Registration Nos. 33-46403
811-6595
================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 6 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 6 /X/
(Check appropriate box or boxes)
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND
(Exact Name of Registrant as Specified in Charter)
c/o The First National Bank of Chicago
Three First National Plaza
Chicago, Illinois 60670
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 732-
4231
Bradford M. Markham, Esq.
Three First National Plaza
Chicago, Illinois 60670
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on January 30, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph
(a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule
485.
If appropriate, check the following box:
[X] this post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.
Registrant has registered an indefinite number of shares of
its common stock under the Securities Act of 1933 pursuant
to Section 24(f) of the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended
January 31, 1994 was filed on March 24, 1994.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND
CROSS-REFERENCE SHEET PURSUANT TO RULE 495(A)
Items in
Part A of
Form N-1A Caption Page
- ---------- ------------ -------
1 Cover Page Cover
2 Synopsis 3
3 Condensed Financial Information 5
4 General Description of Registrant 6
5 Management of the Fund 14
5(a) Management's Discussion of Fund's
Performance <F1>
6 Capital Stock and Other
Securities 32
7 Purchase of Securities Being
Offered 17
8 Redemption or Repurchase 25
9 Pending Legal Proceedings <F1>
- ----------------------
[FN] NOTE: Omitted since answer is negative or inapplicable.
<PAGE>
Items in
Part B of
Form N-1A Caption Page
- ---------- ------------ -------
10 Cover Page Cover
11 Table of Contents Cover
12 General Information and History B-24
13 Investment Objectives and
Policies B-2
14 Management of the Fund B-12
15 Control Persons and Principal B-13
Holders of Securities
16 Investment Advisory and Other
Services B-13
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND
CROSS-REFERENCE SHEET PURSUANT TO RULE 495(A) (CONTINUED)
Items in
Part B of
Form N-1A Caption Page
- ------------ ------------- -------
17 Brokerage Allocation B-20
18 Capital Stock and Other
Securities B-24
19 Purchase, Redemption and Pricing
of Securities Being Offered B-16, B-18
20 Tax Status B-21
21 Underwriters B-16
22 Calculations of Performance Data B-24
23 Financial Statements B-33
Items in
Part C of
Form N-1A Caption Page
- ---------- ------------ -------
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-3
Common Control with Registrant
26 Number of Holders of Securities C-3
27 Indemnification C-3
28 Business and Other Connections of C-4
Investment Adviser
29 Principal Underwriters C-4
30 Location of Accounts and Records C-5
31 Management Services C-5
32 Undertakings C-5
_________________________
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
PROSPECTUS
First Chicago Investment Management
Company
INVESTMENT ADVISER
Concord Financial Group, Inc.
DISTRIBUTOR
Prospectus begins on page one.
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
- ------------------------------------------------------------
PROSPECTUS--January 30, 1995
Prairie Intermediate Bond Fund (the "Fund") is an open-end,
non-diversified, management investment company, known as a
mutual fund. Its goal is to provide investors with as high a
level of current as is consistent with the preservation of
capital. The Fund will invest in a portfolio of U.S. dollar
denominated, investment-grade fixed-income securities of
domestic and foreign issues which, under normal market
conditions, will have a dollar-weighted average maturity
expected to range between three and ten years.
First Chicago Investment Management Company ("FCIMCO" or
the "Investment Adviser") serves as the Fund's investment
adviser and administrator.
Concord Financial Group, Inc. (the "Distributor") serves as
the Fund's distributor.
By this Prospectus, Class A, Class B and Class I shares of
the Fund are being offered. Class A shares are subject to a
sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed on
redemptions made within six years of purchase. Class A and
Class B shares are offered to any investor. The Fund offers
these alternatives to permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of
the purchase, the length of time the investor expects to hold
the shares and other circumstances.
Class I shares (formerly Class F shares) are offered
without a sales charge and are sold only to qualified trust,
custody and/or agency account clients of FCIMCO, The First
National Bank of Chicago ("FNBC"), American National Bank and
Trust Company ("ANB") or their affiliates and to certain
qualified employee benefit plans or other programs.
Other differences between the Classes include the services
offered to and expenses borne by each Class and certain voting
rights, as described herein.
Fund shares are not deposits or obligations of, or
guaranteed by, any bank, and are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency. Fund shares involve certain
investment risks, including the possible loss of principal.
Investors should recognize that the share price, yield and
investment return of the Fund fluctuate and are not guaranteed.
_______________
This Prospectus sets forth concisely information about the
Fund that an investor should know before investing. It should
be read and retained for future reference.
Part B (also known as the Statement of Additional
Information), dated January 30, 1995, which may be revised from
time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
For a free copy, write to the Fund at Three First National
Plaza, Chicago, Illinois 60670, or call 1-800-370-9446.
- ----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ----------------------------------------------------------------
TABLE OF CONTENTS
Fee Table . . . . . . . . . . . . . . . . . . . . . .
Condensed Financial Information . . . . . . . . . . .
Highlights . . . . . . . . . . . . . . . . . . . . .
Alternative Purchase Methods . . . . . . . . . . . .
Description of the Fund . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . .
How to Buy Fund Shares . . . . . . . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . .
How to Redeem Fund Shares . . . . . . . . . . . . . .
Distribution Plan and Shareholder Services Plan . . .
Dividends, Distributions and Taxes . . . . . . . . .
Performance Information . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . .
<PAGE>
FEE TABLE
________________________________________________________________
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS I
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price) 3.00% none none
Maximum Deferred Sales
Charge Imposed on Redemptions
(as a percentage of the amount
subject to charge) none<F1> 3.00% none
</TABLE>
- ------------------
[FN] A contingent deferred sales charge of up to 1.00% may be
assessed on certain redemptions of Class A shares
purchased without an initial sales charge as part of an
investment of $1 million or more.
- -----------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
daily net assets)
Management Fees .40% .40% .40%
12b-1 Fees none .75% none
Other Expenses (after expense reimbursements) .75% .75% .35%
Total Fund Operating Expenses 1.15% 1.90% .75%
EXAMPLE
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) except where noted, redemption
at the end of each time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B<F1> CLASS I
------- ------- ----------- -------
<S> <C> <C> <C> <C>
1 YEAR $ 56 $ 48 $ 17 $ 8
3 YEARS $ 80 $ 74 $ 52 $24
5 YEARS $105 $101 $ 90 $42
10 YEARS<F2> $178 $175 $175 $93
</TABLE>
- ----------------------
[FN] Assuming no redemption of Class B shares
[FN] Ten-year figures assume conversion of Class B shares to
Class A shares at end of eighth year following the date of
purchase.
- ----------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE 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, THE FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER
OR LESS THAN 5%.
- ---------------------------------------------------------------
The purpose of the foregoing table is to assist investors
in understanding the various costs and expenses that investors
in the Fund will bear, directly or indirectly, the payment of
which will reduce investors' return on an annual basis. Long-
term investors in Class B shares could pay more in 12b-1 fees
than the economic equivalent of paying a front-end sales charge.
FCIMCO, FNBC and their affiliates and certain
Service Agents (as defined below) may charge their clients
direct fees for effecting transactions in Fund shares; such fees
are not reflected in the foregoing table. See "Management of
the Fund," "How to Buy Fund Shares" and "Distribution Plan and
Shareholder Services Plan."
<PAGE>
CONDENSED FINANCIAL INFORMATION
The information in the following table has been
audited (except where noted) by Ernst & Young LLP, the Fund's
independent auditors, whose report thereon appears in the
Statement of Additional Information. Further financial data and
related notes are included in the Statement of Additional
Information, available upon request.
FINANCIAL HIGHLIGHTS Contained below is per share operating
performance data, total investment return, ratios to average net
assets and other supplemental data for Class A, Class B and
Class I of the Fund<F1> for each period indicated. This
information has been derived from information provided in the
Fund's financial statements.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I<F2>
-------------------------------------- --------------- -----------------------------------
Fiscal Period Six Month Period Period Ended Fiscal Period Six Month Period
Ended January 31, Ended July 31, 1994 July 31, 1994<F3> Ended January 31, Ended July 31,
1994<F4> (Unaudited) (Unaudited) 1994<F4> (Unaudited)
----------------- -------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $ 8.36 $ 8.25 $8.16 $ 8.36 $ 8.25
------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income--net .47 .27 .24 .47 .27
Net realized and unrealized
(loss) on investments (.09) (.40) (.32) (.09) (.41)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS .38 (.13) (.08) .38 (.14)
------- ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment income
-- net (.47) (.27) (.24) (.47) (.27)
Dividends from net realized gain
on investments (.02) -- -- (.02) --
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (.49) (.27) (.24) (.49) (.27)
------- ------- ------- ------- -------
Net asset value, end of period $ 8.25 $ 7.85 $ 7.84 $ 8.25 $ 7.84
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:<F5> 5.16%<F6> (3.11%)<F6> (2.08%)<F6> 5.16%<F6> (3.51%)<F6>
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets -- -- .50%<F6> -- --
Ratio of net investment income to
average net assets 5.96%<F6> 6.88%<F6> 6.34% <F6> 6.21%<F6> 6.89%<F6>
Decrease reflected in above
expense ratios due to
undertakings 3.67%<F6> 3.38%<F6> 3.38%<F6> 2.64%<F6> 3.13%<F6>
Portfolio Turnover Rate 26.54%<F7> 8.36%<F7> 8.36%<F7> 26.54%<F7> 8.36%<F7>
Net Assets, end of period (000's
omitted) $65 $64 $2 $5,128 $4,689
</TABLE>
- ----------------
[FN] On January 17, 1995, the management policies of the
Intermediate Bond Fund were changed as described under
"General Information."
[FN] Formerly, Class F shares.
[FN] From February 8, 1994 (commencement of operations) to July
31, 1994.
[FN] From March 5, 1993 (commencement of operations) to January
31, 1994.
[FN] Exclusive of sales charge.
[FN] Annualized.
[FN] Not annualized.
<PAGE>
Further information about the Fund's performance is contained in
the Fund's annual report, which may be obtained without charge
by writing to the address or calling the number set forth on the
cover page of this Prospectus.
HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.
THE FUND The Fund is an open-end, non-diversified, management
investment company, known as a mutual fund.
INVESTMENT OBJECTIVE The Fund's goal is to provide investors
with as high a level of current income as is consistent with the
preservation of capital.
MANAGEMENT POLICIES The Fund will invest in a portfolio of U.S.
dollar denominated, investment-grade fixed-income securities of
domestic and foreign issuers. The dollar-weighted average
maturity of the Fund's portfolio is expected to range between
three and ten years. The Fund is not limited in the maturities
of the securities in which it invests and the maturity of a
portfolio security may range from overnight to 40 years.
The Fund may engage in certain investment techniques,
such as leveraging, short-selling, options and futures
transactions and lending portfolio securities, each of which
involves risk.
INVESTMENT ADVISER First Chicago Investment Management Company
is the Fund's investment adviser and administrator. The Fund
has agreed to pay it a monthly fee at the annual rate of .40 of
1% of the value of the Fund's average daily net assets.
ALTERNATIVE PURCHASE METHODS The Fund offers Class A, Class B
and Class I shares. Each Class A, Class B and Class I share
represents an identical pro rata interest in the Fund's
investment portfolio.
Class A shares are sold at net asset value per share
plus an initial sales charge imposed at the time of purchase.
The initial sales charge may be reduced or waived for certain
purchases. See "How to Buy Fund Shares--Class A Shares." Class
A shares are subject to an annual service fee.
Class B shares are sold at net asset value per share
with no initial sales charge at the time of purchase; as a
result, the entire purchase price is immediately invested in the
Fund. Class B shares are subject to a contingent deferred sales
charge ("CDSC"), which is assessed only if the Class B shares
are redeemed within six years of purchase. See "How to Redeem
Shares--Contingent Deferred Sales Charge--Class B Shares."
Class B shares are subject to an annual distribution fee and
service fee. The distribution fee paid by Class B will cause
Class B to have a higher expense ratio and to pay lower
dividends than Class A. Approximately eight years after the
date of purchase, Class B shares automatically will convert to
Class A shares, based on the relative net asset values for
shares of each such Class, and will no longer be subject to a
distribution fee.
Class I shares are sold at net asset value with no
sales charge. Class I shares are offered exclusively to
qualified trust, custody and/or agency account clients of FNBC,
ANB or their affiliates ("Fiduciary Accounts") and qualified
benefit plans or other programs with assets in excess of $100
million ("Eligible Retirement Plans"). Class I shares held by
investors who after purchasing Class I shares terminate their
Fiduciary Accounts automatically will convert to Class A shares,
based on the relative net asset values for shares of each such
Class. See "Alternative Purchase Methods."
HOW TO BUY FUND SHARES Orders for purchases of Class A and
Class B shares may be placed through a number of institutions
including: FCIMCO, FNBC and their affiliates, including First
Chicago Investment Services, Inc. ("FCIS"), a registered
broker-dealer, the Distributor and certain other banks,
securities dealers and other industry professionals such as
investment advisers, accountants and estate planning firms
(collectively, "Service Agents").
Investors purchasing Class I shares through their
Fiduciary Accounts at FNBC, ANB or their affiliates should
contact such entity directly for appropriate instructions, as
well as for information about conditions pertaining to the
account and any related fees. Class I shares may be purchased
for a Fiduciary Account or Eligible Retirement Plan only by a
custodian, trustee, investment manager or other entity
authorized to act on behalf of such Account or Plan.
The minimum initial investment is $1,000. All
subsequent investments must be at least $100. See "How to Buy
Fund Shares."
HOW TO REDEEM FUND SHARES Generally, investors should
contact their representatives at FCIMCO, FNBC or appropriate
Service Agent for redemption instructions.
Investors who are not clients of FCIMCO, FNBC or a
Service Agent may redeem Fund shares by written request to the
Fund's transfer agent. See "How to Redeem Fund Shares."
RISKS AND SPECIAL CONSIDERATIONS The use of investment
techniques such as short-selling, engaging in financial futures
and options transactions, lending portfolio securities,
borrowing for investment purposes, entering into repurchase
agreements and purchasing securities on a when-issued or forward
commitment basis, and purchasing certain mortgage-backed
securities and zero coupon securities involve greater risk than
that incurred by many other funds with similar objectives and
may affect the degree to which the Fund's net asset value
fluctuates.
Changes in the value of the Fund's portfolio
securities will result in changes in the value of a Fund share
and thus the Fund's yield and total return to investors.
See "Description of the Fund--Risk Factors."
<PAGE>
ALTERNATIVE PURCHASE METHODS
The Fund offers investors three methods of purchasing
Fund shares. Orders for purchases of Class I shares, however,
may be placed only for certain eligible investors as described
below. An investor who is not eligible to purchase Class I
shares may choose from Class A and Class B the Class of shares
that best suits the investor's needs, given the amount of
purchase, the length of time the investor expects to hold the
shares and any other relevant circumstances. Each Class A,
Class B and Class I share represents an identical pro rata
interest in the Fund's investment portfolio.
Class A shares are sold at net asset value per share
plus a maximum initial sales charge of 3.00% of the public
offering price imposed at the time of purchase. The initial
sales charge may be reduced or waived for certain purchases.
See "How to Buy Fund Shares--Class A Shares." Class A shares
are subject to an annual service fee at the rate of up to .25 of
1% of the value of the average daily net assets of Class A. See
"Distribution Plan and Shareholder Services Plan--Shareholder
Services Plan."
Class B shares are sold at net asset value per share
with no initial sales charge at the time of purchase; as a
result, the entire purchase price is immediately invested in the
Fund. Class B shares are subject to a maximum 3.00% CDSC, which
is assessed only if Class B shares are redeemed within six years
of purchase. See "How to Buy Fund Shares--Class B Shares" and
"How to Redeem Fund Shares--Contingent Deferred Sales Charge--
Class B Shares." These shares are subject to an annual service
fee and distribution fee. See "Distribution Plan and
Shareholder Services Plan." Approximately eight years after the
date of purchase, Class B shares automatically will convert to
Class A shares, based on the relative net asset values for
shares of each Class, and will no longer be subject to the
distribution fee. Class B shares that have been acquired
through the reinvestment of dividends and distributions will be
converted on a pro rata basis together with other Class B
shares, in the proportion that a shareholder's Class B shares
converting to Class A shares bears to the total Class B shares
not acquired through the reinvestment of dividends and
distributions.
Class I shares are sold at net asset value with no
sales charge. Class I shares are sold exclusively to qualified
trust, custody and/or agency account clients of FCIMCO, FNBC or
their affiliates ("Fiduciary Accounts") and to qualified benefit
plans or other programs with assets in excess of $100 million
("Eligible Retirement Plans"). Class I shares are not subject
to an annual service fee or distribution fee. Class I shares
held by investors who after purchasing Class I shares for their
Fiduciary Accounts terminate such Accounts automatically will
convert to Class A shares, based on the relative net asset
values for shares of each such Class.
Class B shares will receive lower per share dividends
and at any given time the performance of Class B should be
expected to be lower than for shares of each other Class because
of the higher expenses borne by Class B. Similarly, Class A
shares will receive lower per share dividends and the
performance of Class A should be expected to be lower than Class
I shares because of the higher expenses borne by Class A. See
"Fee Table."
An investor who is not eligible to purchase Class I
shares should consider whether, during the anticipated life of
the investor's investment in the Fund, the accumulated
distribution fee and CDSC on Class B shares prior to conversion
would be less than the initial sales charge, if any, on Class A
shares purchased at the same time, and to what extent, if any,
such differential would be offset by the return of Class A.
Additionally, investors qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution fees on Class B shares
may exceed the initial sales charge on Class A shares during the
life of the investment. Generally, Class A shares may be more
appropriate for investors who invest $500,000 or more in Fund
shares.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE The Fund seeks to provide investors with
as high a level of current income as is consistent with the
preservation of capital. The Fund's investment objective cannot
be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the
"1940 Act") of its outstanding voting shares. There can be no
assurance that the Fund's investment objective will be achieved.
MANAGEMENT POLICIES The Fund will invest in a broad range of
U.S. dollar denominated bonds and debentures (including those
that are convertible), notes, mortgage-related securities,
asset-backed securities and municipal obligations of domestic
and foreign issuers ("Fixed-Income Securities") and in Money
Market Instruments, as defined in the Appendix. The Fund will
invest at least 65% of the value of its total assets (except
when maintaining a temporary defensive position) in bonds,
debentures and other debt obligations. Under normal market
conditions, at least 65% of the value of the Fund's total assets
will consist of Fixed-Income Securities rated A or better by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch") or
Duff & Phelps, Inc. ("Duff"). The Fund will invest the
remainder of its assets in investment-grade Fixed Income
Securities and Money Market Instruments rated within the two
highest rating categories by Moody's, S&P, Fitch or Duff. In
addition, the Fund will invest in Fixed Income Securities which,
while not rated, are determined by FCIMCO, to be of comparable
quality to those rated securities in which the Fund may invest.
The dollar-weighted average maturity of the Fund's portfolio is
expected to range between three and ten years. The Fund is not
limited in the maturities of the securities in which it invests
and the maturity of a portfolio security may range from
overnight to 40 years. See "Appendix."
When management believes it advisable for temporary
defensive purposes, the Fund may invest without limitation in
Money Market Instruments.
The Fund also may engage in futures and options
transactions which are derivative securities transactions,
leveraging, short-selling and lending portfolio securities, each
of which involves risk. See "Risk Factors" below and "Appendix
- -- Investment Techniques."
CERTAIN FUNDAMENTAL POLICIES The Fund may (i) borrow money to
the extent permitted under the 1940 Act, which currently
provides that total borrowings may not exceed 33-1/3% of the
value of the Fund's total assets; and (ii) invest up to 25% of
the value of its total assets in the securities of issuers in a
single industry, provided there is no limitation on the purchase
of obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting shares. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement
of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES The Fund may
(i) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii) invest
up to 15% of its net assets in repurchase agreements providing
for settlement in more than seven days after notice and in other
illiquid securities. See "Investment Objective and Management
Policies--Investment Restrictions" in the Statement of
Additional Information.
RISK FACTORS
GENERAL--The Fund's net asset value is not fixed and should be
expected to fluctuate.
The Fund's ability to engage in certain short-term
transactions may be limited by the requirement that, to qualify
as a regulated investment company, the Fund must earn less than
30% of its gross income from the disposition of securities held
for less than three months. This 30% test limits the extent to
which the Fund may sell securities held for less than three
months, effect short sales of securities held for less than
three months, write options expiring in less than three months
and invest in certain futures contracts, among other strategies.
However, portfolio turnover will not otherwise be a limiting
factor in making investment decisions.
FIXED-INCOME SECURITIES--Investors should be aware that even
though interest-bearing securities are investments which promise
a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. The
values of Fixed-Income Securities also may be affected by
changes in the credit rating or financial condition of the
issuing entities. Certain securities that may be purchased by
the Fund, such as those rated Baa by Moody's and BBB by S&P,
Fitch and Duff, may be subject to such risk with respect to the
issuing entity and to greater market fluctuations than certain
lower yielding, higher rated Fixed-Income Securities.
Securities which are rated Baa by Moody's are considered medium
grade obligations; they are neither highly protected nor poorly
secured, and are considered by Moody's to have speculative
characteristics. Securities rated BBB by S&P are regarded as
having adequate capacity to pay interest and repay principal,
and, while such debt securities ordinarily 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 securities in this category
than in higher rated categories. Securities rated BBB by Fitch
are considered investment grade and of satisfactory credit
quality; however, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on these
securities and, therefore, impair timely payment. Securities
rated BBB by Duff have below average protection factors but
nonetheless are considered sufficient for prudent investment.
See "Appendix--Certain Portfolio Securities--Ratings" and
Appendix in the Fund's Statement of Additional Information.
FOREIGN SECURITIES--Foreign securities markets generally are not
as developed or efficient as those in the United States.
Securities of some foreign issuers are less liquid and more
volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less
than in the United States and, at times, volatility of price can
be greater than in the United States. In addition, there may be
less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting
and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers. See "Appendix--
Certain Portfolio Securities--Money Market Securities--Bank
Obligations."
Because evidence of ownership of such securities
usually are held outside the United States, the Fund will be
subject to additional risks which include possible adverse
political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the
payment of principal and interest on the foreign securities or
might restrict the payment of principal and interest to
investors located outside the country of the issuers, whether
from currency blockage or otherwise. Custodial expenses for a
portfolio of non-U.S. securities generally are higher than for a
portfolio of U.S. securities.
Furthermore, some of these securities may be subject
to brokerage or stamp taxes levied by foreign governments, which
have the effect of increasing the cost of such investment and
reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by the
Fund from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States,
however, may reduce or eliminate such taxes. All such taxes
paid by the Fund will reduce its net income available for
distribution to its shareholders.
MORTGAGE-RELATED SECURITIES--No assurance can be given as to the
liquidity of the market for certain mortgage-backed securities,
such as collateralized mortgage obligations and stripped
mortgage-backed securities. Determination as to the liquidity
of interest-only and principal-only fixed mortgage-backed
securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines
established by the Fund's Board of Trustees. In accordance with
such guidelines, the Investment Adviser will monitor investments
in such securities with particular regard to trading activity,
availability of reliable price information and other relevant
information. The Fund intends to treat other stripped mortgage-
backed securities as illiquid securities. See "Appendix--
Certain Portfolio Securities--Fixed-Income Securities--Mortgage-
Related Securities" and "--Illiquid Securities."
ZERO COUPON SECURITIES--Federal income tax law requires the
holder of a zero coupon security or of certain pay-in-kind bonds
to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for Federal
income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose
of portfolio securities under disadvantageous circumstances in
order to generate cash to satisfy these distribution
requirements.
OTHER INVESTMENT CONSIDERATIONS--The classification of Fund as a
"non-diversified" investment company means that the proportion
of the Fund's assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified"
investment company is required by the 1940 Act generally, with
respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer and to hold
not more than 10% of the voting securities of any single issuer.
However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), which
requires that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of its total assets be
invested in cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes
of this calculation to an amount not greater than 5% of the
value of the Fund's total assets and (ii) not more than 25% of
the value of its total assets be invested in the securities of
any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies). Since a
relatively high percentage of the Fund's assets may be invested
in the securities of a limited number of issuers, some of which
may be within the same industry or economic sector, its
portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
Investment decisions for the Fund are made
independently from those of the other investment companies or
investment advisory accounts that may be advised by the
Investment Adviser. However, if such other investment companies
or managed accounts are prepared to invest in, or desire to
dispose of, securities in which the Fund invests at the same
time as the Fund, available investments or opportunities for
sales will be allocated equitably to each of them. In some
cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND ADMINISTRATOR. First Chicago Investment
Management Company ("FCIMCO"), located at Three First National
Plaza, Chicago, Illinois 60670, is the Fund's investment adviser
and administrator. FCIMCO is a newly-formed, registered
investment adviser and a wholly-owned subsidiary of The First
National Bank of Chicago ("FNBC"), a wholly-owned subsidiary of
First Chicago Corporation, a registered bank holding company.
FNBC is a commercial bank offering a wide range of banking and
investment services to customers throughout the United States
and around the world. As of June 30, 1994, FNBC was one of the
largest commercial banks in the United States and the largest in
the mid-western United States in terms of assets ($41.8 billion)
and in terms of deposits ($23.8 billion). As of June 30, 1994,
FNBC provided personal investment management services to
portfolios containing approximately $9.6 billion in assets.
FCIMCO, which was formed in late 1994 to conduct the
investment advisory activities previously conducted for mutual
funds by the Investment Management Department of FNBC, serves as
investment adviser for the Fund pursuant to an Investment
Advisory Agreement dated as of _____________. Under the
Investment Advisory Agreement, FCIMCO, subject to the
supervision of the Fund's Board of Trustees and in conformity
with Massachusetts law and the stated policies of the Fund,
provides the day-to-day management of the Fund's investments.
FCIMCO is responsible for making investment decisions for the
Fund, placing purchase and sale orders (which may be allocated
to various dealers based on their sale of Fund shares) and
providing research, statistical analysis and continuous
supervision of the Fund's investment portfolio. FCIMCO has
advised the Fund that in making its investment decisions FCIMCO
does not obtain or use material inside information in its or any
of its affiliate's possession.
Under the terms of the Investment Advisory Agreement,
the Fund has agreed to pay FCIMCO a monthly fee at the annual
rate of .40 of 1% of the value of the Fund's average daily net
assets. Prior to _________, 199_, FNBC served as the Fund's
manager. No fees were paid by the Fund for the period March 5,
1993 (commencement of operations) through January 31, 1994 and
for the period February 1, 1994 through _________, 199_,
pursuant to various undertakings by FNBC.
The Fund's primary portfolio manager is Annette Cole.
She has held that position since the Fund's inception, and has
been employed by FNBC since October 1984. FCIMCO also provides
research services for the Fund as well as for other funds it
advises through a professional staff of portfolio managers and
securities analysts.
FCIMCO also serves as the Fund's administrator
pursuant to an Administration Agreement with the Fund. Under
the Administration Agreement, FCIMCO generally assists in all
aspects of the Fund's operations, other than providing
investment advice, subject to the overall authority of the
Fund's Board in accordance with Massachusetts law. Under the
terms of the Administration Agreement, the Fund has agreed to
pay FCIMCO a monthly fee at the annual rate of .15% of the value
of the Fund's average daily net assets. FCIMCO has engaged
Concord Holding Corporation, located at 125 West 55th Street,
New York, New York 10019 (the "Sub-Administrator"), to assist it
in providing certain administrative services for the Fund
pursuant to a Master Sub-Administration Agreement between FCIMCO
and the Sub-Administrator. FCIMCO, from its own funds, will pay
the Sub-Administrator for the Sub-Administrator's services.
Prior to ______, 199_, FNBC had engaged The Dreyfus
Corporation ("Dreyfus") to assist it in providing certain
administrative services for the Fund pursuant to a separate
agreement between it and Dreyfus.
DISTRIBUTOR. Concord Financial Group, Inc., located at 125 West
55th Street, New York, New York 10019, serves as the Fund's
principal underwriter and distributor of the Fund's shares. The
Distributor, a wholly-owned subsidiary of the Sub-Administrator,
was organized to distribute shares of mutual funds to
institutional and retail investors. The Distributor distributes
the shares of other investment companies with over $21 billion
in assets.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN.
__________________, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York,
110 Washington Street, New York, New York 10286, is the Fund's
Custodian.
EXPENSES. All expenses incurred in the operation of the Fund
are borne by the Fund, except to the extent specifically assumed
by the Investment Adviser. The expenses borne by the Fund
include the following: organizational costs, taxes, interest,
loan commitment fees, interest paid on securities sold short,
brokerage fees and commissions, if any, fees of Trustees who are
not officers, directors, employees or holders of 5% or more of
the outstanding voting securities of the Investment Adviser or
its affiliates, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's
existence, costs of independent pricing services, costs
attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of share-
holders' reports and meetings and any extraordinary expenses.
Class A and Class B shares are subject to an annual service fee
for ongoing personal services relating to shareholder accounts
and services related to the maintenance of shareholder accounts.
In addition, Class B shares are subject to an annual
distribution fee for advertising, marketing and distributing
Class B shares pursuant to a distribution plan adopted in
accordance with Rule 12b-1 under the 1940 Act. See
"Distribution Plan and Shareholder Services Plan."
HOW TO BUY FUND SHARES
INFORMATION APPLICABLE TO ALL PURCHASERS. When purchasing Fund
shares, you must specify whether the purchase is for Class A,
Class B or Class I shares. Class A and Class B shares are
offered to the general public and may be purchased through a
number of institutions, including FCIMCO, FNBC and their
affiliates, other Service Agents, and directly through the
Distributor. Orders for purchases of Class I shares may be
placed only for clients of FCIMCO, FNBC or their affiliates for
their Fiduciary Accounts maintained at FCIMCO, FNBC or one of
their affiliates and Eligible Retirement Plans with assets in
excess of $100 million. Class I shares may be purchased for a
Fiduciary Account or Eligible Retirement Plan only by a
custodian, trustee, investment manager or other entity
authorized to act on behalf of such Account or Plan. Share
certificates will not be issued. The Fund reserves the right to
reject any purchase order.
The minimum initial investment for each Class is
$1,000. However, for IRAs and other personal retirement plans,
the minimum initial investment is $250. All subsequent
investments must be at least $100. The initial investment must
be accompanied by the Fund's Account Application. FCIMCO and
Service Agents may impose initial or subsequent investment
minimums which are higher or lower than those specified above
and may impose different minimums for different types of
accounts or purchase arrangements.
Shares of the Fund are sold on a continuous basis.
Net asset value per share of each Class is determined as of the
close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time), on each business day
(which, as used herein, shall include each day the New York
Stock Exchange is open for business, except Martin Luther King,
Jr. Day, Columbus Day and Veterans' Day). For purposes of
determining net asset value per share, options and futures
contracts will be valued 15 minutes after the close of trading
on the New York Stock Exchange. 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 its shares of such
Class outstanding. The Fund's investments are valued each
business day generally by using available market quotations or
at fair value which may be determined by one or more pricing
services approved by the Board of Trustees. Each pricing
service's procedures are reviewed under the general supervision
of the Board of Trustees. For further information regarding the
methods employed in valuing the Fund's investments, see
"Determination of Net Asset Value" in the Fund's Statement of
Additional Information.
If an order is received by the Transfer Agent by the
close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time) on a business day, Fund
shares will be purchased at the public offering price determined
as of the close of trading on the floor of the New York Stock
Exchange on that day. Otherwise, Fund shares will be purchased
at the public offering price determined as of the close of
trading on the floor of the New York Stock Exchange on the next
business day, except where Class A or Class B shares are
purchased through a dealer as provided below.
Orders for the purchase of Class A or Class B shares
received by dealers by the close of trading on the floor of the
New York Stock Exchange on any business day and transmitted to
the Distributor by the close of its business day (normally 5:15
p.m., New York time) will be based on the public offering price
per share determined as of the close of trading on the floor of
the New York Stock Exchange on that day. Otherwise, the orders
will be based on the next determined public offering price. It
is the dealer's responsibility to transmit orders so that they
will be received by the Distributor before the close of its
business day.
Federal regulations require that an investor provide a
certified Taxpayer Identification Number ("TIN") upon opening or
reopening an account. See "Dividends, Distributions and Taxes"
and the Fund's Account Application for further information
concerning this requirement. Failure to furnish a certified TIN
to the Fund could subject an investor to a $50 penalty imposed
by the Internal Revenue Service (the "IRS").
CLASS A SHARES The public offering price for Class A shares is
the net asset value per share of that Class plus a sales load as
shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
----------------------------------------------------
As a % of As a % of Dealers'
offering net asset Reallowance
price value as a % of
AMOUNT OF TRANSACTION per share per share offering price
- ----------------------- --------- --------- --------------
<S> <C> <C> <C>
Less than $50,000 3.00 3.10 2.75
$50,000 to less than $100,000 2.50 2.60 2.25
$100,000 to less than $250,000 2.00 2.00 1.75
$250,000 to less than $500,000 1.50 1.50 1.25
$500,000 to less than $1,000,000 1.00 1.00 0.75
$1,000,000 and above none none none
</TABLE>
There is no initial sales charge on purchases of
$1,000,000 or more of Class A shares. However, if an investor
purchases Class A shares without an initial sales charge as part
of an investment of at least $1,000,000 and redeems those shares
within a certain period after purchase, a CDSC will be imposed
at the time of redemption as described below. The terms
contained in the section of the Fund's Prospectus entitled "How
to Redeem Fund Shares--Contingent Deferred Sales Charge--Class
B" (other than the amount of the CDSC and its time periods) are
applicable to the Class A shares subject to a CDSC. Letter of
Intent and Right of Accumulation apply to such purchases of
Class A shares. The following table sets forth the rates of
such CDSC for the indicated time periods:
<TABLE>
<CAPTION>
Amount of CDSC as a % of
Transactions at Amount Invested or Year Since Purchase
Offering Price Redemption Proceeds Payment Was Made
- --------------------- ------------------- --------------------
<S> <C> <C>
$1,000,000 to less 1.00% First or Second
than $2,500,000
$2,500,000 to less 0.50% First
than $5,000,000
$5,000,000 and above 0.25% First
</TABLE>
The dealer reallowance may be changed from time to
time but will remain the same for all dealers. With respect to
purchases of $1,000,000 or more of Class A shares made through
Service Agents (other than FCIMCO, FNBC or their affiliates),
the Distributor may pay such Service Agents from its own funds a
fee of up to 1.00% of the amount invested to compensate such
Service Agents for their distribution assistance in connection
with such purchases.
Full-time employees of NASD member firms and full-time
employees of other financial institutions which have entered
into an agreement with the Distributor pertaining to the sale of
Fund shares (or which otherwise have a brokerage-related or
clearing arrangement with an NASD member firm or other financial
institution with respect to sales of Fund shares), their spouses
and minor children, and accounts opened by a bank, trust company
or thrift institution, acting as a fiduciary or custodian, may
purchase Class A shares for themselves or itself, as the case
may be, at net asset value, provided that they have furnished
the Distributor appropriate notification of such status at the
time of the investment and such other information as it may
request from time to time in order to verify eligibility for
this privilege. This privilege also applies to full-time
employees of financial institutions affiliated with NASD member
firms whose employees are eligible to purchase Class A shares at
net asset value. In addition, Class A shares may be purchased
at net asset value for accounts registered under the Uniform
Gifts to Minors Act or Uniform Transfers to Minors Act which are
opened through FCIS. Class A shares also may be purchased at
net asset value on behalf of clients of FNBC or its affiliates
for their custody accounts. Class A shares are also offered at
net asset value to directors and full-time or part-time
employees of First Chicago Corporation, or any of its affiliates
and subsidiaries, retired employees of First Chicago
Corporation, or any of its affiliates and subsidiaries, Board
members of a fund advised by the Investment Adviser, including
members of the Fund's Board, or the spouse or minor child of any
of the foregoing.
Class A shares will be offered at net asset value
without a sales load to employees participating in qualified or
non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or
programs have a minimum of 250 employees eligible for
participation in such plans or programs or (ii) such plan's or
program's aggregate initial investment in the Fund, and certain
other funds advised by the Investment Adviser exceeds one
million dollars ("Eligible Benefit Plans"). The determination
of the number of employees eligible for participation in such a
plan or program shall be made on the date that Class A shares
are first purchased by or on behalf of employees participating
in such plan or program and on each subsequent January 1st.
CLASS B SHARES. The public offering price for Class B shares is
the net asset value per share of that Class. No initial sales
charge is imposed at the time of purchase. A CDSC is imposed,
however, on certain redemptions of Class B shares as described
under "How to Redeem Fund Shares." The Distributor may
compensate certain Service Agents for selling Class B shares at
the time of purchase from its own assets. Proceeds of the CDSC
and distribution fees payable to the Distributor, in part, are
used to defray these expenses.
CLASS I SHARES. The public offering price for Class I shares is
the net asset value per share of that class. No sales charge is
imposed for Class I shares.
PURCHASING SHARES THROUGH ACCOUNTS WITH THE ADVISER OR A SERVICE
AGENT. Investors who desire to purchase shares through their
accounts at FCIMCO, FNBC or their affiliates or a Service Agent
should contact such entity directly for appropriate
instructions, as well as for information about conditions
pertaining to the account and any related fees. FCIMCO, FNBC
and their affiliates may charge clients direct fees for services
provided to clients as fiduciary or agent in connection with
accounts through which shares are purchased. These fees, if
any, would be in addition to fees received by FCIMCO under the
Investment Advisory Agreement or Administration Agreement.
Service Agents also may charge clients direct fees for effecting
transactions in Class A or Class B shares. These fees, if any,
would be in addition to fees received by a Service Agent under
the Shareholder Services Plan. Each Service Agent has agreed to
transmit to its clients a schedule of such fees. FCIMCO, FNBC
and their affiliates may receive different levels of
compensation for selling different Classes of shares. In
addition, FCIMCO, FNBC and Service Agents may receive different
levels of compensation for selling different Classes of shares
and may impose minimum account and other conditions, including
conditions which might affect the availability of certain
shareholder privileges described in this Prospectus. It is the
responsibility of FNBC and Service Agents to transmit orders on
a timely basis.
RIGHT OF ACCUMULATION--CLASS A SHARES. Reduced sales loads
apply to any purchase of Class A shares of the Fund, shares of
other funds advised by FCIMCO which are sold with a sales load
or acquired by a previous exchange of shares purchased with a
sales load and shares of certain other funds advised by FCIMCO
which are sold with a sales load (hereinafter referred to as
"Eligible Funds") by an investor and any related "purchaser" as
defined in the Statement of Additional Information, is $50,000
or more. If, for example, an investor previously purchased and
still holds Class A shares of the Fund, or of any other Eligible
Fund or combination thereof, with an aggregate current market
value of $40,000 and subsequently purchases Class A shares of
the Fund or an Eligible Fund having a current value of $20,000,
the sales load applicable to the subsequent purchase would be
reduced to 2.50% of the offering price (2.60% of the net asset
value). All present holdings of Eligible Funds may be combined
to determine the current offering price of the aggregate
investment in ascertaining the sales load applicable to each
subsequent purchase.
To qualify for reduced sales loads, at the time of a
purchase an investor or his Service Agent must notify the
Distributor if orders are made by wire, or the Transfer Agent if
orders are made by mail. The reduced sales load is subject to
confirmation of the investor's holdings through a check of
appropriate records.
SHAREHOLDER SERVICES
The Exchange Privilege and Automatic Investment Plan
are available to shareholders of any class. The Letter of
Intent and Reinstatement Privilege are available only for Class
A and Class B shareholders, respectively. In addition, such
services and privileges may not be available to clients of
certain Service Agents and some Service Agents may impose
certain conditions on their clients which are different from
those described in this Prospectus. Each investor should
consult his Service Agent in this regard.
EXCHANGE PRIVILEGE. The Exchange Privilege enables an investor
to purchase, in exchange for shares of the Fund, shares of the
same Class of other funds advised by the Investment Adviser.
This privilege may be expanded to permit exchanges between the
Fund and other funds that, in the future, may be advised by the
Investment Adviser.
Shares of the same Class of funds purchased by
exchange will be purchased on the basis of relative net asset
value per share as follows:
A. Exchanges for shares of funds that are offered without
a sales load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be
exchanged without a sales load for shares of other
funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of
funds acquired by a previous exchange from shares
purchased with a sales load and additional shares
acquired through reinvestment of dividends or
distributions of any such funds (collectively referred
to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred
to herein as "Offered Shares"), provided that, if the
sales load applicable to the Offered Shares exceeds
the maximum sales load that could have been imposed in
connection with the Purchased Shares (at the time the
Purchased Shares were acquired), without giving effect
to any reduced loads, the difference will be deducted.
E. Shares of funds subject to a CDSC that are exchanged
for shares of another fund will be subject to the
higher applicable CDSC of the two funds, and for
purposes of calculating CDSC rates and conversion
periods, if any, will be deemed to have been held
since the date the shares being exchanged were
initially purchased.
To accomplish an exchange under item D above,
shareholders must notify the Transfer Agent of their prior
ownership of fund shares and their account number.
No fees currently are charged shareholders directly in
connection with exchanges although the Fund reserves the right,
upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves
the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
The exchange of shares of the Fund for shares of
another is treated for Federal income tax purposes as a sale of
the shares given in exchange by the shareholder and, therefore,
an exchanging shareholder may realize a taxable gain or loss.
LETTER OF INTENT--CLASS A SHARES. By signing a Letter of Intent
form, available from the Distributor, FCIMCO, certain affiliates
of FCIMCO or certain Service Agents, an investor becomes
eligible for the reduced sales load applicable to the total
number of Eligible Fund shares purchased in a 13-month period
(beginning up to 30 days before the date of execution of the
Letter of Intent) pursuant to the terms and conditions set forth
in the Letter of Intent. A minimum initial purchase of $5,000
is required. To compute the applicable sales load, the offering
price of shares the investor holds (on the date of submission of
the Letter of Intent) in any Eligible Fund that may be used
toward "Right of Accumulation" benefits described above may be
used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow 5% of the
amount indicated in the Letter of Intent for payment of a higher
sales load if the investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released
when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the
total minimum investment specified under a Letter of Intent, an
adjustment will be made to reflect any reduced sales load
applicable to shares purchased during the 30-day period before
submission of the Letter of Intent. In addition, if the
investor's purchases qualify for a further sales load reduction,
the sales load will be adjusted to reflect the investor's total
purchase at the end of 13 months. If total purchases are less
than the amount specified, the investor will be requested to
remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate
purchases actually made. If such remittance is not received
within 20 days, the Transfer Agent, as attorney-in-fact pursuant
to the terms of the Letter of Intent, will redeem an appropriate
number of Class A shares held in escrow to realize the
difference. Signing a Letter of Intent does not bind the
investor to purchase, or the Fund to sell, the full amount
indicated at the sales load in effect at the time of signing,
but the investor must complete the intended purchase to obtain
the reduced sales load. At the time an investor purchases
shares, he must indicate his intention to do so under a Letter
of Intent. Purchases pursuant to a Letter of Intent will be
made at the then current net asset value, plus the lower of the
applicable sales load in effect at the time such Letter of
Intent was executed or the current applicable sales load.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan
permits an investor to purchase shares at regular intervals
selected by the investor. Provided the investor's bank or other
financial institution allows automatic withdrawals, shares may
be purchased by transferring funds from the bank account
designated by the investor. At the investor's option, the
account designated will be debited in the specified amount, and
shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. To
establish an Automatic Investment Plan account, the investor
must check the appropriate box and supply the necessary
information on the Account Application. Investors may obtain
the necessary applications from the Distributor. An investor
may cancel his or her participation in the Plan or change the
amount of purchase at any time by mailing written notification
to __________________, and such notification will be effective
three business days following receipt. The Fund may modify or
terminate the Automatic Investment Plan at any time or charge a
service fee. No such fee currently is contemplated.
REINSTATEMENT PRIVILEGE. The Reinstatement Privilege enables
investors who have redeemed Class A or Class B shares to
repurchase, within 30 days of such redemption, Class A or Class
B shares in an amount not to exceed the redemption proceeds
received. Class A shares so reinstated will be offered at a
purchase price equal to the then-current net asset value of
Class A determined after a reinstatement request and payment for
Class A shares are received by the Transfer Agent. With respect
to Class B shares so reinstated, the CDSC applicable on
redemption of the acquired Class B shares will be calculated
from the date of the initial purchase of such Class B shares
previously redeemed. This privilege also enables such investors
to reinstate their account for the purpose of exercising the
Exchange Privilege. To use the Reinstatement Privilege, an
investor must submit a written reinstatement request to the
Transfer Agent. The reinstatement request and payment must be
received within 30 days of the trade date of the redemption.
There currently are no restrictions on the number of times an
investor may use this privilege.
HOW TO REDEEM FUND SHARES
GENERAL. An investor may request redemption of his shares at
any time. Redemption requests should be transmitted to the
Transfer Agent as described below. An investor who has
purchased shares through his Fiduciary Account or as a
participant in an Eligible Retirement Plan must redeem shares by
following instructions pertaining to such Account or Plan. It
is the responsibility of FNBC to transmit the redemption order
to the Transfer Agent and credit the investor's account with the
redemption proceeds on a timely basis. When a request is
received in proper form, the Fund will redeem the shares at the
next determined net asset value as described below. If an
investor holds Fund shares of more than one Class, any request
for redemption must specify the Class of shares being redeemed.
If an investor fails to specify the Class of shares to be
redeemed, Class A shares will be redeemed first. If an investor
owns fewer shares of the Class than specified to be redeemed,
the redemption request may be delayed until the Transfer Agent
receives further instructions from the investor or his Service
Agent.
The Fund imposes no charges when shares are redeemed.
However, the Distributor may impose a CDSC as described below.
Service Agents may charge a nominal fee for effecting
redemptions of Fund shares. The value of the shares redeemed
may be more or less than their original cost, depending upon the
Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares
redeemed within seven days after receipt by the Transfer Agent
of a redemption request in proper form, except as provided by
the rules of the Securities and Exchange Commission. HOWEVER,
IF AN INVESTOR HAS PURCHASED FUND SHARES BY CHECK OR THROUGH THE
AUTOMATIC INVESTMENT PLAN AND SUBSEQUENTLY SUBMITS A WRITTEN
REDEMPTION REQUEST TO THE TRANSFER AGENT, THE REDEMPTION
PROCEEDS WILL BE TRANSMITTED TO THE INVESTOR PROMPTLY UPON BANK
CLEARANCE OF THE INVESTOR'S PURCHASE CHECK OR THE AUTOMATIC
INVESTMENT PLAN ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS
OR MORE. IN ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS
UNDER THE CHECK REDEMPTION PRIVILEGE FOR A PERIOD OF EIGHT
BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE
PURCHASE CHECK OR THE AUTOMATIC INVESTMENT PLAN ORDER AGAINST
WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT
APPLY IF THE INVESTOR OTHERWISE HAS A SUFFICIENT COLLECTED
BALANCE IN HIS ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR
TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH
SHARES WILL ACCRUE AND BE PAYABLE, AND THE INVESTOR WILL BE
ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP.
Fund shares will not be redeemed until the Transfer Agent has
received the investor's Account Application.
The Fund reserves the right to redeem an investor's
account at the Fund's option upon not less than 45 days' written
notice if the account's net asset value is $500 or less and
remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A CDSC
payable to the Distributor may be imposed on redemptions of
Class B shares depending on the number of years such shares were
held by the investor. The following table sets forth the rates
of the CDSC applied for the Fund:
CDSC as a
% of Amount
Year Since Invested or
Purchase Payment Redemption
Was Made Proceeds
- ----------------- -----------
First . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Second . . . . . . . . . . . . . . . . . . . . . . . 3.00
Third . . . . . . . . . . . . . . . . . . . . . . . . 2.00
Fourth . . . . . . . . . . . . . . . . . . . . . . . 2.00
Fifth . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Sixth . . . . . . . . . . . . . . . . . . . . . . . . None
Seventh . . . . . . . . . . . . . . . . . . . . . . . None
Eighth . . . . . . . . . . . . . . . . . . . . . . . <F1>
________________
[FN] Conversion to Class A shares.
In determining whether a CDSC is applicable to a
redemption, the calculation will be made in a manner that
results in the lowest possible rate. Class B shares redeemed
will not be subject to a CDSC to the extent that the value of
such shares represents capital appreciation or reinvestment of
dividends or distributions. It will be assumed that the
redemption is made first of Class B shares acquired pursuant to
the reinvestment of dividends and distributions or representing
any capital appreciation in the value of the Class B shares held
by the investor; then of Class B shares held for the longest
period of time.
WAIVER OF CDSC. The CDSC will be waived in connection with (a)
redemptions made within one year after the death of the
shareholder, (b) redemptions by shareholders after age 70-1/2
for purposes of the minimum required distribution from an IRA,
Keogh plan or custodial account pursuant to Section 403(b) of
the Code, (c) distributions from a qualified plan upon
retirement, (d) redemptions of shares acquired through a
contribution in excess of permitted amounts, (e) redemptions
initiated by the Fund of accounts with net assets of less than
$500, and (f) redemptions by such shareholders as the Securities
and Exchange Commission or its staff may permit.
CONVERSION OF CLASS B SHARES. Class B shares automatically
convert to Class A shares (and thus become subject to the lower
expenses borne by Class A shares) in the eighth year after the
date of purchase, together with the pro rata portion of all
Class B shares representing dividends and other distributions
paid in additional Class B shares. The conversion will be
effected at the relative net asset values per share of the two
Classes on the first business day of the month following the
seventh anniversary of the original purchase occurs. If any
exchanges of Class B shares during the eight-year period
occurred, the holding period for the shares exchanged will be
counted toward the eight-year period. At the time of the
conversion the net asset value per share of the Class A shares
may be higher or lower than the net asset value per share of the
Class B shares; as a result, depending on the relative net asset
values per share, a shareholder may receive fewer or more Class
A shares than the number of Class B shares converted.
The Fund reserves the right to cease offering Class B
shares for sale at any time or reject any order for the purchase
of Class B shares and to cease offering any services provided by
Service Agent.
PROCEDURES. An investor who has purchased shares through his
account at FCIMCO, FNBC or a Service Agent must redeem shares by
following instructions pertaining to such account. If an
investor has given his Service Agent authority to instruct the
Transfer Agent to redeem shares and to credit the proceeds of
such redemption to a designated account at the Service Agent,
the investor may redeem shares only in this manner and in
accordance with a written redemption request described below.
It is the responsibility of FCIMCO, FNBC or the Service Agent,
as the case may be, to transmit the redemption order and credit
the investor's account with the redemption proceeds on a timely
basis.
An investor may redeem or exchange shares by telephone
if the investor has checked the appropriate box on the Account
Application. By selecting a telephone redemption or exchange
privilege, an investor authorizes the Transfer Agent to act on
telephone instructions from any person representing himself or
herself to be the investor, or a representative of the
investor's Service Agent, and reasonably believed by the
Transfer Agent to be genuine. The Fund will require the
Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither
the Fund nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions,
an investor may experience difficulty in contacting the Transfer
Agent by telephone to request a redemption or exchange of Fund
shares. In such cases, investors should consider using the
other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's
redemption request being processed at a later time than it would
have been if telephone redemption had been used. During the
delay, the Fund's net asset value may fluctuate.
WRITTEN REDEMPTION REQUESTS. Investors may redeem shares by
written request mailed to Prairie Intermediate Bond Fund,
___________________. Redemption requests must be signed by each
shareholder, including each owner of a joint account, and each
signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees
in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and
savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP"), and the Stock
Exchanges Medallion Program.
CHECK REDEMPTION PRIVILEGE--CLASS A SHARES. An investor may
request on the Account Application or by later written request
to the Fund that the Fund provide Redemption Checks drawn on the
Fund's account. Redemption Checks may be made payable to the
order of any person in the amount of $500 or more. Potential
fluctuations in the net asset value of Class A shares should be
considered in determining the amount of the check. Redemption
Checks should not be used to close an account. Redemption
Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check at the investor's request
or if the Transfer Agent cannot honor the Redemption Check due
to insufficient funds or other valid reason. An investor should
date his Redemption Checks with the current date when the
investor writes them. Please do not postdate Redemption Checks.
If an investor does, the Transfer Agent will honor, upon
presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of
presentment of payment, if they are otherwise in good order.
Shares for which certificates have been issued may not be
redeemed by Redemption Check. This Privilege may be modified or
terminated at any time by the Fund or the Transfer Agent upon
notice to holders of Class A shares.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class B shares of the Fund are subject to an annual
distribution fee pursuant to the Distribution Plan. Class A and
Class B shares of the Fund are subject to an annual service fee
pursuant to the Shareholder Services Plan.
DISTRIBUTION PLAN--(Class B only) Under the Distribution Plan,
adopted pursuant to Rule 12b-1 under the 1940 Act, the Fund has
agreed to pay the Distributor for advertising, marketing and
distributing Class B shares of the Fund at an aggregate annual
rate of .75% of the value of the average daily net assets of
Class B. The Distributor may pay one or more Service Agents in
respect of these services. FCIMCO, FNBC and their affiliates
may act as Service Agents and receive fees under the
Distribution Plan. The Distributor determines the amounts, if
any, to be paid to Service Agents under the Distribution Plan
and the basis on which such payments are made. The fees payable
under the Distribution Plan are payable without regard to actual
expenses incurred.
SHAREHOLDER SERVICES PLAN--(Class A and Class B) Under the
Shareholder Services Plan, the Fund pays the Distributor for the
provision of certain services to the holders of these shares a
fee at an annual rate of .25% of the value of the average daily
net assets of Class A or Class B. The services provided may
include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to
the maintenance of shareholder accounts. Under the Shareholder
Services Plan, the Distributor may make payments to Service
Agents in respect of these services. FCIMCO, FNBC and their
affiliates may act as Service Agents and receive fees under the
Shareholder Services Plan. The Distributor determines the
amounts to be paid to Service Agents. Each Service Agent is
required to disclose to its clients any compensation payable to
it by the Fund pursuant to the Shareholder Services Plan and any
other compensation payable by their clients in connection with
the investment of their assets in Fund shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from net
investment income on each business day. Dividends usually are
paid on the last calendar day of each month, and are
automatically reinvested in additional Fund shares at net asset
value or, at the investor's option, paid in cash. The Fund's
earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding business day. If an investor redeems
all shares in the investor's account at any time during the
month, all dividends to which such investor is entitled will be
paid to the investor along with the proceeds of the redemption.
The Fund will make distributions from net realized
securities gains, if any, once a year, but may make
distributions on a more frequent basis to comply with the
distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. Dividends are
automatically reinvested in additional Fund shares of the same
Class from which they were paid at net asset value, unless
payment in cash is requested.
Dividends paid by the Fund derived from net investment
income, together with distributions from any net realized short-
term securities gains, will be taxable to U.S. investors as
ordinary income whether or not reinvested in additional Fund
shares. Distributions from net realized long-term securities
gains, if any, will be taxable to U.S. shareholders as long-term
capital gains for Federal income tax purposes, regardless of how
long investors have held shares and whether such distributions
are received in cash or reinvested in additional shares.
Notice as to the tax status of an investor's dividends
and distributions will be mailed to such investor annually.
Each investor also will receive periodic summaries of such
investor's account which will include information as to
dividends and distributions from securities gains, if any, paid
during the year. Participants in an Eligible Retirement Plan
should receive periodic statements from the trustee, custodian
or administrator of their Plan.
Federal regulations generally require the Fund to
withhold ("backup withholding") and remit to the U.S. Treasury
31% of dividends, distributions from net realized securities
gains and the proceeds of any redemption, regardless of the
extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct
or that such shareholder has not received notice from the IRS of
being subject to backup withholding as a result of a failure to
properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to
institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to
properly report taxable dividend and interest income on a
Federal income tax return. A TIN is either the Social Security
number or employer identification number of the record owner of
the account.
Management of the Fund believes the Fund has qualified
for the fiscal year ended January 31, 1994 as a "regulated
investment company" under the Code. The Fund continues to so
qualify if such qualification is in the best interests of its
shareholders. Such qualification relieves the Fund of any
liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the
Code. In addition, each Fund is subject to a non-deductible 4%
excise tax, measured with respect to certain undistributed
amounts of taxable investment income and capital gains.
Each investor should consult his or her tax adviser
regarding specific questions as to Federal, state or local
taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance of each Class
of shares is calculated on several bases, including current
yield, average annual total return and/or total return. These
total return figures reflect changes in the price of the shares
and assume that any income dividends and/or capital gains
distributions made by the Fund during the measuring period were
reinvested in shares of the same Class. Class A total return
figures include the maximum initial sales charge and Class B
total return figures include any applicable CDSC. These figures
also take into account any applicable service and distribution
fees. Performance for each Class will be calculated separately.
Current yield refers to the Fund's annualized net
investment income per share over a 30-day period, expressed as a
percentage of the maximum offering price per share in the case
of Class A or the net asset value per share in the case of Class
B or Class I at the end of the period. For purposes of
calculating current yield, the amount of net investment income
per share during that 30-day period, computed in accordance with
regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a
second six-month period which, when added to the result for the
first six months, provides an "annualized" yield for an entire
one-year period. Calculations of the Fund's current yield may
reflect absorbed expenses pursuant to any undertaking that may
be in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to
a standardized formula which assumes that an investment in the
Fund was purchased with an initial payment of $1,000 and that
the investment was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis,
would result in the redeemable value of the investment at the
end of the period. Advertisements of the Fund's performance
will include the Fund's average annual total return of Class A
and Class B for one, five and ten year periods, or for shorter
time periods depending upon the length of time during which the
Fund has operated. Computations of average annual total return
for periods of less than one year represent an annualization of
the Fund's actual return for the applicable period.
Total return is computed on a per share basis and
assumes the reinvestment of dividends and distributions. Total
return generally is expressed as a percentage rate which is
calculated by combining the income and principal changes for a
specified period and dividing by the maximum offering price per
share in the case of Class A or the net asset value per share in
the case of Class B or Class I at the beginning of the period.
Advertisements may include the percentage rate of total return
or may include the value of a hypothetical investment at the end
of the period which assumes the application of the percentage
rate of total return. Total return also may be calculated by
using the net asset value per share at the beginning of the
period instead of the maximum offering price per share at the
beginning of the period for Class A shares or without giving
effect to any applicable CDSC at the end of the period for Class
B shares. Calculations based on the net asset value per share
do not reflect the deduction of any sales load which, if
reflected, would reduce the performance quoted.
Performance will vary from time to time and past
results are not necessarily representative of future results.
Investors should remember that performance is a function of
portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not
provide a basis for comparison with other investments or other
investment companies using a different method of calculating
performance.
Comparative performance information may be used from
time to time in advertising or marketing the Fund's shares,
including data from Lipper Analytical Services, Inc., Bank Rate
Monitor , N. Palm Beach, Fla., 33408, Bond Buyers 20-Bond Index,
Moody's Bond Survey Bond Index, Lehman Brothers Corporate Bond
Index, Morningstar, Inc. and other industry publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business
trust under the laws of the Commonwealth of Massachusetts
pursuant to an Agreement and Declaration of Trust (the "Trust
Agreement") dated March 12, 1992, and commenced operations on
March 5, 1993. Effective ___, 1995, the Fund's name was changed
from First Prairie U.S. Government Income Fund to Prairie
Intermediate Bond Fund. On that date, shareholders voted to
remove one of its fundamental policies that limited it to
investing at least 65% of its assets in U.S. Government
securities and also voted to approve its status as a non-
diversified investment company.
The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share.
Series shares are classified into three classes--Class A, Class
B and Class I. Each share has one vote and shareholders will
vote in the aggregate and not by class except as otherwise
required by law or when class voting is permitted by the Board
of Trustees. However, holders of Class A and Class B shares
will be entitled to vote on matters submitted to shareholders
pertaining to the Shareholder Services Plan and only holders of
Class B shares will be entitled to vote on matters submitted to
shareholders pertaining to the Distribution Plan. The
Investment Adviser has agreed to vote Fund shares for which it
is the record owner according to voting instructions received
from the beneficial holders of such shares.
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Fund. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Fund or a Trustee. The Trust Agreement provides for
indemnification from the Fund's property for all losses and
expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be
unable to meet its obligations, a possibility which management
believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled
to reimbursement from the general assets of the Fund.
The Trustees intend to conduct the operations of the
Fund in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund. As
discussed under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold
shareholder meetings; however, shareholders under certain
circumstances may have the right to call a meeting of
shareholders for the purpose of voting to remove Trustees.
Rule 18f-2 under the Investment Company Act of 1940
provides that any matter required to be submitted under the
provisions of the Investment Company Act of 1940 or applicable
state law or otherwise to the holders of the outstanding voting
securities of an investment company, such as the Fund, will not
be deemed to have been effectively acted upon unless approved by
the holders of a majority of the outstanding shares of each
Series affected by such matter. Rule 18f-2 further provides
that a Series shall be deemed to be affected by a matter unless
it is clear that the interests of such Series in the matter are
identical or that the matter does not affect any interest of
such Series. However, the Rule exempts the selection of
independent accountants and the election of Trustees from the
separate voting requirements of the Rule.
The Transfer Agent maintains a record of each
investor's ownership and sends confirmations and statements of
account.
Investor inquiries may be made to the investor's
Service Agent, including FCIMCO, or by writing to the Fund at
the address shown on the front cover or by calling the
appropriate telephone number.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. 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.
<PAGE>
APPENDIX
PORTFOLIO SECURITIES
FIXED-INCOME SECURITIES
Convertible Securities--Convertible securities are fixed-income
securities that may be converted at either a stated price or
stated rate into underlying shares of common stock. Convertible
securities have general characteristics similar to both fixed-
income and equity securities. Although to a lesser extent than
with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stock,
and, therefore, also will react to variations in the general
market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market
value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise
as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than
investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price
of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices
fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar
non-convertible securities.
U.S. Government Securities--These securities are described under
"Money Market Instruments--U.S. Government Securities" below and
may be purchased without regard to maturity.
Zero Coupon and Stripped Securities--Zero coupon U.S. Treasury
securities are Treasury Notes and Bonds that have been stripped
of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped
debt obligations and coupons. Zero coupon securities also are
issued by corporations and financial institutions which
constitute a proportionate ownership of the issuer's pool of
underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and is sold at a
discount to its face value at maturity. The amount of the
discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
Participation Interests--A participation interest gives the
purchaser an undivided interest in a security in the proportion
that such purchaser's participation interest bears to the total
principal amount of the security. These instruments may have
fixed, floating or variable rates of interest. If the
participation interest is unrated, or has been given a rating
below that which is permissible for purchase by the Fund, the
participation interest will be backed by an irrevocable letter
of credit or guarantee of a bank, or the payment obligation
otherwise will be collateralized by U.S. Government securities,
or, in the case of unrated participation interests, the
Investment Adviser must have determined that the instrument is
of comparable quality to those instruments in which the Fund may
invest.
Mortgage-Related Securities--Mortgage-related securities are
securities collateralized by pools of mortgage loans assembled
for sale to investors by various governmental agencies, such as
the Government National Mortgage Association and government-
related organizations such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as
well as by private issuers such as commercial banks, savings and
loan institutions, mortgage banks and private mortgage insurance
companies, and similar foreign entities. Mortgage-related
securities are a form of derivative security. The mortgage-
related securities which may be purchased include those with
fixed, floating and variable interest rates, those with interest
rates that change based on multiples of changes in interest
rates and those with interest rates that change inversely to
changes in interest rates, as well as stripped mortgage-backed
securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions
of interest and principal distributions on a pool of mortgage-
backed securities or whole loans. A common type of stripped
mortgage-backed security will have one class receiving some of
the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the
interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive
all of the principal (the principal-only or "PO" class).
Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If a
mortgage-related security is purchased at a premium, all or part
of the premium may be lost if there is a decline in the market
value of the security, whether resulting from changes in
interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the
prices of certain of these securities are inversely affected by
changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise,
the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security
are more likely to prepay. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages, and,
therefore, it is not possible to predict accurately the
security's return to a Fund. Moreover, with respect to stripped
mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated
in the highest rating category by a nationally recognized
statistical rating organization. In addition, regular payments
received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the
return the Fund will receive when these amounts are reinvested.
For further discussion concerning the investment considerations
involved, see "Investment Objectives and Management Policies--
Portfolio Securities--Mortgage-Related Securities" in the
Statement of Additional Information.
Asset-Backed Securities--The securitization techniques used for
asset-backed securities are similar to those used for mortgage-
related securities. Asset-backed securities are a form of
derivative security. These securities include debt securities
and securities with debt-like characteristics. The collateral
for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases,
airplane leases, mobile home loans, recreational vehicle loans
and hospital account receivables. The Fund may invest in these
and other types of asset-backed securities that may be developed
in the future.
Asset-backed securities present certain risks that are
not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest
in the related collateral. Credit card receivables generally
are unsecured and the debtors are entitled to the protection of
a number of state and Federal consumer credit laws, many of
which give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due.
Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were
to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. In addition,
because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest
in all of the obligations backing such receivables. Therefore,
there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support
payments on these securities.
Municipal Obligations--Municipal Obligations generally include
debt obligations issued to obtain funds for various public
purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. While in general,
Municipal Obligations are tax exempt securities having
relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain issues of Municipal
Obligations, both taxable and non-taxable, offer yields
comparable and in some cases greater than the yields available
on other permissible investments. Dividends received by
shareholders of the Fund, which are attributable to interest
income received by it from Municipal Obligations generally will
be subject to Federal income tax. Municipal Obligations bear
fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the
Municipal Obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples
thereof, in many cases subject to a maximum and minimum.
Unregistered Notes--The Fund may purchase unsecured promissory
notes ("Notes") which are not readily marketable and have not
been registered under the Securities Act of 1933, as amended,
provided such investments are consistent with the Fund's goal.
Foreign Government Obligations; Securities of Supranational
Entities--The Fund may invest in obligations issued or
guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are
determined by the Investment Adviser to be of comparable quality
to the other obligations in which the Fund may invest. Such
securities also include debt obligations of supranational
entities. Supranational entities include international
organizations designated or supported by governmental entities
to promote economic reconstruction or development and
international banking institutions and related government
agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European
Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of the Fund's
assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the
investments are made and the interest rate climate of such
countries.
Ratings--The ratings of Moody's, S&P, Fitch and Duff represent
their opinions as to the quality of the obligations which they
undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and, although ratings may be
useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an
initial criterion for selection of portfolio investments, the
Investment Adviser also will evaluate such obligations and the
ability of their issuers to pay interest and principal. The
Fund will rely on the Investment Adviser's judgment, analysis
and experience in evaluating the creditworthiness of an issuer.
In this evaluation, the Investment Adviser will take into
consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends,
the quality of the issuer's management and regulatory matters.
It also is possible that a rating agency might not timely change
the rating on a particular issue to reflect subsequent events.
Once the rating of a security held by the Fund has been changed,
the Investment Adviser will consider all circumstances deemed
relevant in determining whether such Fund should continue to
hold the security.
MONEY MARKET INSTRUMENTS
U.S. Government Securities--Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities that differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of
the Federal Home Loan Banks, by the right of the issuer to
borrow from the U.S. Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the
credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. Principal and
interest may fluctuate based on generally recognized reference
rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it
will always do so, because it is not so obligated by law.
Bank Obligations--Bank obligations include certificates of
deposit, time deposits, bankers' acceptances and other short-
term obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks,
foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, the Fund may be subject to additional
investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the
securities, the possible establishment of exchange controls or
the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on
these securities and the possible seizure or nationalization of
foreign deposits.
Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited
with it for a specified period of time.
Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by the
Fund will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument
upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase Agreements--Repurchase agreements involve the
acquisition by the Fund of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and the
Fund to resell, the instrument at a fixed price usually not more
than one week after its purchase. Certain costs may be incurred
by the 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.
Certain Corporate Obligations--Commercial paper consists of
short-term, unsecured promissory notes issued by domestic or
foreign entities to finance short-term credit needs. Floating
and variable rate demand notes and bonds are obligations
ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any
time or at specified intervals. Variable rate demand notes
include variable amount master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts
at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. These notes
permit daily changes in the amounts borrowed. As mutually
agreed between the parties, the Fund may increase the amount
under the notes at any time up to the full amount provided by
the note agreement, or decrease the amount, and the borrower may
repay up to the full amount of the note without penalty.
Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that
such instruments generally will be traded, and there generally
is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued
interest, at any time. Accordingly, where these obligations are
not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand.
INVESTMENT TECHNIQUES
LEVERAGE THROUGH BORROWING--Borrowing for investment purposes is
known as leveraging and generally will be unsecured, except to
the extent the Fund enters into reverse repurchase agreements
described below. The 1940 Act requires the Fund to maintain
continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of
the amount borrowed. If the 300% asset coverage should decline
as a result of market fluctuations or other reasons, the Fund
may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.
Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's
portfolio. Money borrowed for leveraging will be subject to
interest costs that may or may not be recovered by appreciation
of the securities purchased; in certain cases, interest costs
may exceed the return received on the securities purchased. The
Fund also may be required to maintain minimum average balances
in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the
stated interest rate.
Among the forms of borrowing in which the Fund may
engage is the entry into reverse repurchase agreements with
banks, brokers or dealers. These transactions involve the
transfer by the Fund of an underlying debt instrument in return
for cash proceeds based on a percentage of the value of the
security. The Fund retains the right to receive interest and
principal payments on the security. At an agreed upon future
date, the Fund repurchases the security at principal, plus
accrued interest. In certain types of agreements, there is no
agreed upon repurchase date and interest payments are calculated
daily, often based on the prevailing overnight repurchase rate.
The Fund will maintain in a segregated custodial account cash or
U.S. Government securities or other high quality liquid debt
securities at least equal to the aggregate amount of its reverse
repurchase obligations, plus accrued interest, in certain cases,
in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission
views reverse repurchase transactions as collateralized
borrowings by the Fund. These agreements, which are treated as
if reestablished each day, are expected to provide the Fund with
a flexible borrowing tool.
SHORT-SELLING--The Fund may make short sales, which are
transactions in which the Fund sells a security it does not own
in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at such
time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund
is required to pay to the lender amounts equal to any dividends
or interest which accrue during the period of the loan. To
borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker,
to the extent necessary to meet margin requirements, until the
short position is closed out.
Until the Fund closes its short position or replaces
the borrowed security, the Fund will: (a) maintain a segregated
account, containing cash or U.S. Government securities, at such
a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount
deposited in the segregated account plus the amount deposited
with the broker as collateral will not be less than the market
value of the security at the time it was sold short; or
(b) otherwise cover its short position.
The Fund will incur a loss as a result of the short
sale if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security
declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount
of any premium or amounts in lieu of dividends or interest the
Fund may be required to pay in connection with a short sale.
The Fund may purchase call options to provide a hedge
against an increase in the price of a security sold short by the
Fund. When the Fund purchases a call option it has to pay a
premium to the person writing the option and a commission to the
broker selling the option. If the option is exercised by the
Fund, the premium and the commission paid may be more than the
amount of the brokerage commission charged if the security were
to be purchased directly. See "Options Transactions" below.
It is expected that the frequency of short sales on
behalf of the Fund will vary substantially under different
market conditions, and it is not intended that any specified
portion of the Fund's assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold
short if, after effect is given to any such short sale, the
total market value of all securities sold short would exceed 25%
of the value of the Fund's net assets. The Fund will not sell
short the securities of any single issuer listed on a national
securities exchange to the extent of more than 5% of the value
of the Fund's net assets and will not sell short the securities
of any class of an issuer to the extent, at the time of
transaction, of more than 5% of the outstanding securities of
that class.
In addition to the short sales discussed above, the
Fund may make short sales "against the box," a transaction in
which the Fund enters into a short sale of a security which the
Fund owns. The proceeds of the short sale will be held by a
broker until the settlement date at which time the Fund delivers
the security to close the short position. The Fund receives the
net proceeds from the short sale. At no time will the Fund have
more than 15% of the value of its net assets in deposits on
short sales against the box.
OPTIONS TRANSACTIONS--The Fund is permitted to invest up to 5%
of its assets, represented by the premium paid, in the purchase
of call and put options.
The Fund is permitted to purchase call and put options
in respect of specific securities (or groups or "baskets" of
specific securities) in which the Fund may invest. The Fund may
write and sell covered call option contracts on securities owned
by the Fund not exceeding 20% of the market value of its net
assets at the time such option contracts are written. The Fund
also may purchase call options to enter into closing purchase
transactions. The Fund also may write covered put option
contracts to the extent of 20% of the value of its net assets at
the time such option contracts are written. A call option gives
the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at
any time during the option period. Conversely, a put option
gives the purchaser of the option the right to sell, and
obligates the writer to buy, the underlying security at the
exercise price at any time during the option period. A covered
put option sold by the Fund exposes the Fund during the term of
the option to a decline in price of the underlying security or
securities. A put option sold by the Fund is covered when,
among other things, cash or liquid securities are placed in a
segregated account with the Fund's custodian to fulfill the
obligation undertaken.
Successful use by the Fund of options will be subject
to the Investment Adviser's ability to predict correctly
movements in the direction of interest rates. To the extent the
Investment Adviser's predictions are incorrect, the Fund may
incur losses which could adversely affect the value of a
shareholder's investment.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--The Fund may
enter into interest rate futures contracts, and options with
respect thereto. See "--Options Transactions" above. These
transactions will be entered into as a substitute for comparable
market positions in the underlying securities or for hedging
purposes. Although the Fund would not be a commodity pool, it
would be subject to rules of the CFTC limiting the extent to
which it could engage in these transactions.
Engaging in these transactions involves risk of loss
to the Fund which could adversely affect the value of a
shareholder's investment. Although the Fund intends to purchase
or sell futures contracts only if there is an active market for
such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to
substantial losses.
The Fund's commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to
regulations promulgated by the Commodity Futures Trading
Commission. In addition, the Fund may not engage in such
transaction if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options, other than
for bona fide hedging transactions, would exceed 5% of the
liquidation value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that in the
case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%.
To the extent the Fund engages in the use of futures and options
on futures for other than bona fide hedging purposes, the Fund
may be subject to additional risk.
Successful use of futures by the Fund also is subject
to the Investment Adviser's ability to predict correctly
movements in the direction of interest rates and, to the extent
the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract.
For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting the value of
securities held in its portfolio and prices increase instead,
the Fund will lose part or all of the benefit of the increased
value of securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have
to sell securities to meet daily variation margin requirements.
Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Fund may
have to sell securities at a time when it may be disadvantageous
to do so.
Pursuant to regulations and/or published positions of
the Securities and Exchange Commission, the Fund may be required
to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. The
segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
FUTURE DEVELOPMENTS--The Fund may take advantage of
opportunities in the area of options and futures contracts,
options on futures contracts and any other derivative
investments which are not presently contemplated for use by the
Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for
the Fund. Before entering into such transactions or making any
such investment, the Fund will provide appropriate disclosure in
its prospectus.
LENDING PORTFOLIO SECURITIES--From time to time, the Fund may
lend securities from its portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete
certain transactions. Such loans may not exceed 33-1/3% of the
value of the Fund's total assets. In connection with such
loans, the Fund will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit which
will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The
Fund can increase its income through the investment of such
collateral. The Fund 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. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
FORWARD COMMITMENTS--The Fund may purchase securities on a when-
issued or forward commitment basis, which means that the price
is fixed at the time of commitment, but delivery and payment
ordinarily take place a number of days after the date of the
commitment to purchase. The Fund will make commitments to
purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund
will not accrue income in respect of a security purchased on a
forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward
commitment basis and certain other securities held in the Fund's
portfolio are subject to changes in value (both generally
changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon
the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest
rates. Securities purchased on a when-issued or forward
commitment basis may expose the Fund to risk because they may
experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment
basis can involve the additional risk that the yield available
in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A
segregated account of the Fund consisting of cash or U.S.
Government securities or other high quality liquid debt
securities of the type in which the Fund invests at least equal
at all times to the amount of the when-issued or forward
commitments will be established and maintained at the Fund's
custodian bank. Purchasing securities on a forward commitment
basis when the Fund is fully or almost fully invested may result
in greater potential fluctuation in the value of the Fund's net
assets and its net asset value per share.
ILLIQUID SECURITIES--The 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, 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 and as to which there is no secondary market and
repurchase agreements providing for settlement in more than
seven days after notice. However, if a substantial market of
qualified institutional buyers develops pursuant to Rule 144A
under the Securities Act of 1933, as amended, for certain
unregistered securities held by the Fund, the Fund intends to
treat such securities as liquid securities in accordance with
procedures approved by the Fund'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
Fund's Board of Trustees has directed the Investment Adviser to
monitor carefully the investments of the Fund in such securities
with particular regard to trading activity, availability of
reliable price information and other relevant information.
<PAGE>
PRAIRIE INTERMEDIATE BOND FUND
CLASS A, CLASS B AND CLASS I SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
January 30, 1995
This Statement of Additional Information, which is not
a prospectus, supplements and should be read in conjunction with
the current Prospectus of Prairie Intermediate Bond Fund (the
"Fund"), dated January 30, 1995, as it may be revised from time
to time. To obtain a copy of the Fund's Prospectus, please
write to the Fund at ___________________________, or call toll
free ______________.
First Chicago Investment Management Company (the
"Investment Adviser" or "FCIMCO") serves as the Fund's
investment adviser and administrator.
Concord Financial Group, Inc. (the "Distributor") is
the distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . .
Management of the Fund . . . . . . . . . . . . . . .
Management Arrangements . . . . . . . . . . . . . . .
Purchase of Fund Shares . . . . . . . . . . . . . . .
Distribution Plan and Shareholder Services Plan . . .
Redemption of Fund Shares . . . . . . . . . . . . . .
Determination of Net Asset Value . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . .
Performance Information . . . . . . . . . . . . . . .
Information About the Fund . . . . . . . . . . . . .
Counsel and Independent Auditors . . . . . . . . . .
Appendix . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . .
Report of Independent Auditors . . . . . . . . . . .
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "Description of the Fund."
Portfolio Securities
Bank Obligations. 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 the
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. As a result of Federal or state laws and
regulations, domestic branches of domestic banks whose CDs may
be purchased by the Fund generally are required, among other
things, to maintain specified levels of reserves, are limited in
the amounts which they can loan to a single borrower and are
subject to other regulation designed to promote financial
soundness. However, not all of such laws and regulations apply
to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks,
foreign subsidiaries of domestic banks and domestic and foreign
branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms
of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of
domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that
may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding
and other taxes on interest income. These foreign branches and
subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and
accounting, auditing and financial record keeping requirements.
In addition, less information may be publicly available about a
foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks
may be general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific
obligation or by Federal or state regulation as well as
governmental action in the country in which the foreign bank has
its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may be subject to reserve
requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the
Comptroller of the Currency and branches licensed by certain
states ("State Branches") may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within
the state, a certain percentage of their assets as fixed from
time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of
the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State
Branches generally must be insured by the FDIC if such branches
take deposits of less than $100,000.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of domestic
banks, by foreign subsidiaries of domestic banks, by foreign
branches of foreign banks or by domestic branches of foreign
banks, the Investment Adviser carefully evaluates such
investments on a case-by-case basis.
Repurchase Agreements. The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated
account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of
the Securities and Exchange Commission to be loans by the Fund.
In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, the Fund will enter into repurchase
agreements only with domestic banks with total assets in excess
of one billion dollars, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect
to securities of the type in which the Fund may invest, and will
require that additional securities be deposited with it if the
value of the securities purchased should decrease below the
resale price. The Investment Adviser will monitor on an ongoing
basis the value of the collateral to assure that it always
equals or exceeds the repurchase price. The Fund will consider
on an ongoing basis the creditworthiness of the institutions
with which the Fund enters into repurchase agreements.
Commercial Paper and Other Short-Term Corporate
Obligations. Variable rate demand notes include variable amount
master demand notes, which are obligations that permit the Fund
to invest fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Fund, as lender, and
the borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Fund may
increase the amount under the notes at any time up to the full
amount provided by the note agreement, or decrease the amount,
and the borrower may repay up to the full amount of the note
without penalty. Because these obligations are direct lending
arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and
there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus
accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on
demand. In connection with floating and variable rate demand
obligations, the Investment Adviser will consider, on an ongoing
basis, earning power, cash flow and other liquidity ratios of
the borrower, and the borrower's ability to pay principal and
interest on demand. Such obligations frequently are not rated
by credit rating agencies, and the Fund may invest in them only
if at the time of an investment the borrower meets the criteria
set forth in the Prospectus for other commercial paper issuers.
Mortgage-Related Securities
Government Agency Securities. Mortgage-related
securities issued by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed
as to the timely payment of principal and interest by GNMA and
such guarantee is backed by the full faith and credit of the
United States. GNMA is a wholly-owned U.S. Government
corporation within the department of Housing and Urban
Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make
payments under its guarantee.
Government Related Securities. Mortgage-related
securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the
full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment
of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or
"PCs"). The FHLMC is a corporate instrumentality of the United
States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time
after default on an underlying mortgage, but in no event later
than one year after it becomes payable.
Municipal Obligations. Municipal Obligations are
classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power.
Industrial development bonds, in most cases, are revenue bonds
and generally do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the
corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a
bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations include municipal lease/purchase
agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Certain
Municipal Obligations are subject to redemption at a date
earlier than their stated maturity pursuant to call options,
which may be separated from the related Municipal Obligation and
purchased and sold separately. The Fund will invest in
Municipal Obligations, the ratings of which correspond with
the ratings of other permissible Fund investments.
For the purpose of diversification under the
Investment Company Act of 1940, as amended (the "1940 Act"), the
identification of the issuer of Municipal Obligations depends on
the terms and conditions of the security. When the assets and
revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government
creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would
be deemed to be the sole issuer. Similarly, in the case of an
industrial development bond, if that bond is backed only by the
assets and revenues of the non-governmental user, then such non-
governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other
entity guarantees a security, such a guaranty would be
considered a separate security and will be treated as an issue
of such government or other entity.
The yields on Municipal Obligations are dependent on a
variety of factors, including general economic and monetary
conditions, money market factors, conditions in the Municipal
Obligations market, size of a particular offering, maturity of
the obligation, and rating of the issue. The imposition of the
Fund's investment advisory fee, as well as other operating
expenses, will have the effect of reducing the yield to
investors.
Municipal lease obligations or installment purchase
contract obligations (collectively, "lease obligations") have
special risks not ordinarily associated with Municipal
Obligations. Although lease obligations do not constitute
general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget
for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has
no obligation to make lease or installment purchase payments in
future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property
in the event of foreclosure might prove difficult.
Convertible Securities. In general, the market value
of a convertible security is the higher of its "investment
value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of
common stock if the security is converted). As a fixed-income
security, the market value of a convertible security generally
increases when interest rates decline and generally decreases
when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the
security's underlying common stock. Thus, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Management Policies
Options Transactions. The Fund may engage in options
transactions, such as purchasing or writing covered call or put
options. The principal reason for writing covered call options
is to realize, through the receipt of premiums, a greater return
than would be realized on the Fund's portfolio securities alone.
In return for a premium, the writer of a covered call option
forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a
decline in the price of the underlying security. Similarly, the
principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put
option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Series
may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written ordinarily will have expiration dates
between one and nine months from the date written. The exercise
price of the options may be below, equal to or above the market
values of the underlying securities at the time the options are
written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-
money," respectively. The Fund may write (a) in-the-money call
options when the Investment Adviser expects that the price of
the underlying security will remain stable or decline moderately
during the option period, (b) at-the-money call options when the
Investment Adviser expects that the price of the underlying
security will remain stable or advance moderately during the
option period and (c) out-of-the-money call options when the
Investment Adviser expects that the premiums received from
writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security
alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset
wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call
options are used in equivalent transactions.
So long as the Fund's obligation as the writer of an
option continues, the Fund may be assigned an exercise notice by
the broker-dealer through which the option was sold, requiring
the Fund to deliver, in the case of a call, or take delivery of,
in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option
expires or the Fund effects a closing purchase transaction. The
Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise
notice.
While it may choose to do otherwise, the Fund
generally will purchase or write only those options for which
the Investment Adviser believes there is an active secondary
market so as to facilitate closing transactions. There is no
assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety of reasons.
In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times
have rendered certain clearing facilities inadequate and
resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or
trading halts or suspensions in one or more options. There can
be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers'
orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If as a
covered call option writer the Fund is unable to effect a
closing purchase transaction in a secondary market, it will not
be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise or it
otherwise covers its position.
The Fund's commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to
regulations promulgated by the Commodity Futures Trading
Commission (the "CFTC"). In addition, the Fund may not engage
in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that in the
case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%.
To the extent the Fund engages in the use of futures and options
on futures for other than bona fide hedging purposes, the Fund
may be subject to additional risk.
Initially, when purchasing or selling futures
contracts the Fund will be required to deposit with the Fund's
custodian in the broker's name an amount of cash or cash
equivalents up to approximately 10% of the contract amount.
This amount is subject to change by the exchange or board of
trade on which the contract is traded and members of such
exchange or board of trade may impose their own higher
requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the
futures position, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to
and from the broker will be made daily as the price of the index
or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." At any
time prior to the expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, at
the then prevailing price, which will operate to terminate the
Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures
contracts only if there is an active market for such contracts,
no assurance can be given that a liquid market will exist for
any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading
day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that
limit or trading may be suspended for specified periods during
the trading day. Futures contract prices could move to the
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial
losses. If it is not possible, or the Fund determines not, to
close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments
of variation margin. In such circumstances, an increase in the
value of the portion of the portfolio being hedged, if any, may
offset partially or completely losses on the futures contract.
However, no assurance can be given that the price of the
securities being hedged will correlate with the price movements
in a futures contract and thus provide an offset to losses on
the futures contract.
In addition, to the extent the Fund is engaging in a
futures transaction as a hedging device, due to the risk of an
imperfect correlation between securities owned by the Fund that
are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge
will not be fully effective in that, for example, losses on the
portfolio securities may be in excess of gains on the futures
contract or losses on the futures contract may be in excess of
gains on the portfolio securities that were the subject of the
hedge. In an effort to compensate for the imperfect correlation
of movements in the price of the securities being hedged and
movements in the price of futures contracts, the Fund may buy or
sell futures contracts in a greater or lesser dollar amount than
the dollar amount of the securities being hedged if the
historical volatility of the futures contract has been less or
greater than that of the securities. Such "over hedging" or
"under hedging" may adversely affect the Fund's net investment
results if market movements are not as anticipated when the
hedge is established.
Upon exercise of an option, the writer of the option
will deliver to the holder of the option the futures position
and the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price
of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the
option on the futures contract. The potential loss related to
the purchase of options on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are
no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset
value of the Fund.
Lending Portfolio Securities. To a limited extent,
the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided it receives cash
collateral which at all times is maintained in an amount equal
to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, the Fund can
increase its income through the investment of the cash
collateral. For purposes of this policy, the Fund considers
collateral consisting of U.S. Government securities or
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.
The Securities and Exchange Commission currently
requires that the following conditions must be met whenever
portfolio securities are loaned: (1) the Fund must receive at
least 100% cash collateral from the borrower; (2) the borrower
must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the
Fund must receive reasonable interest on the loan, as well as
any interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Fund may
pay only reasonable custodian fees in connection with the loan;
and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's Board of Trustees must terminate the
loan and regain the right to vote the securities if a material
event adversely affecting the investment occurs. These
conditions may be subject to future modification.
Investment Restrictions. The Fund has adopted
investment restrictions numbered 1 through 7 as fundamental
policies. These restrictions cannot be changed without approval
by the holders of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting shares. Investment restrictions
numbered 8 through 11 are not fundamental policies and may be
changed by vote of a majority of the Trustees at any time. The
Fund may not:
1. Invest in commodities, except that the Fund may
purchase and sell options, forward contracts, futures contracts,
including those relating to indexes, and options on futures
contracts or indexes.
2. Purchase, hold or deal in real estate, real
estate limited partnership interests, or oil, gas or other
mineral leases or exploration or development programs, but the
Fund may purchase and sell securities that are secured by real
estate and may purchase and sell securities issued by companies
that invest or deal in real estate.
3. Borrow money, except to the extent permitted
under the Act. For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures
contracts shall not constitute borrowing.
4. Make loans to others, except through the purchase
of debt obligations and the entry into repurchase agreements.
However, the Fund may lend its portfolio securities in an amount
not to exceed 33-1/3% of the value of its total assets. Any
loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission
and the Fund's Board of Trustees.
5. Act as an underwriter of securities of other
issuers.
6. Invest more than 25% of its assets in the
securities of issuers in any single industry, provided that
there shall be no limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. Issue any senior security (as such term is
defined in Section 18(f) of the Act), except to the extent the
activities permitted in Investment Restriction Nos. 1, 3, 8 and
9 may be deemed to give rise to a senior security.
8. Pledge, mortgage or hypothecate its assets,
except to the extent necessary to secure permitted borrowings
and to the extent related to the deposit of assets in escrow in
connection with writing covered put and call options and the
purchase of securities on a when-issued or delayed-delivery
basis and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures
contracts, including those related to indexes, and options on
futures contracts or indexes.
9. Purchase, sell or write puts, calls or
combinations thereof, except as described in the Fund's
Prospectus and this Statement of Additional Information.
10. Enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase
securities which are illiquid, if, in the aggregate, more than
15% of the value of the Fund's net assets would be so invested.
11. Purchase securities of other investment
companies, except to the extent permitted under the Act.
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.
The Fund may make commitments more restrictive than
the restrictions listed above so as to permit the sale of it
shares in certain states. Should the Fund determine that a
commitment is no longer in the best interests of the Fund and
its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of its shares in the state
involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with
information as to their principal business occupations during at
least the last five years, are shown below.
Trustees of the Fund
JOHN P. GOULD, Trustee. Distinguished Service Professor of
Economics of the University of Chicago Graduate School of
Business. From 1983 to 1993, Dean of the University of
Chicago Graduate School of Business. Dean Gould also
serves as Director of Harpor Capital Advisors. His address
is 1101 East 58th Street, Chicago, Illinois 60637.
MARILYN McCOY, Trustee. Vice President of Administration
and Planning of Northwestern University. From 1981 to
1985, she was the Director of Planning and Policy
Development for the University of Colorado. She also
serves on the Board of Directors of Evanston Hospital,
the Chicago Metropolitan YMCA, the Chicago Network and
United Charities. Mrs. McCoy is a member of the
Chicago Economics Club. Her address is 1100 North
Lake Shore Drive, Chicago, Illinois 60611.
RAYMOND D. ODDI, Trustee. Private consultant. A Director of
Caremark International, Inc. and Medisense, Inc., companies
in the health care industry, and Baxter Credit Union. From
1978 to 1986, Senior Vice President of Baxter
International, Inc., a company engaged in the production of
medical care products. He also is a member of the Illinois
Society of Certified Public Accountants. His address is
1181 Loch Lane, Lake Forest, Illinois 60045.
Each Trustee also is a trustee of First Prairie Cash
Management, First Prairie Diversified Asset Fund, First Prairie
Money Market Fund, First Prairie Municipal Money Market Fund,
and First Prairie U.S. Treasury Securities Cash Management and a
director of First Prairie Municipal Bond Fund.
The Fund does not pay any remuneration to its officers
and Trustees other than fees and expenses to Trustees who are
not officers, directors, employees or holders of 5% or more of
the outstanding voting securities of FCIMCO or any of its
affiliates. Such fees and expenses totalled $ for the
fiscal year ended January 31, 1994, for all such Trustees as a
group.
For so long as the Fund's plans described in the
section captioned "Distribution Plan and Shareholder
Services Plan" remain in effect, the Trustees of the Fund who are
not "interested persons" of the Fund, as defined in the Act, will
be selected and nominated by the Trustees who are not "interested
persons" of the Fund.
Officers of the Fund
[TO BE PROVIDED]
Trustees and officers of the Fund, as a group, owned
less than 1% of the Fund's shares outstanding on November 15,
1994.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "Management of the Fund."
Investment Advisory Agreement. FCIMCO provides
investment advisory services pursuant to the Investment Advisory
Agreement (the "Advisory Agreement") dated ______, 199__ with
the Fund, which is subject to annual approval by (i) the Fund's
Board of Trustees or (ii) vote of a majority (as defined in the
Act) of the Fund's outstanding voting securities, 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 Act) of the Fund or FCIMCO, by vote cast in person at a
meeting called for the purpose of voting on such approval. The
Advisory Agreement is terminable without penalty, on 60 days'
notice, by the Fund's Board of Trustees or by vote of the
holders of a majority of the Fund's shares or, upon not less
than 90 days' notice, by FCIMCO. The Advisory Agreement will
terminate automatically in the event of its assignment (as
defined in the Act).
FCIMCO is responsible for investment decisions for the
Fund in accordance with the stated policies of the Fund, subject
to the approval of the Fund's Board. All purchases and sales
are reported for the Trustees' review at the meeting subsequent
to such transactions.
The following persons are officers and/or directors of
FCIMCO: ________________________.
As compensation for the Investment Adviser's services
to the Fund, the Fund has agreed to pay the Investment Adviser a
fee, computed daily and paid monthly, at an annual rate of .40
of 1% of the value of the Fund's average daily net assets.
Prior to ________, 199_, The First National Bank of Chicago
("FNBC") provided management services to the fund pursuant to a
Management Agreement. For the period March 5, 1993
(commencement of operations) through January 31, 1994, no fees
were paid by the Fund to FNBC pursuant to an undertaking by
FNBC.
Administration and Sub-Administration Agreements.
Pursuant to an Administration Agreement dated ______________,
199_ with the Fund, FCIMCO assists in all aspects of the Fund's
operations, other than providing investment advice, subject to
the overall authority of the Fund's Board in accordance with
Massachusetts law. FCIMCO has engaged Concord Holding
Corporation (the "Sub-Administrator") to assist it in providing
certain administrative services to the Fund. Pursuant to its
agreement with FCIMCO (the "Sub-Administration Agreement"), the
Administrator assists FCIMCO in furnishing the Fund clerical
help and accounting, data processing, bookkeeping, internal
auditing and legal services and certain other services required
by the Fund, preparing reports to the Fund's shareholders, tax
returns, reports to and filings with the Securities and Exchange
Commission and state Blue Sky authorities, calculating the net
asset value of the Fund's shares and generally in providing for
all aspects of the Fund's operation, other than providing
investment advice. The fees payable to the Sub-Administrator
for its services are paid by FCIMCO.
The Fund has agreed that FCIMCO and the
Sub-Administrator will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in
connection with the matters to which respective agreements
relate, except for a loss resulting from wilful misfeasance, bad
faith or gross negligence on the part of FCIMCO in the
performance of its obligations or from reckless disregard by it
of its obligations and duties under its Agreements or on the
part of the Sub-Administrator in the performance of its
obligations or from reckless disregard by it of its obligations
and duties under its agreement.
Prior to ____________, 199_, FNBC engaged The Dreyfus
Corporation to assist it in providing certain administration
services to the Fund.
Expenses and Expense Information. All expenses
incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by FCIMCO. The
expenses borne by the Fund include the following:
organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Trustees who are not officers,
directors, employees or holders of 5% or more of the outstanding
voting securities of FCIMCO or its affiliates, Securities and
Exchange Commission fees, state Blue Sky qualification fees,
advisory and administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of
independent pricing services, costs attributable to investor
services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, and any
extraordinary expenses. Class A and Class B shares are subject
to an annual service fee for ongoing personal services relating
to shareholder accounts and services related to the maintenance
of shareholder accounts. In addition, Class B shares are
subject to an annual distribution fee for advertising, marketing
and distributing Class B shares pursuant to a distribution plan
adopted in accordance with Rule 12b-1 under the Act. See
"Distribution Plan and Shareholder Services Plan."
FCIMCO has agreed 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 advisory fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the
Fund may deduct from the payment to be made to FCIMCO under the
Investment Advisory Agreement, or FCIMCO will bear, such excess
expense to the extent required by state law. Such deduction or
payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to FCIMCO is not
subject to reduction as the value of the Fund's net assets
increases.
PURCHASE OF FUND SHARES
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "How to Buy Fund Shares."
The Distributor. The Distributor serves as the Fund's
distributor pursuant to an agreement which is renewable
annually.
Sales Loads--Class A. The scale of sales loads
applies to purchases of Class A shares made by any "purchaser,"
which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account
of any minor children, or a trustee or other fiduciary
purchasing securities for a single trust estate or a single
fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code")) although more than one beneficiary is
involved; or a group of accounts established by or on behalf of
the employees of an employer or affiliated employers pursuant to
an employee benefit plan or other program (including accounts
established pursuant to Sections 403(b), 408(k), and 457 of the
Code); or an organized group which has been in existence for
more than six months, provided that it is not organized for the
purpose of buying redeemable securities of a registered
investment company and provided that the purchases are made
through a central administration or a single dealer, or by other
means which result in economy of sales effort or expense.
Offering Price. The method of computing the offering
price of Class A shares for individual sales aggregating less
than $50,000, based upon the price in effect at the close of
business on __________, 1994, is as follows:
Class A shares:
NET ASSET VALUE per share . . . . . . . . . . . $
Sales Load for individual sales
of shares aggregating less than
$50,000 - 3.00% of offering price
(approximately 3.10% of net asset
value per share) . . . . . . . . . . . . . .
Offering price to public . . . . . . . . . . . $
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "Distribution Plan and Shareholder Services Plan."
Distribution Plan. Rule l2b-1 (the "Rule") adopted by
the Securities and Exchange Commission under the 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 Fund's Board of Trustees has
adopted such a plan (the "Distribution Plan") with respect to
Class B shares pursuant to which the Fund pays for advertising,
marketing and distributing Class B shares. The Fund's Board of
Trustees believes that there is a reasonable likelihood that the
Distribution Plan will benefit the Fund and holders of its Class
B shares. In some states, certain financial institutions
effecting transactions in Fund shares may be required to
register as dealers pursuant to state law.
A quarterly report of the amounts expended under the
Distribution Plan, and the purposes for which such expenditures
were incurred, must be made to the Trustees for their review.
In addition, the Distribution Plan provides that it may not be
amended to increase materially the costs which holders of Class
B shares may bear for distribution pursuant to the Distribution
Plan without the approval of the holders of Class B shares and
that other material amendments of the Distribution Plan must be
approved by the Board of Trustees, and by the Trustees who are
neither "interested persons" (as defined in the Act) of the Fund
or FCIMCO nor have any direct or indirect financial interest in
the operation of the Distribution Plan or in any agreements
entered into in connection with the Distribution Plan, by vote
cast in person at a meeting called for the purpose of
considering such amendments. The Distribution Plan is subject
to annual approval by such vote of the Trustees cast in person
at a meeting called for the purpose of voting on the
Distribution Plan. The Distribution Plan was approved by the
Fund's Board of Trustees, including a majority of the Trustees
who are not "interested persons," at a meeting held on
________________, 1994. The Distribution Plan is terminable at
any time by vote of a majority of the Trustees who are not
"interested persons" and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution
Plan, or by vote of the holders of a majority of Class B shares.
Shareholder Services Plan. The Fund has adopted a
Shareholder Services Plan, pursuant to which the Fund pays the
Distributor for the provision of certain services to the holders
of Class A and Class B shares.
A quarterly report of the amounts expended under the
Shareholder Services Plan, and the purposes for which such
expenditures were incurred, must be made to the Directors for
their review. In addition, the Shareholder Services Plan
provides that it may not be amended without approval of the
Board of Trustees, and by the Trustees who are neither
"interested persons" (as defined in the Act) of the Fund nor
have any direct or indirect financial interest in the operation
of the Shareholder Services Plan or in any agreements entered
into in connection with the Shareholder Services Plan, by vote
cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is
subject to annual approval by such vote of the Trustees cast in
person at a meeting called for the purpose of voting on the
Shareholder Services Plan. The Shareholder Services Plan was so
approved on _________, 1994. The Shareholder Services Plan is
terminable at any time by vote of a majority of the Trustees who
are not "interested persons" and who have no direct or indirect
financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the
Shareholder Services Plan.
Prior Rule 12b-1 Plan. As of February 8, 1994, the
Fund terminated its then existing Rule 12b-1 plan, which
provided for payments to be made to Service Agents for
advertising, marketing and/or distributing Class A shares and
servicing holders of Class A shares. For the period from March
5, 1993 (commencement of operations) through January 31, 1994,
no payments were made under the prior Rule 12b-1 plan by the
Fund pursuant to various undertakings in effect.
REDEMPTION OF FUND SHARES
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "How to Redeem Fund Shares."
Check Redemption Privilege--Class A. An investor may
indicate on the Account Application or by later written request
that the Fund provide Redemption Checks ("Checks") drawn on the
Fund's account. Checks will be sent only to the registered
owner(s) of the account and only to the address of record. The
Account Application or later written request must be manually
signed by the registered owner(s). Checks may be made payable
to the order of any person in an amount of $500 or more. When a
Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund to
redeem a sufficient number of full or fractional Class A shares
in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a
copy of the Check will be returned to the investor. Investors
generally will be subject to the same rules and regulations that
apply to checking accounts, although election of this Privilege
creates only a shareholder-transfer agent relationship with the
Transfer Agent.
If the amount of the Check is greater than the value
of the shares in an investor's account, the Check will be
returned marked insufficient funds. Checks should not be used
to close an account.
Redemption Commitment. The Fund has committed itself
to pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser
of $250,000 or 1% of the value of the Fund's net assets at the
beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of
such amount, the Board of Trustees reserves the right to make
payments in whole or in part in securities or other assets in
case of an emergency or any time a cash distribution would
impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be
valued in the same manner as the Fund's portfolio is valued. If
the recipient sold such securities, brokerage charges would be
incurred.
Suspension of Redemptions. The right of redemption
may be suspended or the date of payment postponed (a) during any
period when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (b) when trading in the
markets the Fund ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's
shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "How to Buy Fund Shares."
Valuation of Portfolio Securities. The Fund's
investments are valued by an independent pricing service (the
"Service") approved by the Board of Trustees. When, in the
judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the
market, these investments are valued at the mean between the
quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio
securities) are carried at fair value as determined by the
Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ
electronic data processing techniques and/or a matrix system to
determine valuations. The Service's procedures are reviewed by
the Fund's officers under the general supervision of the Board
of Trustees. Expenses and fees of the Fund, including the
investment advisory and administration fees (reduced by the
expense limitation, if any) and expenses under the Shareholder
Services Plan with respect to Class A and Class B shares, and
fees pursuant to the Distribution Plan, with respect to Class B
shares only, are accrued daily and taken into account for the
purpose of determining the net asset value of Fund shares.
Because of the difference in operating expenses incurred by each
Class, the per share net asset value of each Class will differ.
New York Stock Exchange Closings. The holidays (as
observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
PORTFOLIO TRANSACTIONS
The Fund's portfolio securities ordinarily are
purchased from and sold to parties acting as either principal or
agent. Newly-issued securities are purchased directly from the
issuer or from an underwriter; other purchases and sales usually
are placed with those dealers from which it appears that the
best price or execution will be obtained. Ordinarily, no
brokerage commissions, as such, are paid by the Fund for such
purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and
purchases of after-market securities from dealers ordinarily are
executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the
Fund's investment personnel in their best judgment. The primary
consideration is prompt and effective execution of orders at the
most favorable price. Subject to that primary consideration,
dealers may be selected for research, statistical or other
services to enable the Investment Adviser to supplement its own
research and analysis with the views and information of other
securities firms and may be selected based upon their sales of
Fund shares.
Research services furnished by brokers through which
the Fund effects securities transactions may be used by the
Investment Adviser in advising other funds or accounts it may
advise and, conversely, research services furnished to the
Investment Adviser by brokers in connection with other funds or
accounts the Investment Adviser may advise may be used by the
Investment Adviser in advising the Fund. Although it is not
possible to place a dollar value on these services, it is the
opinion of the Investment Adviser that the receipt and study of
such services should not reduce its overall research expenses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "Dividends, Distributions and Taxes."
The Fund intends to qualify as a "regulated investment
company" under the Code, so long as such qualification is in the
best interests of its shareholders. To qualify as a regulated
investment company, the Fund must distribute at least 90% of its
net income (consisting of net investment income from tax exempt
obligations and net short-term capital gain) to its
shareholders, must derive less than 30% of its annual gross
income from gain on the sale of securities held for less than
three months, and must meet certain asset diversification and
other requirements. Accordingly, the Fund may be restricted in
the selling of securities held for less than three months, and
in the utilization of certain of the investment techniques
described in the Prospectus. The Code, however, allows the Fund
to net certain offsetting positions making it easier for the
Fund to satisfy the 30% test. Qualification as a regulated
investment company relieves the Fund from any liability for
Federal income taxes to the extent its earnings are distributed
in accordance with the applicable provisions of the Code. The
term "regulated investment company" does not imply the
supervision of management or investment practices or policies by
any government agency.
Dividends paid by the Fund to qualified Retirement
Plans or certain non-qualified deferred compensation plans
ordinarily will not be subject to taxation until the proceeds
are distributed from the Retirement Plan. The Fund will not
report dividends paid by the Fund to such Plans to the IRS.
Generally, distributions from such Retirement Plans, except
those representing returns of non-deductible contributions
thereto, will be taxable as ordinary income and, if made prior
to the time the participant reaches age 59-1/2, generally will
be subject to an additional tax equal to 10% of the taxable
portion of the distribution. If the distribution from such a
Retirement Plan (other than certain governmental or church
plans) for any taxable year following the year in which the
participant reaches age 70-1/2 is less than the "minimum
required distribution" for that taxable year, an excise tax
equal to 50% of the deficiency may be imposed by the IRS. The
administrator, trustee or custodian of such a Retirement Plan
will be responsible for reporting distributions from such Plans
to the IRS. Participants in qualified Retirement Plans will
receive a disclosure statement describing the consequences of a
distribution from such a Plan from the administrator, trustee or
custodian of the Plan prior to receiving the distribution.
Moreover, certain contributions to a qualified Retirement Plan
in excess of the amounts permitted by law may be subject to an
excise tax.
Any dividend or distribution paid shortly after an
investor's purchase may have the effect of reducing the
aggregate net asset value of his shares below the cost of his
investment. Such a dividend or distribution would be a return
on investment in an economic sense although taxable as stated in
"Dividends, Distributions and Taxes" in the Prospectus. In
addition, the Code provides that if a shareholder holds shares
for six months or less and has received a capital gain
distribution with respect to such shares, any loss incurred on
the sale of such shares will be treated as a long-term capital
loss to the extent of the capital gain distribution received.
Taxable dividends derived from net investment income
and distributions from net realized short-term securities gains
paid by the Fund to a foreign investor generally are subject to
U.S. nonresident withholding taxes at the rate of 30%, unless
the foreign investor claims the benefits of a lower rate
specified in a tax treaty. Distributions from net realized
long-term securities gains paid by the Fund to a foreign
investor, as well as the proceeds of any redemptions from a
foreign investor's account, regardless of the extent to which
gain or loss may be realized, will not be subject to U.S.
nonresident withholding tax. However, such distributions may be
subject to backup withholding, as described below, unless the
foreign investor certifies his non-U.S. residency status.
Ordinarily, gains and losses realized from portfolio
transactions will be treated as capital gains and losses.
However, a portion of the gain or loss realized from the
disposition of non-U.S. dollar denominated securities (including
debt instruments, certain financial futures and options, and
certain preferred stock) may be treated as ordinary income or
loss under Section 988 of the Code.
Under Section 1256 of the Code, gain or loss realized
by the Fund from certain financial futures and options
transactions (other than those taxed under Section 988 of the
Code) will be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. Gain or loss will arise
upon the exercise or lapse of such futures and options as well
as from closing transactions. In addition, any such futures or
options remaining unexercised at the end of the Fund's taxable
year will be treated as sold for their then fair market value,
resulting in additional gain or loss to the Fund characterized
in the manner described above.
Offsetting positions held by the Fund involving
certain contracts or options may constitute "straddles."
"Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the
provisions of Sections 1256 and 988. As such, all or a portion
of any short-term or long-term capital gain from certain
"straddle" transactions may be recharacterized to ordinary
income. If the Fund were treated as entering into "straddles"
by reason of its engaging in certain forward contracts or
options transactions, such "straddles" would be characterized as
"mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed
by Section 1256 of the Code. The Fund may make one or more
elections with respect to "mixed straddles." Depending on which
election is made, if any, the results to the Fund may differ.
If no election is made to the extent the "straddle" and
conversion transactions rules apply to positions established by
the Fund, losses realized by the Fund will be deferred to the
extent of unrealized gain in the offsetting position. Moreover,
as a result of the "straddle" rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital
loss, and long-term capital gains may be treated as short-term
capital gains or ordinary income.
Investment by the Fund in securities issued or
acquired at a discount, or providing for deferred interest or
for payment of interest in the form of additional obligations
could under special tax rules affect the amount, timing and
character of distributions to shareholders by causing the Fund
to recognize income prior to the receipt of cash payments. For
example, the Fund could be required to accrue a portion of the
discount (or deemed discount) at which the securities were
issued and to distribute such income in order to maintain its
qualification as a regulated investment company. In such case,
the Fund may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to
satisfy these distribution requirements.
If the Fund invests in an entity that is classified as
a "passive foreign investment company" ("PFIC") for federal
income tax purposes, the operation of certain provisions of the
Code applying to PFICs could result in the imposition of certain
federal income taxes on the Fund. In addition, gain realized
from the sale or other disposition of PFIC securities may be
treated as ordinary income under Section 1291 of the Code.
YIELD AND PERFORMANCE INFORMATION
The following information supplements and should be
read in conjunction with the section in the Fund's Prospectus
entitled "Performance Information."
Current yield is computed pursuant to a formula which
operates as follows: The amount of the Fund's expenses accrued
for the 30-day period (net of reimbursements) is subtracted from
the amount of the dividends and interest earned (computed in
accordance with regulatory requirements) by the Fund during the
period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period
that were entitled to receive dividends, and (b) the maximum
offering price per share in the case of Class A or the net asset
value per share in the case of Class B or Class I on the last
day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
Average annual total return is calculated by
determining the ending redeemable value of an investment
purchased with a hypothetical $1,000 payment made at the
beginning of the period (assuming the reinvestment of dividends
and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is
the number of years in the period) and subtracting 1 from the
result.
Total return is calculated by subtracting the amount
of the net asset value per share at the beginning of a stated
period from the net asset value per share at the end of the
period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the
net asset value per share at the beginning of the period.
INFORMATION ABOUT THE FUND
The following information supplements and should be
read in conjunction with the section in the Fund's 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 or
subscription rights and are freely transferable.
The Fund sends annual and semi-annual financial
statements to all its shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan, 7 Hanover Square, New York,
New York 10004-2696, as counsel for the Fund, has rendered its
opinion as to certain legal matters regarding the due
authorization and valid issuance of the shares of beneficial
interest being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019, independent auditors, have been selected as auditors
of the Fund.
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff &
Phelps, Inc. ("Duff"), IBCA Inc. and IBCA Limited ("IBCA") and
Thomson BankWatch, Inc. ("BankWatch"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely
strong.
AA
Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated
issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated
categories.
Plus (+) or minus (-): The ratings from AA to BB may
be modified by the addition of a plus or minus sign to show
relative standing within the major ratings categories.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree
of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety
is not as high as for issues designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what generally are known as high grade bonds. They are
rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to
show relative standing within the major rating categories,
except in the Aaa category. The modifier 1 indicates a ranking
for the security in the higher end of a rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Issuers of P-1 paper must
have a superior capacity for repayment of short-term promissory
obligations, and ordinarily will be evidenced by leading market
positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high
internal cash generation, and well established access to a range
of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated
Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by
many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the
issuer's ability to meet the obligations of a specific debt
issue or class of debt. The ratings take into consideration
special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect
the issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade
and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite
as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A
Bonds rated A are considered to be investment grade
and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not used in
the AAA category covering 12-36 months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations
that are payable on demand or have original maturities of up to
three years, including commercial paper, certificates of
deposit, medium-term notes, and municipal and investment notes.
Although the credit analysis is similar to Fitch's
bond rating analysis, the short-term rating places greater
emphasis than bond ratings on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have
a satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1 categories.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality.
The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA
Bonds rated AA are considered high credit quality.
Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A
Bonds rated A have protection factors which are
average but adequate. However, risk factors are more variable
and greater in periods of economic stress.
BBB
Bonds rated BBB are considered to have below average
protection factors but still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
Plus (+) and minus (-) signs are used with a rating
symbol (except AAA) to indicate the relative position of a
credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper
rating assigned by Duff. Paper rated Duff-1 is regarded as
having very high certainty of timely payment with excellent
liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals.
Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest
expectation of investment risk. Capacity for timely repayment
of principal and interest is substantial, such that adverse
changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations
for which there is a very low expectation of investment risk are
rated AA by IBCA. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk
albeit not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the
obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the
highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current
assessment of the strength of the bank and whether such bank
would receive support should it experience difficulties. In its
assessment of a bank, IBCA uses a dual rating system comprised
of Legal Ratings and Individual Ratings. In addition, IBCA
assigns banks Long- and Short-Term Ratings as used in the
corporate ratings discussed above. Legal Ratings, which range
in gradation from 1 through 5, address the question of whether
the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings
are considered by IBCA to be a prime factor in its assessment of
credit risk. Individual Ratings, which range in gradations from
A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support
from state authorities or its owners.
BankWatch
Commercial Paper and Short-Term Ratings
The rating TBW-1 is the highest short-term rating
assigned by BankWatch; the rating indicates that the degree of
safety regarding timely repayment of principal and interest is
very strong.
In addition to ratings of short-term obligations,
BankWatch assigns a rating to each issuer it rates, in
gradations of A through E. BankWatch examines all segments of
the organization including, where applicable, the holding
company, member banks or associations, and other subsidiaries.
In those instances where financial disclosure is incomplete or
untimely, a qualified rating (QR) is assigned to the
institution. BankWatch also assigns, in the case of foreign
banks, a country rating which represents an assessment of the
overall political and economic stability of the country in which
the bank is domiciled.
<PAGE>
<TABLE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
__________________________________________________________________
STATEMENT OF INVESTMENTS JULY 31, 1994 (UNAUDITED)
<CAPTION> PRINCIPAL
BONDS AND NOTES-85.3% AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCIES-15.8%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation Ctfs.,
Ser. 98, Cl. 98-E, 8 1/4% 11/15/2020 . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 255,130
Federal National Mortgage Association:
7% 6/1/2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,917 89,397
Deb., 7.65% 4/29/2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 98,970
Real Estate Mortgage Investment Conduit Trust
(Collateralized by FNMA Pass-Through Ctfs.),
Ser. 1991-174,Cl. 174-K, 7%, 4/25/2006 . . . . . . . . . . . . . . . . . . 250,000 238,510
Government National Mortgage Association I,
8 1/2%, 3/15/2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,355 67,973
TOTAL U.S. GOVERNMENT AGENCIES . . . . . . . . . . . . . . . . . . . . . . . . 749,980
U.S. TREASURY NOTES-69.5%
7 3/4%, 2/15/1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 202,875
7 3/8%, 5/15/1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 768,398
8 7/8%, 11/15/1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 514,500
5 3/8%, 5/31/1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 360,527
5 1/8%, 6/30/1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 380,688
5%, 1/31/1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 280,969
7 7/8%, 11/15/1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,000 435,555
7 1/2%, 11/15/2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 206,219
7 1/2%, 5/15/2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 154,617
TOTAL U.S. TREASURY NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,304,348
TOTAL BONDS AND NOTES
(cost $4,072,222) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,054,328
===========
SHORT-TERM INVESTMENTS-11.4%
Federal National Mortgage Association,
Discount Notes, 5%, 8/2/1994
(cost $544,936) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 545,000 $ 544,749
===========
TOTAL INVESTMENTS
(cost $4,617,158) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.7% $ 4,599,077
=========== ===========
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3% $ 155,773
=========== ===========
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $ 4,754,850
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
__________________________________________________________________________________________________________
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES July 31, 1994 (Unaudited)
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $4,617,158) -- see statement . . . . . . . . . . . . . . . . . . . $4,599,077
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,234
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,400
Due from The First National Bank of Chicago . . . . . . . . . . . . . . . . . 149,211
------------
4,860,922
LIABILITIES:
Payable for Common Stock redeemed . . . . . . . . . . . . . . . . . . . . . . $ 9,520
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . 96,552 106,072
---------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,754,850
============
REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,795,486
Accumulated net realized (loss) on investments . . . . . . . . . . . . . . . (22,555)
Accumulated net unrealized (depreciation) on investments -- Note 3 . . . . . (18,081)
------------
NET ASSETS at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,754,850
============
Shares of Beneficial Interest outstanding:
Class A Shares:
(unlimited number of $.001 par value shares authorized) . . . . . . . . . . 8,132
============
Class B Shares:
(unlimited number of $.001 par value shares authorized) . . . . . . . . . . 252
============
Class F Shares
(unlimited number of $.001 par value shares authorized) . . . . . . . . . . 597,908
============
NET ASSET VALUE per share:
Class A Shares:
($63,807 divided by 8,132 shares) . . . . . . . . . . . . . . . . . . . . . . . . . $7.85
============
Class B Shares:
($1,980 divided by 252 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.84
============
Class F Shares
($4,689,063 divided by 597,908 shares) . . . . . . . . . . . . . . . . . . . . . . . $7.84
============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
__________________________________________________________________________________________________________
<CAPTION>
STATEMENT OF OPERATIONS July 31, 1994 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165,579
EXPENSES:
Management fee--Note 2(a) . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,421
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,455
Auditing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,007
Prospectus and shareholders' reports . . . . . . . . . . . . . . . . . . . 9,213
Organization fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,686
Shareholder servicing costs--Note 2(b,c) . . . . . . . . . . . . . . . . . 4,102
Trustees' fees and expenses--Note 2(d) . . . . . . . . . . . . . . . . . . 3,277
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,927
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656
Distribution fees (Class B Shares)--Note 2(b) . . . . . . . . . . . . . . . 5
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,559
----------
75,308
Less--expense reimbursement from Manager due to undertaking . . . . . . . . 75,303
----------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . 165,574
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments--Note 3 . . . . . . . . . . . . . . . . $ (23,761)
Net unrealized (depreciation) on investments . . . . . . . . . . . . . . . (227,175)
----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS . . . . . . . . . . . (250,936)
----------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . $ (85,362)
==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
____________________________________________________________________________________________________________
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Six Months Ended
January 31, July 31, 1994
1994<F1> (Unaudited)
----------- ----------------
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . $ 269,055 $ 165,574
Net realized gain (loss) on investments . . . . . . 13,430 (23,761)
Net unrealized (depreciation) on investments
for the period . . . . . . . . . . . . . . . . . . (60,015) (227,175)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . 222,470 (85,362)
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares . . . . . . . . . . . . . . . . . (1,326) (2,157)
Class B shares . . . . . . . . . . . . . . . . . -- (59)
Class F shares . . . . . . . . . . . . . . . . . (267,729) (163,358)
Net realized gain on investments:
Class A shares . . . . . . . . . . . . . . . . . (152) --
Class B shares . . . . . . . . . . . . . . . . . -- --
Class F shares . . . . . . . . . . . . . . . . . (12,072) --
TOTAL DIVIDENDS . . . . . . . . . . . . . . . (281,279) (165,574)
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares . . . . . . . . . . . . . . . . . 51,267 --
Class B shares . . . . . . . . . . . . . . . . . -- 2,000
Class F shares . . . . . . . . . . . . . . . . . 5,247,186 200,342
Dividends reinvested:
Class A shares . . . . . . . . . . . . . . . . . 1,484 2,145
Class B shares . . . . . . . . . . . . . . . . . -- 59
Class F shares . . . . . . . . . . . . . . . . . 5,299 3,031
Cost of shares redeemed:
Class A shares . . . . . . . . . . . . . . . . . -- --
Class B shares . . . . . . . . . . . . . . . . . -- --
Class F shares . . . . . . . . . . . . . . . . . (154,029) (394,189)
INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS . . . . . . . . . . . 5,151,207 (186,612)
TOTAL INCREASE (DECREASE) IN NET ASSETS . 5,092,398 (437,548)
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . 100,000 5,192,398
End of period . . . . . . . . . . . . . . . . . . . $ 5,192,398 $4,754,850
</TABLE>
<TABLE>
<CAPTION>
SHARES
------------------------------------------------------------------
CLASS A CLASS B CLASS F
------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED PERIOD ENDED YEAR ENDED SIX MONTHS ENDED
JANUARY 31, JULY 31, 1994 JULY 31, 1994<F2> JANUARY 31, JULY 31, 1994
1994<F1> (UNAUDITED) (UNAUDITED) 1994<F1> (UNAUDITED)
---------- ----------------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold. . . . . . . . 6,185 -- 245 628,922 25,652
Shares issued for
dividends reinvested . . . 180 272 7 639 384
Shares redeemed . . . . . -- -- -- (18,488) (49,671)
------ ---- ---- ------- -------
NET INCREASE
(DECREASE) IN SHARES
OUTSTANDING . . . . . . 6,365 272 252 611,073 (23,635)
====== ==== ==== ======= =======
</TABLE>
____________________
[FN] From March 5, 1993 (commencement of operations) through
January 31, 1994.
[FN] From February 8, 1994 (commencement of initial offering)
through July 31, 1994.
See notes to financial statements.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
FINANCIAL HIGHLIGHTS
Reference is made to p. 5 of the Fund's Prospectus, dated
January 30, 1995.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, Intermediate Series
NOTES TO FINANCIAL STATEMENTS (Unaudited)
First Prairie U.S. Government Income Fund, Intermediate Series
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of
1940 ("Act") as a diversified open-end management investment
company and operates as a series company currently offering one
series, the Intermediate Series (the Series). The First
National Bank of Chicago ("Manager") serves as the Fund's
investment adviser. The Dreyfus Corporation ("Dreyfus")
provides certain administrative services to the Fund-see Note
2(a). Dreyfus Service Corporation, a wholly owned subsidiary of
Dreyfus, acted as the distributor of the Fund's shares until
August 24, 1994. Effective August 24, 1994, Dreyfus became a
direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services Inc.
("Premier") was engaged as the Fund's distributor. Premier,
located at One Exchange Place, Boston, Massachusetts 02109, is a
wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration
services, the parent company of which is Boston Institutional
Group, Inc.
On October 1, 1993 the Series' Board of Trustees authorized
the issuance of an unlimited number of $.001 par value Class B
shares. In addition to Class A and Class F shares, the Series
began offering Class B shares on February 8, 1994. Class A
shares are subject to a sales charge imposed at the time of
purchase, Class B shares are subject to a contingent deferred
sales charge imposed at the time of redemption on redemptions
made within five years of purchase and Class F shares are
offered without a sales charge. Other differences between the
three Classes include the services offered to and the expenses
borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments
(excluding short-term investments) are valued each business day
by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are
readily available and are representative of the bid side of the
market in the judgment of the Service are valued at the mean
between the quoted bid prices (as obtained by the Service from
dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of
the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include
consideration of: yields or prices of securities of comparable
First Prairie U.S. Government Income Fund, Intermediate Series
quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded on a trade date basis.
Realized gain and loss from securities transactions are recorded
on the identified cost basis. Interest income including, where
applicable, amortization of discount on investments, is
recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the
Series to declare dividends daily from investment income-net.
Such dividends are paid monthly. Dividends from net realized
capital gain are normally declared and paid annually, but the
Series may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code.
However, to the extent that net realized capital gain can be
offset by capital loss carryovers, if any, it is the policy of
the Series not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series
to continue to qualify as a regulated investment company, if
such qualification is in the best interests of its shareholders,
by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income
taxes.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with
the Manager, the management fee is computed at the annual rate
of .60 of 1% of the average daily value of the Series' net
assets and is payable monthly. The Agreement further provides
that if in any full fiscal year the aggregate expenses of the
Series, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Series, the Series may deduct
from the payments to be made to the Manager, or the Manager will
bear such excess to the extent required by state law.
The Manager has engaged Dreyfus to assist it in providing
certain administrative services for the Series pursuant to a
separate agreement between the Manager and Dreyfus. Pursuant to
its agreement with Dreyfus, the Manager has agreed to pay
Dreyfus a monthly fee at the annual rate of .08 of 1% of the
value of the Series' average daily net assets. Dreyfus is
First Prairie U.S. Government Income Fund, Intermediate Series
currently waiving its administration fee.
The Manager has undertaken from February 1, 1994 through
July 31, 1994 to reimburse all fees and expenses of the Series
(excluding 12b-1 distribution plan expenses with respect to
Class B shares). Pursuant to the undertaking, the Manager
waived its fee of $14,421 and reimbursed excess expenses of
$60,882 for the six months ended July 31, 1994.
The undertaking may be modified by the Manager from time to
time, provided that the resulting expense reimbursement would
not be less than the amount required pursuant to the Agreement.
No amounts were retained by Dreyfus Service Corporation
during the six months ended July 31, 1994 from commissions
earned on sales of the Series' Class A shares.
No amounts were retained by Dreyfus Service Corporation
during the period ended July 31, 1994 from contingent deferred
sales charges imposed upon redemptions of the Series' Class B
shares.
(B) Under the Distribution Plan ("Class B Distribution
Plan") adopted pursuant to Rule 12b-1 under the Act, effective
February 8, 1994, the Series pays for advertising, marketing and
distributing Class B shares, at a maximum annual rate of .50% of
1% of the value of the Series' Class B shares average daily net
assets. Under the Distribution Plan, the Series may make
payments to Service Agents, including the Manager and Dreyfus
Service Corporation, in respect of these services. The Series
determines the amounts to be paid to Service Agents. Service
Agents receive such fees in respect of the average daily value
of Class B shares owned by their clients.
Prior to February 8, 1994, the Series' Service Plan ("prior
Service Plan") provided that the Fund pay for costs and expenses
in connection with advertising, and marketing Class A shares of
the Series and payments made to one or more Service Agents
(which may include the Manager and Dreyfus Service Corporation)
based on the value of the Series' Class A shares owned by
clients of the Service Agent. These advertising and marketing
expenses and fees of the Service Agents may not exceed an annual
rate of .25 of 1% of the Series' Class A shares average daily
net assets. The prior Service Plan also provided for the
Series' Class A shares to bear the costs of preparing, printing
and distributing certain of the Series' prospectuses and
statements of additional information and costs associated with
First Prairie U.S. Government Income Fund, Intermediate Series
implementing and operating the Plan, not to exceed the greater
of $100,000 or .005 of 1% of the Series' Class A shares average
daily net assets for any full fiscal year.
During the period ended July 31, 1994, $3 was charged to
the Series' Class A shares pursuant to the prior Service Plan
which was reimbursed by the Manager pursuant to an undertaking
in effect, and $5 was charged pursuant to the Class B
Distribution Plan.
(C) Under the Shareholder Services Plan, effective
February 8, 1994, the Series pays Service Agents (which may
include the Manager and Dreyfus Service Corporation), at an
annual rate of up to .25 of 1% of the value of the Series'
average daily net assets of Class A and Class B shares for
servicing shareholder accounts. The services provided may
include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to
the maintenance of shareholder accounts. For the period ended
July 31, 1994, $75 and $2 were charged to the Class A and Class
B shares, respectively, pursuant to the Shareholder Services
Plan.
(D) Certain officers and trustees of the Fund are
"affiliated persons," as defined in the Act, of the Manager or
Dreyfus. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance
fee of $250 per meeting.
NOTE 3 -- SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including
paydowns) of investment securities, excluding short-term
securities, during the six months ended July 31, 1994, amounted
to $378,703 and $1,049,154, respectively.
At July 31, 1994, accumulated net unrealized depreciation
on investments was $18,081, consisting of $71,070 gross
unrealized appreciation and $89,151 gross unrealized
depreciation.
At July 31, 1994, the cost of investments for Federal
income tax purposes was substantially the same as the cost for
financial reporting purposes (see the Statement of
Investments).
NOTE 4 Subsequent Events (Unaudited)
On ____ 1995, the Fund changed its name to Prairie Intermediate Bond
Fund and changed its investment policies. It also changed its
classifications from diversified to non diversified. Further, the investment
adviser has been changed from The First National Bank of Chicago
to First Chicago Investment Management Company (FCIMCO) and the
related management fee has been changed from 0.60% to 0.40%
of the Fund's average daily net assets. Also, FCIMCO will receive an
administration fee of 0.15% of average daily net assets.
<PAGE>
<TABLE>
<CAPTION>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
- -----------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS JANUARY 31, 1994
PRINCIPAL
AMOUNT VALUE
----------- -----
<S> <C> <C>
BONDS AND NOTES-95.8%
MORTGAGE-BACKED CERTIFICATES-23.6%
Federal Home Loan Mortgage Corporation, Guaranteed Mortgage Participation
Certificates Series 1118, Class H, 8 1/4%, 7/15/2001 $ 500,000 $ 518,594
Federal Home Loan Mortgage Corporation, Guaranteed Mortgage Participation
Certificates Series 98, Class E, 8 1/4%, 11/15/2020 250,000 259,883
Federal National Mortgage Association, Guaranteed Mortgage Pass Thru
Certificates 7%, 6/1/2023 . . . . . . . . . . . . . . 96,956 99,410
Federal National Mortgage Association, Guaranteed Pass Thru
Certificates Series 174, Class K, 7%, 4/25/2006 . . . 250,000 257,812
Government National Mortgage Association, Guaranteed Mortgage Pass Thru
Certificates 8 1/2%, 3/15/2023 . . . . . . . . . . . 82,862 88,068
----------
TOTAL MORTGAGE-BACKED CERTIFICATES . . . . . . . . . . $1,223,767
==========
U.S. TREASURY NOTES-72.2%
5 1/8%, 2/28/1998 . . . . . . . . . . . . . . . . . . $ 210,000 $ 212,592
5 1/8%, 6/30/1998 . . . . . . . . . . . . . . . . . . 400,000 403,812
5 3/8%, 5/31/1998 . . . . . . . . . . . . . . . . . . 375,000 382,149
6 7/8%, 4/30/1997 . . . . . . . . . . . . . . . . . . 75,000 80,227
7 3/8%, 5/15/1996 . . . . . . . . . . . . . . . . . . 750,000 800,742
7 1/2%, 11/15/2001 . . . . . . . . . . . . . . . . . 200,000 225,687
7 1/2%, 5/15/2002 . . . . . . . . . . . . . . . . . . 150,000 169,640
7 3/4%, 2/15/1995 . . . . . . . . . . . . . . . . . . 200,000 208,391
7 7/8%, 11/15/1999 . . . . . . . . . . . . . . . . . 415,000 471,025
8 5/8%, 8/15/1994 . . . . . . . . . . . . . . . . . . 240,000 246,787
8 7/8%, 11/15/1997 . . . . . . . . . . . . . . . . . 480,000 548,625
----------
TOTAL U.S. TREASURY NOTES . . . . . . . . . . . . . . . $3,749,677
==========
TOTAL INVESTMENTS
(cost $4,764,350) . . . . . . . . . . . . . . . . . . 95.8% $4,973,444
=========== ==========
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . 4.2% $ 218,954
=========== ==========
NET ASSETS 100.0% $5,192,398
=========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
- ----------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1994
- ------------------------------------ ----------------
<S> <C>
ASSETS:
Investments in securities, at value
(cost $4,764,350)--see statement . . . . . $4,973,444
Cash . . . . . . . . . . . . . . . . . . . . . 58,364
Interest receivable . . . . . . . . . . . . . . . 70,383
Prepaid expenses--Note 1(e) . . . . . . . . . . . 73,493
Due from The First National Bank of Chicago . . . 88,532
----------
5,264,216
LIABILITIES;
Accrued expenses and other liabilities . . . . . . 71,818
----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . $5,192,398
==========
REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . $4,982,098
Accumulated undistributed net realized gain on investments 1,206
Accumulated net unrealized appreciation on investments--Note 3 209,094
----------
NET ASSETS at value . . . . . . . . . . . . . . . . . . $5,192,398
==========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized) 7,860
==========
Class F Shares
(unlimited number of $.001 par value shares authorized) 621,543
==========
NET ASSET VALUE per share:
Class A Shares
($64,878 divided by 7,860 shares) . . . . . . . . . $8.25
==========
Class F Shares
($5,127,520 divided by 621,543 shares) . . . . . . . . . $8.25
==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FROM MARCH 5, 1993 (COMMENCEMENT OF OPERATIONS) TO JANUARY 31, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME . . . . . . . . . . . . . . . . . $ 269,055
EXPENSES:
Management fee-Note 2(a) . . . . . . . . . $ 26,010
Legal fees . . . . . . . . . . . . . . . . 29,536
Auditing fees . . . . . . . . . . . . . . . 22,037
Organization expenses . . . . . . . . . . . 14,391
Shareholders' reports . . . . . . . . . . . 7,055
Shareholder servicing costs--Note 2(b) . . 5,323
Trustees' fees and expenses--Note 2(c) . . 4,277
Registration Fees . . . . . . . . . . . . . 2,508
Custodian fees . . . . . . . . . . . . . . 946
Miscellaneous . . . . . . . . . . . . . . . 2,397
-----------
114,480
Less--expense reimbursement from Manager due to undertakings 114,480
-----------
TOTAL EXPENSES . . . . . . . . . . . . . --
----------
INVESTMENT INCOME-NET . . . . . . . . . 269,055
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 3 $ 13,430
Net unrealized (depreciation) on investments--Note 1 (60,015)
-----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (46,585)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 222,470
==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FROM MARCH 5, 1993 (COMMENCEMENT OF OPERATIONS) TO JANUARY 31, 1994
<S> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . $ 269,055
Net realized gain on investments . . . . . . . . . . . . . 13,430
Net unrealized (depreciation) on investments for the period (60,015)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 222,470
----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares . . . . . . . . . . . . . . . . . . (1,326)
Class F shares . . . . . . . . . . . . . . . . . . (267,729)
Net realized gain on investments:
Class A shares . . . . . . . . . . . . . . . . . . (152)
Class F shares . . . . . . . . . . . . . . . . . . (12,072)
----------
TOTAL DIVIDENDS . . . . . . . . . . . . . . . . (281,279)
----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares . . . . . . . . . . . . . . . . . . 51,267
Class F shares . . . . . . . . . . . . . . . . . . 5,247,186
Dividends reinvested:
Class A shares . . . . . . . . . . . . . . . . . . 1,484
Class F shares . . . . . . . . . . . . . . . . . . 5,299
Cost of shares redeemed:
Class A shares . . . . . . . . . . . . . . . . . . --
Class F shares . . . . . . . . . . . . . . . . . . (154,029)
----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 5,151,207
----------
TOTAL INCREASE IN NET ASSETS . . . . . . . . 5,092,398
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . 100,000
End of period . . . . . . . . . . . . . . . . . . . . . . $5,192,398
==========
</TABLE>
<TABLE>
<CAPTION>
SHARES
-----------------------
YEAR ENDED
JANUARY 31, 1994<F1>
-----------------------
CLASS A CLASS F
--------- --------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold 6,185 628,922
Shares issued for dividends reinvested 180 639
Shares redeemed -- (18,488)
----- -------
NET INCREASE IN SHARES OUTSTANDING 6,365 611,073
===== =======
- -------------------
<FN> From March 5, 1993 (commencement of operations) through January 31, 1994.
</TABLE>
See notes to financial statements.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
FINANCIAL HIGHLIGHTS
Reference is made to p. 5 of the Fund's Prospectus, dated
January 30, 1995.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
First Prairie U.S. Government Income Fund (the "Fund") was
organized as a Massachusetts business trust on March 12, 1992
and operates as a series company currently offering one series,
the Intermediate Series (the "Series"). The Series had no
operations prior to March 5, 1993 other than matters relating to
its organization and registration as a diversified open-end
management investment company under the Investment Company Act
of 1940 ("Act") and the Securities Act of 1933 and the sale and
issuance of 1,495 Class A shares and 10,470 Class F shares of
Beneficial Interest ("Initial Shares") to The Dreyfus
Corporation ("Dreyfus"). Dreyfus provides certain
administrative services to the Fund-see Note 2(a). The First
National Bank of Chicago ("Manager") serves as the Fund's
investment adviser.
On March 3, 1993, the Manager acting as Trustee for
Personal Trust Government Bond Fund ("Bond Fund") agreed to
transfer the assets of Bond Fund, subject to Bond Fund's
liabilities, to the Series in exchange for Class F shares of
Beneficial Interest of the Series at net asset value (the
"Exchange"). The Exchange became effective after the close of
business on March 4, 1993, at which time the Series issued
475,345 Class F shares valued at $8.36 per share to participants
in the Bond Fund in exchange for the Bond Fund's net assets
valued at $3,972,686. The Bond Fund's net assets included
$269,109 of unrealized appreciation which was transferred to the
Fund in the Exchange. The Fund commenced operations on March 5,
1993.
Dreyfus Service Corporation ("Distributor") acts as the
distributor of the Fund's shares. The Distributor is a
wholly-owned subsidiary of Dreyfus.
The Series offers both Class A and Class F shares. Class A
shares are subject to a sales charge imposed at the time of
purchase and Class F shares are offered without a sales charge.
Other differences between the two Classes include the services
offered to and the expenses borne by each Class.
(A) PORTFOLIO VALUATION: The Series' investments
(excluding short-term investments) are valued each business day
by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices in
the judgment of the Service are readily available and are
representative of the bid side of the market are valued at the
First Prairie U.S. Government Income Fund, Intermediate Series
mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of
the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include
consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. Short-term
investments are carried at amortized cost, which approximates
value.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded on a trade date basis.
Realized gain and loss from securities transactions are recorded
on the identified cost basis. Interest income including, where
applicable, amortization of discount on investments, is
recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the
Series to declare dividends daily from investment income-net.
Such dividends are paid monthly. Dividends from net realized
capital gain are normally declared and paid annually, but the
Series may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code.
However, to the extent that net realized capital gain can be
offset by capital loss carryovers, if any, it is the policy of
the Series not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series
to continue to qualify as a regulated investment company, if
such qualification is in the best interests of its shareholders,
by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of taxable income
sufficient to relieve it from all, or substantially all, Federal
income taxes.
(E) OTHER: Organization expenses paid by the Series are
included in prepaid expenses and are being amortized to
operations from March 5, 1993, the date operations commenced,
over the period during which it is expected that a benefit will
be realized, not to exceed five years. At January 31, 1994, the
unamortized balance of such expenses amounted to $70,941. In
the event that any of the Initial Shares are redeemed during the
amortization period, the redemption proceeds will be reduced by
any unamortized organization expenses in the same proportion as
the number of such shares being redeemed bears to the number of
such shares outstanding at the time of such redemption.
NOTE 2--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with
the Manager, the management fee is computed at the annual rate
of .60 of 1% of the average daily value of the Series' net
assets and is payable monthly. The Agreement further provides
that if in any full fiscal year the aggregate expenses of the
Series, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Series, the Series may deduct
from the payments to be made to the Manager, or the Manager will
bear such excess to the extent required by state law.
The Manager has engaged Dreyfus to assist it in providing
certain administrative services for the Series pursuant to a
separate agreement between the Manager and Dreyfus. Pursuant to
its agreement with Dreyfus, the Manager has agreed to pay
Dreyfus a monthly fee at the annual rate of .08 of 1% of the
value of the Series' average daily net assets. Dreyfus is
currently waiving its administration fee.
The Manager has undertaken from March 5, 1993 to reimburse
all fees and expenses of the Series. Pursuant to the
undertaking, the Manager waived its fee of $26,010 and
reimbursed excess expenses of $88,470 for the period ended
January 31, 1994.
The undertaking may be modified by the Manager from time to
time, provided that the resulting expense reimbursement would
not be less than the amount required pursuant to the Agreement.
The Distributor retained $120 during the period ended
January 31, 1994 from commissions earned on sales of the Fund's
Class A shares.
(B) The Series has adopted a Service Plan (the "Plan")
pursuant to which it has agreed to pay costs and expenses in
connection with advertising and marketing Class A shares of the
Series and payments made to one or more Service Agents (which
may include the Manager, Dreyfus and the Distributor) based on
the value of the Series' Class A shares owned by clients of the
Service Agent. These advertising and marketing expenses and
fees of the Service Agents may not exceed an annual rate of .25
of 1% of the Series' Class A average daily net assets. The Plan
also separately provides for the Series to bear the costs of
preparing, printing and distributing certain of the Series'
prospectuses and statements of additional information and costs
associated with implementing and operating the Plan, not to
exceed the greater of $100,000 or .005 of 1% of the Series'
Class A average daily net assets for any full fiscal year. For
the period ended January 31, 1994, the Series was charged $56
pursuant to the Plan, but these amounts were not paid by the
Series pursuant to the undertaking in effect (see Note 2(a)).
(C) Certain officers and trustees of the Fund are
"affiliated persons," as defined in the Act, of the Manager or
Dreyfus. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance
fee of $250 per meeting.
(D) On December 5, 1993, Dreyfus entered into an Agreement
and Plan of Merger providing for the merger of Dreyfus with a
subsidiary of Mellon Bank Corporation ("Mellon").
Following the merger, it is planned that Dreyfus will be a
direct subsidiary of Mellon Bank, N.A. Closing of this merger
is subject to a number of contingencies, including the receipt
of certain regulatory approvals and the approvals of the
stockholders of Dreyfus and of Mellon. The merger is expected
to occur in mid-1994, but could occur later.
NOTE 3--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including
paydowns) of investment securities, excluding short-term
securities, during the period ended January 31, 1994, amounted
to $5,944,132 and $1,202,939, respectively.
At January 31, 1994, accumulated net unrealized
appreciation on investments was $209,094, consisting of $211,840
gross unrealized appreciation and $2,746 gross unrealized
depreciation.
At January 31, 1994, the cost of investments for Federal
income tax purposes was substantially the same as the cost for
financial reporting purposes (see the Statement of Investments).
NOTE 4 Subsequent Events (Unaudited)
On _____ 1995, the Fund changed its name to Prairie Intermediate Bond Fund
and changed its investment policies. It also changed its classifications
from diversified to non diversified. Further, the investment adviser has
been changed from The First National Bank of Chicago to First
Chicago Inverstment Management Company (FCIMCO) and the related
management fee has been changed from 0.60% to 0.40% of the
Fund's average daily net assets. Also, FCIMCO will receive an
administration fee of 0.15% of average daily net assets.
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND, INTERMEDIATE SERIES
We have audited the accompanying statement of assets and
liabilities of First Prairie U.S. Government Income Fund,
Intermediate Series, including the statement of investments, as
of January 31, 1994, and the related statements of operations
and changes in net assets and financial highlights for the
period from March 5, 1993 (commencement of operations) to
January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation
of securities owned as of January 31, 1994 by correspondence
with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of First Prairie U.S.
Government Income Fund, Intermediate Series at January 31, 1994,
and the results of its operations, the changes in its net assets
and the financial highlights for the period from March 5, 1993
to January 31, 1994, in conformity with generally accepted
accounting principles.
New York, New York
March 11, 1994
<PAGE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits - List
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights for the period
from March 5, 1993 (commencement of operations) to January 31,
1994.
Financial Highlights for the six months
ended July 31, 1994 (unaudited).
Included in Part B of the Registration Statement:
Statement of Investments --
January 31, 1994 and July 31, 1994 (unaudited)
Statement of Assets and Liabilities --
January 31, 1994 and July 31, 1994 (unaudited)
Statement of Operations -- fiscal
period ended
January 31, 1994 and the six months ended
July 31, 1994 (unaudited)
Statement of Changes in Net Assets --
for the fiscal period ended January 31,
1994 and the six months ended July 31, 1994
(unaudited).
Notes to Financial Statements.
Report of Ernst & Young, Independent
Auditors, dated March 11, 1994.
Item 24. Financial Statements and Exhibits - List (continued)
(b) Exhibits:
(1)(a) Registrant's Agreement and Declaration of Trust and
Articles of Amendment are incorporated by reference to
Exhibit (1) of the Registration Statement on Form
N-1A, filed on March 13, 1992.
(1)(b) Registrant's Amended and Restated Agreement and
Declaration of Trust dated August 10, 1992 is
incorporated by reference to Exhibit (1)(b) of Pre-
Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on September 29, 1992.
(2) Registrant's Amended and Restated By-Laws, as
amended, are incorporated by reference to
Exhibit (2) of Pre-Effective Amendment No. 3 to
the Registration Statement on Form N-1A, filed
on January 27, 1993.
(5) The Management Agreement, as revised, is
incorporated by reference to Exhibit (5) of
Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on
July 14, 1993.
(6)(a) The Distribution Agreement, as revised, is
incorporated by reference to Exhibit (6) of Post-
Effective Amendment No. 1 to the Registration
Statement on Form N-1A, filed on July 14, 1993.
(6)(b) Forms of Service Agreement are incorporated by
reference to Exhibit 6(b) of Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-1A,
filed on January 27, 1993.
(6)(c) The Distribution Agreement, as revised, is
incorporated by reference to Exhibit 6(c) of Post-
Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on January 13, 1994.
(8)(a) The Custody Agreement is incorporated by reference to
Exhibit 8(a) of Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on January
27, 1993.
(9)(a) The Master Administration Agreement, as revised, is
incorporated by reference to Exhibit (9) of Post-
Effective Amendment No. 1 to the Registration
Statement on Form N-1A, filed on July 14, 1993.
(9)(b) Shareholder Services Plan is incorporated by reference
to Exhibit (9)(b) of Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A, filed on
January 13, 1994.
(10) Opinion and consent of Registrant's counsel is
incorporated by reference to Exhibit (10) of
Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on
January 27, 1993.
(11) Consent of Independent Auditors.
(15) Distribution Plan is incorporated by reference
to Exhibit (15)(b) of Post-Effective Amendment
No. 4 to the Registration Statement on Form N-
1A.
(16) Yield Computation Schedule is incorporated by
reference to Exhibit (16) of Post-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A, filed on July 14, 1993.
Other Exhibits
____________________
(a) Powers of Attorney.
(b) Registrant's Certificate of Secretary
is incorporated by reference to Other
Exhibits (b) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on
January 27, 1993.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Not Applicable
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of November 15,
Title of Class 1994
Class A Shares of Bene-
ficial Interest par value
$.001 per share 3
Class B Shares of Bene-
ficial Interest par value
$.001 per share 1
Class I Shares of Bene-
ficial Interest par value
$.001 per share 2
Item 27. Indemnification
Reference is made to Article EIGHTH of the
Registrant's Amended and Restated Agreement and
Declaration of Trust incorporated by reference
to Exhibit (1)(b) of Pre-Effective Amendment No.
2 to the Registration Statement filed under the
Securities Act of 1933 on September 29, 1992.
The application of these provisions is limited
by Article 10 of the Registrant's Amended and
Restated By-Laws incorporated by reference to
Exhibit (2) of Pre-Effective Amendment No. 3 to
the Registration Statement filed under the
Securities Act of 1933 on January 27, 1993, and
the following undertaking set forth in the rule
promulgated by the Securities and Exchange
Commission:
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to trustees, officers and controlling
persons of the registrant pursuant to the
foregoing provisions, or otherwise, the
registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as
expressed in such Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other
than the payment by the registrant of expenses
incurred or paid by a trustee, officer or
controlling person of the registrant in the
successful defense of any action, suit or
proceeding) is asserted by such trustee, officer
or controlling person in connection with the
securities being registered, the registrant
will, unless in the opinion of its counsel the
matter has been settled by controlling
precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy
as expressed in such Act and will be governed by
the final adjudication of such issue.
Reference also is made to the Distribution
Agreement, as revised.
Item 28. Business and Other Connections of Investment
Adviser
(a) Investment Adviser
Registrant is fulfilling the requirement of
this Item 28 to provide a list of the officers and directors of
First Chicago Investment Management Company (the "Investment
Adviser"), together with information as to any other business,
profession, vocation or employment of a substantial nature
engaged in by the Investment Adviser or those of its officers
and directors during the past two years, by incorporating by
reference the information contained in the Form ADV filed with
the SEC pursuant to the Investment Advisers Act of 1940 by the
Investment Adviser (SEC File No. 801-_____).
(b) Sub-Investment Adviser
Registrant is fulfilling the requirement of
this Item 28 to provide a list of the officers and directors of
ANB Investment Management and Trust Company (the "Sub-Adviser"),
together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the
Sub-Adviser or those of its officers and directors during the
past two years, by incorporating by reference the information
contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by the Sub-Adviser (SEC File
No. 801-_____).
Item 29. Principal Underwriters
(a) Other investment companies for which
Registrant's principal underwriter (exclusive distributor) acts
as principal underwriter or exclusive distributor:
The Infinity Mutual Funds, Inc.
Emerald Fund, Inc.
Pacific Horizon Funds, Inc.
(b) The information required by this Item
29(b) regarding each director or officer of Concord Financial
Group, Inc. is incorporated by reference to Schedule A of Form
BD filed by Concord Financial Group, Inc. pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8-37601).
Item 30. Location of Accounts and Records
1. First Chicago Investment Management Company
Three First National Plaza
Chicago, Illinois 60670
2. Concord Financial Group, Inc.
125 West 55th Street
11th Floor
New York, New York 10019
Item 31. Management Services
Not Applicable
Item 32. Undertakings
Registrant hereby undertakes
(1) to call a meeting of shareholders for
the purpose of voting upon the
question of removal of a trustee or
trustees when requested in writing to
do so by the holders of at least 10%
of the Registrant's outstanding shares
of beneficial interest and in
connection with such meeting to comply
with the provisions of Section 16(c)
of the Investment Company Act of 1940
relating to shareholder
communications.
(2) To furnish each person to whom a
prospectus is delivered with a copy of
its latest annual report to
shareholders, upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in this City of New York, and State
of New York, on the 18th day of January, 1995.
FIRST PRAIRIE U.S. GOVERNMENT
INCOME FUND
BY:
Joseph F. Kissel, President
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, this Amendment to the
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
/s/Joseph F. Kissel President January 18, 1995
Joseph F. Kissel (Principal
Executive Officer)
/s/ Richard A. Fabietti Treasurer January 18, 1995
Richard A. Fabietti (Principal Financial
and Accounting
Officer)
/s/ John P. Gould Trustee January 18, 1995
John P. Gould
/s/ Marilyn McCoy Trustee January 18, 1995
Marilyn McCoy
/s/ Raymond D. Oddi Trustee January 18, 1995
Raymond D. Oddi
</TABLE>
FIRST PRAIRIE U.S. GOVERNMENT INCOME FUND
Post-Effective Amendment No. 6 to Registration Statement
on Form N-1A under the Securities Act of 1933 and
The Investment Company Act of 1940
_________________________
EXHIBITS
_________________________
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Page
(11) Consent of Ernst & Young LLP, independent auditors ___
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Condensed Financial Information" and "Counsel and Independent
Auditors" and to the use of our report dated March 11,
1994, in this Registration Statement (Form N-1A 33-46403) of
First Prairie U.S. Government Income Fund.
ERNST & YOUNG LLP
New York, New York
January 18, 1995
