PRAIRIE FUNDS
CLASS A, CLASS B AND CLASS I SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
DECEMBER 13, 1994
AS REVISED, MARCH 3, 1995
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus for 12 separate portfolios (each, a
"Fund") of Prairie Funds (the "Trust"), dated December 13, 1994,
as it may be revised from time to time. To obtain a copy of the
Trust's Prospectus, please write to the Trust at Three First
National Plaza, Chicago, Illinois 60670, or call toll free
1-800-370-9446.
First Chicago Investment Management Company (the
"Investment Adviser" or "FCIMCO") serves as each Fund's
investment adviser and administrator.
Concord Financial Group, Inc. (the "Distributor") serves as
the distributor of the Funds' shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies . . . . . .B-2
Management of the Trust . . . . . . . . . . . . . . . . B-18
Management Arrangements . . . . . . . . . . . . . . . . .B-20
Purchase of Shares. . . . . . . . . . . . . . . . . . . .B-22
Distribution Plan and Shareholder Services Plan . . . . .B-23
Redemption of Shares. . . . . . . . . . . . . . . . . . .B-24
Determination of Net Asset Value. . . . . . . . . . . . .B-25
Portfolio Transactions. . . . . . . . . . . . . . . . . .B-27
Dividends, Distributions and Taxes. . . . . . . . . . . .B-29
Yield and Performance Information . . . . . . . . . . . .B-32
Information About the Trust . . . . . . . . . . . . . . .B-33
Counsel and Independent Auditors. . . . . . . . . . . . .B-35
Appendix. . . . . . . . . . . . . . . . . . . . . . . . .B-36
Financial Statements. . . . . . . . . . . . . . . . . . .B-46
Report of Independent Auditors. . . . . . . . . . . . . .B-51
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE
READ IN CONJUNCTION WITH THE SECTION IN THE TRUST'S PROSPECTUS
ENTITLED "DESCRIPTION OF THE FUNDS."
Portfolio Securities
Bank Obligations. (Each Fund, except the U.S.
Government Money Market Fund) Domestic commercial banks
organized under Federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by
the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition,
state banks whose certificates of deposit ("CDs") may be
purchased by each Fund are insured by the FDIC (although such
insurance may not be of material benefit to a Fund, depending on
the principal amount of the CDs of each bank held by such Fund)
and are subject to Federal examination and to a substantial body
of Federal law and regulation. As a result of Federal or state
laws and regulations, domestic branches of domestic banks whose
CDs may be purchased by the Fund generally are required, among
other things, to maintain specified levels of reserves, are
limited in the amounts which they can loan to a single borrower
and are subject to other regulation designed to promote
financial soundness. However, not all of such laws and
regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks,
foreign subsidiaries of domestic banks and domestic and foreign
branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms
of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of
domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that
may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding
and other taxes on interest income. These foreign branches and
subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and
accounting, auditing and financial record keeping requirements.
In addition, less information may be publicly available about a
foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks
may be general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific
obligation or by Federal or state regulation as well as
governmental action in the country in which the foreign bank has
its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may be subject to reserve
requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the
Comptroller of the Currency and branches licensed by certain
states ("State Branches") may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within
the state, a certain percentage of their assets as fixed from
time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of
the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State
Branches generally must be insured by the FDIC if such branches
take deposits of less than $100,000.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of domestic
banks, by foreign subsidiaries of domestic banks, by foreign
branches of foreign banks or by domestic branches of foreign
banks, the Investment Adviser carefully evaluates such
investments on a case-by-case basis.
Repurchase Agreements. The Trust's custodian or sub-
custodian will have custody of, and will hold in a segregated
account, securities acquired by a Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of
the Securities and Exchange Commission to be loans by the Fund.
In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, each Fund will enter into repurchase
agreements only with domestic banks with total assets in excess
of one billion dollars, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect
to securities of the type in which the Fund may invest, and will
require that additional securities be deposited with it if the
value of the securities purchased should decrease below the
resale price. The Investment Adviser will monitor on an ongoing
basis the value of the collateral to assure that it always
equals or exceeds the repurchase price. The Trust will consider
on an ongoing basis the creditworthiness of the institutions
with which a Fund enters into repurchase agreements.
Commercial Paper and Other Short-Term Corporate
Obligations. (Each Fund, except the U.S. Government Money
Market Fund) Variable rate demand notes include variable amount
master demand notes, which are obligations that permit a Fund to
invest fluctuating amounts at varying rates of interest pursuant
to direct arrangements between the Fund, as lender, and the
borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Fund may
increase the amount under the notes at any time up to the full
amount provided by the note agreement, or decrease the amount,
and the borrower may repay up to the full amount of the note
without penalty. Because these obligations are direct lending
arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and
there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus
accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit
support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on
demand. In connection with floating and variable rate demand
obligations, the Investment Adviser will consider, on an ongoing
basis, earning power, cash flow and other liquidity ratios of
the borrower, and the borrower's ability to pay principal and
interest on demand. Such obligations frequently are not rated
by credit rating agencies, and a Fund may invest in them only if
at the time of an investment the borrower meets the criteria set
forth in the Prospectus for other commercial paper issuers.
Mortgage-Related Securities (Asset Allocation, Equity and Bond
Funds only)
Government Agency Securities. Mortgage-related
securities issued by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed
as to the timely payment of principal and interest by GNMA and
such guarantee is backed by the full faith and credit of the
United States. GNMA is a wholly-owned U.S. Government
corporation within the department of Housing and Urban
Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make
payments under its guarantee.
Government Related Securities. Mortgage-related
securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the
full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment
of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or
"PCs"). The FHLMC is a corporate instrumentality of the United
States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time
after default on an underlying mortgage, but in no event later
than one year after it becomes payable.
Municipal Obligations. (Asset Allocation, Equity,
Bond and Municipal Funds only) Municipal Obligations are
classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power.
Industrial development bonds, in most cases, are revenue bonds
and generally do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the
corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a
bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations include municipal lease/purchase
agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Certain
Municipal Obligations are subject to redemption at a date
earlier than their stated maturity pursuant to call options,
which may be separated from the related Municipal Obligation and
purchased and sold separately. Each of these Funds will invest
in Municipal Obligations, the ratings of which correspond with
the ratings of other permissible Fund investments.
For the purpose of diversification under the
Investment Company Act of 1940 (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 management 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. The
Municipal Money Market Fund will seek to minimize these risks by
investing only in those lease obligations that (1) are rated in
one of the two highest categories for debt obligations by at
least two nationally recognized statistical rating organizations
(or one rating organization if the lease obligation was rated by
only one such organization); or (2) if unrated, are purchased
principally from the issuer or domestic banks or other
responsible third parties, in each case only if the seller shall
have entered into an agreement with the Municipal Money Market
Fund providing the seller or other responsible third party will
either remarket or repurchase the lease obligations within a
short period after demand by the Fund. With respect to the
Intermediate Municipal Bond Fund, the Board has established
guidelines for the Investment Adviser to determine the liquidity
and appropriate valuation of lease obligations based on factors
which include: (1) the frequency of trades and quotes for the
lease obligation or similar securities; (2) the number of
dealers willing to purchase or sell the lease obligation or
similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the
security or similar securities; and (4) the nature of the
marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer. Not more than 15% (10% in the case of the Municipal
Money Market Fund) of the value of the Fund's net assets will be
invested in lease obligations that are illiquid and in other
illiquid securities. See "Investment Restriction No. 11" below.
The Intermediate Municipal Bond Fund will purchase
tender option bonds only when it is satisfied that the custodial
and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of
the underlying Municipal Obligations and that payment of any
tender fees will not have the effect of creating taxable income
for the Fund. Based on the tender option bond agreement, the
Trust expects to be able to value the tender option bond at par;
however, the value of the instrument will be monitored to assure
that is valued at fair value.
The Municipal Money Market Fund will not purchase
tender option bonds unless (a) the demand feature applicable
thereto is exercisable by the Fund within 13 months of the date
of such purchase upon no more than 30 days' notice and
thereafter is exercisable by the Fund no less frequently than
annually upon no more than 30 days' notice and (b) at the time
of such purchase, the Investment Adviser reasonably expects (i)
based upon its assessment of current and historical interest
rate trends, that prevailing short-term tax exempt rates will
not exceed the stated interest rate on the underlying Municipal
Obligations at the time of the next tender option to terminate
the tender option would not occur prior to the time of the next
tender opportunity. At the time of each tender opportunity, the
Fund will exercise the tender option with respect to any tender
option bonds unless the Investment Adviser reasonably expects,
(x) based upon its assessment of current and historical interest
rate trends, that prevailing short-term tax exempt rates will
not exceed the stated interest rate on the underlying Municipal
Obligations at the time of the next tender fee adjustment, and
(y) that the circumstances which might entitle the grantor of a
tender option to terminate the tender option would not occur
prior to the time of the next tender opportunity. The Municipal
Money Market Fund will exercise the tender feature with respect
to tender option bonds, or otherwise dispose of its tender
option bonds, prior to the time the tender option is scheduled
to expire pursuant to the terms of the agreement under which the
tender option is granted. The Municipal Money Market Fund
otherwise will comply with the provisions of Rule 2a-7 in
connection with the purchase of tender option bonds, including,
without limitation, the requisite determination by the Board of
Trustees that the tender option bonds in question meet the
quality standards described in Rule 2a-7, which, in the case of
a tender option bond subject to a conditional demand feature,
would include a determination that the security has received
both the required short-term and long-term quality rating or is
determined to be of comparable quality. In the event of a
default of the Municipal Obligation underlying a tender option
bond, or the termination of the tender option agreement, the
Municipal Money Market Fund would look to the maturity date of
the underlying security for purposes of compliance with Rule
2a-7 and, if its remaining maturity was greater than 13 months,
the Fund would sell the security as soon as would be
practicable. The Municipal Money Market Fund will purchase
tender option bonds only when it is satisfied that the custodial
and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of
the underlying Municipal Obligations and that payment of any
tender fees will not have the effect of creating taxable income
for the Fund. Based on the tender option bond agreement, the
Municipal Money Market Fund expects to be able to value the
tender option bond at par; however, the value of the instrument
will be monitored to assure that it is valued at fair value.
If, subsequent to its purchase by the Municipal Money
Market Fund, (a) an issue of rated Municipal Obligations ceases
to be rated in the highest rating category by at least two
ratings organizations (or one rating organization if the
instrument was rated by only one such organization), or the
Trust's Board determines that it is no longer of comparable
quality; or (b) the Investment Adviser becomes aware that any
portfolio security not so highly rated or any unrated security
has been given a rating by any rating organization below the
rating organization's second highest rating category, the
Trust's Board will reassess promptly whether such security
presents minimal credit risk and will cause the Fund to take
such action as it determines is in the best interest of the Fund
and its shareholders, provided that the reassessment required by
clause (b) is not required if the portfolio security is disposed
of or matures within five business days of the Investment
Adviser becoming aware of the new rating and the Trust's Board
is subsequently notified of the Investment Adviser's actions.
To the extent that the ratings given by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service Inc. ("Fitch")
for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Municipal Money
Market Fund will attempt to use comparable ratings as standards
for its investments in accordance with the investment policies
contained in the Trust's Prospectus and this Statement of
Additional Information. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these
ratings may be an initial criterion for selection of portfolio
investments, the Investment Adviser will also evaluate these
securities and the creditworthiness of the issuers of such
securities.
Convertible Securities. (Asset Allocation, Equity and
Bond Funds only) In general, the market value of a convertible
security is the higher of its "investment value" (i.e., its
value as a fixed-income security) or its "conversion value"
(i.e., the value of the underlying shares of common stock if the
security is converted). As a fixed-income security, the market
value of a convertible security generally increases when
interest rates decline and generally decreases when interest
rates rise. However, the price of a convertible security also
is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security
generally increases as the market value of the underlying stock
increases, and generally decreases as the market value of the
underlying stock declines. Investments in convertible
securities generally entail less risk than investments in the
common stock of the same issuer.
Illiquid Securities. When purchasing securities that
have not been registered under the Securities Act of 1933, as
amended, and are not readily marketable, the Trust will endeavor
to obtain the right to registration at the expense of the
issuer. Generally, there will be a lapse of time between a
Fund's decision to sell any such security and the registration
of the security permitting sale. During any such period, the
price of the securities will be subject to market fluctuations.
However, 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
a Fund, such Fund intends to treat them as liquid securities in
accordance with procedures approved by the Trust's Board of
Trustees. Because it is not possible to predict with assurance
how the market for restricted securities pursuant to Rule 144A
will develop, the Trust's Board of Trustees has directed the
Investment Adviser to monitor carefully each Fund's investments
in such securities with particular regard to trading activity,
availability of reliable price information and other relevant
information. To the extent that, for a period of time,
qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, a Fund's investing in such
securities may have the effect of increasing the level of
illiquidity in such Fund during such period.
Management Policies
Options Transactions. (Asset Allocation, Equity and
Bond Funds only) Each of these Funds may engage in options
transactions, such as purchasing or writing covered call or put
options. The principal reason for writing covered call options
is to realize, through the receipt of premiums, a greater return
than would be realized on a Fund's securities alone. In return
for a premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying
security above the strike price for the life of the option (or
until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in
the price of the underlying security. Similarly, the principal
reason for writing covered put options is to realize income in
the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying
security. The size of the premiums that a Fund may receive may
be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-
writing activities.
Options written ordinarily will have expiration dates
between one and nine months from the date written. The exercise
price of the options may be below, equal to or above the market
values of the underlying securities at the time the options are
written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-
money," respectively. Each Fund may write (a) in-the-money call
options when the Investment Adviser expects that the price of
the underlying security will remain stable or decline moderately
during the option period, (b) at-the-money call options when the
Investment Adviser expects that the price of the underlying
security will remain stable or advance moderately during the
option period and (c) out-of-the-money call options when the
Investment Adviser expects that the premiums received from
writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security
alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset
wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call
options are used in equivalent transactions.
So long as a Fund's obligation as the writer of an
option continues, such Fund may be assigned an exercise notice
by the broker-dealer through which the option was sold,
requiring the Fund to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation
terminates when the option expires or a Fund effects a closing
purchase transaction. A Fund can no longer effect a closing
purchase transaction with respect to an option once it has been
assigned an exercise notice.
While it may choose to do otherwise, each Fund
generally will purchase or write only those options for which
the Investment Adviser believes there is an active secondary
market so as to facilitate closing transactions. There is no
assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety of reasons.
In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times
have rendered certain clearing facilities inadequate and
resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or
trading halts or suspensions in one or more options. There can
be no assurance that similar events, or events that otherwise
may interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If as a
covered call option writer a Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise or it otherwise
covers its position.
Stock Index Options. (Asset Allocation and Equity
Funds only) Each of these Funds may purchase and write put and
call options on stock indexes listed on a securities exchange or
traded in the over-the-counter market. A stock index fluctuates
with changes in the market values of the stocks included in the
index.
Options on stock indexes are similar to options on
stock except that (a) the expiration cycles of stock index
options are generally monthly, while those of stock options are
currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery
of a stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value
of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." Receipt of this cash amount
will depend upon the closing level of the stock index upon which
the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the
option. The amount of cash received will be equal to such
difference between the closing price of the index and the
exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire
unexercised.
Futures Contracts and Options on Futures Contracts.
(Asset Allocation, Equity, Bond and Municipal Bond Funds Only)
Each of these Funds may trade futures contracts and options on
futures contracts in U.S. domestic markets, such as the Chicago
Board of Trade and the International Monetary Market of the
Chicago Mercantile Exchange, or, to the extent permitted under
applicable law, on exchanges located outside the United States,
such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer
advantages such as trading in commodities that are not currently
traded in the United States or arbitrage possibilities not
available in the United States.
Initially, when purchasing or selling futures
contracts a Fund will be required to deposit with the Trust's
custodian in the broker's name an amount of cash or cash
equivalents up to approximately 10% of the contract amount.
This amount is subject to change by the exchange or board of
trade on which the contract is traded and members of such
exchange or board of trade may impose their own higher
requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the
futures position, assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation margin," to
and from the broker will be made daily as the price of the index
or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." At any
time prior to the expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, at
the then prevailing price, which will operate to terminate the
Fund's existing position in the contract.
Although each of these Funds intends to purchase or
sell futures contracts only if there is an active market for
such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting a Fund to
substantial losses. If it is not possible, or the Fund
determines not, to close a futures position in anticipation of
adverse price movements, the Fund will be required to make daily
cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being
hedged, if any, may offset partially or completely losses on the
futures contract. However, no assurance can be given that the
price of the securities being hedged will correlate with the
price movements in a futures contract and thus provide an offset
to losses on the futures contract.
In addition, to the extent a Fund is engaging in a
futures transaction as a hedging device, due to the risk of an
imperfect correlation between securities owned by the Fund that
are the subject of a hedging transaction and the futures
contract used as a hedging device, it is possible that the hedge
will not be fully effective in that, for example, losses on the
portfolio securities may be in excess of gains on the futures
contract or losses on the futures contract may be in excess of
gains on the portfolio securities that were the subject of the
hedge. In futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of a Fund's
investments varies from the composition of the index. In an
effort to compensate for the imperfect correlation of movements
in the price of the securities being hedged and movements in the
price of futures contracts, the Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar
amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than
that of the securities. Such "over hedging" or "under hedging"
may adversely affect a Fund's net investment results if market
movements are not as anticipated when the hedge is established.
Upon exercise of an option, the writer of the option
will deliver to the holder of the option the futures position
and the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price
of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the
option on the futures contract. The potential loss related to
the purchase of options on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are
no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset
value of each Fund.
Foreign Currency Transactions. (Asset Allocation,
Growth, International Equity, Special Opportunities and
International Bond Funds only) If a Fund enters into a currency
transaction, it will deposit, if so required by applicable
regulations, with its custodian cash or readily marketable
securities in a segregated account of the Fund in an amount at
least equal to the value of the Fund's total assets committed to
the consummation of the forward contract. If the value of the
securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the
value of the account will equal the amount of the Fund's
commitment with respect to the contract.
At or before the maturity of a forward contract, the
Fund either may sell a security and make delivery of the
currency, or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is
obligated to deliver. If the Fund retains the portfolio
security and engages in an offsetting transaction, such Fund, at
the time of execution of the offsetting transaction, will incur
a gain or loss to the extent movement has occurred in forward
contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, the Fund will realize
a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer
a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to
sell.
The cost to each of these Funds of engaging in
currency transactions varies with factors such as the currency
involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency
exchange usually are conducted on a principal basis, no fees or
commissions are involved. The use of forward currency exchange
contracts does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. If a devaluation
generally is anticipated, a Fund may not be able to contract to
sell the currency at a price above the devaluation level it
anticipates. The requirements for qualification as a regulated
investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), may cause the Fund to restrict the degree
to which each Fund engages in currency transactions. See
"Dividends, Distributions and Taxes."
Lending Portfolio Securities. To a limited extent,
each Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided it receives cash
collateral which at all times is maintained in an amount equal
to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, a Fund can
increase its income through the investment of the cash
collateral. For purposes of this policy, a Fund considers
collateral consisting of U.S. Government securities or, except
in the case of the U.S. Government Money Market Fund,
irrevocable letters of credit issued by banks whose securities
meet the standards for investment by such Fund to be the
equivalent of cash. From time to time, a Fund may return to the
borrower or a third party which is unaffiliated with such Fund,
and which is acting as a "placing broker," a part of the
interest earned from the investment of collateral received for
securities loaned.
The Securities and Exchange Commission currently
requires that the following conditions must be met whenever
portfolio securities are loaned: (1) the Fund must receive at
least 100% cash collateral from the borrower; (2) the borrower
must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the
Fund must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions payable on the
loaned securities, and any increase in market value; (5) the
Fund may pay only reasonable custodian fees in connection with
the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Trust'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
Each Fund has adopted investment restrictions numbered
1 through 7 as fundamental policies. In addition, the Money
Market Fund has adopted investment restrictions numbered 14 and
15, the Municipal Funds have adopted investment restriction
number 16, the Diversified Funds, other than the Money Market
Fund and Intermediate Municipal Bond Fund, have adopted
investment restriction number 17, and the Diversified Funds,
other than the Money Market and Municipal Funds, have adopted
investment restrictions numbered 18 and 19 as additional
fundamental policies. These restrictions cannot be changed, as
to a Fund, without approval by the holders of a majority (as
defined in the 1940 Act) of such Fund's outstanding voting
shares. Investment restrictions numbered 8 through 13 and 20
through 22 are not fundamental policies and may be changed by
vote of a majority of the Trust's Trustees at any time. No Fund
may:
1. Invest in commodities, except that each Fund may
purchase and sell options, forward contracts, futures
contracts, including those relating to indexes, and options
on futures contracts or indexes.
2. Purchase, hold or deal in real estate, including
real estate limited partnership interests, or oil, gas or
other mineral leases or exploration or development
programs, but each Fund may purchase and sell securities
that are secured by real estate or issued by companies that
invest or deal in real estate.
3. Borrow money, except to the extent permitted
under the 1940 Act. For purposes of this investment
restriction, a Fund's entry into options, forward
contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes shall
not constitute borrowing.
4. Make loans to others, except through the purchase
of debt obligations and the entry into repurchase
agreements. However, each Fund may lend its securities in
an amount not to exceed 33-1/3% of the value of its total
assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and
Exchange Commission and the Trust's Board of Trustees.
5. Act as an underwriter of securities of other
issuers, except to the extent a Fund may be deemed an
underwriter under the Securities Act of 1933, as amended,
by virtue of disposing of portfolio securities, and except
that the Fund may bid separately or as part of a group for
the purchase of Municipal Obligations directly from an
issuer for its own portfolio to take advantage of the lower
purchase price available.
6. Issue any senior security (as such term is
defined in Section 18(f) of the 1940 Act), except to the
extent the activities permitted under Investment
Restriction Nos. 1, 3, 9 and 10 may be deemed to give rise
to senior securities.
7. Purchase securities on margin, but each Fund may
make margin deposits in connection with transactions in
options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts
or indexes.
8. Invest in the securities of a company for the
purpose of exercising management or control, but each Fund
will vote the securities it owns in its portfolio as a
shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets,
except to the extent necessary to secure permitted
borrowings and to the extent related to the deposit of
assets in escrow in connection with writing covered put and
call options and the purchase of securities on a when-
issued or forward commitment basis and collateral and
initial or variation margin arrangements with respect to
options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts
or indexes.
10. Purchase, sell or write puts, calls or
combinations thereof, except as described in the Trust's
Prospectus and this Statement of Additional Information.
11. Enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase
securities which are illiquid, if, in the aggregate, more
than 15% (10% in the case of a Money Market Fund) of the
value of the Fund's net assets would be so invested.
12. Invest in securities of other investment
companies, except to the extent permitted under the Act.
13. Purchase securities of any company having less
than three years' continuous operations (including
operations of any predecessors) if such purchase would
cause the value of the Fund's investments in all such
companies to exceed 10% of the value of its total assets.
The following investment restrictions numbered 14 and
15 apply only to the Money Market Fund. The Money Market Fund
may not:
14. Invest more than 5% of its assets in the
obligations of any one issuer, except that up to 25% of the
value of the Money Market Fund's total assets may be
invested (subject to Rule 2a-7 under the 1940 Act) without
regard to any such limitation.
15. Invest less than 25% of its total assets in
securities issued by banks or invest more than 25% of its
assets in the securities of issuers in any other industry,
provided that there shall be no limitation on the purchase
of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. Notwithstanding the
foregoing, for temporary defensive purposes, the Money
Market Fund may invest less than 25% of its total assets in
bank obligations.
The following investment restriction number 16 applies
only to the Municipal Funds. None of these Funds may:
16. Invest more than 25% of its total assets in the
securities of issuers in any single industry, provided that
there shall be no such limitation on the purchase of
Municipal Obligations and, for temporary defensive
purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
The following investment restriction number 17 applies
only to the Diversified Funds, other than the Money Market Fund
and Intermediate Municipal Bond Fund. None of these Funds may:
17. Invest more than 5% of its assets in the
obligations of any single issuer, except that up to 25% of
the value of the Fund's total assets may be invested, and
securities issued or guaranteed by the U.S. Government, or
its agencies or instrumentalities may be purchased, without
regard to any such limitation.
The following investment restriction numbers 18 and 19
apply only to the Diversified Funds, other than the Money Market
and Municipal Funds. None of these Funds may:
18. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of the Fund's
total assets.
19. Invest more than 25% of its assets in the
securities of issuers in any single industry, except that,
there shall be no limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
The following investment restriction number 20, which
is not a fundamental policy, applies only to the Money Market
Funds. Neither of these Funds may:
20. Sell securities short.
The following investment restriction number 21, which
is not a fundamental policy, applies only to the Municipal Money
Market Fund. The Municipal Money Market Fund may not:
21. Purchase securities other than municipal
obligations and taxable Money Market Instruments.
The following investment restriction number 22, which
is not a fundamental policy, applies only to the U.S. Government
Money Market Fund. The U.S. Government Money Market Fund may
not:
22. Purchase common stocks, preferred stocks,
warrants or other equity securities, or purchase corporate
bonds (except as set forth in the Prospectus) or
debentures, state bonds, municipal bonds or industrial
revenue bonds.
For purposes of Investment Restriction No. 16,
industrial development bonds, where the payment of principal and
interest is the ultimate responsibility of companies within the
same industry, are grouped together as an "industry."
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 Trust may make commitments more restrictive than
the restrictions listed above so as to permit the sale of Fund
shares in certain states. Should the Trust determine that a
commitment is no longer in the best interests of a Fund and its
shareholders, the Trust reserves the right to revoke the
commitment by terminating the sale of such Fund's shares in the
state involved.
MANAGEMENT OF THE TRUST
Trustees and officers of the Trust, together with
information as to their principal business occupations during at
least the last five years, are shown below. Each Trustee who is
deemed to be an "interested person" of the Trust, as defined in
the 1940 Act, is indicated by an asterisk.
Trustees of the Trust
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. Mr. Gould
is also a Board member of five other funds in the Prairie
Family of Funds. He is 55 years old and 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. Mrs. McCoy is also a Board
member of five other funds in the Prairie Family of
Funds. She is 46 years old and 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 Inter-
national, Inc., a company engaged in the production of
medical care products. He also is a member of the Illinois
Society of Certified Public Accountants. Mr. Oddi is also
a Board member of five other funds in the Prairie Family of
Funds. He is 66 years old and his address is 1181 Loch
Lane, Lake Forest, Illinois 60045.
For so long as a plan described in the section
captioned "Distribution, Shareholder Services and Service Plans"
remains in effect, the Trustees of the Trust who are not
"interested persons" of the Trust, as defined in the 1940 Act,
will be selected and nominated by the Trustees who are not
"interested persons" of the Trust.
Officers of the Trust
JOSEPH F. KISSEL, President. Executive Vice President of
Concord Holding Corporation, the Trust's sub-administrator
(the "Sub-Administrator"), and an officer of other
investment companies administered by the Sub-Administrator.
His address is 125 West 55th Street, New York, New York
10019.
ANN E. BERGIN, Vice President. Senior Vice President of the
Sub-Administrator and an officer of other investment
companies administered by the Sub-Administrator. Her
address is 125 West 55th Street, New York, New York 10019.
STEPHEN A. SMITH, Vice President. Senior Vice President of the
Distributor and an officer of other investment companies
distributed by the Distributor. His address is 125 West
55th Street, New York, New York 10019.
RICHARD A. FABIETTI, Treasurer. Senior Vice President and
Treasurer of the Sub-Administrator and the Distributor and
an officer of other investment companies administered by
the Sub-Administrator. His address is 125 West 55th
Street, New York, New York 10019.
MARTIN G. FLANIGAN, Assistant Treasurer. Mutual Funds
Accounting Manager of the Sub-Administrator and an officer
of other investment companies administered by the Sub-
Administrator. His address is 125 West 55th Street, New
York, New York 10019.
DOMENICK PUGLIESE, Secretary. Vice President and Counsel--
Mutual Funds of the Sub-Administrator and Distributor,
since November 1994, and an officer of other investment
companies administered by the Sub-Administrator. He was
Vice President and Associate General Counsel of Prudential
Mutual Funds, from July 1992 to November 1994, and of
Prudential Securities, from March 1992 to July 1992. For
more than five years prior thereto, he was an associate
with the law firm of Battle Fowler. His address is 125
West 55th Street, New York, New York 10019.
LINDA MAHON, Assistant Secretary. Vice President of the Sub-
Administrator and Distributor, since January 1994, and an
officer of other investment companies administered by the
Sub-Administrator. From 1991 to 1994, she was Corporate
Secretary of J.&W. Seligman & Co. Incorporated. From 1989
to 1991, she was Vice President of Paribas Asset
Management, Inc. Her address is 125 West 55th Street, New
York, New York 10019.
The Trust pays its Trustees its allocable share of the
aggregate of a fixed fee of $25,000 per annum and a per meeting
fee of $1,000 for all funds in the Prairie Family of Funds. The
estimated aggregate amount of compensation payable to each
Trustee by the Trust and all other funds in the Prairie Family
of Funds for which such person is a Board member for the fiscal
year ending December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(5)
(2) (3) Total Compensation
(1) Aggregate Pension or (4) From Fund and
Name of Board Compensation from Retirement Benefits Estimated Annual Fund Complex Paid
Member Fund<F1> Accrued as Part of Benefits Upon to Board Member
Fund's Expenses Retirement
<S> <C> <C> <C> <C>
John P. Gould $18,000 None None $30,000
Marilyn McCoy $18,000 None None $30,000
Raymond D. Oddi $18,000 None None $30,000
______________________________
<FN> Amount does not include reimbursed expenses for
attending Board meeting, which are estimated to be
approximately $350 for all Trustees as a group.
</TABLE>
MANAGEMENT ARRANGEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND
SHOULD BE READ IN CONJUNCTION WITH THE SECTION IN THE PROSPECTUS
ENTITLED "MANAGEMENT OF THE TRUST."
Investment Advisory Agreement. FCIMCO provides
investment advisory services pursuant to the Investment Advisory
Agreement (the "Agreement") dated November 18, 1994, with the
Trust. As to each Fund, the Agreement is subject to annual
approval by (i) the Trust's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund, provided that in either event the
continuance also is approved by a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the
Trust or FCIMCO, by vote cast in person at a meeting called for
the purpose of voting on such approval. As to each Fund, the
Agreement is terminable without penalty, on 60 days' notice, by
the Trust's Board of Trustees or by vote of the holders of a
majority of such Fund's shares, or, on not less than 90 days'
notice, by FCIMCO. The Agreement will terminate automatically,
as to the relevant Fund, in the event of its assignment (as
defined in the 1940 Act).
FCIMCO is responsible for investment decisions
for each Fund in accordance with the stated policies of such
Fund, subject to the approval of the Trust's Board of Trustees.
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: J. Stephen Baine, Chairman of the Board of
Directors, Chief Executive Officer and President; Alan F. Delp,
William G. Jurgensen, Joseph M. Thomas and David J. Vitale,
Directors; Terrall J. Janeway, Treasurer, Chief Financial and
Accounting Officer and Managing Director; Bradford M. Markham,
Secretary and Chief Legal Officer; and Richard A. Davies,
Deborah L. Edwards, Marco Hanig, David R. Kling and Stephen P.
Manus, Managing Directors.
Sub-Investment Advisory Agreement. ANB
Investment Management and Trust Company ("ANB-IMC") provides
investment advisory assistance and day-to-day management of the
International Equity Fund's investments pursuant to the Sub-
Investment Advisory Agreement dated November 18, 1994 between
ANB-IMC and FCIMCO. The Sub-Investment Advisory Agreement is
subject to annual approval by (i) the Trust's Board or (ii) vote
of a majority (as defined in the Act) of the International
Equity Fund's outstanding voting securities, provided that in
either event the continuance also is approved by a majority of
Trustees who are not "interested persons" (as defined in the
Act) of the Trust or ANB-IMC, by vote cast in person at a
meeting called for the purpose of voting on such approval. The
Sub-Investment Advisory Agreement is terminable without penalty,
(i) by FCIMCO on 60 days' notice, (ii) by the Trust's Board or
by vote of the holders of a majority of the Fund's outstanding
voting securities on 60 days' notice, or (iii) upon not less
than 90 days' notice, by ANB-IMC. The Sub-Investment Advisory
Agreement will terminate automatically in the event of its
assignment (as defined in the Act).
ANB-IMC provides day-to-day management of the
International Equity Fund's investments, subject to the
supervision of FCIMCO and the Trust's Board. The fees payable
to ANB-IMC for its services are paid by FCIMCO.
The following persons are officers and/or
directors of ANB-IMC: Peter J. Kartalia, Neil R. Wright,
Stephen P. Manus, Alan F. Delp, David P. Bolger, Thomas P.
Michaels and J. Stephen Baine.
Administration and Sub-Administration
Agreements. Pursuant to an Administration Agreement dated
November 18, 1994 with the Trust, FCIMCO assists in all aspects
of the Trust's operations, other than providing investment
advice, subject to the overall authority of the Trust's Board in
accordance with Massachusetts law. FCIMCO has engaged Concord
Holding Corporation (the "Sub-Administrator") to assist it in
providing certain administrative services to the Trust.
Pursuant to its agreement with FCIMCO (the "Sub-Administration
Agreement"), the Sub-Administrator assists FCIMCO in furnishing
the Trust clerical help and accounting, data processing,
bookkeeping, internal auditing and legal services and certain
other services required by the Trust, preparing reports to the
funds' shareholders, tax returns, reports to and filings with
the Securities and Exchange Commission and state Blue Sky
authorities, calculating the net asset value of each Fund's
shares and generally in providing for all aspects of the Trust'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, ANB-IMC and
the Sub-Administrator will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust
in connection with the matters to which respective agreements
relate, except for a loss resulting from wilful misfeasance, bad
faith or gross negligence on the part of FCIMCO in the
performance of its obligations or from reckless disregard by it
of its obligations and duties under its Agreements or on the
part of ANB-IMC or the Sub-Administrator in the performance of
their respective obligations or from reckless disregard by
either of its obligations and duties under its agreement.
Expenses and Expense Information. All expenses
incurred in the operation of the Trust are borne by the Trust,
except to the extent specifically assumed by FCIMCO. The
expenses borne by the Trust include: organizational costs,
taxes, interest, brokerage fees and commissions, if any, fees of
Board members, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Trust's
existence, costs of independent pricing services, costs
attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and
printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses. In addition,
Class A and Class B are subject to an annual distribution and/or
service fee. Expenses attributable to a particular Fund or
Class are charged against the assets of that Fund or Class,
respectively; other expenses of the Trust are allocated among
the Funds on the basis determined by the Board of Trustees,
including, but not limited to, proportionately in relation to
the net assets of each Fund.
The Agreement provides that if, in any fiscal
year, the aggregate expenses of a Fund, exclusive of taxes,
brokerage, interest on borrowings and (with the prior written
consent of the necessary state securities commissions)
extraordinary expenses, but including the advisory fee, exceed
the expense limitation of any state having jurisdiction over the
Fund, the Trust may deduct from the payment to be made to FCIMCO
under the Agreement, or FCIMCO will bear, such excess expense to
the extent required by state law. Such deduction or payment, if
any, will be estimated daily, and reconciled and effected or
paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to FCIMCO is
not subject to reduction as the value of a Fund's net assets
increases.
PURCHASE OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND
SHOULD BE READ IN CONJUNCTION WITH THE SECTION IN THE TRUST'S
PROSPECTUS ENTITLED "HOW TO BUY SHARES."
The Distributor. The Distributor serves as the
Trust's distributor pursuant to an agreement which is renewable
annually.
Using Federal Funds. Primary Funds Service
Corp., the Fund's transfer and dividend disbursing agent (the
"Transfer Agent"), or the Trust may attempt to notify the
investor upon receipt of checks drawn on banks that are not
members of the Federal Reserve System as to the possible delay
in conversion into Federal Funds and may attempt to arrange for
a better means of transmitting the money. If the investor is a
customer of a securities dealer, bank or other financial
institution and his order to purchase Fund shares is paid for
other than in Federal Funds, the securities dealer, bank or
other financial institution, acting on behalf of its customer,
generally will complete the conversion into, or itself advance,
Federal Funds on the business day following receipt of the
customer order. The order is effective only when so converted
and received by the Transfer Agent. An order for the purchase
of Fund shares placed by an investor with a sufficient Federal
Funds or cash balance in his brokerage account with a securities
dealer, bank or other financial institution will become
effective on the day that the order, including Federal Funds, is
received by the Transfer Agent. In some states, banks or other
institutions effecting transactions in Fund shares may be
required to register as dealers pursuant to state law.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and
should be read in conjunction with the section in the Trust's
Prospectus entitled "Distribution Plan and Shareholder Services
Plan."
Distribution Plan. Rule 12b-1 (the "Rule")
adopted by the Securities and Exchange Commission under the 1940
Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan
adopted in accordance with the Rule. The Trust's Board has
adopted such a plan with respect to Class B shares of each Fund
(the "Plan"). The Trust's Board believes that there is a
reasonable likelihood that the Plan will benefit each Fund and
the holders of its Class B shares.
A quarterly report of the amounts expended
under each Plan, and the purposes for which such expenditures
were incurred, must be made to the Trustees for their review.
In addition, the Plan provides that it may not be amended to
increase materially the cost which holders of Class B shares of
the Fund may bear pursuant to the Plan without the approval of
the shareholders of such Class and that other material
amendments of the Plan must be approved by the Board of Trustees
and by the Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Trust and have no direct or indirect
financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan, by vote
cast in person at a meeting called for the purpose of
considering such amendments. The 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 Plan. The Plan
was so approved by the Trustees at a meeting held on November
18, 1994. The Plan may be terminated 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 Plan or in any agreements entered into in connection with
the Plan or by vote of the holders of a majority of Class B
shares of the Fund.
Shareholder Services Plan. The Trust has
adopted a Shareholder Services Plan, pursuant to which the Trust
pays the Distributor for the provision of certain services to
the holders of Class A and Class B shares of each Fund.
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 Trustees
for their review. In addition, the Shareholder Services Plan
provides that it may not be amended without approval of the
Trustees, and by the Trustees who are neither "interested
persons" (as defined in the 1940 Act) of the Trust 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
November 18, 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.
REDEMPTION OF SHARES
The following information supplements and
should be read in conjunction with the section in the Trust's
Prospectus entitled "How to Redeem Fund Shares."
Redemption Commitment. The Trust has committed
itself to pay in cash all redemption requests by any shareholder
of record of a Fund, limited in amount during any 90-day period
to the lesser of $250,000 or 1% of the value of such Fund's net
assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and
Exchange Commission. In the case of requests for redemption in
excess of such amount, the Board 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 securities are valued.
If the recipient sold such securities, brokerage charges would
be incurred.
Suspension of Redemptions. The right of
redemption may be suspended or the date of payment postponed (a)
during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closing), (b) when
trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the
Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and
should be read in conjunction with the section in the Trust's
Prospectus entitled "How to Buy Shares."
Applicable to each Fund, other than the Money
Market Funds--Equity Securities and covered call options written
by a Fund are valued at the last sale price on the securities
exchange or national securities market on which such securities
primarily are traded. Equity Securities not listed on an
exchange or national securities market, or securities in which
there were no transactions, are valued at the most recent bid
prices. Any securities or other assets for which recent market
quotations are not readily available are valued at fair value as
determined in good faith by the Trust's Board of Trustees.
Fixed-Income Securities are valued each
business day using available market quotations or at fair value
as determined by one or more independent pricing services
(collectively, the "Service") approved by the Trust's Board of
Trustees. The Service may use available market quotations,
employ electronic data processing techniques and/or a matrix
system to determine valuations. The Service's procedures are
reviewed by the Trust's officers under the general supervision
of the Trust's Board of Trustees.
Municipal Obligations are carried at fair value
as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. The Service
also may employ electronic data processing techniques and/or a
matrix system to determine valuations. When, in the judgment of
the Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market,
these investments are valued at the mean between the quoted bid
prices (as obtained by the Service from dealers in such
securities) and asked prices (as calculated by the Service based
upon its evaluation of the market for such securities).
Short-term investments are carried at amortized
cost, which approximates value.
Restricted securities, as well as securities or
other assets for which market quotations are not readily
available, or are not valued by a pricing service approved by
the Trust's Board of Trustees, are valued at fair value as
determined in good faith by the Trust's Board of Trustees. The
Trust's Board of Trustees will review the method of valuation on
a current basis. In making its good faith valuation of
restricted securities, the Board of Trustees generally will take
the following factors into consideration: restricted securities
which are, or are convertible into, securities of the same class
of securities for which a public market exists usually will be
valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by
the Trust's Board of Trustees if its members believe that the
discount no longer reflects the value of the restricted
securities. Restricted securities not of the same class as
securities for which a public market exists usually will be
valued initially at cost. Any subsequent adjustment from cost
will be based upon considerations deemed relevant by the Trust's
Board of Trustees.
Any assets or liabilities initially expressed
in terms of foreign currency will be translated into dollars at
the midpoint of the New York interbank market spot exchange rate
as quoted on the day of such translation by the Federal Reserve
Bank of New York or if no such rate is quoted on such date, at
the exchange rate previously quoted by the Federal Reserve Bank
of New York or at such other quoted market exchange rate as may
be determined to be appropriate by the Investment Adviser.
Forward currency contracts will be valued at the current cost of
offsetting the contract. Because of the need to obtain prices
as of the close of trading on various exchanges throughout the
world, the calculation of net asset value for the International
Equity and International Bond Funds does not take place
contemporaneously with the determination of prices of such
securities. In addition, portfolio securities held by such
Funds may be traded actively in securities markets which are
open for trading on days when the Fund will not be determining
its net asset value. Accordingly, there may be occasions when
these Funds will not calculate it net asset value but when the
value of the Fund's portfolio securities will be affected by
such trading activity.
Expenses and fees of a Fund, including the
advisory fee, are accrued daily and taken into account for the
purpose of determining the net asset value of that Fund's
shares.
Money Market Funds. The valuation of each
Money Market Fund's investment securities is based upon their
amortized cost which does not take into account unrealized
capital gains or losses. This involves valuing an instrument at
its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the
instrument. While this method provides certainty in valuation,
it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The Board of Trustees has established
procedures, as a particular responsibility within the overall
duty of care owed to the Money Market Fund's investors,
reasonably designed to stabilize the Money Market Fund's price
per share as computed for purposes of purchases and redemptions
at $1.00. Such procedures include review of each Money Market
Fund's portfolio holdings by the Board of Trustees, at such
intervals as it deems appropriate, to determine whether the
Money Market Fund's net asset value calculated by using
available market quotations or market equivalents deviates from
$1.00 per share based on amortized cost. In such review of the
portfolio of the Money Market Fund and U.S. Government Money
Market Fund, investments for which market quotations are readily
available will be valued at the most recent bid price or yield
equivalent for such securities or for securities of comparable
maturity, quality and type, as obtained from one or more of the
major market makers for the securities to be valued. Other
investments and assets of these Money Market Funds will be
valued at fair value as determined in good faith by the Board of
Trustees. Market quotations and market equivalents used in such
review of the Municipal Money Market Fund are obtained from an
independent pricing service (the "Service") approved by the
Board of Trustees. The Service will value the Municipal Money
Market Fund's investments based on methods which include
consideration of: yields or prices of municipal obligations of
comparable quality, coupon, maturity and type; indications of
values from dealers; and general market conditions. The Service
also may employ electronic data processing techniques and/or a
matrix system to determine valuations.
The extent of any deviation between a Money
Market Fund's net asset value based upon available market
quotations or market equivalents and $1.00 per share based on
amortized cost will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board of Trustees will
consider what actions, if any, will be initiated. In the event
the Board of Trustees determines that a deviation exists which
may result in material dilution or other unfair results to
investors or existing shareholders, it has agreed to take such
corrective action as it regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or estab-
lishing a net asset value per share by using available market
quotations or market equivalents.
New York Stock Exchange Closings. The holidays
(as observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
PORTFOLIO TRANSACTIONS
Transactions are allocated to various dealers
by the Trust's investment personnel in their best judgment. The
primary consideration is prompt and effective execution of
orders at the most favorable price. Subject to that primary
consideration, dealers may be selected to act on an agency basis
for research, statistical or other services to enable the
Investment Adviser to supplement its own research and analysis
with the views and information of other securities firms.
Research services furnished by brokers through
which the Funds effect securities transactions may be used by
the Investment Adviser in advising other funds or accounts it
advises and, conversely, research services furnished to the
Investment Adviser by brokers in connection with other funds or
accounts the Investment Adviser advises may be used by the
Investment Adviser in advising the Funds. Although it is not
possible to place a dollar value on these services, it is the
opinion of the Investment Adviser that the receipt and study of
such services should not reduce the overall expenses of its
research department.
Brokers also are selected because of their
ability to handle special executions such as are involved in
large block trades or broad distributions, provided the primary
consideration is met. Large block trades may, in certain cases,
result from two or more clients the Investment Adviser might
advise being engaged simultaneously in the purchase or sale of
the same security.
When transactions are executed in the over-the-
counter market, the Investment Adviser will deal with the
primary market makers unless a more favorable price or execution
otherwise is obtainable.
Portfolio turnover may vary from year to year,
as well as within a year. Higher turnover rates are likely to
result in comparatively greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by the
Investment Adviser based upon its knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
Under normal market conditions, the portfolio
turnover rate of each Fund, other than the Money Market Funds,
generally will not exceed 100%.
Purchases and sales of Fixed-Income Securities
and Money Market Instruments usually are principal transactions.
These portfolio securities ordinarily are purchased directly
from the issuer or from an underwriter or market maker. Usually
no brokerage commissions are paid by the Fund for such purchases
and sales. The prices paid to the underwriters of newly-issued
securities usually include a concession paid by the issuer to
the underwriter, and purchases of securities from market makers
may include the spread between the bid and asked price.
DIVIDENDS, DISTRIBUTION AND TAXES
The following information supplements and
should be read in conjunction with the section in the Trust's
Prospectus entitled "Dividends, Distributions and Taxes."
Each 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, a Fund must pay out
to its shareholders at least 90% of its net income (consisting
of net investment income from tax exempt obligations and net
short-term capital gain), must derive less than 30% of its
annual gross income from gain on the sale of securities held for
less than three months, and must meet certain asset
diversification and other requirements. 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.
Any dividend or distribution paid shortly after
an investor's purchase may have the effect of reducing the
aggregate net asset value of his shares below the cost of his
investment. Such a distribution would be a return on investment
in an economic sense although taxable as stated in "Dividends,
Distributions and Taxes" in the Prospectus. In addition, the
Code provides that if a shareholder holds shares for six months
or less and has received a capital gain dividend with respect to
such shares, any loss incurred on the sale of such shares will
be treated as a long-term capital loss to the extent of the
capital gain dividend received.
Except for dividends from taxable investments,
the Fund anticipates that substantially all dividends paid by a
Municipal Fund will not be subject to Federal income tax.
Dividends and distributions paid by a Municipal Fund may be
subject to certain state and local taxes. Although all or a
substantial portion of the dividends paid by a Municipal Fund
may be excluded by shareholders of the Fund from their gross
income for Federal income tax purposes, each Municipal Fund may
purchase specified private activity bonds, the interest from
which may be (i) a preference item for purposes of the
alternative minimum tax, (ii) a component of the "adjusted
current earnings" preference item for purposes of the corporate
alternative minimum tax as well as a component in computing the
corporate environmental tax or (iii) a factor in determining the
extent to which a shareholder's Social Security benefits are
taxable. If a Municipal Fund purchases such securities, the
portion of its dividends related thereto will not necessarily be
tax exempt to shareholders subject to the alternative minimum
tax and/or tax on Social Security benefits and may cause such
shareholders to be subject to such taxes.
Dividends paid by a Fund to qualified
Retirement Plans or certain non-qualified deferred compensation
plans ordinarily will not be subject to taxation until the
proceeds are distributed from the Retirement Plan. The Trust
will not report dividends paid by a Fund to such Plans to the
IRS. Generally, distributions from such Retirement Plans,
except those representing returns of non-deductible
contributions thereto, will be taxable as ordinary income and,
if made prior to the time the participant reaches age 59-1/2,
generally will be subject to an additional tax equal to 10% of
the taxable portion of the distribution. If the distribution
from such a Retirement Plan (other than certain governmental or
church plans) for any taxable year following the year in which
the participant reaches age 70-1/2 is less than the "minimum
required distribution" for that taxable year, an excise tax
equal to 50% of the deficiency may be imposed by the IRS. The
administrator, trustee or custodian of such a Retirement Plan
will be responsible for reporting distributions from such Plans
to the IRS. Participants in qualified Retirement Plans will
receive a disclosure statement describing the consequences of a
distribution from such a Plan from the administrator, trustee or
custodian of the Plan prior to receiving the distribution.
Moreover, certain contributions to a qualified Retirement Plan
in excess of the amounts permitted by law may be subject to an
excise tax.
Taxable dividends derived from net investment
income and distributions from net realized short-term securities
gains paid by a Fund to a foreign investor generally are subject
to U.S. nonresident withholding taxes at the rate of 30%, unless
the foreign investor claims the benefits of a lower rate
specified in a tax treaty. Distributions from net realized
long-term securities gains paid by a Fund to a foreign investor,
as well as the proceeds of any redemptions from a foreign
investor's account, regardless of the extent to which gain or
loss may be realized, will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign
investor certifies his non-U.S. residency status.
Ordinarily, gains and losses realized from
portfolio transactions will be treated as capital gains and
losses. However, a portion of the gain or loss realized from
the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and
options, and certain preferred stock) may be treated as ordinary
income or loss under Section 988 of the Code.
Under Section 1256 of the Code, gain or loss
realized by a Fund from certain financial futures and options
transactions (other than those taxed under Section 988 of the
Code) will be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. Gain or loss will arise
upon the exercise or lapse of such futures and options as well
as from closing transactions. In addition, any such futures or
options remaining unexercised at the end of the Fund's taxable
year will be treated as sold for their then fair market value,
resulting in additional gain or loss to the Fund characterized
in the manner described above.
Offsetting positions held by a Fund involving
certain contracts or options may constitute "straddles."
"Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the
provisions of Sections 1256 and 988. As such, all or a portion
of any short-term or long-term capital gain from certain
"straddle" transactions may be recharacterized to ordinary
income. If the Fund were treated as entering into "straddles"
by reason of its engaging in certain forward contracts or
options transactions, such "straddles" would be characterized as
"mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed
by Section 1256 of the Code. A Fund may make one or more
elections with respect to "mixed straddles." Depending on which
election is made, if any, the results to the Fund may differ.
If no election is made to the extent the "straddle" and
conversion transactions rules apply to positions established by
the Fund, losses realized by the Fund will be deferred to the
extent of unrealized gain in the offsetting position. Moreover,
as a result of the "straddle" rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital
loss, and long-term capital gains may be treated as short-term
capital gains or ordinary income.
Investment by a Fund in securities issued or
acquired at a discount, or providing for deferred interest or
for payment of interest in the form of additional obligations
could under special tax rules affect the amount, timing and
character of distributions to shareholders by causing the Fund
to recognize income prior to the receipt of cash payments. For
example, the Fund could be required to accrue a portion of the
discount (or deemed discount) at which the securities were
issued and to distribute such income in order to maintain its
qualification as a regulated investment company. In such case,
the Fund may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to
satisfy these distribution requirements.
If a Fund invests in an entity that is
classified as a "passive foreign investment company" ("PFIC")
for federal income tax purposes, the operation of certain
provisions of the Code applying to PFICs could result in the
imposition of certain federal income taxes on the Fund. In
addition, gain realized from the sale or other disposition of
PFIC securities may be treated as ordinary income under Section
1291 of the Code.
YIELD AND PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND
SHOULD BE READ IN CONJUNCTION WITH THE SECTION IN THE TRUST'S
PROSPECTUS ENTITLED "PERFORMANCE INFORMATION."
Special Opportunities, Growth and International
Equity Funds. Average annual total return is calculated by
determining the ending redeemable value of an investment
purchased with a hypothetical $1,000 payment made at the
beginning of the period (assuming the reinvestment of dividends
and distributions), dividing by the amount of the initial
investment, taking the "n"the 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.
Asset Allocation, Equity Income, Bond and
Intermediate Municipal Bond Funds. Current yield is computed
pursuant to a formula which operates as follows: The amount of
the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends
and interest earned by the Fund during the period. That result
is then divided by the product of: (a) the average daily number
of shares outstanding during the period that were entitled to
receive dividends, and (b) the net asset value per share on the
last day of the period less any undistributed earned income per
share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
Average annual total return and total return is
calculated as described above.
Money Market Funds. Yield will be computed in
accordance with a standardized method which involves determining
the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted,
dividing the net change by the value of the account at the
beginning of the period to obtain the base period return, and
annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account
reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares
and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's
average account size, but does not include realized gains and
losses or unrealized appreciation and depreciation. Effective
annualized yield is computed by adding 1 to the base period
return (calculated as described above), raising that sum to a
power equal to 365 divided by 7, and subtracting 1 from the
result.
Yields will fluctuate and are not necessarily
representative of future results. Investors should remember
that yield is a function of the type and quality of the
instruments held, their maturity and operating expenses. An
investor's principal in a Money Market Fund is not guaranteed.
See "Determination of Net Asset Value" for a discussion of the
manner in which the Money Market Fund's price per share is
determined.
INFORMATION ABOUT THE TRUST
The following information supplements and
should be read in conjunction with the section in the Trust'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. Shares have no preemptive or
subscription rights and are freely transferable.
For certain trust and investment agency account
clients of The First National Bank of Chicago ("FNBC") whose
assets are invested in common trust funds, the Trust will be
used as a pooled investment alternative for such investments.
Beginning in January 1995, FNBC will use the Funds as an
investment vehicle in place of common trust funds for FNBC's
Private Banking and Trust clients. FNBC's decision to replace
the common trust funds is based on its belief that mutual funds
provide, among other benefits, greater flexibility and more
investment opportunities for its clients.
Certain of the Funds have been designed with
similar investment objectives and management policies and will
invest in many of the securities as the common trust funds which
they are intended to replace. The name of each common trust
fund to be replaced initially and its corresponding Fund are as
follows:
Common Trust Fund Corresponding Fund
Personal Trust Equity Fund Equity Income Fund
Personal Trust Growth Equity Fund
and
Personal Trust Endowment Equity Fund Growth Fund
Personal Trust Special Equity Fund Special Opportunities
Fund
Personal Trust International Equity International Equity
Fund Fund
Personal Trust Taxable Bond Fund
and
Personal Trust Endowment Bond Fund Bond Fund
Personal Trust Intermediate Taxable
Bond Fund
and
Personal Trust Fixed Income
Fund (Lake Shore Funds) Intermediate Bond Fund<F2>
Personal Trust Tax Exempt Bond Fund Municipal Bond Fund<F3>
Personal Trust Intermediate Tax
Exempt Bond Fund
and
Personal Trust Municipal Bond Fund Intermediate Municipal
(Lake Shore Fund) Bond Fund
Personal Trust International Bond
Fund International Bond Fund
____________________
[FN]
<F2> Currently offered as First Prairie U.S. Government Income
Fund--Intermediate Series. This fund is not a series of the
Trust.
<F3> Currently offered as First Prairie Municipal Bond Fund--
Insured Series. This fund is not a series of the Trust.
<PAGE>
Each Fund will send annual and semi-annual financial
statements to all its shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan, 7 Hanover Square, New York,
New York 10004-2594, 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 Credit Rating Co. ("Duff"), IBCA Inc.
and IBCA Limited ("IBCA") and Thomson BankWatch, Inc.
("BankWatch"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned
by S&P. Capacity to pay interest and repay principal is
extremely strong.
AA
Bonds rated AA have a very strong capacity to
pay interest and repay principal and differ from the highest
rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability
to default than other speculative grade debt. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to
default but presently has the capacity to meet interest payments
and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness
to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable
vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely
payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt
subordinated to senior debt which is assigned an actual or
implied CCC rating.
C
The rating C is typically applied to debt
subordinated to senior debt which is assigned an actual or
implied CCC- debt rating.
D
Bonds rated D are in default, and payment of
interest and/or repayment of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to
CCC may be modified by the addition of a plus or minus sign to
show relative standing within the major ratings categories.
Commercial Paper Rating
The designation A-1 by S&P indicates that the
degree of safety regarding timely payment is either overwhelming
or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety
is not as high as for issues designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.
Aa
Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they
comprise what generally are known as high grade bonds. They are
rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements
of danger with respect to principal or interest.
Caa
Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca
Bonds which are rated Ca present obligations
which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
Moody's applies the numerical modifiers 1, 2 and
3 to show relative standing within the major rating categories,
except in the Aaa category and in categories below B. The
modifier 1 indicates a ranking for the security in the higher
end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest
commercial paper rating assigned by Moody's. Issuers of P-1
paper must have a superior capacity for repayment of short-term
promissory obligations, and ordinarily will be evidenced by
leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset
protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well
established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers (or relating supporting institutions)
rated Prime-2 (P-2) have a strong capacity for repayment of
short-term promissory obligations. This ordinarily will be
evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the
issuer's ability to meet the obligations of a specific debt
issue or class of debt. The ratings take into consideration
special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect
the issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment
grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment
grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A
Bonds rated A are considered to be investment
grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment
grade and of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The
obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However,
business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative.
While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable
characteristics, which, if not remedied, may lead to default.
The ability to meet obligations requires an advantageous
business and economic environment.
CC
Bonds rated CC are minimally protected. Default
payment of interest and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment
of interest or principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or
imminent default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest
potential for recovery on these bonds and D represents the
lowest potential for recovery.
Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA category covering 12-36 months or the DDD,
DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt
obligations that are payable on demand or have original
maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and
investment notes.
Although the credit analysis is similar to
Fitch's bond rating analysis, the short-term rating places
greater emphasis than bond ratings on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues
assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned
this rating reflect an assurance of timely payment only slightly
less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this
rating have a satisfactory degree of assurance for timely
payments, but the margin of safety is not as great as the F-1+
and F-1 categories.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit
quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.
AA
Bonds rated AA are considered high credit
quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A
Bonds rated A have protection factors which are
average but adequate. However, risk factors are more variable
and greater in periods of economic stress.
BBB
Bonds rated BBB are considered to have below
average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during
economic cycles.
BB
Bonds rated BB are below investment grade but
are deemed by Duff as likely to meet obligations when due.
Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
B
Bonds rated B are below investment grade and
possess the risk that obligations will not be met when due.
Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within
this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade
securities. Such bonds may be in default or have considerable
uncertainty as to timely payment of interest, preferred
dividends and/or principal. Protection factors are narrow and
risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed
to meet scheduled principal and/or interest payments.
Plus (+) and minus (-) signs are used with a
rating symbol (except AAA) to indicate the relative position of
a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial
paper rating assigned by Duff. Paper rated Duff-1 is regarded
as having very high certainty of timely payment with excellent
liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals.
Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest
expectation of investment risk. Capacity for timely repayment
of principal and interest is substantial, such that adverse
changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations
for which there is a very low expectation of investment risk are
rated AA by IBCA. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk
albeit not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the
obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the
highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current
assessment of the strength of the bank and whether such bank
would receive support should it experience difficulties. In its
assessment of a bank, IBCA uses a dual rating system comprised
of Legal Ratings and Individual Ratings. In addition, IBCA
assigns banks Long- and Short-Term Ratings as used in the
corporate ratings discussed above. Legal Ratings, which range
in gradation from 1 through 5, address the question of whether
the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings
are considered by IBCA to be a prime factor in its assessment of
credit risk. Individual Ratings, which range in gradations from
A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support
from state authorities or its owners.
BankWatch
Commercial Paper and Short-Term Ratings
The rating TBW-1 is the highest short-term
rating assigned by BankWatch; the rating indicates that the
degree of safety regarding timely repayment of principal and
interest is very strong.
In addition to ratings of short-term
obligations, BankWatch assigns a rating to each issuer it rates,
in gradations of A through E. BankWatch examines all segments
of the organization including, where applicable, the holding
company, member banks or associations, and other subsidiaries.
In those instances where financial disclosure is incomplete or
untimely, a qualified rating (QR) is assigned to the
institution. BankWatch also assigns, in the case of foreign
banks, a country rating which represents an assessment of the
overall political and economic stability of the country in which
the bank is domiciled.
<PAGE>
<TABLE>
<CAPTION>
PRAIRIE FUNDS
__________________________________________________________________
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 9, 1994
__________________________________________________________________
Managed
Assets Managed Equity Special International
Income Assets Income Growth Opportunities Equity
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash . . . . . . . . . . . . . $ 11,110 $ 11,110 $ 11,111 $ 11,111 $ 11,111 $ 11,111
Deferred organization costs . 102,917 102,917 102,917 102,917 102,917 102,917
Total Assets . . . . . . . . 114,027 114,027 114,028 114,028 114,028 114,028
Liabilities
Organization costs payable . . 102,917 102,917 102,917 102,917 102,917 102,917
Net Assets . . . . . . . . . . . . $ 11,110 $ 11,110 $ 11,111 $ 11,111 $ 11,111 $ 11,111
Net Asset Value, Offering Price and
Redemption Price per Share:
Class A Shares:
Net assets . . . . . . . . . . $ 10 $ 3,703 $ 3,703 $ 3,703 $ 3,703 $ 3,703
Shares outstanding
($0.001 par value) . . . . . . 1 370 370 370 370 370
Net asset value . . . . . . . 10.00 10.00 10.00 10.00 10.00 10.00
Sales charge - 4.50% of public
offering price . . . . . . . . 0.47 0.47 0.47 0.47 0.47 0.47
Maximum Offering Price . . . . $ 10.47 $ 10.47 $ 10.47 $ 10.47 $ 10.47 $ 10.47
Class B Shares:
Net assets . . . . . . . . . . $ 5,550 $ 3,703 $ 3,704 $ 3,704 $ 3,704 $ 3,704
Shares outstanding
($0.001 par value) . . . . . . 555 370 370 370 370 370
Net asset value . . . . . . . $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class I Shares:
Net assets: . . . . . . . . . $ 5,550 $ 3,704 $ 3,704 $ 3,704 $ 3,704 $ 3,704
Shares outstanding
($0.001 par value) . . . . . . 555 370 370 370 370 370
Net asset value . . . . . . . $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Composition of Net Assets:
Shares of beneficial interest,
at par . . . . . . . . . . . . $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
Additional paid-in capital . . 11,108 11,109 11,110 11,110 11,110 11,110
Net Assets, December 9, 1994 . . . $ 11,110 $ 11,110 $ 11,111 $ 11,111 $ 11,111 $ 11,111
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
U.S.
International Intermediate Government Money Municipal
Bond Bond Municipal Money Market Market Money
Fund Fund Bond Fund Fund Fund Market Fund
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash . . . . . . . . . . . . . $ 11,111 $ 11,111 $ 11,110 $ 1 $ 2 $ 1
Deferred organization costs . 102,917 102,917 102,917 62,917 87,917 52,917
Total Assets . . . . . . . . 114,028 114,028 114,027 52,818 87,919 52,918
Liabilities
Organization costs payable . . 102,917 102,917 102,917 52,917 87,917 62,917
Net Assets . . . . . . . . . . . . $ 11,111 $ 11,111 $ 11,110 $ 1 $ 2 $ 1
Net Asset Value, Offering Price and
Redemption Price per Share:
Class A Shares:
Net assets . . . . . . . . . . $ 3,703 $ 3,703 $ 10 $ 1 $ 1 $ 1
Shares outstanding
($0.001 par value): . . . . . 370 370 1 1 1 1
Net asset value . . . . . . . 10.00 10.00 10.00 1.00 1.00 1.00
Sales charge - 4.50% for The
Bond Fund and The International
Bond Fund, 3.00% for the
Intermediate Municipal Bond
Fund and 0.00% for the Money
Market Funds) . . . . . . . . 0.47 0.47 0.31 - - -
Maximum Offering Price . . . . $ 10.47 $ 10.47 $ 10.31 $ 1.00 $ 1.00 $ 1.00
Class B Shares:
Net assets . . . . . . . . . . $ 3,704 $ 3,704 $ 5,550 $ - $ 1 $ -
Shares outstanding
($0.001 par value) . . . . . . 370 370 555 - 1 -
Net asset value . . . . . . . $ 10.00 $ 10.00 $ 10.00 $ - $ 1.00 $ -
Class I Shares:
Net assets: . . . . . . . . . $ 3,704 $ 3,704 $ 5,550 $ - $ - $ -
Shares outstanding
($0.001 par value) . . . . . . 370 370 555 - - -
Net asset value . . . . . . . $ 10.00 $ 10.00 $ 10.00 $ - $ - $ -
Composition of Net Assets:
Shares of beneficial interest,
at par . . . . . . . . . . . . $ 1 $ 1 $ 0 $ 0 $ 0 $ 0
Additional paid-in capital . . 11,110 11,110 11,109 1 2 1
Net Assets, December 9, 1994 . . . $ 11,111 $ 11,111 $ 11,110 $ 1 $ 2 $ 1
See Notes to Financial Statements.
</TABLE>
<PAGE>
PRAIRIE FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 9, 1994
NOTE 1-GENERAL
Prairie Funds (the "Trust") was organized as a Massachusetts
Business Trust on October 19, 1994. The Trust is registered
under the Investment Company Act of 1940 (the "Act") as an open-
end management investment company consisting of twelve
portfolios (collectively, the "Funds").
First Chicago Investment Advisers, Inc.("First Chicago") serves
as investment adviser and administrator to the Trust. ANB
Investment Management and Trust Company ("ANB") serves as
investment sub-advisor to the International Equity Fund.
Concord Financial Group, Inc. (the "Distributor"), as wholly-
owned subsidiary of Concord Holding Corp. ("Concord"), serves as
each Fund's distributor.
The Funds each offer three classes of shares - Class A Shares,
Class B Shares and Class I Shares. Class A Shares, Class B
Shares and Class I Shares are essentially the same except that
Class A Shares and Class B Shares bear the fees that are payable
under a Shareholder Services Plan (the "Service Plan"), at an
annual rate of 0.25% of the average daily net assets of the
outstanding Class A Shares and Class B Shares, respectively. In
addition, Class B Shares bear the fees that are payable under a
Distribution Plan, adopted pursuant to Rule 12b-1 under the Act,
at an annual rate of 0.75% (0.50% in the case of The
Intermediate Tax-Exempt Fund) of the average daily act assets of
the outstanding Class B Shares.
The Funds have had no operations other than the sale to Concord
of the following shares:
<TABLE>
Shares Net Asset Value of
Fund Purchased Shares Purchased
<S> <C> <C>
The Managed Assets Income Fund 1,111 $11,110
The Managed Assets Fund 1,110 11,110
The Equity Income Fund 1,110 11,111
The Growth Fund 1,110 11,111
The Special Opportunities Fund 1,110 11,111
The International Equity Fund 1,110 11,111
The Bond Fund 1,110 11,111
The International Bond Fund 1,110 11,111
The Intermediate Municipal Bond Fund 1,111 11,110
The U.S. Government Money Market Fund 1 1
The Money Market Fund 2 2
The Municipal Money Market Fund 1 1
</TABLE>
Organization costs incurred in connection with the organization
and initial registration of the Funds will be paid initially by
Concord and reimbursed by the Funds. Such organizational costs
have been deferred and will be amortized ratably over a period
of sixty months from the commencement of operations.
NOTE 2-AGREEMENTS
The Trust has a Management Agreement with First Chicago.
Pursuant to the terms of the management agreement, First Chicago
manages the investments of each Fund and is responsible for the
purchases and sales of each Fund's portfolio securities. For
its services, First Chicago is entitled to the following fees
(annualized), accrued daily and paid monthly:
The Managed Assets Income Fund 0.65%
The Managed Assets Fund 0.65%
The Equity Income Fund 0.50%
The Growth Fund 0.65%
The Special Opportunities Fund 0.70%
The International Equity Fund 0.80%
The Bond Fund 0.55%
The International Bond Fund 0.70%
The Intermediate Municipal Bond Fund 0.40%
The U.S. Government Money Market Fund 0.40%
The Money Market Fund 0.40%
The Municipal Money Market Fund 0.40%
First Chicago has entered into a Sub-Investment Advisory
Agreement with ANB. Pursuant to the terms of the sub-investment
advisory agreement, ANB provides investment assistance and the
day-to-day management of the investments of The International
Equity Fund. For its services, First Chicago has agreed to pay
ANB a fee, accrued daily and paid monthly, at an annual rate of
0.40%.
The Trust has an Administration Agreement with First Chicago.
Pursuant to the terms of the agreement, First Chicago has agreed
to assist in all aspects of the Trust's operations. For its
services, First Chicago is entitled to a fee, accrued daily and
paid monthly at an annual rate of 0.15% of each Fund's average
daily net assets.
First Chicago has entered into a Master Sub-Administration
Agreement with Concord. Pursuant to the terms of this
agreement, Concord has agreed to assist in providing certain
administrative services for the Trust. For its services,
Concord will receive a fee from First Chicago.
The Distributor has entered into a Distribution Agreement with
the Trust. The Distributor does not receive a fee under the
Distribution Agreement.
Under the Service Plan with respect to the Funds' Class A Shares
and Class B Shares, each Fund pays the Distributor for certain
personal services relating to shareholder accounts and certain
services related to the maintenance of shareholder accounts at
an annual rate of 0.25% of the average net assets of the
outstanding Class A Shares and Class B Shares. Under the
Service Plan, the Distributor may make payments to other service
organizations in respect of the provision of these services to
their clients who are the beneficial owners of Class A Shares
and Class B Shares.
Under the Distribution Plan with respect to the Funds' Class B
Shares, each Fund pays the Distributor for advertising,
marketing and distributing Class B Shares at an annual rate of
0.75% of the average net assets of the outstanding Class B
Shares. Under the Service Plan, the Distributor may make
payments to other service organizations in respect of the
provision of these services to their clients who are the
beneficial owners of Class A Shares and Class B Shares. The
fees payable under the Distribution Plan are payable without
regard to actual expenses incurred.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Trustees
Prairie Funds
We have audited the accompanying statements of assets and
liabilities of Prairie Funds (comprising, The Managed Assets
Income Fund, The Managed Assets Fund, The Equity Income Fund,
The Growth Fund, The Special Opportunities Fund, The
International Equity Fund, The Bond Fund, The International Bond
Fund, The Intermediate Municipal Bond Fund, The U.S. Government
Money Market Fund, The Money Market Fund, The Municipal Money
Market Fund) (the "Trust") as of December 9, 1994. These
statements of assets and liabilities are the responsibility of
the Trust's management. Our responsibility is to express an
opinion on these statements of assets and liabilities based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the statements of assets and liabilities are free of material
misstatement. An audit includes examining, on a text basis,
evidence supporting the amounts and disclosures in the
statements of assets and liabilities. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
statements of assets and liabilities presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities
referred to above present fairly, in all material respects, the
financial position of each of the Funds comprising the Prairie
Funds at December 9, 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
December 9, 1994
