PEGASUS FUNDS
Cash Management Fund
Treasury Cash Management Fund
Treasury Prime Cash Management Fund
U.S. Government Securities Cash Management Fund
Municipal Cash Management Fund
P R 0 S P E C T U S
August 1, 1997
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD
CORPORATION OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY
GOVERNMENTAL AGENCY. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE
ABLE TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
First Chicago NBD Investment Management Company
Investment Adviser and Co-Administrator
BISYS Fund Services
Distributor and Co-Administrator
Prospectus begins on page one
<PAGE>
PROSPECTUS
August 1, 1997
PEGASUS FUNDS
Pegasus Funds (the "Trust") is an open-end, management investment
company, known as a series fund. By this Prospectus, the Trust is offering
Institutional Shares and Service Shares of five separate diversified, money
market series (each, a "Fund"): Cash Management Fund, Treasury Cash
Management Fund, Treasury Prime Cash Management Fund, U.S. Government
Securities Cash Management Fund and Municipal Cash Management Fund
(collectively, the "Funds"). Each Fund's goal is to provide investors with as
high a level of current income as is consistent with the preservation of
capital and the maintenance of liquidity, and, in the case of the Municipal
Cash Management Fund, exempt from federal income tax.
Each Fund is designed for institutional investors, including banks,
acting for themselves or in a fiduciary, advisory, agency, custodial or
similar capacity, public agencies and municipalities. Fund shares may not be
purchased directly by individuals, although institutions may purchase shares
for accounts maintained by individuals.
Each Fund's shares are sold without a sales charge. Investors can
invest or reinvest in or redeem shares at any time without charge or penalty
imposed by the Fund.
Institutional Shares and Service Shares are identical, except as to
the services offered to and expenses borne by each Class. Service Shares bear
certain costs pursuant to a Distribution and Services Plan adopted by the
Board of Trustees.
First Chicago NBD Investment Management Company ("FCNIMCO") serves as
each Fund's investment adviser (the "Investment Adviser") and FCNIMCO and
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
serve as co-administrators (collectively, the "Co-Administrators").
BISYS serves as each Fund's distributor.
--------------------
This Prospectus sets forth concisely information about the Trust and
Funds that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated August 1, 1997, which
may be revised from time to time, provides a further discussion of certain
areas in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission (the
"SEC") and is
<PAGE>
incorporated herein by reference. For a free copy, write to the Trust at 900
Tower Drive, Mail Suite 8412, Troy, Michigan 48098, or call 1-800-688-3350.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ANNUAL FUND OPERATING EXPENSES........................... 4
CONDENSED FINANCIAL INFORMATION.......................... 6
YIELD INFORMATION........................................ 10
DESCRIPTION OF THE FUNDS................................. 10
MANAGEMENT OF THE TRUST.................................. 16
HOW TO BUY FUND SHARES.................................... 18
HOW TO REDEEM FUND SHARES................................ 20
DISTRIBUTION AND SERVICES PLAN........................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES....................... 22
GENERAL INFORMATION...................................... 25
SUPPLEMENTAL INFORMATION................................. A-1
</TABLE>
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<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
The following table is provided to assist investors in understanding
the various estimated costs and expenses that an investor will indirectly
incur as a beneficial owner of shares in the Funds.
<TABLE>
<CAPTION>
U.S. Government
Cash Management Treasury Cash Treasury Prime Cash Securities Cash
Fund Management Fund Management Fund Management Fund
--------------------- ----------------------- ----------------------- ----------------------
Institutional Service Institutional Service Institutional Service Institutional Service
Shares Shares Shares Shares Shares Shares Shares Shares
------------- ------- ------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(after fee waivers)..... .17% .17% .12% .12% .16% .16% .17% .17%
12b-1 (distribution
and servicing)
Fees..................... None .25% None .25% None .25% None .25%
Other Fund Operating
Expenses (after fee
waivers and
reimbursements).......... .18% .18% .23%* .23%* .19% .19% .18% .18%
Total Fund Operating
Expenses (after fee
waivers and expense
reimbursements).......... .35% .60% .35% .60% .35% .60% .35% .60%
<CAPTION>
Municipal Cash
Management Fund
- -------------------------
Institutional Service
Shares Shares
- ------------ -------
<C> <C>
.12% .12%
None .25%
.23%* .23%*
.35% .60%
<FN>
- ------------
* Estimated
</TABLE>
Example:
An investor would pay the following estimated expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service
Shares Shares Shares Shares Shares Shares Shares Shares
------------- ------- ------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.............. $ 4 $ 6 $ 4 $ 6 $ 4 $ 6 $ 4 $ 6
3 Years............. $11 $19 $11 $19 $11 $19 $11 $19
5 Years............. $20 $33 N/A N/A $20 $33 $20 $33
10 Years............ $44 $75 N/A N/A $44 $75 $44 $75
<CAPTION>
Institutional Services
Shares Shares
- ------------ --------
<C> <C>
$ 4 $ 6
$11 $19
N/A N/A
N/A N/A
<FN>
- -----------------
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 the example assumes a 5% annual return,
each Fund's actual performance will vary and may result in an actual return
greater or less than 5%.
</TABLE>
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<PAGE>
The purpose of the foregoing table is to assist investors in
understanding the various estimated costs and expenses borne by the Funds,
and therefore indirectly by investors, the payment of which will reduce
investors' return on an annual basis. The Investment Adviser has
undertaken, as to each Fund, until such time as it gives investors at
least 90 days' notice to the contrary, that if, in any fiscal year,
aggregate expenses exclusive of taxes, brokerage, interest on
borrowings and (with the prior consent of the necessary state
securities commissions) extraordinary expenses, but including the
investment advisory and administration fees, exceed .35% and .60% of the
value of the average net assets of the Institutional Shares and the Service
Shares, respectively, for the fiscal year, the Trust may deduct from the
payment to be made to the Investment Adviser under the Investment Advisory or
Administration Agreements, or the Investment Adviser will bear, such excess
expense. The expenses noted above, without fee waivers or expense
reimbursement arrangements, would have been: Management Fees, .20% for each
Fund; Other Fund Operating Expenses, .21% for the Institutional Shares and
Service Shares of the Cash Management Fund, .31% for the Institutional Shares
and Service Shares of the Treasury Cash Management Fund (based on estimated
amounts for the current fiscal year), .23% for the Institutional Shares and
Service Shares of the Treasury Prime Cash Management Fund, .21% for the
Institutional Shares and Service Shares of the U.S. Government Securities
Cash Management Fund, and .31% for the Institutional Shares and Service
Shares of the Municipal Cash Management Fund (based on estimated amounts for
the current fiscal year); and Total Fund Operating Expenses, .41% for the
Institutional Shares and .66% for the Service Shares of the Cash Management
Fund, .51% for the Institutional Shares and .76% for the Service Shares of
the Treasury Cash Management Fund (based on estimated amounts for the current
fiscal year), .43% for the Institutional Shares and .68% for the Service
Shares of the Treasury Prime Cash Management Fund, .41% for the
Institutional Shares and .66% for the Service Shares of the U.S. Government
Securities Cash Management Fund, and .51% for the Institutional Shares and
.76% for the Service Shares of the Municipal Cash Management Fund (based on
estimated amounts for the current fiscal year) . See "Management of the
Trust," "How to Buy Fund Shares" and "Distribution and Services Plan."
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<PAGE>
CONDENSED FINANCIAL INFORMATION
Financial Highlights
The Cash Management Fund commenced operations on July 30, 1992 as the
First Prairie Cash Management Fund and the U.S. Government Securities Cash
Management Fund commenced operations on June 2, 1992 as the First Prairie
U.S. Treasury Securities Cash Management Fund (collectively, the "First
Prairie Funds"). On January 17, 1995, all of the assets and liabilities of
each First Prairie Fund were transferred to the Cash Management Fund and U.S.
Government Securities Cash Management Fund, respectively, of the Prairie
Institutional Funds. On July 13, 1996, all of the assets and liabilities of
the Cash Management Fund, Treasury Prime Cash Management Fund and U.S.
Government Securities Cash Management Fund (the "Predecessor Funds") of
Prairie Institutional Funds were transferred to the Cash Management Fund,
Treasury Prime Cash Management Fund and U.S. Government Securities Cash
Management Fund, respectively. The Treasury Cash Management Fund and
Municipal Cash Management Fund had not commenced operations prior to the
date of this Prospectus.
The tables below set forth certain information concerning the
investment results of the Funds (excluding the Treasury Cash Management Fund
and Municipal Cash Management Fund), the Predecessor Funds and the First
Prairie Funds. The information about the Funds for the period ended December
31, 1996 has been audited by Arthur Andersen LLP, the Trust's independent
accountants, whose report thereon is incorporated by reference in the
Statement of Additional Information. The information about the Predecessor
Funds and the First Prairie Funds for the periods ending and prior to
December 31, 1995 has been derived from the financial statements which have
been audited by Ernst & Young LLP, such Funds' prior independent auditors,
whose report thereon dated February 22, 1996 expressed an unqualified opinion
on such financial statements. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto and the reports
of the independent accountants which are incorporated by reference in the
Statement of Additional Information. Further information about the
performance of the Funds is available in the Funds' Annual Report to
Shareholders. The Statement of Additional Information and the Annual Report
to Shareholders may be obtained from the Trust free of charge by calling
(800) 688- 3350.
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<PAGE>
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Asset Net Distributions
Value Net Realized Total from from Net
Beginning Investment Gains Investment Investment
of Period Income (Losses) Operations Income
--------- ---------- -------- ---------- -------------
U.S. Government Securities Cash Management Fund
<S> <C> <C> <C> <C> <C>
Institutional
Shares
1996 $0.9990 0.0502 (0.0002) 0.0500 (0.0502)
1995(a) $0.9989 0.0320 0.0001 0.0321 (0.0320)
1995 $0.9999 0.0492 (0.0010) 0.0482 (0.0492)
1994 $1.0000 0.0302 (0.0001) 0.0301 (0.0302)
1993(b) $1.0000 0.0319 -- 0.0319 (0.0319)
Service Shares
1996 $0.9990 0.0478 0.0005 0.0483 (0.0478)
1995(a) $0.9989 0.0305 0.0001 0.0306 (0.0305)
1995(c) $1.0000 0.0199 (0.0011) 0.0188 (0.0199)
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio Expenses Income
of Net to Average to Average
Net Assets Ratio of Investment Net Assets Net Assets
Net Asset End of Expenses Income (Excluding Fee (Excluding Fee
Value End Total Period to Average to Average Waivers and Waivers and
of Period Return (000) Net Assets Net Assets Reimbursements) Reimbursements)
- --------- ------ ---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$0.9988 5.15% $369,163 0.35% 5.09% 0.43% 5.01%
$0.9990 3.24%++ $489,395 0.35%+ 5.46%+ 0.42%+ 5.39%+
$0.9989 5.03% $475,248 0.34% 4.94% 0.41% 4.87%
$0.9999 3.06% $413,634 0.30% 3.02% 0.41% 2.91%
$1.0000 3.25%+ $264,527 0.02%+ 3.10%+ 0.49%+ 2.63%+
$0.9995 4.89% $207,046 0.60% 4.84% 0.68% 4.76%
$0.9990 3.09%++ $ 56,000 0.60%+ 5.17%+ 0.69%+ 5.08%+
$0.9989 2.01%++ $ 16,702 0.57%+ 5.48%+ 0.66%+ 5.39%+
<FN>
- ------------------------------
(a) For the period June 1, 1995 through December 31, 1995.
Effective June 1, 1995, the Fund changed its fiscal year end from
May 31 to December 31.
(b) For the period June 2, 1992 (commencement of operations) through
May 31, 1993.
(c) For the period January 17, 1995 (initial offering date of Service Shares)
through May 31, 1995.
+ Annualized.
++ Not Annualized.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Distributions
Value Net Realized Total from from Net
Beginning Investment Gains Investment Investment
of Period Income (Losses) Operations Income
--------- ---------- -------- ---------- -------------
Treasury Prime Cash Management Fund
<S> <C> <C> <C> <C> <C>
Institutional
Shares
1996 $1.0000 0.0474 (0.0001) 0.0473 (0.0474)
1995(a) $1.0000 0.0399 -- 0.0399 (0.0399)
Service Shares
1996 $1.0000 0.0449 -- 0.0449 (0.0449)
1995(a) $1.0000 0.0380 -- 0.0380 (0.0380)
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio Expenses Income
of Net to Average to Average
Net Assets Ratio of Investment Net Assets Net Assets
Net Asset End of Expenses Income (Excluding Fee (Excluding Fee
Value End Total Period to Average to Average Waivers and Waivers and
of Period Return (000) Net Assets Net Assets Reimbursements) Reimbursements)
- --------- ------ ---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$0.9999 4.86% $ 70,120 0.35% 4.84% 0.46% 4.73%
$1.0000 4.06%++ $ 14,008 0.35%+ 5.16%+ 1.23%+ 4.28%+
$1.0000 4.60% $215,040 0.60% 4.59% 0.71% 4.48%
$1.0000 3.86%++ $130,559 0.60%+ 4.72%+ 0.74%+ 4.58%+
<FN>
(a) For the period March 22, 1995 (commencement of operations) through
December 31, 1995.
+ Annualized.
++ Not Annualized.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Increase Due
to Capital
Contribution
Net Distribut- from an
Net Asset Realized ions Affiliate
Value Net Gains Total from from Net of the
Beginning Investment (Losses) on Investment Investment Investment
of Period Income Investments Operations Income Adviser
--------- ------ ----------- ---------- ---------- ------------
Cash Management Fund
<S> <C> <C> <C> <C> <C> <C>
Institutional
Shares
1996 $0.9996 0.0508 0.0002 0.0510 (0.0508) --
1995(a) $0.9994 0.0277 0.0002 0.0279 (0.0277) --
1995 $0.9993 0.0507 (0.0059) 0.0448 (0.0507) 0.0060
1994 $0.9999 0.0333 (0.0006) 0.0327 (0.0333) --
1993(c) $1.0000 0.0297 (0.0001) 0.0296 (0.0297) --
Service Shares
1996 $0.9996 0.0484 0.0002 0.0486 (0.0484) --
1995 (a) $0.9994 0.0264 0.0002 0.0266 (0.0264) --
1995 (d) $1.0000 0.0245 (0.0006) 0.0239 (0.0245) --
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio Expenses Income
of Net to Average to Average
Net Assets Ratio of Investment Net Assets Net Assets
Net Asset End of Expenses Income (Excluding Fee (Excluding Fee
Value End Total Period to Average to Average Waivers and Waivers and
of Period Return (000) Net Assets Net Assets Reimbursements) Reimbursements)
- --------- ------ ---------- ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$0.9998 5.23% $885,946 0.35% 5.19% 0.42% 5.12%
$0.9996 2.80%++ $389,127 0.35%+ 5.51%+ 0.43%+ 5.43%+
$0.9994 5.19%(b) $319,214 0.35% 5.11% 0.44% 5.02%
$0.9993 3.38% $243,820 0.31% 3.33% 0.43% 3.21%
$0.9999 3.25%+ $175,713 0.05%+ 3.19%+ 0.56%+ 2.68%+
$0.9998 4.98% $232,249 0.60% 4.94% 0.67% 4.87%
$0.9996 2.68%++ $121,750 0.60%+ 5.25%+ 0.69%+ 5.16%+
$0.9994 2.47%++ $ 11,372 0.60%+ 5.46%+ 0.71%+ 5.35%+
- ------------------------------
(a) For the period July 1, 1995 through December 31, 1995. Effective
July 1, 1995 the Fund changed its fiscal year end from June 30 to
December 31.
(b) If the Fund had not had a capital contribution by an Affiliate
of the Investment Adviser during the period, the total return would
have been 4.51%.
(c) For the period July 30, 1992 (commencement of operations) through
June 30, 1993.
(d) For the period January 17, 1995 (initial offering date of Service
Shares) through June 30, 1995.
+ Annualized.
++ Not Annualized.
</TABLE>
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<PAGE>
YIELD INFORMATION
From time to time, each Fund will advertise its yield and effective
yield. Both yield figures are based on historical earnings and are not
intended to indicate future performance. It can be expected that these yields
will fluctuate substantially. The yield of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then annualized. That
is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly,
but, when annualized, the income earned by an investment in the Fund is
assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
Each Fund's yield and effective yield may reflect absorbed expenses pursuant
to any undertaking that may be in effect. See "Management of the Trust." Both
yield figures also take into account any applicable distribution and service
fees. See "Distribution and Services Plan."
The Municipal Cash Management Fund may from time to time advertise a
"tax-equivalent yield" to demonstrate the level of taxable yield necessary to
produce an after-tax yield equivalent to that achieved by the Fund. The "tax-
equivalent yield" will be computed by dividing the tax-exempt portion of the
Fund's yield by a denominator consisting of one minus a stated federal income
tax rate and adding the product to that portion, if any, of the Fund's yield
which is not tax-exempt.
Yield information is useful in reviewing a Fund's performance, but
because yields will fluctuate, under certain conditions such information may
not provide a basis for comparison with domestic bank deposits, other
investments which pay a fixed yield for a stated period of time, or other
investment companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Bank Rate Monitor(TM), IBC/Donoghue's Money Fund Report(R)
and other industry publications.
DESCRIPTION OF THE FUNDS
General
The Trust is a "series fund," which is a mutual fund divided into
separate portfolios. Each portfolio is treated as a separate entity for
certain matters under the Investment Company Act of 1940, as amended (the
"1940 Act"), and for other purposes, and a shareholder of one portfolio is
not deemed to be a shareholder of any other portfolio. As described below,
for
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<PAGE>
certain matters Trust shareholders vote together as a group; as to others
they vote separately by Fund.
By this Prospectus, two classes of shares of each Fund are being
offered -- Institutional Shares and Service Shares (each such class being
referred to as a "Class"). Unlike Institutional Shares, Service Shares are
subject to an annual distribution and service fee at the rate of up to .25%
of the value of the average daily net assets of the Service Class. The fee is
payable to the Distributor for advertising, marketing and distributing
Service Shares and for ongoing personal services to the holders of Service
Shares relating to shareholder accounts and services related to the
maintenance of such shareholder accounts pursuant to a Distribution and
Services Plan adopted in accordance with Rule 12b-1 under the 1940 Act. The
Distributor may make payments to certain financial institutions, securities
dealers and other industry professionals (collectively, "Service Agents") in
respect of these services. See "Distribution and Services Plan."
When used in this Prospectus and the Statement of Additional
Information, the terms "Investor" and "Shareholder" refer to the institution
purchasing Fund shares and do not refer to any individual or entity for whose
account the institution may purchase Fund shares.
Investment Objective
Each Fund's investment objective is to provide investors with as high
a level of current income as is consistent with the preservation of capital
and the maintenance of liquidity, and, in the case of the Municipal Cash
Management Fund, exempt from federal income tax. Each Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of such Fund's outstanding voting shares. There can
be no assurance that a Fund's investment objective will be achieved.
Securities in which the Funds invest may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation of market value.
Management Policies
Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Trust uses the amortized cost method
of valuing each Fund's securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below.
In accordance with Rule 2a-7, each Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less and invest only
in U.S. dollar
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<PAGE>
denominated securities determined in accordance with procedures established
by the Board of Trustees to present minimal credit risks and, in the case of
the Cash Management Fund and Municipal Cash Management Fund, which are rated
in one of the two highest rating categories for debt obligations by at least
two nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or,
if unrated, are of comparable quality as determined in accordance with
procedures established by the Board of Trustees. The nationally recognized
statistical rating organizations currently rating instruments of the type the
Cash Management Fund and Municipal Cash Management Fund may purchase are
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group,
Division of McGraw-Hill ("S&P"), Duff & Phelps Credit Rating Co., Fitch
Investors Service, L.P. ("Fitch"), IBCA Limited and IBCA Inc., and Thomson
BankWatch, Inc. and their rating criteria are described in the Appendix to
the Statement of Additional Information. For further information regarding
the amortized cost method of valuing securities, see "Determination of Net
Asset Value" in the Statement of Additional Information. There can be no
assurance that each Fund will be able to maintain a stable net asset value of
$1.00 per share.
o Cash Management Fund invests in short-term money market
obligations, including securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic
banks, foreign branches of domestic banks, foreign subsidiaries of domestic
banks, domestic and foreign branches of foreign banks and thrift
institutions, guaranteed investment contracts, repurchase agreements, and
high quality domestic and foreign commercial paper and other eligible
short-term obligations, including those with floating or variable rates of
interest. See "Supplemental Information -- Portfolio Securities and
Investment Practices." During normal market conditions, at least 25% of the
Fund's total assets will be invested in bank obligations or instruments
secured by such obligations.
o Treasury Cash Management Fund invests in U.S. Treasury bills,
notes, and direct U.S. Treasury obligations having remaining maturities of
397 days or less; and repurchase agreements relating to U.S. Treasury
obligations. See "Supplemental Information -- Portfolio Securities."
o Treasury Prime Cash Management Fund invests in U.S. Treasury
bills, notes, and direct U.S. Treasury obligations having remaining
maturities of 397 days or less. See "Supplemental Information -- Portfolio
Securities." The Fund does not invest in repurchase agreements.
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<PAGE>
o U.S. Government Securities Cash Management Fund invests in
short-term securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; and repurchase agreements relating to
such securities. See "Supplemental Information -- Portfolio Securities
and Investment Practices."
o Municipal Cash Management Fund invests 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"). Municipal Obligations include: (1) municipal
bonds; (2) municipal notes; (3) variable rate demand notes; (4) tax-exempt
commercial paper and floating rate instruments; and (5) unrated notes, paper
or other instruments that are of comparable quality as determined by the
Investment Adviser under guidelines established by the Trust's Board of
Trustees. Where necessary to ensure that an instrument is of high quality,
the Fund 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. The Municipal Cash Management Fund
may also engage in repurchase agreements and may lend its securities. Income
earned by the Fund with respect to repurchase agreements and securities
lending transactions will be taxable. At least 80% of the Municipal Cash
Management Fund's net assets will be invested in Municipal Obligations, except
in extraordinary circumstances, such as when the Investment Adviser believes
that market conditions indicate that the Fund should adopt a temporary
defensive position by holding uninvested cash or investing in taxable short
term securities such as those in which the Cash Management Fund invests. This
policy is fundamental and may not be changed without the approval of the
holders of a majority of the Municipal Cash Management Fund's outstanding
shares. There is no investment limitation on investments in Municipal
Obligations subject to the federal alternative minimum tax. See "Dividends,
Distributions and Taxes" and "Supplemental Information -- Portfolio Securities
and Investment Practices."
Certain Fundamental Policies
Each Fund may not:
(1) Borrow money, issue senior securities, or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act;
(2) Act as an underwriter of securities of other issuers,
except to extent the Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of
portfolio securities;
(3) Purchase or sell (a) real estate or (b) commodities,
except to the extent permitted under the 1940 Act;
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<PAGE>
(4) Make loans to others (other than through investment in debt
obligations or other instruments referred to in the Fund's Prospectus),
except that the Fund may lend its portfolio securities in an amount not to
exceed 33 1/3% of the value of its total assets;
(5) Purchase any securities which would cause 25% or more of the
value of the 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 (i) instruments 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, (ii) instruments issued by domestic branches of U.S.
banks and (iii) repurchase agreements secured by instruments described in
clauses (i) and (ii), (b) wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of the parents and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry and (d) personal credit and business credit businesses will be
considered separate industries, and further provided that the Cash Management
Fund will invest at least 25% of its total assets in obligations of issuers
in the banking industry or instruments secured by such obligations except
during temporary defensive periods; and
(6) Purchase securities of any one issuer (except U.S. Government
securities and related repurchase agreements, and with respect to the
Municipal Cash Management Fund, other than as permitted by Rule 2a-7 under
the 1940 Act) if immediately after such purchase, more than 5% of the value
of the Fund's total assets would be invested in the obligations of any one
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to this 5% limitation.
See, also "Investment Objective and Management Policies --
Investment Restrictions" in the Statement of Additional
Information.
Additional Non-Fundamental Policy
Each Fund may invest up to 10% of the value of its net assets in
illiquid securities. See "Supplemental Information -- Investment Practices --
Restricted Securities" and "Investment Objective and Management Policies
- -- Investment Restrictions" in the Statement of Additional Information.
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Risk Factors
See also "Supplemental Information" beginning on page A-1.
Foreign Securities -- (Cash Management Fund) Since the Cash Management Fund's
portfolio may contain securities issued by foreign branches of domestic banks
and foreign banks, domestic and foreign branches of foreign banks and thrift
institutions, and commercial paper issued by foreign issuers, the Fund may be
subject to additional investment risks with respect to such securities that
are different in some respects from those incurred by a fund which invests
only in debt obligations of U.S. domestic issuers, although such obligations
may be higher yielding when compared to the securities of U.S. domestic
issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding, taxes on
interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits.
Other Investment Considerations -- Each Fund, except the Treasury Cash
Management and Treasury Prime Cash Management Funds, may purchase
securities on a "when- issued" basis. These transactions, which involve
a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock-in a price or yield on a security
it owns or intends to purchase, regardless of future changes in interest
rates. When-issued transactions involve the risk, however, that the
yield obtained in a transaction may be less favorable than the yield
available in the market when the securities delivery takes place.
The Funds do not earn income with respect to these transactions until the
subject securities are delivered to the Funds. The Funds do not intend to
engage in
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when-issued purchases for speculative purposes but only in furtherance of
their investment objectives.
Investment decisions for each Fund are made independently from those
of other investment companies or investment advisory accounts that may be
advised by the Investment Adviser. However, if such other investment
companies or managed accounts are prepared to invest in, or desire to dispose
of, securities of the type in which a Fund may invest at the same time as
such 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 the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE TRUST
Trustees and Officers of the Trust
The Board of Trustees of the Trust is responsible for the management
of the business and affairs of the Trust. The Statement of Additional
Information contains information about the Board of Trustees.
Investment Adviser and Co-Administrators
First Chicago NBD Investment Management Company ("FCNIMCO"), located
at Three First National Plaza, Chicago, Illinois 60670, is each Fund's
Investment Adviser. FCNIMCO is a registered investment adviser and a
wholly-owned subsidiary of The First National Bank of Chicago ("FNBC"), which
in turn is a wholly-owned subsidiary of First Chicago NBD Corporation
("FCN"), a registered bank holding company. Included among FCNIMCO's accounts
are pension and profit sharing funds for major corporations and state and
local governments, commingled trust funds and a variety of institutional and
personal advisory accounts, estates and trusts. FCNIMCO also acts as
investment adviser for other registered investment company portfolios.
FCNIMCO serves as Investment Adviser for the Trust pursuant to an
Investment Advisory Agreement dated as of April 12, 1996. Under the
Investment Advisory Agreement, FCNIMCO provides the day-to-day management of
each Fund's investments, subject to the overall authority of the Trust's
Board of Trustees and in conformity with Massachusetts law and the stated
policies of the Trust. FCNIMCO is responsible for making investment decisions
for the Trust, placing purchase and sale orders (which may be allocated to
various dealers based on their sales of Fund shares) and providing research,
statistical analysis and continuous supervision of each Fund's investment
portfolio. Under the Investment Advisory Agreement, FCNIMCO is entitled to a
monthly advisory fee at the annual rate of .20% of each Fund's average
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daily net assets. For the period from July 13, 1996 through December 31,
1996, the Trust paid FCNIMCO an investment advisory fee under the Investment
Advisory Agreement at the effective annual rates of .13%, .12% and .14% of
the respective average daily net assets of the Cash Management Fund, Treasury
Prime Cash Management Fund and U.S. Government Securities Cash Management
Fund. The Treasury Cash Management Fund and Municipal Cash Management Fund
had not commenced operations prior to the date of this Prospectus.
FCNIMCO also served as each Predecessor Fund's investment adviser.
Prior to January 17, 1995, FNBC served as the investment adviser to the First
Prairie Funds. For the period January 1, 1996 through July 12, 1996, Prairie
Institutional Funds paid FCNIMCO an investment advisory fee under the prior
advisory agreement at the effective annual rates of .13%, .12% and .14% of
the respective average daily net assets of the Predecessor Cash Management
Fund, Predecessor Treasury Prime Cash Management Fund and Predecessor U.S.
Government Securities Cash Management Fund.
FCNIMCO and BISYS jointly serve as the Trust's Co- Administrators
pursuant to an Administration Agreement with the Trust. Under the
Administration Agreement, FCNIMCO and BISYS generally assist in all aspects
of the Trust's operations, other than providing investment advice, subject to
the overall authority of the Trust's Board in accordance with Massachusetts
law. Under the terms of the Administration Agreement the Trust pays FCNIMCO,
as agent for the Co-Administrators, a monthly administration fee at the
annual rate of .15% of each Fund's average daily net assets. For the fiscal
year ended December 31, 1996, the Trust paid administration fees at the
effective annual rate of .15% of each Fund's (other than the Treasury Cash
Management Fund and Municipal Cash Management Fund) average daily net
assets.
FCNIMCO also served as each Predecessor Fund's administrator. Prior
to January 17, 1995, FNBC served as administrator to the First Prairie Funds.
Distributor
BISYS Fund Services (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., P.O. Box 5142, Westborough,
Massachusetts 01581-5120, serves as the Trust's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). NBD Bank, which is a wholly-owned
subsidiary of First Chicago NBD
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Corporation, serves as the Trust's custodian (the "Custodian"). NBD Bank is
located at 900 Tower Drive, Troy, Michigan 48098.
Expenses
All expenses incurred in the operation of the Trust are borne by the
Trust, except to the extent specifically assumed by the Investment Adviser
and Co-Administrators. The expenses borne by the Trust include organizational
costs, taxes, interest, brokerage fees and commissions, if any, fees and
expenses of Trustees, SEC fees, state Blue Sky qualification fees, advisory
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing and
legal expenses, costs of maintaining the Trust's existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders, and any extraordinary
expenses. In addition, Service Shares are subject to an annual distribution
and service fee pursuant to a plan adopted by the Board of Trustees. See
"Distribution and Services Plan." Expenses attributable to a particular Fund
or Class are generally charged against the assets of that Fund or Class,
respectively, and other expenses of the Trust are allocated among the Funds
on the basis determined by the Board of Trustees, including, but not limited
to, proportionately in relation to the net assets of each Fund.
The Investment Adviser has undertaken, as to each Fund, until such
time as it gives investors at least 90 days' notice to the contrary, that if,
in any fiscal year the aggregate expenses of the Fund, exclusive of taxes,
brokerage, interest on borrowings and (with the prior written consent of the
necessary state securities commissions) extraordinary expenses, but including
the investment advisory and administration fees, exceed .35% and .60% of the
value of the average net assets of the Institutional Class and the Service
Class, respectively, for the fiscal year, the Trust may deduct from the
payment to be made to the Investment Adviser under the Investment Advisory or
Administration Agreements, or the Investment Adviser will bear such excess
expense.
HOW TO BUY FUND SHARES
Each Fund is designed primarily for 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. Fund shares may not be purchased directly by individuals,
although institutions may purchase shares for accounts maintained by
individuals.
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<PAGE>
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 (1) 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. Certain accounts may be
eligible for an automatic investment privilege, commonly called a "sweep,"
under which amounts in excess of a certain minimum held in those accounts
will be invested automatically in shares at pre-determined intervals. Each
investor desiring to use this privilege should consult its bank for details.
The minimum initial investment 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
Fund shares without regard to the minimum purchase requirements to qualified
or non-qualified employee benefit plans. The Trust does not impose any sales
charges in connection with purchases of Fund shares, although Service Agents
and other institutions may charge their clients fees in connection with
purchases for the accounts of their clients. These fees would be in addition
to any amounts which might be received under the Distribution and Services
Plan. Service Agents may receive different levels of compensation for selling
different classes of shares. The Fund does not issue share certificates. The
Trust reserves the right to reject any purchase order.
Fund shares may be purchased by wire, by telephone or through
compatible computer facilities. All payments should be made in U.S. dollars
and, to avoid fees and delays, should be drawn only on U.S. banks. Investors
may telephone orders for purchases of Fund shares by calling 1-800-688-3350.
For instructions concerning purchases and to determine whether their computer
facilities are compatible with the Trust's, investors should call
1-800-688-3350.
Fund shares 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 in 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, its 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
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<PAGE>
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.
Net asset value per share is determined as of 11:00 a.m. Central time,
for the Municipal Cash Management Fund, 12:00 noon, Central time, for the
Treasury Prime Cash Management Fund, and 2:00 p.m., Central time, for the Cash
Management Fund, Treasury Cash Management Fund and U.S. Government Securities
Cash Management Fund, on each Fund business day (which, as used herein, shall
include each day that the New York Stock Exchange is open for business, except
Martin Luther King, Jr. Day, Columbus Day and Veterans Day). Net asset value
per share of each Class is computed by dividing the value of the Fund's net
assets represented by such Class (i.e., the value of its assets less
liabilities) by the total number of shares of such Class outstanding. See
"Determination of Net Asset Value" in the Statement of Additional
Information.
Investors whose payments are received in or converted into Federal
Funds by 11:00 a.m. Central time, for the Municipal Cash Management Fund,
12:00 noon, Central time, for the Treasury Prime Cash Management Fund, or
2:00 p.m., Central time, for the Cash Management Fund, Treasury Cash
Management Fund and U.S. Government Securities Cash Management Fund, by the
Transfer Agent will receive the dividend declared that day. Investors whose
payments are received in or converted into Federal Funds by the Transfer Agent
after 11:00 a.m. Central time, for the Municipal Cash Management Fund, 12:00
noon, Central time, for the Treasury Prime Cash Management Fund, or 2:00 p.m.,
Central time, for the Cash Management Fund, Treasury Cash Management Fund and
U.S. Government Securities Cash Management Fund, will begin to accrue dividends
on the following business day.
Federal Regulations require that an investor provide a certified
Taxpayer Identification Number ("TIN") upon opening or reopening an account.
See "Dividends, Distributions and Taxes" for further information concerning
this requirement. Failure to furnish a certified TIN to the Trust could
subject an investor to a $50 penalty imposed by the Internal Revenue Service
(the "IRS"), and could subject the investor to backup withholding.
HOW TO REDEEM FUND SHARES
An investor may redeem all or any portion of the shares in the
investor's account on any Fund business day at the net asset value next
determined after a redemption request in proper form is received by the
Transfer Agent. Therefore, redemptions will be effected on the same day the
redemption order is received only if such order is received prior to 11:00
a.m. Central time, for the Municipal Cash Management Fund, 12:00 noon, Central
time, for the Treasury Prime Cash Management Fund, or 2:00 p.m., Central time,
for the Cash Management Fund, Treasury Cash Management Fund and U.S.
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<PAGE>
Government Securities Cash Management Fund, on any Fund business day. Shares
that are redeemed earn dividends up to and including the day prior to the day
the redemption is effected. The proceeds of a redemption will be paid in
Federal Funds ordinarily on the Fund business day the redemption is effected.
Payment for redemption requests received before 11:00 a.m. Central time,
for the Municipal Cash Management Fund, 12:00 noon, Central time, for
the Treasury Prime Cash Management Fund, or 2:00 p.m., Central time, for the
Cash Management Fund, Treasury Cash Management Fund and U.S. Government
Securities Cash Management Fund, ordinarily is made in Federal Funds wired to
the redeeming shareholder on the same Fund business day. Payment for redeemed
shares for which a redemption order is received after such time on a Fund
business day is made in Federal Funds wired to the redeeming shareholder on
the next Fund business day following redemption. To allow the Investment
Adviser to manage the Funds' portfolios more effectively, investors are urged
to make redemption requests as early in the day as possible. In making
redemption requests, the names of the registered shareholders and their
account numbers must be supplied. Although each Fund generally retains the
right to pay the redemption price of its shares in kind with securities
(instead of cash), the Trust has filed an election under Rule 18f-1 under the
1940 Act committing to pay in cash all redemptions by a shareholder of record
up to the amounts specified in such rule (in most cases approximately
$250,000).
For redemptions by telephone or wire, please call 1-800-688-3350.
An investor may redeem shares by telephone if the investor has
checked the appropriate box on the Account Application. By selecting a
telephone redemption privilege, an investor authorizes the Transfer Agent to
act on telephone instructions from any person representing himself or herself
to be an authorized representative of the investor and reasonably believed by
the Transfer Agent to be genuine. The Trust will require the Transfer Agent
to employ reasonable procedures, such as requiring a form of identification,
to confirm that instructions are genuine and, if it does not follow such
procedures, the Trust or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Trust nor the
Transfer Agent will be liable for following telephone instructions reasonably
believed to be genuine.
The Trust makes available to institutions the ability to redeem
shares through compatible computer facilities. Investors desiring to redeem
shares in this manner should call 1-800-688- 3350 to determine whether their
computer facilities are compatible and to receive instructions for redeeming
shares in this manner.
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The Trust reserves the right to redeem an investor's account at the
Trust's option upon not less than 60 days' written notice if, due to share
redemptions, the accounts net asset value decreases to $1,000,000 or less,
and remains so during the notice period.
The right of any investor to receive payments with respect to any
redemption may be suspended or the payment of the redemption proceeds
postponed during any period in which the New York Stock Exchange is closed
(other than weekends or holidays) or trading on such Exchange is restricted
or, to the extent otherwise permitted by the 1940 Act, if an emergency
exists.
DISTRIBUTION AND SERVICES PLAN
(Service Shares Only)
Service Shares are subject to a Distribution and Services Plan
adopted by the Board of Trustees pursuant to Rule 12b-1 under the 1940 Act.
Under the Distribution and Services Plan, each Fund pays the Distributor for
advertising, marketing and distributing such shares and/or for the provision
of shareholder and administrative services for the beneficial owners of such
shares, a fee at the annual rate of up to .25% of the average daily net asset
value of the Service Class. The support services provided may include
personal services relating to shareholder accounts, providing reports and
other information, and services related to the maintenance of such
shareholder accounts. Under the Distribution and Services Plan, BISYS may
make payments to Service Agents in respect of these services. FCNIMCO, FNBC,
NBD and their affiliates may act as Service Agents and receive fees under the
Distribution and Services Plan. BISYS determines the amounts to be paid to
Service Agents. The distribution services provided are activities primarily
intended to result in the sale of Service Shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund ordinarily declares dividends from net investment income on
each Fund business day. Fund shares begin earning income dividends on the day
the purchase order is effective. Dividends usually are paid on the first
calendar day of each month, and are automatically reinvested at net asset
value in additional shares of the Fund from which they were paid or, at the
investor's option, paid in cash. Each Fund's earnings for Saturdays, Sundays
and holidays are declared as dividends on the preceding business day. If an
investor redeems all shares in its account at any time during the month, all
proceeds and dividends to which the investor is entitled will be paid.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but a Fund may make distributions on a more
frequent basis to comply with the distribution
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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. No
Fund will make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized or have expired.
Investors may choose whether to receive distributions in cash or to reinvest
in additional shares at net asset value of the Fund from which they were
paid. All expenses are accrued daily and deducted before declaration of
dividends to investors. Dividends paid by each Class will be calculated at
the same time and in the same manner and will be of the same amount, except
that the expenses attributable solely to the Institutional Class or the
Service Class will generally be borne exclusively by such Class. Service
Shares will receive lower per share dividends than Institutional Shares
because of the higher expenses borne by the Service Class. See "Annual Fund
Operating Expenses."
Dividends paid by the Cash Management Fund, Treasury Cash
Management Fund, Treasury Prime Cash Management Fund and U.S. Government
Securities Cash Management Fund derived from net investment income and
dividends paid by the Municipal Cash Management Fund derived from taxable
investments, together with distributions from any net realized short-term
securities gains and all or a portion of any gain realized from the sale or
other disposition of certain market discount bonds, will be taxable to U.S.
investors as ordinary income whether or not reinvested in additional Fund
shares. Distributions from net realized long-term securities gains, if any,
will be taxable as long-term capital gains for federal income tax purposes
if the beneficial holder of Fund shares is a citizen or resident of the
United States, regardless of how long investors have held shares and whether
such distributions are received in cash or reinvested in additional shares.
In the case of the Municipal Cash Management Fund, dividends derived
from tax-exempt interest income ("exempt-interest dividends") may be treated
by the Fund's shareholders as items of interest excludable from their gross
income unless under the circumstances applicable to the particular
shareholder the exclusion would be disallowed.
If the Municipal Cash Management Fund should hold certain so-called
"private activity bonds," shareholders will need to include as an item of tax
preference for purposes of the federal alternative minimum tax, that portion
of the dividend paid by the Fund derived from interest received on such
bonds. In addition, corporate shareholders will need to take all exempt-
interest dividends into account in determining certain adjustments for the
federal alternative minimum tax.
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Dividends and distributions attributable to interest from direct
obligations of the United States and paid by the Treasury Cash Management
Fund and Treasury Prime Cash Management Fund generally are not subject to
state personal income tax. The Trust intends to provide shareholders of the
Treasury Cash Management Fund and Treasury Prime Cash Management Fund with a
statement which sets forth the percentage of dividends and distributions paid
by each such Fund that is attributable to interest income from direct
obligations of the United States.
Dividends paid by a Fund derived from net investment income, together
with distributions from net realized short-term securities gains and all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds, paid by such Fund to a foreign investor who is the
beneficial owner of such Fund's shares generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in a tax treaty. Distributions
from net realized long-term securities gains paid by the Fund to such foreign
investor generally will not be subject to U.S. nonresident withholding tax.
However, such distributions may be subject to backup withholding, as
described below, unless the foreign investor certifies his non-U.S. residency
status.
Federal regulations generally require the Trust to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and
distributions from net realized securities gains paid to a shareholder if
such shareholder fails to certify either that the TIN furnished in connection
with opening an account is correct, or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a federal
income tax return. Furthermore, the IRS may notify the Trust to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or
if a shareholder has failed to properly report taxable dividend and interest
income on a federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be used to offset the record owner's tax
liability on his/her federal income tax return.
Notice as to the tax status of dividends and distributions will be
mailed to investors annually. Each investor also will
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receive periodic summaries of its account which will include information as
to dividends and distributions from securities gains, if any, paid during the
year.
Each Fund intends to qualify as a "regulated investment company"
under the Code. Qualification as a regulated investment company relieves the
Fund of any liability for federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. Each Fund
is subject to a non-deductible 4% excise tax, measured with respect to
certain undistributed amounts of taxable income and capital gains, if any.
Each investor and beneficial shareholder should consult its tax
adviser regarding questions as to federal, state or local taxes.
GENERAL INFORMATION
The Trust was organized as a business trust on April 21, 1987 under a
Declaration of Trust. As of the date hereof, the Trust is a series fund
having twenty-nine 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 currently offers the following investment portfolios by means of
separate prospectuses: the Pegasus Intermediate Bond Fund, Bond Fund, Short
Bond Fund, Income Fund, High Yield Bond Fund, International Bond Fund,
Municipal Bond Fund, Intermediate Municipal Bond Fund, Michigan Municipal
Bond Fund, Equity Income Fund, Growth Fund, Mid-Cap Opportunity Fund,
Small-Cap Opportunity Fund, Intrinsic Value Fund, Growth and Value Fund,
Equity Index Fund, International Equity Fund, Managed Assets Conservative
Fund, Managed Assets Balanced Fund, Managed Assets Growth Fund, Money
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Market Fund, Treasury Money Market Fund, Municipal Money Market Fund and
Michigan Municipal Money Market Fund.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and each Series
entitled to vote on a matter will vote thereon in the aggregate and not by
Series, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests
of shareholders of a particular Series. In addition, shareholders of each of
the Series have equal voting rights except that only shares of a particular
class within a Series are entitled to vote on matters affecting only that
class. Voting rights are not cumulative, and accordingly the holders of more
than 50% of the aggregate number of shares of all Trust portfolios may elect
all of the Trustees.
As of July 8, 1997, FCN and its affiliates held of record
approximately 25.26% of the outstanding shares of the Treasury Prime Cash
Management Fund.
Because NBD Bank serves as the Custodian, the Board of Trustees has
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.
Investor inquiries may be made by writing to the Trust at the address
shown on the front cover or by calling the telephone number shown on the
front cover.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Trust's 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 by the Trust. This Prospectus
does not constitute an offer in any state in which, or to any person to whom,
such offering may not lawfully be made.
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SUPPLEMENTAL INFORMATION
Portfolio Securities
To the extent set forth in this Prospectus and except as noted below,
each Fund may invest in the following securities:
U.S. Treasury Securities -- Each Fund may invest in U.S Treasury
securities which include Treasury Bills, Treasury Notes and Treasury Bonds
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.
U.S. Government Securities -- In addition to U.S. Treasury
securities, each Fund, except the Treasury Cash Management Fund and Treasury
Prime Cash Management Fund, may invest in securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. 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 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. 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, since it is not so obligated by law. Each Fund will invest in such
securities only when the Trust is satisfied that the credit risk with respect
to the issuer is minimal.
Stripped U.S. Treasury Securities and U.S. Government Securities --
Each Fund may invest in stripped U.S. Treasury Securities and the Cash
Management, U.S. Government Securities Cash Management Fund, and to a
limited extent the Municipal Cash Management Fund may invest in stripped U.S.
Government Securities, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then
trade the component parts independently. These obligations are usually
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issued at a discount to their "face value," and because of the manner in
which principal and interest are returned, may exhibit greater volatility
than more conventional debt securities.
Repurchase Agreements -- Each Fund, except the Treasury Prime Cash
Management Fund, may enter into repurchase agreements, which involve the
acquisition by a Fund of an underlying debt instrument, subject to an
obligation of the seller to repurchase, and such Fund to resell, the
instrument at a fixed price usually not more than one week after its
purchase. Certain costs may be incurred by a Fund in connection with the sale
of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the securities, realization on the
securities by the Fund may be delayed or limited. Pursuant to an order
obtained from the Securities and Exchange Commission, each Fund also is
permitted to enter into overnight repurchase agreements with FNBC or an
affiliate of FNBC subject to the terms and conditions of such order.
Bank Obligations -- The Cash Management Fund will, and to a limited
extent, the Municipal Cash Management Fund may, invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and
other short-term obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and domestic and foreign
branches of foreign banks and thrift institutions. 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 and other Short-Term Corporate Obligations -- The
Cash Management Fund, and to a limited extent, the Municipal Cash Management
Fund may invest in commercial paper, which consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by a Fund will consist only of direct obligations issued by
domestic and foreign entities. The other corporate obligations in which a
Fund may invest consist of high quality, U.S. dollar denominated short-term
bonds and notes (including variable amount master demand notes) issued by
domestic and foreign corporations bearing fixed, floating or variable
interest rates.
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Floating and Variable Rate Obligations -- The Cash Management Fund
and the Municipal Cash Management Fund may purchase floating and variable
rate demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of 13 months, but which permit the holder to demand
payment of principal at any time, or at specified intervals not exceeding 13
months, in each case upon not more than 30 days' notice. Variable rate demand
notes include master demand notes which are obligations that permit a Fund
to invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to
the holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and
is adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these
obligations are direct lending arrangements between the lender and borrower,
it is not contemplated that such instruments generally will be traded, and
there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and, if not so rated, each of
these Funds may invest in them only if the Investment Adviser determines that
at the time of investment the obligations are of comparable quality to the
other obligations in which such Fund may invest. The Investment Adviser,
on behalf of such Fund, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Fund. Neither of these Funds will invest more
than 10% of the value of its net assets in floating or variable rate demand
obligations as to which it cannot exercise the demand feature on not more
than seven days' notice if there is no secondary market available for these
obligations, and in other securities that are illiquid.
Municipal and Related Obligations -- Municipal Obligations that may
be acquired by the Municipal Cash Management Fund 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
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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, the Municipal Cash Management
Fund may invest more than 25% of the value of its total assets in industrial
development bonds which, although issued by industrial development
authorities, may be backed only by the assets and revenues of the
nongovernmental users. Where a regulated investment company receives such
interest, a proportionate share of any exempt-interest dividend paid by the
investment company may be treated as such a preference item to the
shareholder. The Fund may invest without limitation in such Municipal
Obligations if the Investment Adviser determines that their purchase is
consistent with the Fund's investment objective. (See also "Dividends,
Distributions and 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 also "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 Cash Management Fund may invest more than 25% of the
value of its total assets in Municipal Obligations which are related in such
a way that an economic, business or political development or change affecting
one such security also would
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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 Fund may be subject to
greater risk as compared to a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Investment Adviser 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 Fund may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax or other funds, the proceeds
of bonds or other revenues.
The Municipal Cash Management Fund may purchase from financial
institutions participation interests in Municipal Obligations. A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation. These instruments may
have fixed, floating or variable rates of interest, with remaining maturities
of 13 months or less as determined in accordance with SEC regulations
(although the securities held by the financial institution may have longer
maturities). If the participation interest is unrated, or has been given a
rating below that which otherwise is permissible for purchase by 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 also "Restricted Securities".)
The Municipal Cash Management Fund has no policy of seeking
particularly to invest in Municipal Obligations issued by or
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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 are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
Tender Option Bonds -- The Municipal Cash Management Fund 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 have been coupled with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders
the option, at periodic intervals, to tender their securities to the
institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal
to the difference between the Municipal Obligation's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with
the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate.
The Investment Adviser, on behalf of the 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.
Stand-By Commitments -- The Municipal Cash Management Fund may
acquire "stand-by commitments" with respect to Municipal Obligations held in
its portfolio. Under a stand-by commitment, the Fund obligates a broker,
dealer or bank to repurchase, at the
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Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise of
a stand-by commitment therefore is subject to the ability of the seller to
make payment on demand. The Municipal Cash Management Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Municipal
Cash Management 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 the yield to investors on such
securities.
Guaranteed Investment Contracts -- The Cash Management Fund may
make limited investments in guaranteed investment contracts ("GICs")
issued by highly rated U.S. insurance companies. Pursuant to such contracts,
the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the
Fund on a monthly basis guaranteed interest which is based on an
index. The GICs provide that this guaranteed interest will not be
less than a certain minimum rate. Generally, a GIC allows a purchaser
to buy an annuity with the monies accumulated under contract; however,
the Fund will not purchase any such annuity. A GIC is a general
obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes a part of the general
assets of the issuer, and the contract is paid from the general assets of the
issuer. The Cash Management Fund will only purchase GICs from issuers which
meet quality and credit standards established by the Investment Adviser.
Generally, GICs are not assignable or transferable without the permission
of the issuing insurance companies, and an active secondary market in GICs
does not currently exist. Therefore, GICs are considered by the Cash
Management Fund to be illiquid investments and subject to the limitation
on illiquid investments set forth below.
Investment Company Securities -- Each Fund may invest in securities
issued by other investment companies which principally invest in securities
of the type in which the Fund invests. Under the 1940 Act, a Fund's
investments in such securities, subject to certain exceptions, currently are
limited to (i) 3% of the total voting stock of any one investment company,
(ii) 5% of the Fund's total assets with respect to any one investment
company, and (iii) 10% of the Fund's total assets in the aggregate.
Investments in the securities of other investment companies may involve
duplication of advisory fees and certain other expenses.
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Investment Practices
Lending Portfolio Securities -- From time to time, each of the Cash
Management, U.S. Government Securities Cash Management and Municipal Cash
Management Funds may lend securities from its portfolio to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. Such loans may not exceed 33-1/3% of the value of the
relevant Fund's total assets. In connection with such loans, each of these
Funds will receive collateral consisting of cash or U.S. Government
securities or, with respect to the Cash Management and Municipal Cash
Management Funds, irrevocable letters of credit issued by financial
institutions. Such collateral will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
Each of these Funds can increase its income through the investment of such
collateral. Each of these Funds continues to be entitled to payments in
amounts equal to the interest and other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. A Fund might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with such Fund.
Restricted Securities -- Each Fund may invest up to 10% of the value
of its net assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with its investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, GICs, municipal lease/purchase
agreements, participation interests that are not subject to the demand
feature described above, floating and variable rate demand obligations as to
which the Fund cannot exercise the related demand feature described above on
not more than seven days' notice or as to which there is no secondary market
and repurchase agreements providing for settlement in more than seven days
after notice. As to these securities, a Fund is subject to a risk that should
such Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of such Fund's net
assets could be adversely affected.
Borrowing Money -- As a fundamental policy each of the Funds is
permitted to borrow money to the extent permitted under the 1940 Act.
However, each Fund currently intends to borrow money from banks for temporary
or emergency (not leveraging) purposes in an amount up to 15% of the value of
its total assets (including the amount borrowed) valued at the lesser of cost
or market, less liabilities (not including the amount borrowed) at the time
the borrowing is made. While borrowings exceed 5% of
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the Fund's total assets, each Fund will not make any additional investments.
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PEGASUS FUNDS
Cash Management Funds
INSTITUTIONAL And SERVICE SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
August 1, 1997
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Cash Management Fund, Treasury Cash Management Fund, Treasury Prime Cash
Management Fund, U.S. Government Securities Cash Management Fund and
Municipal Cash Management Fund (each, a "Fund") of Pegasus Funds, dated
August 1, 1997, as it may be revised from time to time. To obtain a copy of
the Funds' Prospectus, please write to the Trust at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, or call toll free 1-800-688-3350.
First Chicago NBD Investment Management Company ("FCNIMCO") serves
as each Fund's investment adviser (the "Investment Adviser") and FCNIMCO and
BISYS Fund Services serve as co- administrators.
BISYS Fund Services is the distributor (the "Distributor") and BISYS
and FCNIMCO serve as co-administrators of the Funds' shares.
TABLE OF CONTENTS
Page
----
The Trust............................................................... 2
Investment Objective and Management Policies............................ 2
Management of the Trust................................................. 9
Management Arrangements................................................. 14
Distribution and Services Plan.......................................... 17
Purchase of Fund Shares................................................. 19
Redemption of Fund Shares............................................... 19
Determination of Net Asset Value........................................ 20
Portfolio Transactions.................................................. 21
Dividends, Distributions and Taxes...................................... 23
Yield Information....................................................... 23
Information About the Trust............................................. 25
Counsel................................................................. 28
Independent Auditors.................................................... 28
Appendix A.............................................................. A-1
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THE TRUST
The Pegasus Funds (the "Trust"), formerly "The Woodward Funds" was
organized as a Massachusetts business trust on April 21, 1987. As of the date
of this Statement of Additional Information, the Trust consisted of twenty-
nine separate funds, of which there were five cash management funds, the
Funds, which are described in this Statement of Additional Information.
The Cash Management Fund commenced operations on July 30, 1992 as
the First Prairie Cash Management Fund, and the U.S. Government Securities
Cash Management Fund commenced operations on June 2, 1992 as the First
Prairie U.S. Treasury Securities Cash Management Fund. On January 17, 1995,
all of the assets and liabilities of First Prairie Cash Management Fund and
First Prairie U.S. Treasury Securities Cash Management were transferred to
the Cash Management Fund (the "Predecessor Cash Management Fund") and U.S.
Government Securities Cash Management Fund (the "Predecessor U.S. Government
Securities Cash Management Fund") of the Prairie Institutional Funds,
respectively, in exchange for Institutional Shares of those Funds pursuant to
a reorganization agreement approved by shareholders of each such First
Prairie Fund. The Treasury Prime Cash Management Fund (the "Predecessor
Treasury Prime Cash Management Fund") commenced operations on March 22, 1995
as a series of Prairie Institutional Funds.
On July 13, 1996, all of the assets and liabilities of the
Predecessor Cash Management Fund, Predecessor Treasury Prime Cash Management
Fund and Predecessor U.S. Government Securities Cash Management Fund of the
Prairie Institutional Funds were transferred to the Cash Management Fund,
Treasury Prime Cash Management Fund and U.S. Government Securities Cash
Management Fund, respectively, in exchange for Institutional Shares and
Service Shares pursuant to an agreement and plan of reorganization approved
by shareholders of the Predecessor Cash Management, Predecessor Treasury
Prime Cash Management and Predecessor U.S. Government Securities Cash
Management Funds (the "Reorganization"). Prior to July 13, 1996, the Funds
had no operating history. The financial history contained herein includes
information for the First Prairie Funds and the Prairie Institutional Funds.
The Treasury Cash Management Fund and Municipal Cash Management
Fund had not commenced operations prior to the date of this Statement of
Additional Information.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Funds' Prospectus entitled "Description
of the Funds" and "Supplemental Information."
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Portfolio Securities and Investment Practices
Bank Obligations. (Cash Management Fund and, to a limited extent,
Municipal Cash Management Fund) Domestic commercial banks organized under
Federal law are supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve System and to have
their deposits insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Domestic banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal Reserve System
only if they elect to join. In addition, state banks whose certificates of
deposit ("Cds") may be purchased by a Fund are insured by the FDIC
(although such insurance may not be of material benefit to the Fund,
depending on the principal amount of the Cds of each bank held by the Fund)
and are subject to Federal examination and to a substantial body of Federal
law and regulation.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, such as Cds and time deposits ("Tds"), may be general obligations of
the parent banks in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation. Such obligations
are subject to different risks than are those of domestic banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. These foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan limitations,
and accounting, auditing and financial recordkeeping requirements. In
addition, less information may be publicly available about a foreign branch
of a domestic bank or about a foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be
general obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation or by Federal or state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A domestic branch of a foreign bank with assets in
excess of $1 billion may be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state.
Foreign Securities. (Cash Management Fund) Foreign securities
markets generally are not as developed or efficient as those in the United
States. Securities of some foreign issuers are less liquid and more volatile
than securities of comparable U.S. issuers. Similarly, volume and liquidity
in most foreign
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securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Furthermore, some of these securities are subject to brokerage
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Custodial expenses for
a portfolio of non- U.S. securities generally are higher than for a portfolio
of U.S. securities. Income earned or received by the Cash Management Fund
from sources within foreign countries may be reduced by withholding and other
taxes.
Repurchase Agreements. (Cash Management Fund, Treasury Cash
Management Fund, U.S. Government Securities Cash Management Fund and
Municipal Cash Management Fund) Securities subject to repurchase agreements
are held by the Trust's custodian or subcustodian, in the Federal
Reserve/Treasury book-entry system or by another authorized Securities
depository. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Fund that enters into
them. Each Fund will enter into repurchase agreements only with registered or
unregistered securities dealers or banks with total assets in excess of one
billion dollars, with respect to securities of the type in which such Fund
may invest, and will require that additional securities be deposited with it
if the value of the securities purchased should decrease below the resale
price. The Investment Adviser will monitor on an ongoing basis the value of
the collateral to assure that it always equals or exceeds the repurchase
price. Each of these Funds will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Municipal and Related Obligations. (Municipal Cash Management
Fund) The Municipal Cash Management Fund may invest in Municipal Obligations.
The ratings of Municipal Obligations by nationally recognized statistical
rating organizations ("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 the Fund, a Municipal Obligation may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Investment Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation.
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The payment of principal and interest on most Municipal
Obligations purchased by the Fund will depend upon the ability of the issuers
to meet their obligations. For the purpose of diversification under the 1940
Act, the identification of the issuer of Municipal Obligations depends on the
terms and conditions of the security. When the assets and revenues of an
agency, authority, instrumentality or other political subdivision are
separate from those of the government creating the subdivision and the
security is backed only by the assets and revenues of the subdivision, such
subdivision would be deemed to be the sole issuer. Similarly, in the case of
an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would
be deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guaranty would
be considered a separate security and will be treated as an issue of such
government or other entity.
An issuer's obligations under its Municipal Obligations are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights or remedies of creditors, such as the Federal Bankruptcy Code, and
any laws that may be enacted by federal or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest or principal of its Municipal
Obligations may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Obligations held by the Fund may be
insured at the time of issuance as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of
the Municipal Obligations at the time of original issuance. There is,
however, no guarantee that the insurer will meet its obligations. In
addition, such insurance will not protect against market fluctuations caused
by changes in interest rates and other factors.
From time to time proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Obligations. For example, pursuant to
federal tax legislation passed in 1986 interest on certain private activity
bonds must be included in an investor's federal alternative minimum taxable
income, and corporate investors must include all tax-exempt interest in their
federal alternative minimum taxable income. The Trust cannot predict what
legislation, if any, may be proposed in Congress in the future with respect
to the federal income tax status of interest on Municipal Obligations in
general, or which proposals, if any, might be enacted. Such
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proposals, if enacted, might materially adversely affect the availability of
Municipal Obligations for investments by the Municipal Cash Management Fund
and its liquidity and value. In such event, the Board of Trustees would
reevaluate the Fund's investment objective and policies and consider changes
in its structure or possible dissolution.
Stand-By Commitments. (Municipal Cash Management Fund) The
Municipal Cash Management Fund will not acquire a stand-by commitment unless
immediately after the acquisition, with respect to 75% of its assets not more
than 5% of its total assets will be invested in instruments subject to a
demand feature, including stand-by commitments, with the same institution.
The Municipal Cash Management Fund intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the
Investment Adviser's opinion, present minimal credit risks. The Fund's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject
to the commitment. Thus, the risk of loss to the Fund 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 Municipal Cash Management Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its 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 the 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.
Illiquid Securities. If a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities Act
of 1933, as amended, for certain restricted securities held by a Fund, the
Trust intends to treat such securities as liquid securities in accordance
with procedures approved by the Trust's Board of Trustees. Because it is not
possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Trust's Board of Trustees has
directed the Investment Adviser to monitor carefully each Fund's investments
in such securities with particular regard to trading activity, availability
of reliable price information and other relevant information. To the extent
-6-
<PAGE>
that, for a period of time, qualified institutional buyers cease purchasing
restricted securities pursuant to Rule 144A, a Fund's investing in such
securities may have the effect of increasing the level of illiquidity in its
investment portfolio during such period.
Lending Portfolio Securities. (Cash Management Fund, U.S.
Government Securities Cash Management Fund and Municipal Cash Management
Fund) To a limited extent, each of these Funds may lend its portfolio
securities to brokers, dealers and other financial institutions, provided it
receives cash collateral which at all times is maintained in an amount equal
to at least 100% of the current market value of the securities loaned. By
lending its portfolio securities, the Fund can increase its income through
the investment of the cash collateral. For purposes of this policy, the Trust
considers collateral consisting of U.S. Government securities or, in the case
of the Cash Management Fund and Municipal Cash Management Fund, irrevocable
letters of credit issued by banks whose securities meet the standards for
investment by the Fund to be the equivalent of cash. Such loans may not
exceed 33 1/3% of the Fund's total assets. From time to time, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund,
and which is acting as a "placing broker," a part of the interest earned from
the investment of collateral received for securities loaned.
Investment Restrictions
Each Fund has adopted the following investment restrictions as
fundamental investment limitations which cannot be changed, as to a
particular Fund, without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")), of that
Fund's outstanding voting shares. Each Fund may not:
1. Borrow money, issue senior securities, or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
2. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
3. Purchase or sell (a) real estate or (b) commodities, except to
the extent permitted under the 1940 Act.
4. Make loans to others (other than through investment in debt
obligations or other instruments referred to in the Fund's Prospectus),
except that the Fund may lend its portfolio
-7-
<PAGE>
securities in an amount not to exceed 33-1/3% of the value of its total
assets.
5. 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 (i) instruments 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, (ii) instruments issued by domestic branches of U.S.
banks and (iii) repurchase agreements secured by instruments described in
clauses (i) and (ii), (b) wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of the parents and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry and (d) personal credit and business credit businesses will be
considered separate industries, and further provided that the Cash Management
Fund will invest at least 25% of its total assets in obligations of issuers
in the banking industry or instruments secured by such obligations except
during temporary defensive periods.
In construing number 5 in accordance with SEC policy, to the
extent permitted, U.S. branches of foreign banks will be considered to be
U.S. banks where they are subject to the same regulation as U.S. banks.
6. Purchase securities of any one issuer (except U.S. Government
securities and related repurchase agreements, and with respect to the
Municipal Cash Management Fund, other than as permitted by Rule 2a-7 under
the 1940 Act) if immediately after such purchase, more than 5% of the value
of the Fund's total assets would be invested in the obligations of any one
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to this 5% limitation.
Each Fund has adopted the following investment restrictions as
non-fundamental limitations which may be changed, as to a particular Fund, by
the Board of Trustees without the approval of by the holders of a majority,
as defined in 1940 Act of that Fund's outstanding voting shares.
Each Fund may not:
1. Purchase securities on margin, except as described in the
Fund's Prospectus or this Statement of Additional Information.
-8-
<PAGE>
2. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
3. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Fund's Prospectus or this Statement of Additional
Information.
4. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are illiquid,
if, in the aggregate, more than 10% of the value of the Fund's net assets
would be so invested.
5. Invest in securities of other investment companies, except to
the extent permitted under the 1940 Act.
6. Invest more than 5% of its assets in the obligations of any one
issuer, except if permitted under Rule 2a-7 under the 1940 Act.
7. Sell securities short.
If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
MANAGEMENT OF THE TRUST
Trustees and officers of the Trust, together with information as
to their principal business occupations during at least the last five years,
are shown below. Each Trustee has an address at the Trust, c/o NBD Bank, 611
Woodward Avenue, Detroit, Michigan 48226.
Trustees and Officers of the Trust
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. (1985-1996); 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, Pegasus Variable Annuity Fund. He is 71 years old.
-9-
<PAGE>
Nicholas J. De Grazia, Trustee
Business Consultant (1997); Consultant, Lionel L.L.C. (1995-1996);
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 54
years old.
John P. Gould, Trustee, Chairman of the Board
Executive Vice President of Lexecon Inc. (since 1995); 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 58 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, Mather Foundation and Metropolitan Family Services; Member
of Economic Club of Chicago and Chicago Network; Trustee, Pegasus Variable
Annuity Fund. She is 49 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 Technological
University (since 1982); Director, Oakland Commerce Bank (since 1984) and
Michigan Opera Theater (since 1981); Trustee, Pegasus Variable Annuity Fund.
He is 67 years old.
-10-
<PAGE>
*Donald G. Sutherland, Trustee and President
Partner of the law firm Ice, Miller, Donadio & Ryan, Indianapolis,
Indiana; Trustee, Pegasus Variable Annuity Fund.
He is 68 years old.
Donald L. Tuttle, Trustee
Vice President (since 1995), Senior Vice President (1992- 1995),
Association for Investment Management and Research; Professor of Finance,
Indiana University (1970-1991); Vice President, Trust & Investment Advisers,
Inc. (1990-1991); Director, Federal Home Loan Bank of Indianapolis (1981 to
1985); Trustee, Pegasus Variable Annuity Fund. He is 62 years old.
Mark A. Dillon, Vice President
An employee of the Distributor. He is 35 years old and his address
is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Alaina Metz, Vice President
An employee of the Distributor since June 1995. Prior to joining
the Distributor Ms. Metz was a supervisor at Alliance Capital Management L.P.
in New York. She is 30 years old and her address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
D'Ray Moore, Treasurer
An employee of the Distributor. She is 38 years old and her
address is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
W. Bruce McConnel, III, Secretary
Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. He is 54 years old, and his address is 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
- ---------------
* Trustee who is an "interested person" of the Trust, as
defined in the 1940 Act.
For so long as the plan described in the section captioned
"Distribution and Services Plan" 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
-11-
<PAGE>
$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 in connection
with attendance at meetings. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trusts.
-12-
<PAGE>
The following table summarizes the compensation for each of the
Trustees for the Trust's fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
(3)
(2) Total Compensation
Aggregate From Trust and Fund
(1) Compensation Complex** Paid to
Name of Board Member from Trust* Board Member
- ------------------------------------ ------------ -------------------
<S> <C> <C>
Will M. Caldwell, Trustee $31,000 $31,000(2)+
Nicholas J. DeGrazia, Trustee $29,000 $29,000(2)+
John P. Gould, Trustee and $25,813 $41,313(4)+
Chairman of the Board
Earl I. Heenan, Jr., $26,625 $26,625(2)+
Trustee++,+++
Marilyn McCoy, Trustee $22,750 $37,250(4)+
Julius L. Pallone, Trustee ++ $31,000 $31,000(2)+
Donald G. Sutherland, $35,000 $35,000(2)+
Trustee and President ++
Donald L. Tuttle, Trustee ++ $29,000 $29,000(2)+
Eugene C. Yehle, Trustee +++ $18,500 $18,500(2)+
<FN>
- ----------------------
* Amount does not include reimbursed expenses for attending Board
meeting.
** The Fund Complex for the fiscal year ended December 31, 1996, consisted of
the Trust, Pegasus Variable Annuity Fund, Prairie Funds, Prairie
Institutional Funds, Prairie Intermediate Bond Fund and Prairie Municipal
Bond Fund, Inc.
+ Total number of investment companies in the Fund Complex from which the
Trustee received compensation for serving as a trustee.
++ Deferred compensation in the amounts of $7,313, $29,000, $31,000, and
$35,000 accrued during the Pegasus Funds' fiscal year ended December 31, 1996
for Messrs. Heenan, DeGrazia, Pallone and Sutherland, respectively.
+++ Messrs. Heenan and Yehle resigned as Trustees of the Trust and the
Pegasus Variable Annuity Fund as of July 13, 1996. In addition, Mr.
Heenan had been the Chairman of the Board and President and Mr. Yehle had
been the Treasurer.
- --------------------------------
</TABLE>
Board members and officers of the Trust, as a group, owned less
than 1% of any Fund's shares outstanding on July 8, 1997.
-13-
<PAGE>
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Management of
the Trust."
Investment Advisory Agreement. FCNIMCO provides investment
advisory services pursuant to the Investment Advisory Agreement (the
"Agreement") dated as of April 12, 1996, as amended, with the Trust. As to
each Fund, the Agreement is subject to annual approval by (i) the Trust's
Board of Trustees or (ii) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of such Fund, provided that in either event
the continuance also is approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or FCNIMCO, by
vote cast in person at a meeting called for the purpose of voting on such
approval. As to each Fund, the Agreement is terminable without penalty, on 60
days' notice, by the Trust's Board of Trustees or by vote of the holders of a
majority of such Fund's shares, or, on not less than 90 days' notice, by
FCNIMCO. The Agreement will terminate automatically, as to the relevant Fund,
in the event of its assignment (as defined in the 1940 Act).
FCNIMCO is responsible for investment decisions for each Fund in
accordance with the stated policies of such Fund, subject to the general
supervision of the Trust's Board of Trustees.
Under the terms of the Investment Advisory Agreement with the
Trust, FCNIMCO is entitled to a monthly advisory fee at the annual rate of
.20% of each Fund's average daily net assets. In addition, FCNIMCO is
entitled to 4/10ths of the gross income earned by a Fund on each loan of
securities (excluding capital gains and losses, if any). FCNIMCO has informed
the Trust's Board of Trustees that since the inception of the Trust neither
it nor any of its affiliates has engaged in and received compensation for any
transactions involving lending of portfolio securities. Furthermore, neither
FCNIMCO nor any of its affiliates will do so unless permitted by the SEC or
SEC staff.
For the period July 13, 1996 (date of the Reorganization) through
December 31, 1996, the aggregate advisory fees payable to FCNIMCO by the Cash
Management Fund, Treasury Prime Cash Management Fund and U.S. Government
Securities Cash Management Fund were $620,226, $269,337 and $622,156,
respectively, of which amounts $222,088, $145,816 and $297,097, respectively,
were reduced pursuant to undertakings by FCNIMCO, resulting in a net advisory
fee of $398,138, $123,521 and $325,059, respectively. The Treasury Cash
Management Fund and Municipal Cash Management Fund had not commenced
operations prior to the date of this Statement of Additional Information.
-14-
<PAGE>
For the period January 1, 1996 through July 13, 1996 (date of the
Reorganization) the aggregate advisory fees payable to FCNIMCO by the
Predecessor Cash Management Fund, Predecessor Treasury Prime Cash Management
Fund and Predecessor U.S. Government Securities Cash Management Fund were
$487,093, $176,021 and $522,975, respectively, of which amounts $176,053,
$102,644 and $297,097, respectively, were reduced pursuant to undertakings by
FCNIMCO, resulting in a net advisory fee of $311,040, $73,377 and $383,484,
respectively.
Prior to January 17, 1995, The First National Bank of Chicago
("FNBC") provided management services to First Prairie Cash Management Fund
and First Prairie U.S. Treasury Securities Cash Management Fund (the
predecessor funds to the Predecessor Cash Management Fund and Predecessor
U.S. Government Securities Cash Management Fund, respectively) pursuant to
separate management agreements with each such fund and engaged The Dreyfus
Corporation ("Dreyfus") to provide administrative services to the funds. As
compensation for FNBC's services, First Prairie Cash Management Fund and
First Prairie U.S. Treasury Securities Cash Management Fund each agreed to
pay FNBC a monthly management fee at the annual rate of .35 of l% of the
value of the fund's average daily net assets. The fees payable to Dreyfus for
its services were paid by FNBC.
For the fiscal year ended June 30, 1994 (the Predecessor Cash
Management Fund's prior fiscal year end), the management fee payable by First
Prairie Cash Management Fund amounted to $892,114, which amount was reduced
by $304,836 pursuant to an undertaking by FNBC, resulting in a net management
fee paid by First Prairie Cash Management Fund of $587,278. For the fiscal
year ended June 30, 1995, the aggregate management/advisory fee payable by
the Predecessor Cash Management Fund and its predecessor amounted to
$793,104, which amount was reduced by $267,419 pursuant to undertakings by
FNBC and FCNIMCO, resulting in a net management/advisory fee paid by the
Predecessor Cash Management Fund and its predecessor of $525,685. For the
Predecessor Cash Management Fund's fiscal period ended December 31, 1995, the
aggregate management/advisory fee payable by the Predecessor Cash Management
Fund and its predecessor amounted to $716,956, which amount was reduced by
$331,599 pursuant to undertakings by FNBC and FCNIMCO, resulting in a net
management/advisory fee paid by the Predecessor Cash Management Fund and its
predecessor of $385,357.
For the period from March 22, 1995 (commencement of operations of
the Predecessor Treasury Prime Cash Management Fund) through December 31,
1995, the advisory fee payable by the Predecessor Treasury Prime Cash
Management Fund amounted to $50,405, which amount was reduced by $27,592
pursuant to an undertaking by FCNIMCO, resulting in a net advisory fee paid
by the Predecessor Treasury Prime Cash Management Fund of $22,813.
-15-
<PAGE>
For the fiscal year ended May 31, 1994 (the Predecessor U.S.
Government Securities Cash Management Fund's prior fiscal year end), the
management fee payable by First Prairie U.S. Treasury Cash Management Fund
amounted to $1,478,021, which amount was reduced by $477,943 pursuant to an
undertaking by FNBC, resulting in a net management fee paid by First Prairie
U.S. Treasury Cash Management Fund of $1,000,078. For the fiscal year ended
May 31, 1995, the aggregate management/advisory fee payable by the
Predecessor U.S. Government Securities Cash Management Fund and its
predecessor amounted to $1,388,345, which amount was reduced by $312,740
pursuant to undertakings by FNBC and FCNIMCO, resulting in a net
management/advisory fee paid by the Predecessor U.S. Government Securities
Cash Management Fund and its predecessor of $1,075,605. For the Predecessor
U.S. Government Securities Cash Management Fund's fiscal period ended
December 31, 1995, the aggregate management/advisory fee payable by the U.S.
Government Securities Cash Management Fund and its predecessor amounted to
$968,761, which amount was reduced by $381,198 pursuant to undertakings by
FNBC and FCNIMCO, resulting in a net management/advisory fee paid by the
Predecessor U.S. Government Securities Cash Management Fund and its
predecessor of $587,563.
Administration Agreement. Pursuant to an Administration Agreement
dated as of April 12, 1996 with the Trust, FCNIMCO and BISYS assist in all
aspects of the Trust's operations, other than providing investment advice,
subject to the overall authority of the Trust's Board in accordance with
Massachusetts law. Under the terms of the Administration Agreement, FCNIMCO
and BISYS are entitled jointly to a monthly administration fee at the annual
rate of .15% of each Fund's average daily net assets.
For the period July 13, 1996 (date of the Reorganization) through
December 31, 1996, the Cash Management Fund, Treasury Prime Cash Management
Fund and U.S. Government Securities Cash Management Fund paid FCNIMCO, as
agent for the co-administrators, administration fees of $465,170, $202,003
and $466,617, respectively. The Treasury Cash Management Fund and Municipal
Cash Management Fund had not commenced operations prior to the date of this
Statement of Additional Information.
For the period from January 1, 1996 through July 13, 1996 (date of
the Reorganization), the Predecessor Cash Management Fund, Predecessor
Treasury Prime Cash Management Fund and Predecessor U.S. Government
Securities Cash Management Fund paid FCNIMCO administration fees of $365,320,
$132,016 and $392,231, respectively.
As stated above, prior to January 17, 1995, Dreyfus provided
administrative services to each Predecessor Fund (and its predecessor) and
that the fees payable to Dreyfus for its services were paid by FNBC. From
January 17, 1995 through July 13, 1996, FCNIMCO provided administrative
services to each Predecessor Fund.
-16-
<PAGE>
For the period January 17, 1995 through December 31, 1995, the Predecessor
Cash Management Fund and the Predecessor U.S. Government Securities Cash
Management Fund paid FCNIMCO administration fees of $522,730 and $707,131,
respectively. For the period March 22, 1995 (commencement of operations of
the Predecessor Treasury Prime Cash Management Fund) through December 31,
1995, the administration fee payable by the Predecessor Treasury Prime Cash
Management Fund amounted to $37,804, which amount was reduced by $9,695
pursuant to an undertaking by FCNIMCO, resulting in a net administration fee
paid by the Predecessor Treasury Prime Cash Management Fund of $28,109.
The Trust has agreed that neither FCNIMCO nor BISYS will be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which the agreement with FCNIMCO or
BISYS relates, except for a loss resulting from wilful misfeasance, bad faith
or gross negligence on the part of FCNIMCO or BISYS in the performance of
their obligations or from reckless disregard by any of them of their
obligations and duties under the Administration Agreement.
In addition, the Administration Agreement provides that if, in any
fiscal year, the aggregate expenses of a Fund exceed the expense limitation
of any state having jurisdiction over the Fund, FCNIMCO, and BISYS will bear
such excess expense to the extent required by state law.
The aggregate of the fees payable to FCNIMCO and BISYS is not
subject to reduction as the value of the Fund's net assets increases.
DISTRIBUTION AND SERVICES PLAN
(Service Shares Only)
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Distribution
and Services Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange
Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant
to a plan adopted in accordance with the Rule. The Trust's Board of Trustees
has adopted such a plan (the "Plan") with respect to each Fund's Service
Shares, pursuant to which each Fund pays BISYS a fee of up to .25% of the
average daily net asset value attributable to such Service Shares for
advertising, marketing and distributing such Service Shares and for the
provision of certain services to the holders of such Service Shares. Under
the Plan, BISYS may make payments to certain financial institutions,
securities dealers and other financial industry professionals (collectively,
"Service
-17-
<PAGE>
Agents") in respect of these services. The Board of Trustees believes that
there is a reasonable likelihood that the Plan will benefit each Fund and the
holders of Service Shares.
For the period July 13, 1996 (date of the Reorganization) through
December 31, 1996, the Funds* paid fees pursuant to the Plan as follows:
<TABLE>
<CAPTION>
Amount Paid
Amount to FCNIMCO
Total Paid to and its
Paid BISYS Affiliates
----- ------- -----------
<S> <C> <C> <C>
Cash Management Fund $225,944 -- $225,944
Treasury Cash Management Fund N/A N/A N/A
Treasury Prime Cash Management
Fund $274,411 -- $274,411
U.S. Government Securities Cash
Management Fund $256,526 -- $256,526
Municipal Cash Management Fund N/A N/A N/A
<FN>
- ---------------------------
* The Treasury Cash Management Fund and Municipal Cash Management
Fund had not commenced operations prior to the date of this
Statement of Additional Information.
</TABLE>
For the period January 1, 1996 through July 13, 1996 (date of the
Reorganization), the Prairie Institutional Funds' paid fees pursuant to the
previous 12b-1 Plan as follows:
<TABLE>
<CAPTION>
Amount Paid
Amount to FCNIMCO
Total Paid to and its
Paid BISYS Affiliates
----- ------- -----------
<S> <C> <C> <C>
Predecessor Cash Management Fund $115,641 $17 $115,624
Predecessor Treasury Prime Cash
Management Fund $189,936 $16 $189,920
Predecessor U.S. Government
Securities Cash Management Fund $117,895 $17 $117,878
</TABLE>
The Board of Trustees reviews, at least quarterly, a written
report of the amounts expended under the Plan and the purposes for which the
expenditures were made. In addition, such arrangements are approved annually
by a majority of the Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust as defined in the 1940 Act and have no
direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
-18-
<PAGE>
Any material amendment to the Plan must be approved by a majority
of the Board of Trustees (including a majority of the Disinterested
Trustees).
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves on a best efforts basis as
the Trust's distributor pursuant to an agreement which is renewable annually.
Using Federal Funds. First Data Investor Services Group, Inc., the
Trust's transfer and dividend disbursing agent (the "Transfer Agent"), or the
Trust may attempt to notify the investor upon receipt of checks drawn on
banks that are not members of the Federal Reserve System as to the possible
delay in conversion into Federal Funds and may attempt to arrange for a
better means of transmitting the money. If the investor is a customer of a
securities dealer, bank or other financial institution and his order to
purchase Fund shares is paid for other than in Federal Funds, the securities
dealer, bank or other financial institution, acting on behalf of its
customer, generally will complete the conversion into, or itself advance,
Federal Funds on the business day following receipt of the customer order.
The order is effective only when so converted and received by the Transfer
Agent. An order for the purchase of Fund shares placed by an investor with a
sufficient Federal Funds or cash balance in his brokerage account with a
securities dealer, bank or other financial institution will become effective
on the day that the order in proper form, including Federal Funds, is
received by the Transfer Agent. In some states, banks or other institutions
effecting transactions in Fund shares may be required to register as dealers
pursuant to state law.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Redeem
Fund Shares."
Redemption Commitment. 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
-19-
<PAGE>
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.
Suspension of Redemptions. The right of redemption may be
suspended or the date of payment postponed (a) during any period when the New
York Stock Exchange is closed (other than customary weekend and holiday
closing), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the SEC so that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the SEC by order
may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Buy
Fund Shares."
Amortized Cost Pricing. The valuation of each Fund's portfolio
securities is based upon their amortized cost which does not take into
account unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the Fund
would receive if it sold the instrument.
The Board of Trustees has established procedures, as a particular
responsibility within the overall duty of care owed to each Fund's investors,
reasonably designed to stabilize the Fund's price per share as computed for
purposes of purchases and redemptions at $1.00. Such procedures include
review of each Fund's portfolio holdings by the Board of Trustees, at such
intervals as it deems appropriate, to determine whether the Fund's net asset
value calculated by using available market quotations or market equivalents
deviates from $1.00 per share based on amortized cost. Investments for which
market quotations are readily available will be valued at the most recent bid
price or yield equivalent for such securities or for securities of comparable
maturity, quality and type, as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets of the
Funds will be valued at fair value as determined in good faith by the Board
of Trustees.
The extent of any deviation between a Fund's net asset value based
upon available market quotations or market equivalents and
-20-
<PAGE>
$1.00 per share based on amortized cost will be examined by the Board of
Trustees. If such deviation exceeds 1/2 of 1%, the Board of Trustees will
consider what actions, 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 action as it regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by
using available market quotations or market equivalents.
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. In addition to these holidays, the Fund will not
compute net asset value on the following bank holidays: Martin Luther King,
Jr. Day, Columbus Day and Veterans Day.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of
Trustees, FCNIMCO is responsible for making decisions with respect to and
placing orders for all purchases and sales of portfolio securities for each
Fund.
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. No brokerage commissions have
been paid by any Fund to date.
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 FCNIMCO, in
its sole discretion, believes such practice to be otherwise in the Fund's
interests.
-21-
<PAGE>
The Advisory Agreement for the Funds provides that, in executing
portfolio transactions and selecting brokers or dealers, FCNIMCO will seek to
obtain the best overall terms available for each Fund. In assessing the best
overall terms available for any transaction, FCNIMCO shall consider factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In addition, the
Agreement authorizes FCNIMCO 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 FCNIMCO determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of FCNIMCO 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 FCNIMCO 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 FCNIMCO. 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 FCNIMCO, 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
FCNIMCO, 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.
-22-
<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 FCNIMCO. Such other investment companies and accounts
may also invest in the same securities as the Funds. To the extent permitted
by law, FCNIMCO 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 FCNIMCO believes to be equitable to each Fund and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in Funds' Prospectus entitled "Dividends,
Distributions and Taxes."
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gain or loss. However, all or a portion of the
gain realized from the disposition of certain market discount bonds will be
treated as ordinary income under Section 1276 of the Internal Revenue Code of
1986, as amended.
As of December 31, 1996, the Funds had capital loss carryforwards
with expiration dates as follows:
<TABLE>
<CAPTION>
2001 2002 2003 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Cash Management Fund $ -- $458,000 $58,000 $516,000
U.S. Government Securities Cash Management Fund 19,000 151,000 32,000 202,000
</TABLE>
YIELD INFORMATION
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Yield
Information."
Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical
pre-existing Fund account having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted, dividing the net
change by the value of the account at the beginning of the period to obtain
the base period return, and annualizing the results (i.e., multiplying the
base
-23-
<PAGE>
period return by 365/7). The net change in the value of the account
reflects the value of additional shares purchased with dividends declared on
the original share and any such additional shares and fees that may be
charged to the shareholder's account, in proportion to the length of the base
period and the Fund's average account size, but does not include realized
gains and losses or unrealized appreciation and depreciation. Effective yield
is computed by adding 1 to the base period return (calculated as described
above), raising that sum to a power equal to 365 divided by 7, and
subtracting 1 from the result. In addition, the Municipal Cash Management
Fund may advertise its "tax-equivalent yield" which is computed by: (a)
dividing the portion of the yield (as calculated above) that is exempt from
income tax by one minus a stated income tax rate; and (b) adding the figure
from (a) above to that portion, if any, of the yield that is not tax-exempt.
For the seven-day period ended December 31, 1996, the yield and
effective yield (after fee waivers and/or expense reimbursements) of each
Fund were as follows:
<TABLE>
<CAPTION>
Name of Fund
and Class Yield Effective Yield
------------ ----- ---------------
<S> <C> <C>
Cash Management Fund
Institutional Shares 5.32% 5.46%
Service Shares 5.07% 5.20%
Treasury Prime Cash
Management Fund
Institutional Shares 4.63% 4.73%
Service Shares 4.38% 4.47%
Treasury Cash Management Fund*
Institutional Shares N/A N/A
Service Shares N/A N/A
U.S. Government Securities
Cash Management Fund
Institutional Shares 5.23% 5.36%
Service Shares 4.98% 5.10%
Municipal Cash Management Fund*
Institutional Shares N/A N/A
Service Shares N/A N/A
<FN>
- -----------------------------
* The Treasury Cash Management Fund and Municipal Cash Management Fund
had not commenced operations prior to the date of this Statement of
Additional Information.
</TABLE>
Yields will fluctuate and are not necessarily representative of
future results. Each investor should remember that yield is a function of the
type and quality of the instruments in the portfolio, portfolio maturity and
operating expenses. An investor's principal in the Fund
-24-
<PAGE>
is not guaranteed. See "Determination of Net Asset Value" for a discussion of
the manner in which the Fund's price per share is determined.
From time to time, advertising materials for the Funds may refer to
FCNIMCO's or any of its affiliate's full line of investment products for the
corporate cash market, including sweep services, on-line money market mutual
fund purchases, customized portfolio management, and OASIS, a same-day sweep
product that sweeps funds to an overnight Eurodollar time deposit. In
addition, from time to time, references to the Funds may appear in
advertisements and sales literature for certain products or services offered
by the Trust's Investment Adviser, its affiliates or others, through which it
is possible to invest in one or more of the Funds, such as the Pegasus
Architect wrap account, the Pathmaker variable annuity, and First Choice,
First Choice Pegasus and First Choice Select 401(k) products.
INFORMATION ABOUT THE TRUST
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Fund shares have no preemptive, subscription or conversion rights and are
freely transferable.
As of July 8, 1997, the following persons may have beneficially
owned 5% or more of the outstanding shares of the following Funds:
-25-
<PAGE>
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
Cash First National Bank of 64,168,643.920 10.83%
Management Fund - Chicago
Class I Cash Management Dept.
Suite 0256
6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
Mallinckrodt, Inc. 170,000,000.000 28.70%
7733 Forsyth
Clayton, MO 63105
Cash Management First National Bank of 71,797,145.070 20.84%
Fund - Class S Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
First National Bank of 261,836,636.860 75.99%
Chicago
Cash Management Dept.
Suite 0256
6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
-26-
<PAGE>
\
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
Treasury First National Bank of 4,945,233.880 28.50%
Prime Cash Chicago
Management Fund - Cash Management Dept.
Class I Suite 0256
6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
Treasury First National Bank of 34,554,466.280 16.89%
Prime Cash Chicago
Management Fund - Corporate Trust
Class S Administration
1 F&B Plaza
Suite 0126
Chicago, IL 60670-0001
First National Bank of 54,130,377.120 26.46%
Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
114,554,557.300 56.00%
First National Bank of
Chicago
Cash Management Dept.
Suite 0256, 6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
-27-
<PAGE>
<CAPTION>
Percentage
of
Number of Outstanding
Fund Name and Address Shares Shares
---- ---------------- --------- -----------
<S> <C> <C> <C>
U.S. First National Bank of 514,833,411.600 88.41%
Government Chicago
Securities Corporate Trust
Cash Administration
Management Fund - 1 F&B Plaza
Class I Suite 0126
Chicago, IL 60670-0001
U.S.Government First National Bank of 171,781,036.260 70.37%
Securities Chicago
Cash Management Cash Management Dept.
Fund - Class S Suite 0256, 6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
First National Bank of 61,875,041.930 25.35%
Chicago
Commercial Products
1 First National Plaza
Suite 0649
Chicago, IL 60670
</TABLE>
The Trust will send annual and semi-annual financial statements for
the Funds to their shareholders.
COUNSEL
Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia, PA
19107-3496, serves as the Trust's counsel.
INDEPENDENT AUDITORS
Arthur Andersen LLP, 500 Woodward Avenue, Detroit, Michigan
48226-3424, are the independent auditors of the Trust. Ernst & Young LLP
served as independent auditors for the First Prairie
-28-
<PAGE>
Funds and the Prairie Institutional Funds. The audited financial statements
and notes thereto for each Fund for the fiscal year ended December 31, 1996
are contained in the Funds' Annual Report to Shareholders dated December 31,
1996 and are incorporated by reference into this Statement of Additional
Information. The December 31, 1996 financial statements and notes thereto
have been audited by Arthur Andersen LLP, whose report thereon also appears
in such Annual Report and is also incorporated herein by reference.
Information in the audited financial statements for periods or years prior to
December 31, 1995 has been audited by Ernst & Young LLP. No other parts of
the Annual Report are incorporated by reference herein. Such financial
statements have been incorporated herein in reliance on the reports of Arthur
Andersen LLP and Ernst & Young LLP, independent auditors, given on the
authority of said firms as experts in auditing and accounting.
-29-
<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" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt
obligations with a doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions have
a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have
a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuers 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" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-4" - Debt possesses speculative investment
characteristics. Liquidity is not sufficient to ensure against disruption in
debt service. Operating factors and market access may be subject to a high
degree of variation.
"D-5" - Issuer has failed to meet scheduled principal
and/or interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality.
Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued
by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood
of an untimely or incomplete payment of principal or interest of
unsubordinated instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree
of safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to
adverse developments (both internal and external) than obligations with
higher ratings, capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is
regarded as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with
an original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong
credit feature are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity
for timely repayment.
"A2" - Obligations are supported by a good capacity for
timely repayment.
"A3" - Obligations are supported by a satisfactory
capacity for timely repayment.
"B" - Obligations for which there is an uncertainty as to
the capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default
or which are currently in default.
A-4
<PAGE>
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard &
Poor's for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to
pay interest and repay principal. Whereas such issues normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher-rated
categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
"BB" - Debt has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt
subordinated to senior debt that is assigned an actual or implied "CCC"
rating.
"C" - This rating is typically applied to debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative,
hybrid, and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain swaps and
options; and interest only and principal only mortgage securities. The
absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate
and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are
A-6
<PAGE>
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-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated
by the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time
to time because of economic conditions.
"A" - Debt possesses protection factors which are average
but adequate. However, risk factors are more variable and greater in periods
of economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic
cycles.
"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
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as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "BBB" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
IBCA assesses the investment quality of unsecured debt with
an original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal
and interest is substantial, such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
substantially.
"AA" - Obligations for which there is a very low
expectation of investment risk. Capacity for timely repayment of principal
and interest is substantial, such that adverse changes in business, economic
or financial conditions may increase investment risk, albeit not very
significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of
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principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned
one of these ratings where it is considered that speculative characteristics
are present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a
rating below "AAA" 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.
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"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity
concerns and market access risks unique to notes due in three years or less.
The following summarizes the ratings used by Standard & Poor's Ratings Group
for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus
(+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of
the best quality, enjoying strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to the market
for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of
high quality, with margins of protection ample although not so large as in
the preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection
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commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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