value) 9,883
Series C Shares of beneficial interest ($.10 par value) 3,629
Series H Shares of beneficial interest ($.10 par value) 8,563
Series I Shares of beneficial interest ($.10 par value) 12,193
Series J Shares of beneficial interest ($.10 par value) 4,885
Series K Shares of beneficial interest ($.10 par value) 2,762
Series L Shares of beneficial interest ($.10 par value) 3,998
Series M Shares of beneficial interest ($.10 par value) 614
Series N Shares of beneficial interest ($.10 par value) 1,130
Series O Shares of beneficial interest ($.10 par value) 1,863
Series P Shares of beneficial interest ($.10 par value) 918
Series Q Shares of beneficial interest ($.10 par value) 1,035
Series R Shares of beneficial interest ($.10 par value) 1,130
Series S Shares of beneficial interest ($.10 par value) 2,875
Series T Shares of beneficial interest ($.10 par value) 2,070
Series U Shares of beneficial interest ($.10 par value) 471
</TABLE>
ITEM 27. INDEMNIFICATION
Indemnification of Registrant's current principal
underwriters against certain losses is provided for in Section 11 of the
Distribution Agreement incorporated herein by reference as Exhibit (6)(b).
Indemnification of Registrant's proposed principal underwriter against certain
losses is provided for in Section 10 of the Distribution Agreement filed as
Exhibit (6)(a). Indemnification of Registrant's Custodian is provided for in
Article XII of the Amended and Restated Custodian Agreement incorporated
herein by reference as Exhibit (8)(a). Indemnification of Registrant's
Transfer Agent and Dividend Disbursing Agent is provided for in Article III of
the Amended and Restated Transfer Agency and Dividend Disbursing Agreement
incorporated herein by reference as Exhibit (9)(b). Registrant
C-12
<PAGE>
has obtained from a major insurance carrier a trustees' and officers'
liability policy covering certain types of errors and omissions. In addition,
Section 5.4 of the Registrant's Amended and Restated Declaration of Trust
incorporated herein by reference as Exhibit (1)(a), provides as follows:
5.4 Mandatory Indemnification.
(a) Subject only to the provisions hereof, every
person who is or has been a Trustee, officer, employee or agent of
the Trust and every person who serves at the Trust's request as
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall be
indemnified by the Trust to the fullest extent permitted by law
against all liabilities and against all expenses reasonably incurred
or paid by him in connection with any debt, claim, action, demand,
suit, proceeding, judgment, decree, liability or obligation of any
kind in which he becomes involved as a party or otherwise or is
threatened by virtue of his being or having been a Trustee, officer,
employee or agent of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the request
of the Trust and against amounts paid or incurred by him in the
compromise or settlement thereof.
(b) The words "claim", "action", "suit", or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative, legislative, investigative or
other, including appeals), actual or threatened, and the words
"liabilities" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(c) No indemnification shall be provided here-
under to a Trustee or officer:
(i) against any liability to the Trust
or the Shareholders by reason of willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office ("disabling conduct");
(ii) with respect to any matter as to
which he shall, by the court or other body by or
before which the proceeding was brought or engaged,
have been finally adjudicated to be liable by
reason of disabling conduct;
(iii) in the absence of a final adjudication
on the merits that such Trustee or officer did not
C-13
<PAGE>
engage in disabling conduct, unless a reasonable
determination, based upon a review of the facts
that the person to be indemnified is not liable by
reason of such conduct, is made:
(A) by vote of a majority of a quorum of the
Trustees who are neither Interested Persons nor
parties to the proceedings; or
(B) by independent legal counsel, in a written
opinion.
(d) The rights of indemnification herein provided
may be insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee,
officer, employee or agent may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person; provided, however,
that no person may satisfy any right of indemnity or reimbursement
granted herein except out of the property of the Trust, and no other
person shall be personally liable to provide indemnity or
reimbursement hereunder (except an insurer or surety or person
otherwise bound by contract).
(e) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or proceeding of
the character described in paragraph (a) of this Section 5.4 may be
paid by the Trust prior to final disposition thereof upon receipt of
a written undertaking by or on behalf of the Trustee, officer,
employee or agent to reimburse the Trust if it is ultimately
determined under this Section 5.4 that he is not entitled to
indemnification. Such undertaking shall be secured by a surety bond
or other suitable insurance or such security as the Trustees shall
require unless a majority of a quorum of the Trustees who are neither
Interested Persons nor parties to the proceeding, or independent
legal counsel in a written opinion, shall have determined, based on
readily available facts, that there is reason to believe that the
indemnitee ultimately will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising
under the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
C-14
<PAGE>
payment by Registrant of expenses incurred or paid by a trustee,
officer or controlling person of Registrant in the successful defense
of any action, suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Section 5.1 of the Registrant's Declaration of
Trust, incorporated herein by reference as Exhibit (1), also provided
indemnification of shareholders of the Registrant.
Section 5.1 states as follows:
5.1 Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the
Trust shall have no power to bind any Shareholder personally or to
call upon any Shareholder for the payment of any sum of money or
assessment whatsoever, other than such as the Shareholder may at any
time agree to pay by way of subscription to any Shares or otherwise.
No Shareholder or former Shareholder of the Trust
shall be liable solely by reason of his being or having been a
Shareholder for any debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any kind, against, or
with respect to, the Trust arising out of any action taken or omitted
for or on behalf of the Trust, and the Trust shall be solely liable
therefor and resort shall be had solely to the Trust Property for the
payment or performance thereof.
Each Shareholder or former Shareholder of the Trust
(or their heirs, executors, administrators or other legal
representatives or, in case of a corporate entity, its corporate or
general successor) shall be entitled to indemnity and reimbursement
out of the Trust Property to the full extent of such liability and
the costs of any litigation or other proceedings in which such
liability shall have been determined, including, without limitation,
the fees and disbursements of counsel if, contrary to the provisions
hereof, such Shareholder or former Shareholder of the Trust shall be
held to personal liability.
C-15
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
The Registrant's co-investment adviser, NBD, is a state chartered
bank incorporated under the laws of Michigan which is wholly-owned by NBD
Bancorp, Inc., a Delaware corporation. NBD conducts a general banking and
trust business.
(a) To the Registrant's knowledge, none of the directors or officers
of NBD, except as set forth below, is, or has been at any time during the
Registrant's past two fiscal years, engaged in any other business, profession,
vocation, or employment of a substantial nature, except that certain directors
and officers and certain executives of NBD also hold various positions with,
and are engaged in business for, NBD Bancorp, Inc., which owns all of the
outstanding stock of NBD. Set forth below are the names and principal business
of the directors and certain of the senior executive officers of NBD who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
Terence E. Adderley
President and Chief Executive Officer, Kelly Services, Inc.;
and Director of Kelly Services, Inc. and The Detroit Edison
Company.
James K. Baker
Chairman, Arvin Industries, Inc.; Director of Amcast
Industrial Corporation, Geon Company, CINergy Corp., and
Tokheim Corp.
Don H. Barden
Chairman and President, Barden Companies, Inc.; Director of
National Cable TV Association and C-SPAN, the Cable
Satellite Public Affairs Network.
Siegfried Buschmann
Chairman and Chief Executive Officer, The Budd Company.
Bernard B. Butcher
Retired Senior Consultant and Director of The Dow Chemical
Company.
John W. Day
Retired Executive Vice President, Allied-Signal, Inc.; and
President, Allied-Signal International, Inc.
Maureen A. Fay, O.P.
President, University of Detroit Mercy.
C-16
<PAGE>
Charles T. Fisher III
Retired Chairman and President, NBD Bancorp, Inc.; and NBD Bank; and
Director of AMR Corporation , General Motors Corporation, and JANNOCK
Limited (Toronto).
Alfred R. Glancy III
Chairman, President, and Chief Executive Officer of MCN Corporation;
Chairman of Michigan Consolidated Gas Company; and Director of MLX
Corp.
Dennis J. Gormley
Chairman, President and Chief Executive Officer, Federal-Mogul
Corporation; and Director of Cooper Tire and Rubber Company.
Joseph L. Hudson, Jr.
Chairman, Hudson-Webber Foundation.
Verne G. Istock
Chairman and Chief Executive Officer, NBD Bancorp, Inc. and NBD Bank
and Director of Handleman Company; and Kelly Services, Inc.; Grand
Trunk Corp.
Thomas H. Jeffs II
President and Chief Operating Officer, NBD Bancorp, Inc. and NBD
Bank; and Director of MCN Corporation.
John E. Lobbia
Chairman and Chief Executive Officer, The Detroit Edison Company.
Richard A. Manoogian
Chairman and Chief Executive Officer, Masco Corporation and
MascoTech, Inc.; and Chairman of TriMas Corporation.
William T. McCormick, Jr.
Chairman and Chief Executive Officer, CMS Energy Corporation;
Chairman, Consumers Power Company; and Director of Rockwell
International Corporation and Schlumberger, Ltd.
Thomas E. Reilly, Jr.
Chairman of the Board, Reilly Industries, Inc. and Director of Lilly
Industries, Inc.
Irving Rose
Partner, Edward Rose & Sons (Residential Builders).
Robert C. Stempel
Retired Chairman and Chief Executive Officer, General Motors
Corporation.
C-17
<PAGE>
Peter W. Stroh
Chairman and Chief Executive Officer, The Stroh Companies, Inc.;
Chairman, The Stroh Brewery Company and Director of Masco
Corporation.
Ormand J. Wade
Retired Vice Chairman, American Information Technologies Corporation
(Ameritech) and Director of Illinois Tool Works, Inc.; and Andrew
Corp.
(b) The Registrant's future co-investment adviser, FCIMCO, is a
registered investment adviser and 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.
Registrant is fulfilling the requirement of this Item 28 to
provide a list of the officers and directors of First Chicago Investment
Management Company ("FCIMCO"), together with information as to any other
business, profession, vocation or employment of a substantial nature engaged
in by FCIMCO or those of its officers and directors during the past two years,
by incorporating by reference the information contained in the Form ADV filed
with the SEC pursuant to the Investment Advisers Act of 1940 by FCIMCO (SEC
File No. 801-47947).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) FoM is one of the Registrant's current principal underwriters.
FoM currently acts as principal underwriter for Renaissance Assets Trust, a
registered investment company. Except for the foregoing, FoM does not act as
principal underwriter, depositor or investment adviser for any other
registered investment company.
(b) The following information is submitted with respect to each
director and officer of FoM, the principal business address of which is 100
Renaissance Center, 26th Floor, Detroit, Michigan
48243:
Position with Position with
Name Underwriter Registrant
---- ------------- -------------
Steve Gasper, Jr. President, Chief None
Executive Officer,
Director
William H. Cuddy Chairman of the Board None
of Directors
C-18
<PAGE>
Position with Position with
Name Underwriter Registrant
---- ------------- -------------
Joseph M. Mengden Director None
Craig P. Baker Director None
Geoffrey B. Baker Director None
Gerard M. Lavin Director None
Thomas A. McDonnell Director None
Conrad W. Koski Executive Vice None
President and
Treasurer
Hal H. Smith, III Executive Vice President None
Anthony Calice Senior Vice President None
Lenore P. Denys Senior Vice President None
and Secretary
Ernest J. Gargaro, Jr. Vice President - Tax None
Incentive Planning/
Qualified Plans
Thomas Enright Vice President None
Ned Evans Vice President None
Martha M. Feazell Vice President None
John Freeman Vice President None
Perry Foor Vice President None
Monica Glinski Vice President None
Michael Gormely Vice President None
Paul Harris Vice President None
Colleen Mahoney Vice President None
Carol McDiarmid Vice President None
Robert H. Stoetzer Vice President None
C-19
<PAGE>
Diane DeParre Vertin Vice President None
Wayne J. Wright Vice President None
(c) None
(d) Essex is one of the Registrant's current principal
underwriters. Essex does not act as principal
underwriter, depositor or investment adviser for any
other registered investment company.
(e) The following information is submitted with respect to each
director and officer of Essex, the principal business
address of which is 825 3rd Avenue, 37th Floor, New York, NY
10022:
Position with Position with
Name Underwriter Registrant
---- ------------- -------------
Kevin E. Crowe Chairman and None
Chief Executive Officer
Gerald Cunningham President None
Thomas E. Albright Senior Vice President None
Elisa Lanthier Treasurer None
William O'Loughlin Treasurer, Vice None
President
Greg Zytkowicz Secretary, Vice None
President
Robert B. Twomey Vice President None
(f) None
(g) BISYS Fund Services Inc. will act as distributor and
administrator for the Registrant. BISYS Fund Services
also distributes the securities of the American
Performance Funds, The Highmark Group, The Parkstone
Group of Funds, The Sessions Group, the AmSouth Mutual
C-20
<PAGE>
Funds, The Coventry Group, the BB&T Mutual Funds Group, the
MarketWatch Funds, The M.S.D & T Funds, Inc., The Riverfront
Funds, Inc., the Pacific Capital Funds, the MMA Praxis
Mutual Funds, the Qualivest Funds, Mountain Square Funds,
Mariner Mutual Funds Trust, Mariner Funds Trust and The
Victory Portfolios, each of which is an open-end management
investment company.
(h) To the best of Registrant's knowledge, the partners of
BISYS Fund Services are as follows:
Name and
Principal Positions and Positions and
Business Offices with Offices with
Address BISYS Fund Services Registrant
- --------- ------------------- -------------
BISYS Fund Services, Inc. Sole General Partner None
150 Clove Road
Little Falls, NJ 07424
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
(i) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) NBD Bank, 611 Woodward Avenue, Detroit, Michigan 48226 and
900 Tower Drive, Troy, Michigan 48098 (records relating to
functions as co-advisor, co-administrator, custodian, and
transfer and dividend disbursing agent).
(b) First of Chicago Investment Management Company, Three First
National Plaza, Chicago, Illinois 60670 (records relating to
its function as co-advisor and co-administrator).
(c) First of Michigan Corporation, 100 Renaissance Center, 26th
Floor, Detroit, Michigan 48243 (records relating to its
function as co-distributor).
C-21
<PAGE>
(d) Essex National Securities, Inc., 215 Gateway Road West,
Napa, California 34550-6249 (records relating to its
functions as co-distributor).
(e) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as distributor and
co-administrator).
(f) Drinker Biddle & Reath, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496 (Registrant's
Declaration of Trust, By-Laws and Minute Books).
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a trustee or trustees if
requested to do so by the holders of at least 10% of Registrant's outstanding
shares. Registrant will stand ready to assist shareholder communications in
connection with any meeting of shareholders as prescribed in Section 16(c) of
the Investment Company Act of 1940.
Registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's most recent annual report
to shareholders, upon request without charge.
C-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 31 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Detroit, State of Michigan, on the 13th day of June, 1996.
THE WOODWARD FUNDS
Registrant
* Earl I. Heenan, Jr.
---------------------
Earl I. Heenan, Jr.
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to Registrant's Registration Statement has been
signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
* Earl I. Heenan, Jr.
- -------------------------
Earl I. Heenan, Jr. Trustee June 13, 1996
* Eugene C. Yehle
- -------------------------
Eugene C. Yehle Trustee June 13, 1996
* Will M. Caldwell
- -------------------------
Will M. Caldwell Trustee June 13, 1996
* Julius L. Pallone
- -------------------------
Julius L. Pallone Trustee June 13, 1996
* Nicholas J. De Grazia
- -------------------------
Nicholas J. De Grazia Trustee June 13, 1996
* Donald G. Sutherland
- -------------------------
Donald G. Sutherland Trustee June 13, 1996
* Donald L. Tuttle
- -------------------------
Donald L. Tuttle Trustee June 13, 1996
* John P. Gould
- -------------------------
John P. Gould Trustee June 13, 1996
* Marilyn McCoy
- -------------------------
Marilyn McCoy Trustee June 13, 1996
* By: /s/ W. Bruce McConnel, III
-----------------------
W. Bruce McConnel, III
Attorney-in-fact
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Eugene C. Yehle, whose signature appears below, hereby constitutes and
appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of them,
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Eugene C. Yehle
------------------
Date: March 7, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Will M. Caldwell, whose signature appears below, hereby constitutes
and appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Will M. Caldwell
-------------------
Date: February 29, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Julius L. Pallone, whose signature appears below, hereby constitutes
and appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Julius L. Pallone
--------------------
Date: February 28, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Nicholas J. De Grazia, whose signature appears below, hereby
constitutes and appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and
either of them, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable the
Trust to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Trust's Registration Statements
pursuant to said Acts on Form N-1A or Form N-14, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee and/or officer
of the Trust any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
/s/Nicholas J. De Grazia
------------------------
Date: February 20, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Donald G. Sutherland, whose signature appears below, hereby
constitutes and appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and
either of them, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable the
Trust to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Trust's Registration Statements
pursuant to said Acts on Form N-1A or Form N-14, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee and/or officer
of the Trust any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
/s/Donald G. Sutherland
-----------------------
Date: February 28, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Donald L. Tuttle, whose signature appears below, hereby constitutes
and appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Donald L. Tuttle
-------------------
Date: February 28, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
John P. Gould, whose signature appears below, hereby constitutes and
appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of them,
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/John P. Gould
----------------
Date: February 28, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Marilyn McCoy, whose signature appears below, hereby constitutes and
appoints Earl I. Heenan Jr. and W. Bruce McConnel, III, and either of them,
her true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable the Trust to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Trust's Registration Statements pursuant to said Acts on
Form N-1A or Form N-14, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Marilyn McCoy
----------------
Date: February 18, 1996
<PAGE>
THE WOODWARD FUNDS
Power of Attorney
Earl I. Heenan, Jr., whose signature appears below, hereby constitutes
and appoints W. Bruce McConnel, III his true and lawful attorney and agent,
with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Trust's Registration Statements
pursuant to said Acts on Form N-1A or Form N-14, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a trustee and/or officer
of the Trust any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
/s/Earl I. Heenan, Jr.
----------------------
Date: March 4, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(11)(a) Consent of Arthur Andersen LLP.
(11)(b) Consent of Drinker Biddle & Reath.
(27) Financial Data Schedules.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated February 19, 1996 included in The Woodward Funds' Annual Report to
Shareholders for the year ended December 31, 1995 (and to all references
to our Firm) included in or made a part of this registration statement on
Form N-1A (Post-Effective Amendment No. 31 to the Woodward Funds' registration
statement under the Securities Act of 1933).
ARTHUR ANDERSEN LLP
Detroit, Michigan,
June 13, 1996
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended.
/s/ Drinker Biddle & Reath
--------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
June 13, 1996
<TABLE> <S> <C>
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<CIK> 0000814067
<NAME> The Woodward Funds
<SERIES>
<NAME> Woodward Money Market Fund
<NUMBER> 1
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-START> JAN-01-1995
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,619,766
<INVESTMENTS-AT-VALUE> 1,624,605
<RECEIVABLES> 16,341
<ASSETS-OTHER> 299
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,641,245
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,550
<TOTAL-LIABILITIES> 1,550
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,639,695
<SHARES-COMMON-STOCK> 1,639,695
<SHARES-COMMON-PRIOR> 1,323,040
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 1,639,695
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<INTEREST-INCOME> 98,416
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<EXPENSES-NET> 8,440
<NET-INVESTMENT-INCOME> 89,976
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 89,976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 89,976
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<NUMBER-OF-SHARES-SOLD> 15,430,620
<NUMBER-OF-SHARES-REDEEMED> 15,134,904
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