FIRST PRAIRIE MUNICIPAL BOND FUND
INTERMEDIATE SERIES AND INSURED SERIES
PROSPECTUS
The First National Bank of Chicago
INVESTMENT ADVISER
The Dreyfus Corporation
ADMINISTRATOR
Dreyfus Service Corporation
DISTRIBUTOR
Prospectus begins on page one.
<PAGE>
FIRST PRAIRIE MUNICIPAL BOND FUND
INTERMEDIATE SERIES AND INSURED SERIES
PROSPECTUS - February 8,
1994
First Prairie Municipal Bond Fund (the "Fund") is an open-end,
non-diversified, management investment company, known as a
municipal bond fund. Its goal is to provide investors with as
high a level of current income exempt from Federal income tax as
is consistent with the preservation of capital.
The Fund permits investors to invest in two separate
portfolios, the Insured Series and the Intermediate Series.
Each
Series invests primarily in a portfolio of Municipal Obligations
(as defined below). Under normal market conditions, the Insured
Series invests primarily in a portfolio of Municipal
Obligations,
without regard to maturity, that are insured as to the timely
payment of principal and interest by recognized insurers of
Municipal Obligations. The market value of the Insured Series'
shares is not insured. Under normal market conditions, the
Intermediate Series invests in a portfolio of Municipal
Obligations which has a dollar-weighted average maturity ranging
between three and ten years.
By this Prospectus, Class A and Class B shares of each
Series are being offered. Class A shares are subject to a sales
charge imposed at the time of purchase and Class B shares are
subject to a contingent deferred sales charge imposed on
redemptions made within five years of purchase. Other
differences between the two Classes include the services offered
to and the expenses borne by each Class and certain voting
rights, as described herein. The Fund offers these alternatives
to permit an investor to choose the method of purchasing shares
that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other
circumstances.
The Fund provides free redemption checks with respect to
Class A, which investors can use in amounts of $500 or more for
cash or to pay bills. Investors continue to earn income on the
amount of the check until it clears. Investors can purchase or
redeem shares by telephone using the TeleTransfer Privilege.
The First National Bank of Chicago (the "Adviser") serves
as
the Fund's investment adviser.
The Dreyfus Corporation (the "Administrator") serves as the
Fund's administrator. Dreyfus Service Corporation (the
"Distributor"), a wholly-owned subsidiary of the Administrator,
serves as the Fund's distributor.
The Fund's shares are not deposits or obligations of, or
guaranteed by, the Adviser or any of its affiliates, and are not
federally insured by the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board, or any other agency. The
Fund's shares involve certain investment risks, including the
possible loss of principal. The share price, yield and
investment return of each Series fluctuate and are not
guaranteed.
______________________
This Prospectus sets forth concisely information about the
Fund that an investor should know before investing. It should
be
read and retained for future reference.
Part B (also known as the Statement of Additional
Information), dated February 8, 1994, which may be revised from
time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
For
a free copy, write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call 1-800-346-3621. When
telephoning, ask for Operator 666.
________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________________________________________________
TABLE OF CONTENTS
Fee Table . . . . . . . . . . . . . . . . . . . . . .
Condensed Financial Information . . . . . . . . . . .
Highlights. . . . . . . . . . . . . . . . . . . . . .
Alternative Purchase Methods. . . . . . . . . . . . .
Description of the Fund . . . . . . . . . . . . . . .
Management of the Fund. . . . . . . . . . . . . . . .
How to Buy Fund Shares. . . . . . . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . . . .
How to Redeem Fund Shares . . . . . . . . . . . . . .
Distribution Plan and Shareholder Services Plan . . .
Dividends, Distributions and Taxes. . . . . . . . . .
Performance Information . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . .
<TABLE>
FEE TABLE
<CAPTION>
INTERMEDIATE INSURED
SERIES SERIES
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 3.00% none 4.50% none
Maximum Deferred Sales Charge Imposed
on Redemptions
(as a percentage of the amount subject
to charge) none 3.00% none 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees .40% .40% .40% .40%
12b-1 Fees none .50% none .50%
Service Fees .25% .25% .25% .25%
Other Expenses 66% 66% .94% .94%
Total Fund Operating Expenses 1.31% 1.81% 1.59% 2.09%
* After expense reimbursement.
</TABLE>
EXAMPLE
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) except where noted, redemption at the end of
each time period:
<TABLE>
<CAPTION>
INTERMEDIATE INSURED
SERIES SERIES
CLASS A CLASS B CLASS B* CLASS A CLASS B CLASS B*
<S> <C> <C> <C> <C> <C> <C>
1 YEAR $43 $48 $18 $60 $51 $21
3 YEARS $70 $77 $57 $93 $85 $65
5 YEARS $100 $108 $98 $128 $122 $112
10 YEARS+ $183 $188 $188 $225 $218 $218
</TABLE>
* Assuming no redemption of Class B shares.
+ Ten-Year figures assume conversion of Class B shares to
Class A shares at end of sixth year following the date
of purchase.
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE
THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH SERIES' ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER
OR LESS THAN 5%.
The purpose of the foregoing table is to assist investors in
understanding the various costs and expenses that investors in a
Series will bear, directly or indirectly, the payment of which
will reduce investors' return on an annual basis. Long-term
investors in Class B shares could pay more in 12b-1 fees than
the economic equivalent of paying a front-end sales charge. For
Class B shares, Other Expenses are based on expenses incurred by
Class A shares for the fiscal year ended February 28, 1993.
Prior to February 8, 1994, Class A shares were subject to 12b-1
fees, but no service fees. The information in the foregoing
table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. The Adviser, affiliates of
the Adviser and certain Service Agents (as defined below) may
charge their clients direct fees for effecting transactions in
shares of a Series; such fees are not reflected in the foregoing
table. See "Management of the Fund," "How to Buy Fund Shares"
and "Distribution Plan and Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited (except
where indicated) by Ernst & Young, the Fund's independent
auditors, whose report thereon appears in the Statement of
Additional Information. Further financial data and related
notes are included in the Statement of Additional Information,
available upon request. Class B shares had not been offered as
of the date of the financial statements and, accordingly, no
financial data are available for Class B.
FINANCIAL HIGHLIGHTS Contained below is per share operating
performance data for a Class A share of common stock
outstanding, total investment return, ratios to average net
assets and other supplemental data for the Intermediate Series
for each period indicated. This information has been derived
from information provided in the Fund's financial statements.
<TABLE>
<CAPTION>
INTERMEDIATE SERIES - FISCAL YEAR ENDED FEBRUARY 28/29,
SIX MONTHS ENDED AUGUST 31, 1993
1989 <F1> 1990 1991 1992 1993 (UNAUDITED)
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $11.46 $11.43 $11.65 $11.95 $12.25 $12.79
INVESTMENT OPERATIONS:
Investment income -- net .79 .78 .80 .76 .64 .33
Net realized and unrealized gain
(loss) on
investments. . . . . . . . (.03) .22 .31 .37 .68 .01
TOTAL FROM INVESTMENT
OPERATIONS .76 1.00 1.11 1.13 1.32 .34
DISTRIBUTIONS:
Dividends from investment
income -- net (.79) (.78) (.80) (.76) (.64) (.33)
Dividends from net realized gain
on investments -- -- (.01) (.07) (.14) (.11)
TOTAL DISTRIBUTIONS (.79) (.78) (.81) (.83) (.78) (.44)
Net asset value, end of
period $11.43 $11.65 $11.95 $12.25 $12.79 $12.69
TOTAL INVESTMENT
RETURN <F2> 6.82% 9.00% 9.94% 9.78% 11.26% 5.53% <F3>
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets -- -- -- -- -- --
Ratio of net investment income to
average net
assets . . . . . . . . 6.83% 6.62% 6.76% 6.15% 5.16% 5.23% <F3>
Decrease reflected in above expense ratios due to
undertakings by the Adviser and Administrator
(limited to the expense limitation provision of
the Investment Advisory and Administration
Agreements). . . . . . . . 2.25% 2.75% 2.75% 1.72% 1.31% 1.20% <F3>
Portfolio Turnover Rate 101.17% 46.68% 12.22% 86.91% 63.67% 64.54% <F4>
Net Assets, end of period
(000's Omitted) $2,593 $4,582 $7,251 $18,310 $27,885 $29,255
<FN>
<F1> From March 1, 1988 (commencement of operations) to
February 28, 1989.
<F2> Exclusive of sales charge.
<F3> Annualized.
<F4> Not annualized.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS Contained below is per share operating
performance data for a Class A share of common stock
outstanding, total
investment return, ratios to average net assets and other
supplemental data for the Insured Series <F1> for each period
indicated.
This information has been derived from information provided in
the Fund's financial statements.
<CAPTION>
INSURED SERIES-FISCAL YEAR ENDED FEBRUARY 28/29, SIX MONTHS
ENDEDPER SHARE DATA: AUGUST 31, 1993
1989<F2> 1990 1991 1992 1993 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.94 $11.82 $11.77 $12.10 $12.49 $13.25
Investment Operations:
Investment income--net. . . .89 .81 .81 .76 .70 .35
Net realized and unrealized gain (loss) on
investments. . . . . . . (.12) .28 .33 .47 1.01 (.01)
TOTAL FROM INVESTMENT
OPERATIONS. .77 1.09 1.14 1.23 1.71 .34
DISTRIBUTIONS:
Dividends from investment
income--net. (.89) (.81) (.81) (.76) (.70) (.35)
Dividends from net realized gain on
investments. . . . . . ____ (.33) ____ (.08) (.25) (.13)
TOTAL DISTRIBUTIONS. . (.89) (1.14) (.81) (.84) (.95) (.48)
Net asset value, end of period $11.82 $11.77 $12.10 $12.49 $13.25 $13.11
TOTAL INVESTMENT RETURN <F3> 6.82% 9.39% 10.13% 10.50% 14.37% 5.16% <F4>
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- -- -- -- -- --
Ratio of net investment income to average net
assets. . . . . . . . . 7.46% 6.60% 6.87% 5.99% 5.49% 5.23% <F4>
Decrease reflected in above expense ratios due
to undertaking by the Adviser and
Administrator (limited to the expense
limitation provision of the Investment
Advisory and Administration Agreements) 2.25% 2.75% 2.75% 2.75% 1.59% 1.35% <F4>
Portfolio Turnover Rate. . . . . . 36.19% 85.07% 32.40% 66.28% 88.53% 72.70% <F5>
Net Assets, end of period (000's Omitted) $673 $1,192 $2,244 $6,591 $11,290 $11,327
<FN>
<F1> Formerly the Long-Term Series. On September 12, 1989, the
investment and management policies of the Insured Series were
changed as described herein. See "General Information."
<F2> From March 1, 1988 (commencement of operations) to February
28, 1989.
<F3> Exclusive of sales charge.
<F4> Annualized.
<F5> Not annualized.
</TABLE>
Further information about each Series' performance will be
contained in the Fund's annual report for the fiscal year ending
February 28, 1994, which will be available approximately the end
of April 1994, and may be obtained without charge by writing to
the address or calling the number set forth on the cover page of
this prospectus.
HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.
THE FUND The Fund is an open-end, non-diversified, management
investment company, known as a municipal bond fund.
INVESTMENT OBJECTIVE The Fund's goal is to provide investors
with as high a level of current income exempt from Federal
income tax as is consistent with the preservation of capital.
THE SERIES The Fund is a "series fund" which permits investors
to invest in two separate portfolios: the Intermediate Series
and the Insured Series.
MANAGEMENT POLICIES Each Series will invest at least 80% of its
net assets in Municipal Obligations, under normal circumstances.
At least 65% of net assets will be invested in bonds and
debentures.
Each Series will purchase Municipal Obligations only if
they are rated at least: Baa, MIG-2/VMIG-2 or Prime-1 (P-1) by
Moody's Investors Service, Inc. ("Moody's"); BBB, SP-2 or A-1 by
Standard & Poor's Corporation ("S&P"); BBB or F-2 by Fitch
Investors Service, Inc. ("Fitch"); BBB or Duff-2 by Duff &
Phelps, Inc. ("Duff"); or, if not rated, of comparable quality
as determined by the Adviser.
Each Series may engage in certain investment techniques,
such as futures and options transactions and lending portfolio
securities, each of which involves risk and the gains from which
may give rise to taxable income.
INTERMEDIATE SERIES The Intermediate Series invests primarily
in a portfolio of Municipal Obligations which has a dollar-
weighted average maturity ranging between three and ten years.
INSURED SERIES The Insured Series invests primarily in a
portfolio of Municipal Obligations, without regard to maturity,
that are insured as to timely payment of principal and interest
by recognized insurers of Municipal Obligations. The value of
the Insured Series' shares is not insured.
The insurance feature is intended to reduce financial risk.
However, the cost of insurance premiums and restrictions on
investments imposed by guidelines in the insurance policy will
result in a reduction in yield.
MUNICIPAL OBLIGATIONS Municipal Obligations are debt
obligations issued by states, territories and possessions of the
United States, by the District of Columbia, and their political
subdivisions, agencies and instrumentalities, or multistate
agencies or authorities, the interest from which is, in the
opinion of bond counsel to the issuer, exempt from Federal
income tax. Municipal Obligations are generally issued to
obtain funds for various public purposes. They also include
certain industrial development bonds issued by or on behalf of
public authorities. Municipal Obligations are classified as
general obligation bonds, revenue bonds and notes.
INVESTMENT ADVISER The First National Bank of Chicago is the
Fund's investment adviser. The Fund has agreed to pay the
Adviser a monthly fee at the annual rate of .40 of 1% of the
value of each Series' average daily net assets.
ADMINISTRATOR The Dreyfus Corporation assists in all aspects of
the Fund's operations other than providing investment advice.
The Fund has agreed to pay the Administrator a monthly fee of
.20 of 1% of the value of each Series' average daily net assets.
ALTERNATIVE PURCHASE METHODS The Fund offers investors two
methods of purchasing Fund shares; an investor may choose the
Class of shares that best suits the investor's needs, given the
amount of purchase, the length of time the investor expects to
hold the shares and any other relevant circumstances. Each
Class A and Class B share represents an identical pro rata
interest in the Series' investment portfolio.
Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 3.00% for the Intermediate
Series and 4.50% for the Insured Series of the public offering
price imposed at the time of purchase. The initial sales charge
may be reduced or waived for certain purchases. See "How to Buy
Fund Shares--Class A Shares." Class A shares are subject to an
annual service fee at the rate of .25 of 1% of the value of the
average daily net assets of Class A.
Class B shares are sold at net asset value per share with
no initial sales charge at the time of purchase; as a result,
the entire purchase price is immediately invested in the Fund.
Class B shares are subject to a maximum 3% contingent deferred
sales charge ("CDSC"), which is assessed only if the Class B
shares are redeemed within five years of purchase. See "How to
Redeem Fund Shares--Contingent Deferred Sales Charge--Class B
Shares." Class B shares also are subject to an annual service
fee at the rate of .25 of 1% of the value of the average daily
net assets of Class B. In addition, Class B shares are subject
to an annual distribution fee at the rate of .50 of 1% of the
value of the average daily net assets of Class B. The
distribution fee paid by Class B will cause such Class to have a
higher expense ratio and to pay lower dividends than Class A.
Approximately six years after the date of purchase, Class B
shares automatically will convert to Class A shares, based on
the relative net asset values for shares of each Class, and will
no longer be subject to the distribution fee.
See "Alternative Purchase Methods."
HOW TO BUY FUND SHARES Orders for the purchase of shares may be
placed through a number of institutions including the Adviser
and affiliates of the Adviser, including First Chicago
Investment Services, Inc. ("FCIS"), a registered broker-dealer,
the Distributor and certain banks, securities dealers and other
industry professionals such as investment advisers, accountants
and estate planning firms (collectively, "Service Agents").
The minimum initial investment is $1,000. All subsequent
investments must be at least $100.
See "How to Buy Fund Shares."
SHAREHOLDER SERVICES The Fund offers its shareholders certain
services and privileges including: Exchange Privilege, Auto-
Exchange Privilege, Automatic Asset Builder, Government Direct
Deposit Privilege, Automatic Withdrawal Plan, Dividend Sweep
Privilege and TeleTransfer Privilege. (Certain services and
privileges may not be available through all Service Agents.)
FREE CHECKWRITING--CLASS A SHARES Investors in Class A shares
may request on the Account Application that the Fund provide
Redemption Checks drawn on the Fund's account. Redemption
Checks may be made payable to any person in the amount of $500
or more. There is no charge for this service.
HOW TO REDEEM FUND SHARES Generally, investors should contact
their representatives at the Adviser or appropriate Service
Agent for redemption instructions. Investors who are not
clients of the Adviser or a Service Agent may redeem Fund shares
by written request, by wire or telephone, or through the
TeleTransfer privilege.
See "How to Redeem Fund Shares."
MONTHLY DIVIDENDS The Fund ordinarily declares dividends from
each Series' net investment income daily. Dividends are usually
paid on the last calendar day of each month, and are
automatically reinvested in additional shares of the same Class
unless the investor elects payment in cash.
Distributions from net realized securities gains, if any,
generally are declared and paid once a year. Investors may
choose whether to receive distributions in cash or to reinvest
in additional Fund shares at net asset value.
RISKS AND SPECIAL CONSIDERATIONS The value of the Fund's shares
is not fixed and can be expected to fluctuate.
Even though interest-bearing securities promise a stable
stream of income, the prices of such securities are affected by
changes in interest rates and, therefore, are subject to the
risk of market price fluctuations.
Certain securities purchased by the Fund, including those
rated Baa by Moody's and BBB by S&P, Fitch and Duff, are
subject, to greater market fluctuation than certain lower
yielding, higher rated fixed-income securities.
ALTERNATIVE PURCHASE METHODS
The Fund offers investors two methods of purchasing Fund
shares; an investor may choose the Class of shares that best
suits the investor's needs, given the amount of purchase, the
length of time the investor expects to hold the shares and any
other relevant circumstances. Each Class A and Class B share
represents an identical pro rata interest in the Fund's
investment portfolio.
Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 3.00% for the Intermediate
Series and 4.50% for the Insured Series of the public offering
price imposed at the time of purchase. The initial sales charge
may be reduced or waived for certain purchases. See "How to Buy
Fund Shares--Class A Shares." These shares are subject to an
annual service fee at the rate of .25 of 1% of the value of the
average daily net assets of Class A. See "Distribution Plan and
Shareholder Services Plan--Shareholder Services Plan."
Class B shares are sold at net asset value per share with
no initial sales charge at the time of purchase; as a result,
the entire purchase price is immediately invested in the Fund.
Class B shares are subject to a maximum 3% CDSC, which is
assessed only if Class B shares are redeemed within five years
of purchase. See "How to Buy Fund Shares--Class B Shares" and
"How to Redeem Fund Shares--Contingent Deferred Sales Charge--
Class B Shares." These shares also are subject to an annual
service fee at the rate of .25 of 1% of the value of the average
daily net assets of Class B. In addition, Class B shares are
subject to an annual distribution fee at the rate of .50 of 1%
of the value of the average daily net assets of Class B. See
"Distribution Plan and Shareholder Services Plan." The
distribution fee paid by Class B will cause such Class to have a
higher expense ratio and to pay lower dividends than Class A.
Approximately six years after the date of purchase, Class B
shares automatically will convert to Class A shares, based on
the relative net asset values for shares of each Class, and will
no longer be subject to the distribution fee. Class B shares
that have been acquired through the reinvestment of dividends
and distributions will be converted on a pro rata basis together
with other Class B shares, in the proportion that a
shareholder's Class B shares converting to Class A shares bears
to the total Class B shares not acquired through the
reinvestment of dividends and distributions.
An investor should consider whether, during the anticipated
life of the investor's investment in the Fund, the accumulated
distribution fee and CDSC on Class B shares prior to conversion
would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent, if any, such
differential would be offset by the return of Class A. In this
regard, generally, Class B shares may be more appropriate for
investors who invest less than $100,000 in Fund shares.
Additionally, investors qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution fees on Class B shares
may exceed the initial sales charge on Class A shares during the
life of the investment. Generally, Class A shares may be more
appropriate for investors who invest $100,000 or more in the
Intermediate Series or $250,000 or more in the Insured Series.
DESCRIPTION OF THE FUND
[FOR LEFT MARGIN SIDE BAR: THE FUND IS A SERIES FUND,
CURRENTLY OFFERING TWO PORTFOLIOS: THE INSURED SERIES AND THE
INTERMEDIATE SERIES.]
GENERAL The Fund is a "series fund," which is a mutual fund
divided into separate portfolios. Each portfolio is treated as
a separate entity for certain matters under the Investment
Company Act of 1940 and for other purposes, and a shareholder of
one Series is not deemed to be a shareholder of any other
Series. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote
separately by Series.
[FOR LEFT MARGIN SIDE BAR: THE FUND'S GOAL IS TO PROVIDE
AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX
AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL.]
INVESTMENT OBJECTIVE The Fund's goal is to provide investors
with as high a level of current income exempt from Federal
income tax as is consistent with the preservation of capital.
The Fund permits investors to invest in two separate portfolios,
the Insured Series and the Intermediate Series. Each Series
invests primarily in a portfolio of Municipal Obligations.
Under normal conditions, the Insured Series invests primarily in
a portfolio of Municipal Obligations, without regard to
maturity, that are insured as to timely payment of principal and
interest by recognized insurers of Municipal Obligations. Under
normal market conditions, the Intermediate Series invests
primarily in a portfolio of Municipal Obligations which has a
dollar-weighted average maturity ranging between three and ten
years. Each Series' investment objective cannot be changed
without approval by the holders of a majority (as defined in the
Investment Company Act of 1940) of such Series' outstanding
voting shares. There can be no assurance that the Series'
investment objective will be achieved.
[FOR LEFT MARGIN SIDE BAR: EACH SERIES INVESTS PRIMARILY
IN A PORTFOLIO OF MUNICIPAL OBLIGATIONS, THE INTEREST FROM WHICH
IS EXEMPT FROM FEDERAL INCOME TAX.]
MUNICIPAL OBLIGATIONS Municipal Obligations are debt
obligations issued by states, territories and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or multi-state
agencies or authorities, the interest from which is, in the
opinion of bond counsel to the issuer, exempt from Federal
income tax. Municipal Obligations generally include debt
obligations issued to obtain funds for various public purposes
as well as certain industrial development bonds issued by or on
behalf of public authorities. 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.
Tax exempt industrial development bonds, in most cases, are
revenue bonds that 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. Municipal
Obligations bear fixed, floating or variable rates of interest,
which are determined in some instances by formulas under which
the Municipal Obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples
thereof, in many cases subject to a maximum and minimum.
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.
[FOR LEFT MARGIN SIDE BAR: MUNICIPAL OBLIGATIONS PURCHASED
BY A SERIES MUST BE RATED AT LEAST INVESTMENT GRADE BY A
NATIONALLY RECOGNIZED INDEPENDENT RATING AGENCY.]
MANAGEMENT POLICIES It is a fundamental policy of each Series
that it will invest at least 80% of the value of its net assets
(except when maintaining a temporary defensive position) in
Municipal Obligations. At least 65% of the value of each
Series' net assets (except when maintaining a temporary
defensive position) will be invested in bonds and debentures.
Under normal circumstances, at least 65% of the value of the
Insured Series' total assets will be invested in Municipal
Obligations that are insured as to the timely payment of
principal and interest by recognized insurers of Municipal
Obligations. See "Insurance Feature" below.
Each Series will purchase Municipal Obligations only if
rated at least Baa, MIG-2/VMIG-2 or Prime-1 (P-1) by Moody's,
BBB, SP-2 or A-1 by S&P BBB or F-2 by Fitch or BBB or Duff-2 by
Duff. See "Appendix" in the Statement of Additional
Information. Municipal Obligations rated Baa by Moody's and BBB
by S&P, Fitch, and Duff are considered investment grade
obligations; those rated BBB by S&P, Fitch and Duff are regarded
as having an adequate capacity to pay principal and interest,
while those rated Baa by Moody's are considered medium grade
obligations and have speculative characteristics. Each Series
also may invest in securities which, while not rated, are
determined by the Adviser to be of comparable quality to the
rated securities in which the Fund may invest. Each Series also
may invest in Taxable Investments of the quality described
below.
Each Series may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such
a way that an economic, business or political development or
change affecting one such security also would affect the other
securities; for example, securities the interest upon which is
paid from revenues of similar types of projects, or securities
of issuers that are located in the same state. As a result,
each Series may be subject to greater risk as compared to a fund
that does not follow this practice.
From time to time, a Series may invest more than 25% of the
value of its total assets in industrial development bonds which,
although issued by industrial development authorities, may be
backed only by the assets and revenues of the non-governmental
users. Interest on Municipal Obligations (including certain
industrial development bonds) which are specified private
activity bonds, as defined in the Internal Revenue Code of 1986,
as amended (the "Code"), issued after August 7, 1986, while
exempt from Federal income tax, is a preference item for the
purpose of the alternative minimum tax here a regulated
investment company receives such interest, a proportionate share
of any exempt-interest dividend paid by the investment company
may be treated as such a preference item to the shareholder.
Each Series may invest without limitation in such Municipal
Obligations if the Adviser determines that their purchase is
consistent with such Series' investment objective. See "Other
Investment Considerations" below.
Each Series may purchase floating and variable rate demand
notes and bonds, which are tax exempt obligations ordinarily
having stated maturities in excess of one year, but which permit
the holder to demand payment of principal at any time, or at
specified intervals. Variable rate demand notes include master
demand notes which are obligations that permit the Fund to
invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these
obligations fluctuate from time to time. Frequently, such
obligations are secured by letters of credit or other credit
support arrangements provided by banks. Use of letters of
credit or other credit support arrangements will not adversely
affect the tax exempt status of these obligations. Because
these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no
established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit
support arrangements, a Series' right to redeem is dependent on
the ability of the borrower to pay principal and interest on
demand. Each obligation purchased will meet the quality criteria
established for the purchase of Municipal Obligations. The
Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuers of the floating and
variable rate demand obligations in each Series' portfolio.
Neither Series will invest more than 15% of the value of its net
assets in floating or variable rate demand obligations as to
which it cannot exercise the demand feature on not more than
seven days' notice if there is no secondary market available for
these obligations, and in other illiquid securities.
Each Series may purchase from financial institutions
participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Series an
undivided interest in the Municipal Obligation in the proportion
that such Series' participation interest bears to the total
principal amount of the Municipal Obligation. These instruments
may have fixed, floating or variable rates of interest. If the
participation interest is unrated, or has been given a rating
below that which otherwise is permissible for purchase by the
Fund, the participation interest will be backed by an
irrevocable letter of credit or guarantee of a bank that the
Board of Directors has determined meets the prescribed quality
standards for banks set forth below, or the payment obligation
otherwise will be collateralized by U.S. Government securities.
For certain participation interests, the Series will have the
right to demand payment, on not more than seven days' notice,
for all or any part of such Series' participation interest in
the Municipal Obligation, plus accrued interest. As to these
instruments, each Series intends to exercise its right to demand
payment only upon a default under the terms of the Municipal
Obligation, as needed to provide liquidity to meet redemptions,
or to maintain or improve the quality of its investment
portfolio. Neither Series will invest more than 15% of the
value of its net assets in participation interests that do not
have this demand feature, and in other illiquid securities.
Each Series may purchase tender option bonds. A tender
option bond is a Municipal Obligation (generally held pursuant
to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than
prevailing short-term tax exempt rates, that has been coupled
with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at
periodic intervals, to tender their securities to the
institution and receive the face value thereof. As
consideration for providing the option, the financial
institution receives periodic fees equal to the difference
between the Municipal Obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near
the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax exempt
rate. The Adviser, on behalf of the Fund, will consider on an
ongoing basis the creditworthiness of the issuer of the
underlying Municipal Obligation, of any custodian and of the
third party provider of the tender option. In certain instances
and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or
interest on the underlying Municipal Obligations and for other
reasons. Neither Series will invest more than 15% of the value
of its net assets in illiquid securities, which would include
tender option bonds as to which it cannot exercise the tender
feature on not more than seven days' notice if there is no
secondary market available for these obligations.
Each Series may purchase custodial receipts representing
the right to receive certain future principal and interest
payments on Municipal Obligations which underlie the custodial
receipts. A number of different arrangements are possible. In
a typical custodial receipt arrangement, an issuer or a third
party owner of Municipal Obligations deposits such obligations
with a custodian in exchange for two classes of custodial
receipts. The two classes have different characteristics, but,
in each case, payments on the two classes are based on payments
received on the underlying Municipal Obligations. One class has
the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership
changes, based on an auction mechanism. This class's interest
rate generally is expected to be below the coupon rate of the
underlying Municipal Obligations and generally is at a level
comparable to that of a Municipal Obligation of similar quality
and having a maturity equal to the period between interest rate
adjustments. The second class bears interest at a rate that
exceeds the interest rate typically borne by a security of
comparable quality and maturity; this rate also is adjusted, but
in this case inversely to changes in the rate of interest of the
first class. If the interest rate on the first class exceeds
the coupon rate of the underlying Municipal Obligations, its
interest rate will exceed the rate paid on the second class. In
no event will the aggregate interest paid with respect to the
two classes exceed the interest paid by the underlying Municipal
Obligations. The value of the second class and similar
securities should be expected to fluctuate more than the value
of a Municipal Obligation of comparable quality and maturity and
their purchase by the Series should increase the volatility of
its net asset value and, thus, its price per share. These
custodial receipts are sold in private placements. Each Series
also may purchase directly from issuers, and not in a private
placement, Municipal Obligations having characteristics similar
to custodial receipts. These securities may be issued as part
of a multi-class offering and the interest rate on certain
classes may be subject to a cap or floor.
Each Series may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does
not exist, provided such investments are consistent with the
Fund's investment objective. Such securities may include
securities that are not readily marketable, such as certain
securities that are subject to legal or contractual restrictions
on resale and repurchase agreements providing for settlement in
more than seven days after notice. As to these securities, the
Series are subject to a risk that should the Fund desire to sell
them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Series'
net assets could be adversely affected. However, if a
substantial market of qualified institutional buyers develops
pursuant to Rule 144A under the Securities Act of 1933, as
amended, for certain of these securities held by the Fund, the
Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board of
Directors. Because it is not possible to predict with assurance
how the market for restricted securities pursuant to Rule 144A
will develop, the Fund's Board of Directors has directed the
Adviser to monitor carefully the 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 such restricted
securities pursuant to Rule 144A, the Series' investing in such
securities may have the effect of increasing the level of
illiquidity in such Series' investments during such period.
Each Series may acquire "stand-by commitments" with respect
to Municipal Obligations held in its portfolio. Under a
stand-by commitment, the Series obligates a broker, dealer or
bank to repurchase at such Series' option specified securities
at a specified price and, in this respect, stand-by commitments
are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller
to make payment on demand. Each Series will acquire stand-by
commitments solely to facilitate its portfolio liquidity and
does not intend to exercise its rights thereunder for trading
purposes. Each Series may pay for stand-by commitments if such
action is deemed necessary, thus increasing to a degree the cost
of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors. The Fund also may acquire
call options on specific Municipal Obligations. The Fund
generally would purchase these call options to protect the Fund
from the issuer of the related Municipal Obligation redeeming,
or other holder of the call option from calling away, the
Municipal Obligation before maturity. The sale by the Fund of a
call option that it owns on a specific Municipal Obligation
could result in the receipt of taxable income by the Fund.
From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value
of the Series' net assets) or for temporary defensive purposes,
each Series may invest in taxable short-term investments
("Taxable Investments") consisting of: notes of issuers having,
at the time of purchase, a quality rating within the two highest
grades of Moody's, S&P, Fitch or Duff; obligations of the U.S.
Government, its agencies or instrumentalities; commercial paper
rated not lower than P-1 by Moody's, A-1 by S&P, F-1 by Fitch or
Duff-1 by Duff; certificates of deposit of U.S. domestic banks,
including foreign branches of domestic banks, with assets of one
billion dollars or more; time deposits; bankers' acceptances and
other short-term bank obligations; and repurchase agreements in
respect of any of the foregoing. Dividends paid by each Series
that are attributable to income earned by the Series from
Taxable Investments will be taxable to investors. See
"Dividends, Distributions and Taxes." Except for temporary
defensive purposes, at no time will more than 20% of the value
of a Series' net assets be invested in Taxable Investments.
Under normal market conditions, the Fund anticipates that not
more than 5% of the value of a Series' total assets will be
invested in any one category of Taxable Investments. Taxable
Investments are more fully described in the Statement of
Additional Information, to which reference hereby is made.
[FOR LEFT MARGIN SIDE BAR: THE SERIES MAY USE VARIOUS
INVESTMENT TECHNIQUES WHICH INVOLVE CERTAIN RISKS.]
INVESTMENT TECHNIQUES Each Series may employ, among others, the
investment techniques described below. Use of these techniques
may give rise to taxable income.
WHEN-ISSUED SECURITIES New issues of Municipal Obligations
usually are offered on a when-issued basis, which means that
delivery and payment for such Municipal Obligations ordinarily
take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that
will be received on the Municipal Obligations are fixed at the
time the Series enters into the commitment. Each Series will
make commitments to purchase such Municipal Obligations only
with the intention of actually acquiring the securities, but the
Series may sell these securities before the settlement date if
it is deemed advisable, although any gain realized on such sale
would be taxable. Neither Series will accrue income in respect
of a when-issued security prior to its stated delivery date. No
additional when-issued commitments will be made for a Series if
more than 20% of the value of such Series' net assets would be
so committed.
Municipal Obligations purchased on a when-issued basis and
the securities held in a Series' portfolio are subject to
changes in value (both generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when
interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated,
in the level of interest rates. Municipal Obligations purchased
on a when-issued basis may expose a Series to risk because they
may experience such fluctuations prior to their actual delivery.
Purchasing Municipal Obligations on a when-issued basis can
involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher than
that obtained in the transaction itself. A segregated account
consisting of cash, cash equivalents or U.S. Government
securities or other high quality liquid debt securities at least
equal at all times to the amount of the when-issued commitments
will be established and maintained at the Fund's custodian bank.
Purchasing securities on a when-issued basis when a Series is
fully or almost fully invested may result in greater potential
fluctuation in the value of such Series' net assets and its net
asset value per share.
[FOR LEFT MARGIN SIDE BAR: THE FUND MAY ENGAGE IN FUTURES
AND OPTIONS TRANSACTIONS, SUBJECT TO APPLICABLE REGULATIONS.]
FUTURES TRANSACTIONS - IN GENERAL The Fund is not a commodity
pool. However, each Series may engage, to the extent permitted
by applicable regulations, in futures and options on futures
transactions as described below.
Each Series' commodities transactions must constitute bona
fide hedging or other permissible transactions pursuant to
regulations promulgated by the Commodity Futures Trading
Commission (the "CFTC"). In addition, a Series may not engage
in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options,
other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Series' assets, after taking
into account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that in the
case of an option that is in-the-money at the time of purchase,
the in-the money amount may be excluded in calculating the 5%.
Pursuant to regulations and/or published positions of the
Securities and Exchange Commission, each Series may be required
to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity.
Initially, when purchasing or selling futures contracts the
Series will be required to deposit with the Fund's custodian in
the brokers 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 Series 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 Series may elect to close
the position by taking an opposite position at the then
prevailing price, which will operate to terminate the Series'
existing position in the contract.
Although each Series 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 the
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 Series to substantial
losses. If it is not possible or the Series determines not to
close a futures position in anticipation of adverse price
movements, the Series will be required to make daily cash
payments of variation margin. In such circumstances, an
increase in the value of the portion of a Series' 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, due to the risk of an imperfect correlation
between securities in a Series' portfolio 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 Series' portfolio
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 Series 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 Series' net investment results if market
movements are not as anticipated when the hedge is established.
Successful use of futures by a Series also is subject to
the Adviser's ability to predict correctly movements in the
direction of the market or interest rates. For example, if a
Series has hedged against the possibility of a decline in the
market adversely affecting the value of securities held in its
portfolio and prices increase instead, the Series will lose part
or all of the benefit of the increased value of securities which
it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the
Series has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices
which reflect the rising market. The Series may have to sell
securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise
price at any time during the option exercise period. The writer
of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the
option, the assumption of offsetting futures positions by the
writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of
the futures contract, at exercise, 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.
Call options sold by a Series with respect to futures
contracts will be covered by, among other things, entering into
a long position in the same contract at a price no higher than
the strike price of the call option, or by ownership of the
instruments underlying, or instruments the prices of which are
expected to move relatively consistently with the instruments
underlying, the futures contract. Put options sold by a Series
with respect to futures contracts will be covered when, among
other things, cash or liquid securities are placed in a
segregated account to fulfill the obligation undertaken.
Each Series may utilize municipal bond index futures to
protect against changes in the market value of the Municipal
Obligations in its portfolio or which it intends to acquire.
Municipal bond index futures contracts are based on an index of
long-term Municipal Obligations. The index assigns relative
values to the Municipal Obligations included in the index, and
fluctuates with changes in the market value of such Municipal
Obligations. The contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash
based upon the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. The
acquisition or sale of a municipal bond index futures contract
enables the Series to protect its assets from fluctuations in
rates on tax exempt securities without actually buying or
selling such securities.
[FOR LEFT MARGIN SIDE BAR: THE FUND MAY HEDGE AGAINST
RISING OR FALLING INTEREST RATES BY PURCHASING OR SELLING
INTEREST RATE FUTURES CONTRACTS.]
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE
FUTURES CONTRACTS Each Series may purchase and sell interest
rate futures contracts and options on interest rate futures
contracts.
Each Series may purchase call options on interest rate
futures contracts to hedge against a decline in interest rates
and may purchase put options on interest rate futures contracts
to hedge its portfolio securities against the risk of rising
interest rates.
If a Series has hedged against the possibility of an
increase in interest rates adversely affecting the value of
securities held in such Series' portfolio and rates decrease
instead, the Series will lose part or all of the benefit of the
increased value of the securities which it has hedged because it
will have offsetting losses in its futures positions. In
addition, in such situations, if the Series has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements at a time when it may be disadvantageous to
do so. These sales of securities may, but will not necessarily,
be at increased prices which reflect the decline in interest
rates.
Each Series may sell call options on interest rate futures
contracts to partially hedge against declining prices of its
portfolio securities. If the futures price at expiration of the
option is below the exercise price, the Series will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in such Series'
portfolio holdings. Each Series may sell put options on
interest rate futures contracts to hedge against increasing
prices of the securities which are deliverable upon exercise of
the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Series will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Series intends to purchase. If a put or call option sold by a
Series is exercised, the Series will incur a loss which will be
reduced by the amount of the premium it receives. Depending on
the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures
positions, a Series' losses from existing options on futures may
to some extent be reduced or increased by changes in the value
of its portfolio securities.
Each Series also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate
its options positions. No assurance can be given that such
closing transactions can be effected or that there will be a
correlation between price movements in the options on interest
rate futures and price movements in a Series' portfolio
securities which are the subject of the hedge. In addition, a
Series' purchase of such options will be based upon predictions
as to anticipated interest rate trends, which could prove to be
inaccurate.
LENDING PORTFOLIO SECURITIES From time to time, each Series may
lend securities from its portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete
certain transactions. Such loans may not exceed 33-1/3% of the
value of such Series' total assets. In connection with such
loans, the Series will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit
which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities.
Each Series can increase its income through the investment of
such collateral. A Series engaging in the portfolio loan
transaction continues to be entitled to payments in amounts
equal to the interest or other distributions payable on the
loaned security and receives interest on the amount of the loan.
Such loans will be terminable at any time upon specified notice.
A Series might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches
its agreement with the Series.
BORROWING MONEY As a fundamental policy, each Series is
permitted to borrow money to the extent permitted under the
Investment Company Act of 1940. However, each Series currently
intends to borrow money, only for temporary or emergency (not
leveraging) purposes, in an amount up to 15% of the value of
such Series' total assets (including the amount borrowed) valued
at the lesser of cost or market, less liabilities (not including
the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of a Series' total assets, such Series will
not make any additional investments.
[FOR LEFT MARGIN SIDE BAR: THE FUND HAS ADOPTED CERTAIN
FUNDAMENTAL POLICIES INTENDED TO LIMIT THE RISK OF ITS
INVESTMENT PORTFOLIO. THESE POLICIES CANNOT BE CHANGED WITHOUT
APPROVAL BY A MAJORITY OF SHAREHOLDERS.]
CERTAIN FUNDAMENTAL POLICIES Each Series may (i) borrow money
to the extent permitted under the Investment Company Act of
1940; and (ii) invest up to 25% of its total assets in the
securities of issuers in any industry, provided that there is no
such limitation on investments in Municipal Obligations and, for
temporary defensive purposes, obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities
(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"). This
paragraph describes fundamental policies that cannot be changed,
as to a Series, without approval by the holders of a majority
(as defined in the Investment Company Act of 1940) of such
Series' outstanding voting shares. See "Investment Objective
and Management Policies--Investment Restrictions" in the
Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES Each Series may
(i) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii) invest
up to 15% of its net assets in repurchase agreements providing
for settlement in more than seven days after notice and in other
illiquid securities (which securities could include
participation interests (including municipal lease/purchase
agreements) that are not subject to the demand feature described
above, and floating and variable rate demand obligations as to
which the Fund cannot exercise the related demand feature
described above and as to which there is no secondary market).
See "Investment Objective and Management Policies--Investment
Restrictions" in the Statement of Additional Information.
[FOR LEFT MARGIN SIDE BAR: MUNICIPAL OBLIGATIONS HELD BY
THE INSURED SERIES THAT ARE SUBJECT TO INSURANCE WILL BE INSURED
AS TO TIMELY PAYMENT OF INTEREST AND PRINCIPAL. THE VALUE OF
THE INSURED SERIES SHARES IS NOT INSURED.]
INSURANCE FEATURE (APPLICABLE TO THE INSURED SERIES ONLY) The
Municipal Obligations held in the Insured Series' portfolio that
are subject to insurance will be insured as to timely payment of
principal and interest under an insurance policy (i) purchased
by the Insured Series or by a previous owner of the Municipal
Obligation ("Mutual Fund Insurance") or (ii) obtained by the
issuer or underwriter of the Municipal Obligation ("New Issue
Insurance"). The insurance of principal refers to the face or
par value of the Municipal Obligation and is not affected by nor
does it insure the price paid therefor by the Insured Series or
the market value thereof. The value of the Insured Series'
shares is not insured.
New Issue Insurance is obtained by the issuer of the
Municipal Obligations and all premiums respecting such
securities are paid in advance by such issuer. Such policies
are noncancellable and continue in force so long as the
Municipal Obligations are outstanding and the insurer remains in
business.
Certain types of Mutual Fund Insurance which may be
obtained by the Insured Series are effective only so long as the
Insured Series is in existence, the insurer remains in business
and the Municipal Obligations described in the policy continue
to be held by the Insured Series. The Insured Series will pay
the premiums with respect to such insurance. Depending upon the
terms of the policy, in the event of a sale of any Municipal
Obligation so insured by the Insured Series, the Mutual Fund
Insurance may terminate as to such Municipal Obligation on the
date of sale and in such event the insurer may be liable only
for those payments of principal and interest which then are due
and owing. Other types of Mutual Fund Insurance may not have
this termination feature. The Insured Series may purchase
Municipal Obligations with this type of insurance from parties
other than the issuer and the insurance would continue for the
Insured Series' benefit.
Typically, the insurer may not withdraw coverage on insured
securities held by the Insured Series, nor may the insurer
cancel the policy for any reason except failure to pay premiums
when due. The insurer may reserve the right at any time upon 90
days' written notice to the Insured Series to refuse to insure
any additional Municipal Obligations purchased by the Insured
Series after the effective date of such notice. The Fund's
Board of Directors has reserved the right to terminate the
Mutual Fund Insurance policy if it determines that the benefits
to the Insured Series of having its portfolio insured are not
justified by the expense involved. See "Special Investment
Considerations Relating to the Insured Series" below.
[FOR LEFT MARGIN SIDE BAR: INSURANCE FOR MUNICIPAL
OBLIGATIONS IS OBTAINED FROM RECOGNIZED MUNICIPAL BOND
INSURERS.]
Mutual Fund Insurance and New Issue Insurance can be
obtained from Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ("Financial
Guaranty"), AMBAC Indemnity Corporation ("AMBAC Indemnity") and
Capital Guaranty Insurance Company ("Capital Guaranty"),
although the Insured Series may purchase insurance from, or
Municipal Obligations insured by, other insurers.
The following information regarding these insurers has been
derived from information furnished by the insurers. The Fund
has not independently verified any of the information, but the
Fund is not aware of facts which would render such information
inaccurate.
MBIA is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. Neither MBIA Inc. nor
its shareholders are obligated to pay the debts of or claims
against MBIA. MBIA is a limited liability corporation domiciled
in New York and licensed to do business in 50 states, the
District of Columbia and the Commonwealth of Puerto Rico. As of
September 30, 1993, MBIA had admitted assets of approximately
$3.0 billion, total liabilities of approximately $ 2.0 billion
and total capital and surplus of approximately $951 million (all
figures unaudited). The claims-paying ability of MBIA is rated
"AAA" by S&P and "Aaa" by Moody's.
Financial Guaranty is a New York stock insurance company
regulated by the New York State Department of Insurance and
authorized to provide insurance in 50 states and the District of
Columbia. Financial Guaranty is a wholly-owned subsidiary of
FGIC Corporation, a Delaware holding company, which is a
wholly-owned subsidiary of General Electric Capital Corporation.
Financial Guaranty, in addition to providing insurance for the
payment of interest on and principal of Municipal Obligations
held in unit investment trust and mutual fund portfolios,
provides New Issue Insurance and insurance for secondary market
issues of Municipal Obligations and for portions of new and
secondary market issues of Municipal Obligations. As of
September 30, 1993, Financial Guaranty's total capital and
surplus was approximately $745 million (unaudited). The
claims-paying ability of Financial Guaranty is rated "AAA" by
S&P, "Aaa" by Moody's and "AAA" by Fitch.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance
corporation, regulated by the Office of The Commissioner of
Insurance of the State of Wisconsin and licensed to do business
in 50 states, the District of Columbia and the Commonwealth of
Puerto Rico. AMBAC Indemnity is a wholly-owned subsidiary of
AMBAC Inc., a 100% publicly held company. AMBAC Indemnity had
admitted assets of approximately $ 1.9 billion (unaudited) and
statutory capital of approximately $ 1.1 billion (unaudited) as
of September 30, 1993. Statutory capital consists of AMBAC
Indemnity's statutory contingency reserve and policyholders'
surplus. The claims-paying ability of AMBAC Indemnity is rated
"AAA" by S&P and "Aaa" by Moody's.
Capital Guaranty is a "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland, and is
a wholly owned subsidiary of Capital Guaranty Corporation, a
Maryland insurance holding company. Capital Guaranty
Corporation is a publicly owned company whose shares are traded
on the New York Stock Exchange. Capital Guaranty is authorized
to provide insurance in 49 states, the District of Columbia, and
three U.S. territories. As of September 30, 1993, the total
statutory policyholders' surplus and contingency reserve of
Capital Guaranty was approximately $181 million (unaudited) and
the total admitted assets were approximately $270 (unaudited).
Additional information concerning the insurance feature
appears in the Statement of Additional Information to which your
attention is directed.
[FOR LEFT MARGIN SIDE BAR: WHILE THE INSURANCE IS INTENDED
TO REDUCE FINANCIAL RISK, IT WILL RESULT IN A REDUCTION IN THE
INSURED SERIES' YIELD.]
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO THE INSURED SERIES
The insurance feature is intended to reduce financial risk, but
the cost thereof and the restrictions on investments imposed by
the guidelines in the insurance policy will result in a
reduction in the yield on the Municipal Obligations purchased by
the Insured Series.
Because coverage under certain Mutual Fund Insurance
policies may terminate upon sale of a security from the Insured
Series' portfolio, insurance with this termination feature
should not be viewed as assisting the marketability of
securities in the Insured Series' portfolio, whether or not the
securities are in default or subject to a serious risk of
default. The Adviser intends to retain any Municipal
Obligations subject to such insurance which are in default or,
in the view of the Adviser, in significant risk of default and
to recommend to the Fund's Board of Directors that the Insured
Series place a value on the insurance which will be equal to the
difference between the market value of the defaulted security
and the market value of similar securities of minimum investment
grade (i.e., rated Baa by Moody's or BBB by S&P, Fitch or Duff)
which are not in default. To the extent that the Insured Series
holds defaulted securities subject to Mutual Fund Insurance with
this termination feature, it might be limited in its ability in
certain circumstances to purchase other Municipal Obligations.
While a defaulted Municipal Obligation is held in the Insured
Series' portfolio, the Insured Series would continue to pay the
insurance premium thereon but also would be entitled to collect
interest payments from the insurer and would retain the right to
collect the full amount of principal from the insurer when the
security comes due.
Unlike certain Mutual Fund Insurance policies, New Issue
Insurance does not terminate with respect to a Municipal
Obligation once it is sold by the Insured Series. Therefore,
the Insured Series expects that the market value, and thus the
marketability, of a defaulted security covered by New Issue
Insurance generally will be greater than the market value of an
otherwise comparable defaulted security covered by Mutual Fund
Insurance with the termination feature. The Insured Series, at
its option, may purchase from Financial Guaranty secondary
market insurance ("Secondary Market Insurance") on any Municipal
Obligation purchased by the Series. By purchasing Secondary
Market Insurance, the Insured Series would obtain, upon payment
of a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Municipal
Obligation, regardless of whether the Insured Series then owned
such security. Such insurance coverage would be noncancellable
and would continue in force so long as the security so insured
is outstanding and the insurer remains in business. The purpose
of acquiring Secondary Market Insurance would be to enable the
Insured Series to sell a Municipal Obligation to a third party
as a high rated insured Municipal Obligation at a market price
greater than what otherwise might be obtainable if the security
were sold without the insurance coverage.
[FOR LEFT MARGIN SIDE BAR: SECURITIES IN WHICH THE SERIES
INVEST ARE SUBJECT TO THE RISK OF MARKET PRICE FLUCTUATIONS AND
CHANGES IN THE CREDIT RATING OR FINANCIAL CONDITION OF THE
ISSUERS.]
OTHER INVESTMENT CONSIDERATIONS Even though interest-bearing
securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the
risk of market price fluctuations. Certain securities that may
be purchased by a Series, such as those with interest rates that
fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme
reductions of yield and possibly loss of principal. The values
of fixed-income securities also may be affected by changes in
the credit rating or financial condition of the issuing
entities. Once the rating of a portfolio security has been
changed, the Fund will consider all circumstances deemed
relevant in determining whether to continue to hold the
security. Certain securities purchased by the Series, such as
those rated Baa by Moody's and BBB by S&P, Fitch and Duff, may
be subject to such risk with respect to the issuing entity and
to greater market fluctuations than certain lower yielding,
higher rated fixed-income securities. Obligations which are
rated Baa by Moody's are considered medium grade obligations;
they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics.
Bonds rated BBB by S&P are regarded as having adequate capacity
to pay interest and repay principal, and while such bonds
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 in higher rated categories.
Fitch considers the obligor's ability to pay interest and repay
principal on bonds rated BBB 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. Bonds rated BBB by Duff are considered to have
below average protection factors but still considered sufficient
for prudent investment. See "Appendix" in the Statement of
Additional Information. Each Series' net asset value generally
will not be stable and should fluctuate based upon changes in
the value of the Series' portfolio securities. Securities in
which each Series will invest may earn a higher level of current
income than certain shorter-term or higher quality securities
which generally have greater liquidity, less market risk and
less fluctuation in market value.
Certain municipal lease/purchase obligations in which the
Fund may invest may contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such
purpose on a yearly basis. Although "non-appropriation"
lease/purchase obligations are secured by the leased property,
disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a
municipal lease/purchase obligation that is unrated, the Adviser
will consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
[FOR LEFT MARGIN SIDE BAR: CHANGES IN THE FEDERAL INCOME
TAX CODE COULD AFFECT THE PERFORMANCE OF THE FUND. CONSULT YOUR
TAX ADVISER CONCERNING THE EFFECT OF ANY SUCH PROVISIONS.]
Certain provisions in the Code relating to the issuance of
Municipal Obligations may reduce the volume of Municipal
Obligations qualifying for Federal tax exemption. One effect of
these provisions could be to increase the cost of the Municipal
Obligations available for purchase by the Fund and thus reduce
the available yield. Investors should consult their tax
advisers concerning the effect of these provisions on an
investment in the Fund. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal
Obligations may be introduced in the future. If any such
proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Fund so as to
adversely affect Fund shareholders, the Fund would reevaluate
its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a
type of Municipal Obligation as taxable, the Fund would treat
such security as a permissible Taxable Investment within the
applicable limits set forth herein.
The Fund's classification as a "non-diversified" investment
company means that the proportion of each Series' assets that
may be invested in the securities of a single issuer is not
limited by the Investment Company Act of 1940. A "diversified"
investment company is required by the Investment Company Act of
1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a
single issuer. However, the Fund intends to conduct its
operations so as to qualify each Series as a "regulated
investment company" for purposes of the Code, which requires
that, with respect to each Series' assets, at the end of each
quarter of its taxable year, (i) at least 50% of the market
value of such Series' total assets be invested in cash, U.S.
Government securities, the securities of other regulated
investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of
such total assets and (ii) not more than 25% of the value of
such Series' total assets be invested in the securities of any
one issuer (other than U.S. Government securities or the
securities of other regulated investment companies). Since a
relatively high percentage of each Series' assets may be
invested in the securities of a limited number of issuers, each
Series' portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the
portfolio securities of a diversified investment company.
Investment decisions for each Series are made independently
from those of other investment companies, investment advisory
accounts, custodial accounts, individual trust accounts and
commingled funds that may be advised by the Adviser. However,
if such other investment companies or managed accounts are
prepared to invest in, or desire to dispose of, Municipal
Obligations or Taxable Investments at the same time as a Series,
available investments or opportunities for sales will be
allocated equitably to each of them. In some cases, this
procedure may adversely affect the size of the position obtained
for or disposed of by a Series or the price paid or received by
a Series.
MANAGEMENT OF THE FUND
[FOR LEFT MARGIN SIDE BAR: THE ADVISER, THE FIRST NATIONAL
BANK OF CHICAGO, IS ONE OF THE LARGEST COMMERCIAL BANKS IN THE
UNITED STATES AND THE LARGEST IN THE MID-WESTERN UNITED STATES.
THE ADVISER MANAGES APPROXIMATELY $9.1 BILLION OF INVESTMENT
ASSETS.]
INVESTMENT ADVISER The Adviser, located at Three First National
Plaza, Chicago, Illinois 60670, is the Fund's investment
adviser. The Adviser, a wholly-owned subsidiary of First
Chicago Corporation, a registered bank holding company, is a
commercial bank offering a wide range of banking and investment
services to customers throughout the United States and around
the world. As of March 31, 1993, it was one of the largest
commercial banks in the United States and the largest in the
mid-Western United States in terms of assets ($48.4 billion) and
in terms of deposits ($27.6 billion). As of March 31, 1993, the
Adviser provided personal investment management services to
portfolios containing approximately $9.1 billion in assets. The
Adviser serves as investment adviser for the Fund pursuant to an
Investment Advisory Agreement dated as of December 16, 1987 (as
revised October 1, 1993). Under the Investment Advisory
Agreement, the Adviser, subject to the supervision of the Fund's
Board of Directors and in conformity with Maryland law and the
stated policies of the Fund, manages the investment of the
assets of each Series. The Adviser is responsible for making
investment decisions for the Fund, placing purchase and sale
orders and providing research, statistical analysis and
continuous supervision of the investment portfolio. The Adviser
provides these services through its Personal Investments
Department. The investment advisory services of the Adviser are
not exclusive under the terms of the Investment Advisory
Agreement. The Adviser is free to, and does, render investment
advisory services to others, including other investment
companies. Also included among the Personal Investments
Department's accounts are commingled trust funds and a broad
spectrum of individual trust and investment management
portfolios, which have varying investment objectives.
The Adviser and its affiliates deal, trade and invest for
their own accounts in the types of securities in which the
Series may invest and may have deposit, loan and commercial
banking relationships with the issuers of securities purchased
by a Series. The Adviser and its affiliates sell and purchase
securities of the type in which the Series may invest to and
from other investment companies sponsored by the Administrator.
The Adviser will not invest any assets of the Series in any of
these securities purchased directly or indirectly from itself or
any affiliate. The Adviser has advised the Fund that in making
its investment decisions the Personal Investments Department
does not obtain or use material inside information in the
possession of any other division or department of the Adviser or
in the possession of any affiliate of the Adviser.
The Adviser and its affiliates presently intend to continue
to charge and collect customary account and account transaction
fees with respect to accounts through which or for which shares
of a Series are purchased or redeemed. This will result in the
receipt by the Adviser and its affiliates of customer account
fees in addition to advisory and Service Agent fees from the
Fund with respect to assets in certain accounts. See
"Distribution Plan and Shareholder Services Plan."
Under the terms of the Investment Advisory Agreement, the
Fund has agreed to pay the Adviser a monthly fee at the annual
rate of .40 of 1% of the value of each Series' average daily net
assets. No fees were paid by the Fund for the fiscal year ended
February 28, 1993, pursuant to various undertakings by the
Adviser.
The Fund's primary portfolio manager is John H. Erickson.
He has held that position since the Fund's inception, March 1,
1988, and has been employed by the Adviser since August 1, 1979.
The Adviser also provides research services for the Fund as well
as for other funds it advises through a professional staff of
portfolio managers and security analysts.
GLASS-STEAGALL ACT The Glass-Steagall Act and other applicable
laws prohibit Federally chartered or supervised banks from
engaging in certain aspects of the business of issuing,
underwriting, selling and/or distributing securities, although
banks such as the Adviser are permitted to purchase and sell
securities upon the order and for the account of their
customers. The Adviser has advised the Fund of its belief that
it may perform the services for the Fund contemplated by the
Investment Advisory Agreement and this Prospectus without
violating the Glass-Steagall Act or other applicable banking
laws or regulations. The Adviser has pointed out, however, that
there are no cases deciding whether a bank such as the Adviser
may perform services comparable to those performed by the
Adviser and that future changes in either Federal or state
statutes and regulations relating to permissible activities of
banks and their subsidiaries and affiliates, as well as future
judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent the
Adviser from continuing to perform such services for the Fund.
If the Adviser were to be prevented from providing such services
to the Fund, the Fund's Board of Directors would review the
Fund's relationship with the Adviser and consider taking all
actions necessary in the circumstances.
[FOR LEFT MARGIN SIDE BAR: THE DREYFUS CORPORATION, WHICH
MANAGES OR ADMINISTERS APPROXIMATELY $85 BILLION IN MUTUAL FUND
ASSETS, WILL ASSIST THE ADVISER IN PROVIDING CERTAIN
ADMINISTRATIVE SERVICES FOR THE FUND.]
ADMINISTRATOR The Administrator, located at 200 Park Avenue,
New York, New York 10166, serves as the Fund's administrator
pursuant to an Administration Agreement with the Fund. Under
this Agreement, the Administrator generally assists in all
aspects of the Fund's operations, other than providing
investment advice, subject to the overall authority of the
Fund's Board of Directors in accordance with Maryland law. The
Administrator was formed in 1947 and, as of March 1, 1993,
managed or administered approximately $85 billion in assets for
more than 1.9 million investment accounts nationwide.
Under the terms of the Administration Agreement, the Fund
has agreed to pay the Administrator a monthly fee at the annual
rate of .20 of 1% of the value of each Series' average daily net
assets. No fees were paid by the Fund for the fiscal year ended
February 28, 1993, pursuant to various undertakings by the
Administrator.
[FOR LEFT MARGIN SIDE BAR: THE SHAREHOLDER SERVICES GROUP,
INC. IS THE FUND'S TRANSFER AGENT.]
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN The
Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671,
is the Fund's Transfer and Dividend Disbursing Agent (the
"Transfer Agent"). The Bank of New York, 110 Washington Street,
New York, New York 10286, is the Fund's Custodian.
EXPENSES All expenses incurred in the operation of the Fund are
borne by the Fund, except to the extent specifically assumed by
the Adviser and/or Administrator. The expenses borne by the
Fund include the following: taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers,
directors, employees or holders, directly or indirectly, of 5%
or more of the outstanding voting securities of the Adviser or
the Administrator, Securities and Exchange Commission fees,
state Blue Sky qualification fees, advisory and administration
fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association
fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining corporate existence,
costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of
shareholders' reports and corporate meetings and any
extraordinary expenses. Class A and Class B shares are subject
to an annual service fee for ongoing personal services relating
to shareholder accounts and services related to the maintenance
of shareholder accounts. In addition, Class B shares are
subject to an annual distribution fee for advertising, marketing
and distributing Class B shares pursuant to a distribution plan
adopted in accordance with Rule 12b-1 under the Investment
Company Act of 1940. See "Distribution Plan and Shareholder
Services Plan." Expenses attributable to a particular Series
are charged against the assets of that Series; other expenses of
the Fund are allocated between the Series on the basis
determined by the Board of Directors, including, but not limited
to, proportionately in relation to the net assets of each
Series.
The imposition of the investment advisory and
administration fees, as well as other operating expenses,
including the fees paid under the Distribution Plan and
Shareholder Services Plan, will have the effect of reducing the
yield to investors. From time to time, the Adviser and/or the
Administrator may waive receipt of their fees and/or voluntarily
assume certain expenses of the Fund, which would have the effect
of lowering a Series' overall expense ratio and increasing yield
to investors at the time such amounts were waived or assumed, as
the case may be. The Fund will not pay the Adviser and/or the
Administrator at a later time for any amounts which may be
waived, nor will the Fund reimburse the Adviser and/or the
Administrator for any amounts which may be assumed.
HOW TO BUY FUND SHARES
[FOR LEFT MARGIN SIDE BAR: THE FUND OFFERS A NUMBER OF
CONVENIENT WAYS TO PURCHASE SHARES.]
INFORMATION APPLICABLE TO ALL PURCHASERS The Fund's distributor
is Dreyfus Service Corporation, a wholly-owned subsidiary of the
Administrator, located at 200 Park Avenue, New York, New York
10166. The shares it distributes are not deposits or
obligations of The Dreyfus Security Savings Bank, F.S.B. or the
Adviser and therefore are not insured by the FDIC.
When purchasing Fund shares, an investor must specify
whether the purchase is for Class A or Class B shares. Shares
may be purchased by all clients of the Adviser and its
affiliates, including qualified custody, agency and trust
accounts, through their accounts with the Adviser and its
affiliates, or by clients of certain other Service Agents
through their accounts with the Service Agent. Shares also may
be purchased directly through the Distributor. Stock
certificates are issued only upon request. No certificates are
issued for fractional shares. It is not recommended that the
Fund be used as a vehicle for Keogh, IRA or other qualified
retirement plans. The Fund reserves the right to reject any
purchase order.
[FOR LEFT MARGIN SIDE BAR: YOU CAN OPEN AN ACCOUNT WITH AS
LITTLE AS $1,000. SUBSEQUENT INVESTMENTS CAN BE AS LITTLE AS
$100.]
The minimum initial investment for each Class is $1,000.
All subsequent investments must be at least $100. The initial
investment must be accompanied by the Fund's Account
Application. The Adviser and Service Agents may impose initial
or subsequent investment minimums which are higher or lower than
those specified above and may impose different minimums for
different types of accounts or purchase arrangements.
If an order is received by the Transfer Agent by the close
of trading on the floor of the New York Stock Exchange
(currently 4:00 pm., New York time) on any business day (which,
as used herein, shall include each day the New York Stock
Exchange is open for business, except Martin Luther King, Jr.
Day, Columbus Day and Veterans Day), Fund shares will be
purchased at the public offering price (i.e., net asset value
plus the applicable sales load set forth below) determined as of
the close of trading on the floor of the New York Stock Exchange
on that day. Otherwise, Fund shares will be purchased at the
public offering price determined as of the close of trading on
the floor of the New York Stock Exchange on the next business
day, except where shares are purchased through a dealer as
provided below.
[FOR LEFT MARGIN SIDE BAR: NET ASSET VALUE IS DETERMINED
AT THE CLOSE OF TRADING ON THE FLOOR OF THE NEW YORK STOCK
EXCHANGE (CURRENTLY 4:00 P.M., NEW YORK TIME) ON EACH BUSINESS
DAY.]
Shares of each Series are sold on a continuous basis. Net
asset value per share of each Class is determined as of the
close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time), on each business day. For
purposes of determining net asset value per share, options and
futures contracts will be valued 15 minutes after the close of
trading on the New York Stock Exchange. Net asset value per
share of each Class is computed by dividing the value of each
Series' net assets represented by such Class (i.e., the value of
its assets less liabilities) by the total number of its shares
of such Class outstanding. Each Series' investments are valued
each business day by an independent pricing service approved by
the Board of Directors and are valued at fair value as
determined by the pricing service. The pricing service's
procedures are reviewed under the general supervision of the
Board of Directors. For further information regarding the
methods employed in valuing each Series' investments, see
"Determination of Net Asset Value" in the Fund's Statement of
Additional Information.
Federal regulations require that an investor provide a
certified Taxpayer Identification Number ("TIN") upon opening or
reopening an account. See "Dividends, Distributions and Taxes"
and the Fund's Account Application for further information
concerning this requirement. Failure to furnish a certified TIN
to the Fund could subject an investor to a $50 penalty imposed
by the Internal Revenue Service (the "IRS").
[FOR LEFT MARGIN SIDE BAR: ORDERS RECEIVED BY THE CLOSE OF
TRADING ON THE FLOOR OF THE NEW YORK STOCK EXCHANGE (CURRENTLY
4:00 P.M., NEW YORK TIME) WILL BE EXECUTED AT THAT DAY'S PUBLIC
OFFERING PRICE. ORDERS RECEIVED LATER WILL BE EXECUTED AT THE
NEXT BUSINESS DAY'S PRICE.]
Orders for the purchase of Fund shares received by dealers
by the close of trading on the floor of the New York Stock
Exchange on any business day and transmitted to the Distributor
by the close of its business day (normally 5:15 p.m., New York
time) will be based on the public offering price per share
determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the orders will be
based on the next determined public offering price. It is the
dealers' responsibility to transmit orders so that they will be
received by the Distributor before the close of its business
day.
[FOR LEFT MARGIN SIDE BAR: CLASS A SHARES OF THE
INTERMEDIATE SERIES ARE SOLD WITH A MAXIMUM SALES LOAD OF 3.00%.
CLASS A SHARES OF THE INSURED SERIES ARE SOLD WITH A MAXIMUM
SALES LOAD OF 4.50%. THERE ARE SEVERAL WAYS TO REDUCE OR
ELIMINATE THE SALES LOAD.]
CLASS A SHARES The public offering price for Class A shares is
the net asset value per share of that Class plus a sales load as
shown below:
<TABLE>
INTERMEDIATE SERIES
TOTAL SALES LOAD
<CAPTION>
As a % of As a % of Dealers' Reallowance
offering price net asset value as a % of
AMOUNT OF TRANSACTION per share per share offering price
<S> <C> <C> <C>
Less than $100,000 3.00 3.10 2.75
$100,000 to less than $500,000 2.50 2.55 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 and above 1.00 1.00 1.00
</TABLE>
<TABLE>
INSURED SERIES
TOTAL SALES LOAD
<CAPTION>
As a % of As a %of Dealers' Reallowance
offering price netasset value as a % of
AMOUNT OF TRANSACTION per share pershare offering price
<S> <C> <C> <C>
Less than $50,000 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 to less than $3,000,000 1.00 1.00 1.00
$3,000,000 to less than $5,000,000 0.50 0.50 0.50
$5,000,000 and above 0.25 0.25 0.25
</TABLE>
Full-time employees of NASD member firms and full time
employees of other financial institutions which have entered
into an agreement with the Distributor pertaining to the sale of
each Series' shares (or which otherwise have a brokerage-related
or clearing arrangement with an NASD member firm or other
financial institution with respect to sales of Series' shares),
their spouses and minor children, and accounts opened by a bank,
trust company or thrift institution, acting as a fiduciary, may
purchase Class A shares for themselves or itself, as the case
may be, at net asset value, provided that they have furnished
the Distributor appropriate notification of such status at the
time of the investment and such other information as it may
request from time to time in order to verify eligibility for
this privilege. This privilege also applies to full-time
employees of financial institutions affiliated with NASD member
firms whose employees are eligible to purchase Class A shares at
net asset value. In addition, Class A shares of each Series may
be purchased at net asset value for Fund accounts registered
under the Uniform Gifts to Minors Act or Uniform Transfers to
Minors Act which are opened through FCIS. Each Series' Class A
shares are also offered at net asset value to employees and
directors of First Chicago Corporation, or any of its affiliates
and subsidiaries, retired employees of First Chicago
Corporation, or any of its affiliates and subsidiaries, Board
members of a fund advised by the Adviser, including members of
the Fund's Board, or the spouse or minor child of any of the
foregoing.
In fiscal 1993, FCIS, an affiliate of the Adviser, retained
$233,541 with respect to the Intermediate Series, and $85,836
with respect to the Insured Series, from sales loads on Class A
shares. The dealer reallowance may be changed from time to time
but will remain the same for all dealers.
CLASS B SHARES The public offering price for Class B shares is
the net asset value per share of that Class. No initial sales
charge is imposed at the time of purchase. A CDSC is imposed,
however, on certain redemptions of Class B shares as described
under "How to Redeem Fund Shares." FCIS may compensate certain
Service Agents for selling Class B shares at the time of
purchase from its own assets. Proceeds of the CDSC and
distribution fees payable to FCIS, in part, would be used to
defray these expenses.
[FOR LEFT MARGIN SIDE BAR: CONTACT YOUR INVESTMENT
REPRESENTATIVE OR SERVICE AGENT TO LEARN HOW TO PURCHASE
SHARES.]
PURCHASING SHARES THROUGH ACCOUNTS WITH THE ADVISER OR A
SERVICING AGENT Investors who desire to purchase shares through
their accounts at the Adviser or its affiliates or a Service
Agent should contact such entity directly for appropriate
instructions, as well as for information about conditions
pertaining to the account and any related fees. Service Agents
and the Adviser may charge clients direct fees for effecting
transactions in shares, as well as fees for other services
provided to clients in connection with accounts through which
shares are purchased. These fees, if any, would be in addition
to fees received by a Service Agent under the Shareholder
Services Plan or advisory fees received by the Adviser under the
Investment Advisory Agreement. Each Service Agent has agreed to
transmit to its clients a schedule of such fees. In addition,
Service Agents and the Adviser may receive different levels of
compensation for selling different Classes of shares and may
impose minimum account and other conditions, including
conditions which might affect the availability of certain
shareholder privileges described in this Prospectus. Each
investor desiring to use this privilege should consult the
Adviser or his Service Agent for details. It is the
responsibility of the Adviser and Service Agents to transmit
orders on a timely basis.
Copies of the Fund's Prospectus and Statement of Additional
Information may be obtained from the Distributor, the Adviser,
certain affiliates of the Adviser or certain Service Agents, as
well as from the Fund.
PURCHASING SHARES THROUGH THE DISTRIBUTOR Shares also may be
purchased directly through the Distributor by check or wire, or
through the TeleTransfer Privilege described below. The initial
investment must be accompanied by the Fund's Account Application
which can be obtained from the Distributor and certain Service
Agents. Checks should be made payable to "The First Prairie
Family of Funds." Payments to open new accounts which are mailed
should be sent to The First Prairie Family of Funds, P.O. Box
9387, Providence, Rhode Island 02940-9387, together with the
investor's Account Application indicating the name of the Series
and Class of shares being purchased. For subsequent
investments, the investor's Fund account number should appear on
the check and an investment slip should be enclosed and sent to
The First Prairie Family of Funds, P.O. Box 105, Newark, New
Jersey 07101-0105. Neither initial nor subsequent investments
should be made by third party check. A charge will be imposed
if any check used for investment in an investor's account does
not clear. All payments should be made in U.S. dollars and, to
avoid fees and delays, should be drawn only on U.S. banks.
Wire payments may be made if the investor's account is in a
commercial bank that is a member of the Federal Reserve System
or any other bank having a correspondent bank in New York City
or Chicago. An investor should request his bank to transmit
immediately available funds by wire to The Bank of New York,
DDA#8900052333/First Prairie Municipal Bond Fund, Intermediate
Series--Class A shares, or DDA#8900115394/First Prairie
Municipal Bond Fund, Intermediate Series--Class B shares, or
DDA#8900052279/First Prairie Municipal Bond Fund, Insured
Series--Class A shares, or DDA#8900115408/First Prairie
Municipal Bond Fund, Insured Series--Class B shares, as the case
may be, for purchase of shares in the investor's name. The wire
must include the name of the Series being purchased, the
investor's account number (for new accounts, include the
investor's TIN instead), account registration and dealer number,
if applicable. Further information about remitting funds in this
manner is provided in "Payment and Mailing Instructions" on the
Fund's Account Application.
Subsequent investments also may be made by electronic
transfer of funds from an account maintained in a bank or other
domestic financial institution that is an Automated Clearing
House member. The investor must direct the institution to
transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to
credit the investor's Fund account. The instructions must
specify the investor's Fund account registration and the
investor's Fund account number preceded by the digits "1111."
[FOR LEFT MARGIN SIDE BAR: REDUCED SALES LOADS FOR CLASS A
SHARES APPLY TO CERTAIN PURCHASES OF THIS FUND AND OTHER
ELIGIBLE FIRST PRAIRIE FUNDS.]
RIGHT OF ACCUMULATION--CLASS A SHARES Reduced sales loads apply
to any purchase of Class A shares of a Series where the dollar
amount of shares being purchased, plus the value of shares of
such Series, the other Series of the Fund, shares of certain
other funds advised by the Adviser purchased with a sales load
or acquired by a previous exchange of shares purchased with a
sales load, and shares of certain other funds advised by the
Administrator which are sold with a sales load (hereinafter
referred to as "Eligible Funds") held by an investor and any
related "purchaser" as defined in the Statement of Additional
Information, is $100,000 or more for the Intermediate Series or
$50,000 or more for the Insured Series. If, for example, an
investor previously purchased and still holds Class A shares of
the Insured Series, or of any other Eligible Fund or combination
thereof, with an aggregate current market value of $40,000 and
subsequently purchases Class A shares of such Series or an
Eligible Fund having a current value of $20,000, the sales load
applicable to the subsequent purchase would be reduced to 4.00%
of the offering price (4.20% of the net asset value). All
present holdings of Eligible Funds may be combined to determine
the current offering price of the aggregate investment in
ascertaining the sales load applicable to each subsequent
purchase.
To qualify for reduced sales loads, at the time of a
purchase an investor or his Service Agent must notify the
Distributor if orders are made by wire, or the Transfer Agent if
orders are made by mail. The reduced sales load is subject to
confirmation of the investor's holdings through a check of
appropriate records.
[FOR LEFT MARGIN SIDE BAR: YOU CAN PURCHASE ADDITIONAL
SHARES BY TELEPHONE AFTER YOU SUPPLY THE NECESSARY INFORMATION
ON YOUR ACCOUNT APPLICATION.]
TELETRANSFER PRIVILEGE An investor may purchase shares (minimum
$500, maximum $50,000) by telephone if he has checked the
appropriate box and supplied the necessary information on the
Fund's Account Application or has filed an Optional Services
Form with the Transfer Agent. The proceeds will be transferred
between the checking, NOW or bank money market deposit account
(as permitted) designated in one of these documents and the
investor's Fund account. Only such an account maintained in a
domestic financial institution which is an Automated Clearing
House member may be so designated. The Fund may modify or
terminate this Privilege at any time or charge a service fee
upon notice to shareholders. No such fee currently is
contemplated.
Investors who have selected the TeleTransfer Privilege may
request TeleTransfer purchases. by calling 1-800-227-0072 or, if
calling from overseas, 1-401-455-3309. Shares issued in
certificate form are not eligible for this Privilege.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not
be available to clients of certain Service Agents and some
Service Agents may impose certain conditions on their clients
which are different from those described in this Prospectus.
Each investor should consult his Service Agent in this regard.
[FOR LEFT MARGIN SIDE BAR: THERE IS NO CHARGE FOR EXCHANGES
WITH CERTAIN OTHER FIRST PRAIRIE FUNDS.]
EXCHANGE PRIVILEGE The Exchange Privilege enables an investor
to purchase, in exchange for Class A or Class B shares of a
Series, shares of the same Class of the other Series, shares of
the same Class of certain other funds advised by the Adviser, or
shares of the same Class of certain funds advised by the
Administrator, to the extent such shares are offered for sale in
the investor's state of residence. These funds have different
investment objectives that may be of interest to investors. The
Exchange Privilege may be expanded to permit exchanges between a
Series and other funds that, in the future, may be advised by
the Adviser. Investors will be notified of any such change. If
an investor desires to use this Privilege, he should consult his
Service Agent or the Distributor to determine if it is available
and whether any conditions are imposed on its use.
To use this Privilege, an investor or his Service Agent
acting on his behalf must give exchange instructions to the
Transfer Agent in writing, by wire or by telephone. If an
investor previously has established the Telephone Exchange
Privilege, the investor may telephone exchange instructions by
calling 1-800-227-0072 or, if calling from overseas,
1-401-455-3309. See "How to Redeem Fund Shares-Procedures."
Before any exchange, an investor must obtain and should review a
copy of the current prospectus of the fund into which the
exchange is being made. Prospectuses may be obtained from the
Distributor, the Adviser, certain affiliates of the Adviser or
certain Service Agents. The shares being exchanged must have a
current value of at least $500; furthermore, when establishing a
new account by exchange, the shares being exchanged must have a
value of at least the minimum initial investment required for
the fund or Series into which the exchange is being made.
Telephone exchanges may be made only if the appropriate "YES"
box has been checked on the Account Application, or a separate
signed Optional Services Form is on file with the Transfer
Agent. Upon an exchange into a new account, the following
shareholder services and privileges, as applicable and where
available, will be automatically carried over to the fund or
Series into which the exchange is made: Exchange Privilege,
Check Redemption Privilege, Redemption by Wire or Telephone,
TeleTransfer Privilege and the dividend/capital gain
distribution option (except for the Dividend Sweep Privilege)
selected by the investor.
Shares will be exchanged at the next determined net asset
value; however, a sales load may be charged with respect to
exchanges of Class A shares into funds sold with a sales load.
No CDSC will be imposed on Class B shares at the time of an
exchange; however, Class B shares acquired through an exchange
will be subject on redemption to the higher CDSC applicable to
the exchanged or acquired shares. The CDSC applicable on
redemption of the acquired Class B shares will be calculated
from the date of the initial purchase of the Class B shares
exchanged. If an investor is exchanging Class A shares into a
fund that charges a sales load, the investor may qualify for
share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from
which the investor is exchanging were: (a) purchased with a
sales load, (b) acquired by a previous exchange from shares
purchased with a sales load, or (c) acquired through
reinvestment of dividends or distributions paid with respect to
the foregoing categories of shares. To qualify, at the time of
an exchange, the investor must notify the Transfer Agent or the
investor's Service Agent must notify the Distributor. Any such
qualification is subject to confirmation of the investor's
holdings through a check of appropriate records. See
"Shareholder Services" in the Statement of Additional
Information. No fees currently are charged shareholders
directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice,
to charge shareholders a nominal fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund
reserves the right to reject any exchange request in whole or in
part. The Exchange Privilege may be modified or terminated at
any time upon notice to shareholders.
The exchange of shares of one fund or Series for shares of
another is treated for Federal income tax purposes as a sale of
the shares given in exchange by the shareholder and, therefore,
an exchanging shareholder may realize a taxable gain or loss.
AUTO-EXCHANGE PRIVILEGE The Auto-Exchange Privilege enables an
investor to invest regularly (on a semi-monthly, monthly,
quarterly or annual basis), in exchange for Class A or Class B
shares of a Series, in shares of the same Class of the other
Series, certain other funds in the First Prairie Family of Funds
or certain funds advised by the Administrator of which he is
currently an investor. The amount an investor designates, which
can be expressed either in terms of a specific dollar or share
amount ($100 minimum), will be exchanged automatically on the
first and/or fifteenth of the month according to the exchange
schedule that the investor has selected. Shares will be
exchanged at the then-current net asset value; however, a sales
load may be charged with respect to exchanges of Class A shares
into funds sold with a sales load. No CDSC will be imposed on
Class B shares at the time of an exchange; however, Class B
shares acquired through an exchange will be subject on
redemption to the higher CDSC applicable to the exchanged or
acquired shares. The CDSC applicable on redemption of the
acquired Class B shares will be calculated from the date of the
initial purchase of the Class B shares exchanged. See
"Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be
modified or canceled by the Fund or the Transfer Agent. The
investor or the investor's Service Agent may modify or cancel
this Privilege at any time by writing to The First Prairie
Family of Funds, P.O. Box 9671, Providence, Rhode Island
02940-9671. The Fund may charge a service fee for the use of
this Privilege. No such fee currently is contemplated. The
exchange of shares of one fund or Series for shares of another
is treated for Federal income tax purposes as a sale of the
shares given in exchange by the shareholder and, therefore, an
exchanging shareholder may realize a taxable gain or loss. For
more information concerning this Privilege and the funds
eligible to participate in this Privilege, or to obtain an Auto
Exchange Authorization Form, please call toll free in Illinois
1-800-621-6592, or, outside Illinois 1-800-537-4938 if Fund
shares were purchased through FCIS, or 1-800-645-6561 if Fund
shares were purchased through the Distributor.
[FOR LEFT MARGIN SIDE BAR: YOU CAN PURCHASE SHARES
AUTOMATICALLY AT REGULAR INTERVALS WHICH YOU SELECT.]
AUTOMATIC ASSET BUILDER Automatic Asset Builder permits an
investor to purchase shares of a Series (minimum of $100 per
transaction) at regular intervals selected by the investor.
Shares are purchased by transferring funds from the checking,
NOW or bank money market deposit account (as permitted)
designated by an investor. At the investor's option, the
account designated by the investor will be debited in the
specified amount, and shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both
days. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be
so designated. To establish an Automatic Asset Builder account,
the investor must file an authorization form with the Transfer
Agent. The necessary authorization form may be obtained from
the Distributor, the Adviser, certain affiliates of the Adviser
or certain Service Agents. An investor may cancel this
Privilege or change the amount of purchase at any time by
mailing written notification to The First Prairie Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671, and
the notification will be effective three business days following
receipt. The Fund may modify or terminate this Privilege at any
time or charge a service fee. No such fee currently is
contemplated.
[FOR LEFT MARGIN SIDE BAR: MANY FEDERAL PAYMENTS ARE
ELIGIBLE FOR FULL OR PARTIAL DIRECT DEPOSIT INTO YOUR ACCOUNT TO
PURCHASE SHARES.]
GOVERNMENT DIRECT DEPOSIT PRIVILEGE Government Direct Deposit
Privilege enables an investor to purchase shares (minimum of
$100 and maximum of $50,000 per transaction) by having Federal
salary, Social Security or certain veterans', military or other
payments from the Federal government automatically deposited
into the investor's Fund account. An investor may deposit as
much of such payments as the investor elects. To enroll in
Government Direct Deposit, the investor must file with the
Transfer Agent a completed Direct Deposit Sign-Up Form for each
type of payment that the investor desires to include in this
Privilege. The appropriate form may be obtained from the
Distributor, the Adviser, certain affiliates of the Adviser or
certain Service Agents. Death or legal incapacity will
terminate an investor's participation in this Privilege. An
investor may elect at any time to terminate his participation by
notifying in writing the appropriate Federal agency. Further,
the Fund may terminate an investor's participation upon 30 days'
notice to the investor.
[FOR LEFT MARGIN SIDE BAR: YOU CAN WITHDRAW A SPECIFIED
DOLLAR AMOUNT FROM YOUR ACCOUNT EVERY MONTH OR QUARTER.]
AUTOMATIC WITHDRAWAL PLAN The Automatic Withdrawal Plan permits
an investor to request withdrawal of a specified dollar amount
(minimum of $50) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for the
Automatic Withdrawal Plan can be obtained from the Distributor,
the Adviser, certain affiliates of the Adviser or certain
Service Agents. The Automatic Withdrawal Plan may be ended at
any time by the investor, the Fund or the Transfer Agent.
Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
Class B shares withdrawn pursuant to the Automatic
Withdrawal Plan will be subject to any applicable CDSC.
Purchases of additional Class A shares where a sales load is
imposed concurrently with withdrawals of Class A shares
generally are undesirable.
[FOR LEFT MARGIN SIDE BAR: YOU CAN "SWEEP" YOUR DIVIDENDS
AND CAPITAL GAIN DISTRIBUTIONS INTO CERTAIN OTHER FIRST PRAIRIE
FUNDS.]
DIVIDEND SWEEP PRIVILEGE The Dividend Sweep Privilege enables
an investor to invest automatically dividends or dividends and
capital gain distributions, if any, paid by the Series in shares
of the same Class of another fund or series in the First Prairie
Family of Funds or certain other funds advised or administered
by the Administrator of which the investor is a shareholder.
Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales
load. If an investor is investing in a fund that charges a
sales load, the investor may qualify for share prices which do
not include the sales load or which reflect a reduced sales
load. If an investor is investing in a fund that charges a
CDSC, the shares purchased will be subject to the CDSC, if any,
applicable to the purchased shares. See "Shareholder Services"
in the Statement of Additional Information. For more
information concerning this Privilege and the funds eligible to
participate in this Privilege, or to request a Dividend Sweep
Authorization Form, investors should call toll free in Illinois
1-800-621-6592, or, outside Illinois, 1-800-537-4938 if Fund
shares were purchased through FCIS, or 1-800-645-6561 if Fund
shares were purchased through the Distributor. To cancel this
Privilege, the investor or the investor's Service Agent must
mail written notification to The First Prairie Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671. This
Privilege will be canceled with respect to Fund shares exchanged
for shares of another fund through the Exchange Privilege or
Auto-Exchange Privilege. To select a new fund after
cancellation, the investor or the investor's Service Agent must
submit a new authorization form to the Transfer Agent.
Enrollment in or cancellation of this Privilege is effective
three business days following receipt by the Transfer Agent.
This Privilege is available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments
do not apply. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is
contemplated.
[FOR LEFT MARGIN SIDE BAR: BY SIGNING A LETTER OF INTENT TO
PURCHASE ADDITIONAL CLASS A SHARES WITHIN 13 MONTHS, YOU BECOME
ELIGIBLE FOR ANY REDUCED SALES CHARGES APPLYING TO THE TOTAL
PURCHASE.]
LETTER OF INTENT--CLASS A SHARES By signing a Letter of Intent
form, available from the Distributor, the Adviser, certain
affiliates of the Adviser or certain Service Agents, an investor
becomes eligible for the reduced sales load applicable to the
total number of Eligible Funds shares purchased in a 13-month
period pursuant to the terms and conditions set forth in the
Letter of Intent. A minimum initial purchase of $5,000 is
required. To compute the applicable sales load, the offering
price of shares the investor holds (on the date of submission of
the Letter of Intent) in any Eligible Fund that may be used
toward "Right of Accumulation" benefits described above may be
used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow 5% of the amount
indicated in the Letter of Intent for payment of a higher sales
load if the investor does not purchase the full amount indicated
in the Letter of Intent. The escrow will be released when the
investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. If the investor's purchases
qualify for a further sales load reduction, the sales load will
be adjusted to reflect the investor's total purchase at the end
of 13 months. If total purchases are less than the amount
specified, the investor will be requested to remit an amount
equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the
Transfer Agent, as attorney-in-fact pursuant to the terms of the
Letter of Intent, will redeem an appropriate number of Class A
shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind the investor to purchase, or the
Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but the investor must complete
the intended purchase to obtain the reduced sales load. At the
time an investor purchases Class A shares, he must indicate his
intention to do so under a Letter of Intent. Purchases pursuant
to a Letter of Intent will be made at the then-current net asset
value, plus the lower of the applicable sales load in effect at
the time such Letter of Intent was executed or the current
applicable sales load.
HOW TO REDEEM FUND SHARES
[FOR LEFT MARGIN SIDE BAR: YOU CAN REDEEM FUND SHARES AT
ANY TIME.]
GENERAL An investor may request redemption of his Class A or
Class B shares at any time. Redemption requests should be
transmitted to the Transfer Agent as described below. When a
request is received in proper form, the Fund will redeem the
shares at the next determined net asset value as described
below. If an investor holds Fund shares of more than one Class,
any request for redemption must specify the Class of shares
being redeemed. If an investor fails to specify the Class of
shares to be redeemed or if an investor owns fewer shares of the
Class than specified to be redeemed, the redemption request may
be delayed until the Transfer Agent receives further
instructions from the investor or his Service Agent.
The Fund imposes no charges (other than any applicable CDSC
with respect to Class B shares) when shares are redeemed.
Service Agents may charge a nominal fee for effecting
redemptions of Fund shares. Any certificates representing a
Series' shares being redeemed must be submitted with the
redemption request. The value of the shares redeemed may be
more or less than their original cost, depending upon the
Series' then-current net asset value.
The Fund ordinarily will make payment for all shares
redeemed within seven days after receipt by the Transfer Agent
of a redemption request in proper form, except as provided by
the rules of the Securities and Exchange Commission. HOWEVER,
IF AN INVESTOR HAS PURCHASED FUND SHARES BY CHECK, BY
TELETRANSFER PRIVILEGE OR THROUGH AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMITS A WRITTEN REDEMPTION REQUEST TO THE
TRANSFER AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO
THE INVESTOR PROMPTLY UPON BANK CLEARANCE OF THE INVESTOR'S
PURCHASE CHECK, TELETRANSFER PURCHASE OR AUTOMATIC ASSET BUILDER
ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE
CHECK REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM
SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE TELETRANSFER
PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY
THE TRANSFER AGENT OF THE PURCHASE CHECK, THE TELETRANSFER
PURCHASE OR THE AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF THE
INVESTOR'S SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF THE
INVESTOR OTHERWISE HAS A SUFFICIENT COLLECTED BALANCE IN HIS
ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY
REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE
AND BE PAYABLE, AND THE INVESTOR WILL BE ENTITLED TO EXERCISE
ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not
be redeemed until the Transfer Agent has received the investor's
Account Application.
The Fund reserves the right to redeem an investor's account
at the Fund's option upon not less than 45 days' written notice
if the account's net asset value is $500 or less and remains so
during the notice period.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES A CDSC payable
to FCIS and other Service Agents is imposed on any redemption of
Class B shares which reduces the current net asset value of an
investor's Class B shares to an amount which is lower than the
dollar amount of all payments by the investor for the purchase
of Class B shares of the Fund held by the investor at the time
of redemption. No CDSC will be imposed to the extent that the
net asset value of the Class B shares redeemed does not exceed
(i) the current net asset value of Class B shares acquired
through reinvestment of dividends or capital gain distributions,
plus (ii) increases in the net asset value of an investor's
Class B shares above the dollar amount of all the investor's
payments for the purchase of Class B shares of the Fund held by
the investor at the time of redemption.
If the aggregate value of Class B shares redeemed has
declined below their original cost as a result of the Series'
performance, a CDSC may be applied to the then-current net asset
value rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of
the charge will depend on the number of years from the time the
investor purchased the Class B shares until the time of
redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the
purchase of Class B shares, all payments during a month will be
aggregated and deemed to have been made on the first day of the
month. The following table sets forth the rates of the CDSC:
CDSC as a
% of Amount
Year Since Invested or
Purchase Payment Redemption
Was Made Proceeds
First. . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Second . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Third. . . . . . . . . . . . . . . . . . . . . . . . . 2.00
Fourth . . . . . . . . . . . . . . . . . . . . . . . . 2.00
Fifth. . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Sixth. . . . . . . . . . . . . . . . . . . . . . . . . 0.00
In determining whether a CDSC is applicable to a
redemption, the calculation will be made in a manner that
results in the lowest possible rate. It will be assumed that
the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net
asset value of Class B shares above the total amount of payments
for the purchase of Class B shares made during the preceding
five years; then of amounts representing the cost of shares
purchased five years prior to the redemption; and finally, of
amounts representing the cost of shares held for the longest
period of time within the applicable five-year period.
For example, assume an investor purchased 100 shares at $10
a share for a cost of $1,000. Subsequently, the shareholder
acquired five additional shares through dividend reinvestment.
During the second year after the purchase the investor decided
to redeem $500 of his or her investment. Assuming at the time
of the redemption the net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105
shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate
of 3% (the applicable rate in the second year after purchase)
for a total CDSC of $7.20.
WAIVER OF CDSC--The CDSC will be waived in connection with (a)
redemptions made within one year after the death or disability,
as defined in Section 72(m)(7) of the Code, of the shareholder,
(b) redemptions by employees participating in qualified or
nonqualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or
programs have a minimum of 250 employees eligible for
participation in such plans or programs or (ii) such plan's or
program's aggregate initial investment in the Fund, certain
other funds advised by the Adviser and certain other funds
advised by the Administrator exceeds one million dollars, (c)
redemptions as a result of a combination of any investment
company with the Fund by merger, acquisition of assets or
otherwise, (d) a distribution following retirement under a tax-
deferred retirement plan or upon attaining age 70-1/2 in the
case of an IRA or Keogh plan or custodial account pursuant to
Section 403(b) of the Code, and (e) redemptions by such
shareholders as the Securities and Exchange Commission or its
staff may permit. If the Fund's Directors determine to
discontinue the waiver of the CDSC, the disclosure in the Fund's
prospectus will be revised appropriately. Any Fund shares
subject to a CDSC which were purchased prior to the termination
of such waiver will have the CDSC waived as provided in the
Fund's prospectus at the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of
redemption the investor must notify the Transfer Agent or the
investor's Service Agent must notify the Distributor or FCIS.
Any such qualification is subject to confirmation of your
entitlement.
[FOR LEFT MARGIN SIDE BAR: THE FUND OFFERS A NUMBER OF
CONVENIENT WAYS TO ACCESS YOUR INVESTMENT.]
PROCEDURES An investor who has purchased shares through his
account at the Adviser or a Service Agent must redeem shares by
following instructions pertaining to such account. If an
investor has given his Service Agent authority to instruct the
Transfer Agent to redeem shares and to credit the proceeds of
such redemption to a designated account at the Service Agent,
the investor may redeem shares only in this manner and in
accordance with a written redemption request pursuant to the
regular redemption procedure described below. Investors who
wish to use the other redemption methods described below, must
arrange with their Service Agents for delivery of the required
application(s) to the Transfer Agent. It is the responsibility
of the Adviser or the Service Agent to transmit the redemption
order and credit the investor's account with the redemption
proceeds on a timely basis. Other investors may redeem shares
by using the regular redemption procedure through the Transfer
Agent, using the Check Redemption Privilege with respect to
Class A shares only, by wire or telephone, or through the
TeleTransfer Privilege, as described below.
An investor's redemption request may direct that the
redemption proceeds be used to purchase shares of other funds
advised by the Adviser or advised or administered by the
Administrator that are not available through the Exchange
Privilege. The applicable CDSC will be charged upon the
redemption of Class B shares. The investor's redemption
proceeds will be invested in shares of the other fund on the
next business day. Before making such a request, the investor
must obtain and should review a copy of the current prospectus
of the fund being purchased. Prospectuses may be obtained from
the Adviser, the Distributor or certain Service Agents. The
prospectus will contain information concerning minimum
investment requirements and other conditions that may apply to
the investor's purchase.
An investor may redeem or exchange shares by telephone if
the investor has checked the appropriate box on the Fund's
Account Application or has filed an Optional Services Form with
the Transfer Agent. By selecting a telephone redemption or
exchange privilege, an investor authorizes the Transfer Agent to
act on telephone instructions from any person representing
himself or herself to be the investor, or a representative of
the investor's Service Agent, and reasonably believed by the
Transfer Agent to be genuine. The Fund will require the
Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither
the Fund nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, an
investor may experience difficulty in contacting the Transfer
Agent by telephone to request a redemption or exchange of shares
of a Series. In such cases, investors should consider using the
other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's
redemption request being processed at a later time than it would
have been if telephone redemption had been used. During the
delay, the Series' net asset value may fluctuate.
[FOR LEFT MARGIN SIDE BAR: SHARES MAY BE REDEEMED BY
WRITTEN REQUEST.]
REGULAR REDEMPTION Under the regular redemption procedure, an
investor may redeem shares by written request, indicating the
Series and Class of shares being redeemed, mailed to The First
Prairie Family of Funds, P.O. Box 9671, Providence, Rhode Island
02940-9671. Redemption requests must be signed by each
shareholder, including each owner of a joint account, and each
signature must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature guarantees
in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and
savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock
Exchanges Medallion Program. For more information with respect
to signature-guarantees, please call the telephone number shown
on the front cover.
Redemption proceeds of at least $ 1,000 will be wired to
any member bank of the Federal Reserve System in accordance with
a written signature-guaranteed request.
[FOR LEFT MARGIN SIDE BAR: THE FUND PROVIDES FREE
REDEMPTION CHECKS FOR CLASS A WHICH YOU CAN USE IN AMOUNTS OF
$500 OR MORE.]
CHECK REDEMPTION PRIVILEGE--CLASS A SHARES An investor may
request on the Account Application, Optional Services Form or by
later written request to the Fund that the Fund provide
Redemption Checks drawn on the Series' account. Redemption
Checks may be made payable to the order of any person in the
amount of $500 or more. Potential fluctuations in the net asset
value of the Series' Class A shares should be considered in
determining the amount of the check. Redemption Checks should
not be used to close an account. Redemption Checks are free,
but the Transfer Agent will impose a fee for stopping payment of
a Redemption Check at the investor's request or if the Transfer
Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. Shares for which certificates have
been issued may not be redeemed by Redemption Check. This
Privilege may be modified or terminated at any time by the Fund
or the Transfer Agent upon notice to the holders of Class A
shares.
[FOR LEFT MARGIN SIDE BAR: YOU CAN REDEEM SHARES BY WIRE
OR TELEPHONE.]
REDEMPTION BY WIRE OR TELEPHONE An investor may redeem shares
by wire or by telephone if he has checked the appropriate box
and supplied the necessary information on the Fund's Account
Application or has filed an Optional Services Form with the
Transfer Agent. The redemption proceeds may be wired ($1,000
minimum) to the investor's bank account or paid by check.
Investors can redeem shares by telephone by calling
1-800-227-0072 or, if calling from overseas, 1-401-455-3309.
The Fund reserves the right to refuse any request made by wire
or telephone and may limit the amount involved or the number of
telephone redemptions. This Privilege may be modified or
terminated at any time by the Transfer Agent or the Fund. The
Fund's Statement of Additional Information sets forth
instructions for redeeming shares by wire. Shares for which
certificates have been issued may not be redeemed by wire or
telephone.
[FOR LEFT MARGIN SIDE BAR: CALL 1-800-227-0072 FOR
TELETRANSFER TRANSACTIONS.]
TELETRANSFER PRIVILEGE An investor may redeem shares (minimum
$500, maximum $50,000) without charge by telephone if he has
checked the appropriate box and supplied the necessary
information on the Fund's Account Application or has filed an
Optional Services Form with the Transfer Agent. The proceeds
will be transferred between the investor's Fund account and the
checking, NOW or bank money market deposit account (as
permitted) designated in one of these documents. Only such an
account maintained in a domestic financial institution which is
an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in the investor's account
at an Automated Clearing House member bank ordinarily two days
after receipt of the redemption request. The Fund may modify or
terminate this Privilege at any time or charge a service fee
upon notice to shareholders. No such fee currently is
contemplated.
Investors who have selected the TeleTransfer Privilege may
request a TeleTransfer redemption by calling 1-800-227-0072 or,
if calling from overseas, 1-401-455-3309. Shares issued in
certificate form are not eligible for this Privilege.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class A and Class B shares are subject to a Shareholder
Services Plan and Class B shares only are subject to a
Distribution Plan.
DISTRIBUTION PLAN--Under the Distribution Plan, adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays for advertising, marketing and distributing Class B shares
at an annual rate of up to .50 of 1% of the value of the average
daily net assets of Class B. Under the Distribution Plan, the
Fund may make payments to Service Agents, including FCIS and the
Distributor, in respect of these services. The Fund determines
the amounts to be paid to Service Agents. Service Agents
receive such fees in respect of the average daily value of Class
B shares owned by their clients. From time to time, Service
Agents may defer or waive receipt of fees under the Distribution
Plan while retaining the ability to be paid by the Fund under
the Distribution Plan thereafter. The fees payable to Service
Agents under the Distribution Plan for advertising, marketing
and distributing Class B shares are payable without regard to
actual expenses incurred.
SHAREHOLDER SERVICES PLAN--Under the Shareholder Services Plan,
the Fund pays Service Agents, including FCIS and the
Distributor, for the provision of certain services to the
holders of Class A and Class B shares a fee at the annual rate
of up to .25 of 1% of the value of the average daily net assets
of Class A and Class B. The services provided may include
personal services relating to shareholder accounts, such as
answering shareholder inquiries regarding the Fund and providing
reports and other information, and services related to the
maintenance of shareholder accounts. The Fund determines the
amounts to be paid to Service Agents. Each Service Agent is
required to disclose to its clients any compensation payable to
it by the Fund pursuant to the Shareholder Services Plan and any
other compensation payable by their clients in connection with
the investment of their assets in Class A or Class B shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
[FOR LEFT MARGIN SIDE BAR: THE FUND ORDINARILY DECLARES
DIVIDENDS FROM EACH SERIES' NET INVESTMENT INCOME ON EACH
BUSINESS DAY.]
The Fund ordinarily declares dividends from each Series' net
investment income on each business day. Shares of each Series
begin earning dividends on the day immediately available funds
("Federal Funds" (monies of member banks within the Federal
Reserve System which are held on deposit at a Federal Reserve
Bank)) are received by the Transfer Agent in written or
telegraphic form. If a purchase order is not accompanied by
remittance in Federal Funds, there may be a delay between the
time the purchase order becomes effective and the time the
shares purchased start earning dividends. If an investor's
payment is not made in Federal Funds, it must be converted into
Federal Funds. This usually occurs within one business day of
receipt of a bank wire and within two business days of receipt
of a check drawn on a member bank of the Federal Reserve System.
Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into
Federal Funds.
[FOR LEFT MARGIN SIDE BAR: DIVIDENDS ARE USUALLY PAID ON
THE LAST CALENDAR DAY OF EACH MONTH AND AUTOMATICALLY REINVESTED
IN ADDITIONAL SHARES WITH NO SALES CHARGE, OR PAID IN CASH IF
YOU SO REQUEST.]
Dividends usually are paid on the last calendar day of each
month, and are automatically reinvested in additional shares of
the Series from which they were paid at net asset value without
a sales load or, at the investor's option, paid in cash. Each
Series' earnings for Saturdays, Sundays and holidays are
declared as dividends on the preceding business day. If an
investor deems all shares in his account at any time during the
month, all dividends to which such investor is entitled are paid
to the investor along with the proceeds of the redemption.
Distributions from net realized securities gains, if any,
generally are declared and paid by each Series once a year, but
each Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Code, in all
events in a manner consistent with the provisions of the
Investment Company Act of 1940. The Fund will not make
distributions from net realized securities gains unless capital
loss carryovers, if any, have been utilized or have expired.
Investors may choose whether to receive distributions in cash or
to reinvest in additional shares of the same Class of the Series
from which distributions were paid at net asset value without a
sales load. All expenses are accrued daily and deducted before
declaration of dividends to investors. Dividends paid by each
Class will be calculated at the same time and in the same manner
and will be of the same amount, except that the expenses
attributable solely to Class A or Class B will be borne
exclusively by such Class. Class B shares will receive lower
per share dividends than Class A shares because of the higher
expenses borne by Class B. See "Fee Table."
[FOR LEFT MARGIN SIDE BAR: DIVIDENDS FROM CERTAIN
INVESTMENTS AND CAPITAL GAIN DISTRIBUTIONS ARE NOT TAX EXEMPT.]
Except for dividends from Taxable Investments, the Fund
anticipates that a substantial portion of the dividends paid by
a Series will not be subject to Federal income tax. Dividends
derived from Taxable Investments, together with distributions
from any net realized short-term securities gains generated by a
Series and all or a portion of gains from the sale or other
disposition of certain market discount bonds, paid by a Series
are taxable as ordinary income whether received in cash or
reinvested in additional Fund shares. No dividend paid by a
Series will qualify for the dividends received deduction
allowable to certain U.S. corporations. Distributions from net
realized long-term securities gains of a Series generally are
taxable as long-term capital gains for Federal income tax
purposes if an investor is a citizen or resident of the United
States. Dividends and distributions attributable to gains
derived from securities transactions and from the use of certain
of the investment techniques described under "Description of the
Fund-Investment Techniques," will be subject to Federal income
tax. The Code provides that the net capital gain of an
individual generally will not be subject to Federal income tax
at a rate in excess of 28%. Under the Code, interest on
indebtedness incurred or continued to purchase or carry Series'
shares which is deemed to relate to exempt-interest dividends is
not deductible.
The Code provides for the "carryover" of some or all of the
sales load imposed on a Series' Class A shares if an investor
exchanges his Series' Class A shares for shares of another
Series or fund advised by the Adviser or the Administrator
within 91 days of purchase and such other Series or fund reduces
or eliminates its otherwise applicable sales load charge for the
purpose of the exchange. In this case, the amount of the sales
load charge for the Series' Class A shares, up to the amount of
the reduction of the sales load charge on the exchange, is not
included in the basis of such Series' Class A shares for
purposes of computing gain or loss on the exchange, and instead
is added to the basis of the other Series or fund shares
received in the exchange.
Although all or a substantial portion of the dividends paid
by a Series may be excluded by shareholders of the Series from
their gross income for Federal income tax purposes, the Series
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 an investor's Social Security benefits are
taxable. If a Series purchases such securities, the portion of
such Series' dividends related thereto will not necessarily be
tax exempt to an investor who is subject to the alternative
minimum tax and/or tax on Social Security benefits and may cause
an investor to be subject to such taxes.
Taxable dividends derived from net investment income,
together with distributions from net realized short-term
securities gains and all or a portion of gains from the sale or
disposition of certain market discount bonds, paid by a Series
to a foreign investor generally are subject to U.S. nonresident
withholding taxes at the rate of 30%, unless the foreign
investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities
gains paid by a Series 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,
generally will not be subject to U.S. nonresident withholding
tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor
certifies his non-US. residency status.
[FOR LEFT MARGIN SIDE BAR: NOTICE AS TO THE TAX STATUS OF
YOUR DIVIDENDS AND DISTRIBUTIONS WILL BE MAILED TO YOU EACH
YEAR. YOU WILL ALSO RECEIVE REGULAR SUMMARIES OF YOUR ACCOUNT.]
Notice as to the tax status of an investor's dividends and
distributions will be mailed to such investor annually. Each
investor also will receive periodic summaries of such investor's
account which will include information as to dividends and
distributions from net securities gains, if any, paid during the
year. These statements set forth the dollar amount of income
exempt from Federal tax and the dollar amount, if any, subject
to Federal tax, the amount, if any, of interest which gives rise
to a preference item for the purpose of the alternative minimum
tax and the percentage of tax exempt income attributable to the
respective states. These dollar amounts will vary depending on
the size and length of time the investor has invested in a
Series. If a Series pays dividends derived from taxable income,
it intends to designate as taxable the same percentage of the
day's dividends as the actual taxable income earned on that day
bears to total income earned on that day. Thus, the percentage
of the dividend designated as taxable, if any, may vary from day
to day.
[FOR LEFT MARGIN SIDE BAR: AS INVESTOR WHO DOES NOT
FURNISH THE FUND WITH A CORRECT TAXPAYER IDENTIFICATION NUMBER,
MAY BE SUBJECT TO 31% WITHHOLDING TAX ON ALL TAXABLE DIVIDENDS,
DISTRIBUTIONS AND REDEMPTION PROCEEDS.]
Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of
taxable dividends, distributions from net realized securities
gains and the proceeds of any redemption, regardless of the
extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct
or that such shareholder has not received notice from the IRS of
being subject to backup withholding as a result of a failure to
property report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notifies the Fund
to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to
properly report taxable dividend and interest income on a
Federal income tax return.
A TIN is either the Social Security number or employer
identification number of the record owner of the account. Any
tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the
account, and may be claimed as a credit on the record owner's
Federal income tax return.
Management of the Fund believes that each Series has
qualified for the fiscal year ended February 28, 1993 as a
"regulated investment company" under Subchapter M of the Code
and has satisfied conditions which will enable interest from
Municipal Obligations, which is exempt from Federal income tax
with respect to the Series, to retain such tax exempt status
when distributed to the shareholders of the Series. As a
regulated investment company, the Series will not pay Federal
income taxes on net investment income and net realized capital
gains otherwise taxable to it that is distributed to investors.
Each Series is subject to a non-deductible 4% excise tax,
measured with respect to certain undistributed amounts of
taxable investment income and capital gains.
The foregoing is a general summary of the applicable
provisions of the Code and Treasury regulations presently in
effect, and does not address state or local taxes. It does not
discuss all of the aspects of Federal income taxation that may
be relevant to investors who are subject to special treatment
under the Federal income tax laws (for example, foreign
corporations or persons). In addition, dividends and
distributions from the Series or Series shares themselves may be
subject to state and local taxes. Investors should consult
their tax advisers regarding specific questions as to Federal,
state and local tax law.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class is
calculated on several bases, including current yield, tax
equivalent yield, average annual total return and/or total
return. These total return figures reflect changes in the price
of the shares and assume that any income dividends and/or
capital gains distributions made by the Fund during the
measuring period were reinvested in shares of the same Class.
Class A total return figures include the maximum initial sales
charge and Class B total return figures include any applicable
CDSC. These figures also take into account any applicable
service and distribution fees. As a result, at any given time,
the performance of Class B should be expected to be lower than
that of Class A. Performance for each Class will be calculated
separately.
[FOR LEFT MARGIN SIDE BAR: "CURRENT YIELD" IS THE SERIES'
NET INVESTMENT INCOME OVER A 30-DAY PERIOD, EXPRESSED AS AN
ANNUAL PERCENTAGE AND ASSUMING ALL INCOME IS REINVESTED.]
Current yield refers to the applicable Series' annualized
net investment income per share over a 30-day period, expressed
as a percentage of the maximum offering price per share in the
case of Class A or the net asset value per share in the case of
Class B at the end of the period. For purposes of calculating
current yield, the amount of net investment income per share
during that 30-day period, computed in accordance with
regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a
second six-month period which, when added to the result for the
first six months, provides an "annualized" yield for an entire
one-year period. Calculations of each Series' current yield may
reflect absorbed expenses pursuant to any undertaking that may
be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-
tax yield which, after being taxed at a stated rate, would be
equivalent to a stated current yield calculated as described
above.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in the
applicable Series was purchased with an initial payment of
$1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment
of dividends and distributions during the period. The return is
expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the
investment at the end of the period. Advertisements of each
Series' performance will include the Series' average annual
total return of Class A and Class B for one, five and ten year
periods, or for shorter time periods depending upon the length
of time during which the Series has operated.
[FOR LEFT MARGIN SIDE BAR: "TOTAL RETURN" COMBINES THE
INCOME AND PRINCIPAL CHANGES FOR A SPECIFIED PERIOD, ASSUMING
ALL DIVIDENDS AND DISTRIBUTIONS ARE REINVESTED.]
Total return is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Total return
generally is expressed as a percentage rate which is calculated
by combining the income and principal changes for a specified
period and dividing by the maximum offering price per share in
the case of Class A or the net asset value per share in the case
of Class B at the beginning of the period. Advertisements may
include the percentage rate of total return or may include the
value of a hypothetical investment at the end of the period
which assumes the application of the percentage rate of total
return. Total return also may be calculated by using the net
asset value per share at the beginning of the period instead of
the maximum offering price per share at the beginning of the
period for Class A shares or without giving effect to any
applicable CDSC at the end of the period for Class B shares.
Calculations based on the net asset value per share do not
reflect the deduction of the sales load which, if reflected,
would reduce the performance quoted.
[FOR LEFT MARGIN SIDE BAR: PERFORMANCE VARIES FROM TIME TO
TIME AND PAST RESULTS ARE NOT NECESSARILY REPRESENTATIVE OF
FUTURE RESULTS.]
Performance will vary from time to time and past results
are not necessarily representative of future results. Each
investor should remember that performance is a function of
portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not
provide a basis for comparison with other investments or other
investment companies using a different method of calculating
performance.
Comparative performance information may be used from time
to time in advertising or marketing the Fund's shares, including
data from Lipper Analytical Services, Inc., Morningstar, Inc.,
Moody's Bond Survey Bond Index, Lehman Brothers Municipal Bond
Index and other industry publications. The yield of the
Intermediate Series should generally be higher than comparable
money market funds (the Series, however, does not seek to
maintain a stabilized price per share and may not be able to
return an investor's principal) and its price per share should
fluctuate less than comparable long-term bond funds (which
generally have somewhat higher yields).
GENERAL INFORMATION
The Fund was incorporated under Maryland law on December 8,
1987, and each Series commenced operations on March 1, 1988. On
February 1, 1994, the Fund, which is incorporated under the name
First Prairie Tax Exempt Bond Fund, Inc., began operating under
the name First Prairie Municipal Bond Fund. The Fund is
authorized to issue 5 billion shares of Common Stock (2.5
billion in the Intermediate Series and 2.5 billion in the
Insured Series), par value $.001 per share. Each Series' shares
are classified into two classes--Class A and Class B. Each
share has one vote and shareholders will vote in the aggregate
and not by class except as otherwise required by law. However,
holders of Class A and Class B shares will be entitled to vote
on matters submitted to shareholders pertaining to the
Shareholder Services Plan and only holders of Class B shares
will be entitled to vote on matters submitted to shareholders
pertaining to the Distribution Plan.
On December 29, 1993, shareholders approved a proposal to
change certain of each Series' fundamental policies and
investment restrictions, among other things, to increase (i) the
amount the Series may borrow from banks for temporary or
emergency purposes, (ii) the amount of assets that it may pledge
to secure such borrowings, (iii) the percentage of assets which
may be invested in illiquid securities and make such policy non-
fundamental and (iv) the amount of portfolio securities which it
may lend.
To date, the Board of Directors has authorized the creation
of two series of shares. All consideration received by the Fund
for shares of one of the Series and all assets in which such
consideration is invested will belong to that Series (subject
only to the rights of creditors of the Fund) and will be subject
to the liabilities related thereto. The income attributable to,
and the expenses of, one Series (and as to classes within a
Series) are treated separately from those of the other Series
(and classes). The Fund has the ability to create, from time to
time, new series without shareholder approval.
Effective September 12, 1989, the Insured Series (then the
"Long-Term Series") adopted its current management policy and
changed its name from Long-Term Series to Insured Series. Prior
to the revision in management policies, the Series was not
required to invest at least 65% of the value of its total assets
in Municipal Obligations insured as to timely payment of
principal and interest by recognized insurers of Municipal
Obligations and, under normal market conditions, the
dollar-weighted average maturity of such Series' portfolio
exceeded ten years and it invested in Municipal Obligations
rated A or better by Moody's or S&P. Any reference herein and
in the Statement of Additional Information to the Insured
Series, including any financial information and performance
data, relating to such Series prior to September 12, 1989
reflects such Series' portfolio as constituted prior to the
revision to its management policy.
Unless otherwise required by the Investment Company Act of
1940, ordinarily it will not be necessary for the Fund to hold
annual meetings of shareholders. As a result, Fund shareholders
may not consider each year the election of Directors or the
appointment of auditors. However, pursuant to the Fund's
By-Laws, the holders of at least 10% of the shares outstanding
and entitled to vote may require the Fund to hold a special
meeting of shareholders for purposes of removing a Director from
office and for any other purpose. Fund shareholders may remove
a Director by the affirmative vote of a majority of the Fund's
outstanding voting shares. In addition, the Board of Directors
will call a meeting of shareholders for the purpose of electing
Directors if, at any time, less than a majority of the Directors
then holding office had been elected by shareholders.
Rule 18f-2 under the Investment Company Act of 1940
provides that any matter required to be submitted under the
provisions of the Investment Company Act of 1940 or applicable
state law or otherwise to the holders of the outstanding voting
securities of an investment company, such as the Fund, will not
be deemed to have been effectively acted upon unless approved by
the holders of a majority of the outstanding shares of each
Series affected by such matter. Rule 18f-2 further provides
that a Series shall be deemed to be affected by a matter unless
it is clear that the interests of such Series in the matter are
identical or that the matter does not affect any interest of
such Series. However, the Rule exempts the selection of
independent accountants and the election of Directors from the
separate voting requirements of the Rule.
The Transfer Agent maintains a record of each investor's
ownership and sends confirmations and statements of account.
Investor inquiries may be made to the investor's Service
Agent, including the Adviser, or by writing to the Fund at the
address shown on the front cover or by calling the telephone
number shown on the front cover.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH,
OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
<PAGE>
FIRST PRAIRIE MUNICIPAL BOND FUND
CLASS A AND CLASS B SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
FEBRUARY 8, 1994
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus of First Prairie Municipal Bond Fund (the
"Fund"), dated February 8, 1994, as it may be revised from time
to time. To obtain a copy of the Fund's Prospectus, please
write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New
York 11556-0144, or call toll free 1-800-346-3621.
The First National Bank of Chicago (the "Adviser") serves
as the Fund's investment adviser.
The Dreyfus Corporation (the "Administrator") serves as the
Fund's administrator.
Dreyfus Service Corporation (the "Distributor"), a
wholly-owned subsidiary of the Administrator, is the distributor
of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . B-8
Investment Advisory and Administration Agreements. . . . . B-10
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . B-13
Distribution Plan and Shareholder Services Plan. . . . . . B-14
Redemption of Fund Shares. . . . . . . . . . . . . . . . . B-15
Shareholder Services . . . . . . . . . . . . . . . . . . . B-17
Determination of Net Asset Value . . . . . . . . . . . . . B-20
Portfolio Transactions . . . . . . . . . . . . . . . . . . B-20
Dividends, Distributions and Taxes . . . . . . . . . . . . B-21
Performance Information. . . . . . . . . . . . . . . . . . B-22
Information About the Fund . . . . . . . . . . . . . . . . B-24
Custodian, Transfer and Dividend Disbursing Agent, Counsel
and Independent Auditors . . . . . . . . . . . . . . . B-24
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . B-25
Financial Statements . . . . . . . . . . . . . . . . . . . B-31
Report of Independent Auditors . . . . . . . . . . . . . . B-39
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"DESCRIPTION OF THE FUND."
The average distribution of investments (at value) in
Municipal Obligations by ratings for the fiscal year ended
February 28, 1993, computed on a monthly basis, was as follows:
<TABLE>
<CAPTION>
Percentageof Value
Fitch Investors Moody's Investors Standard & Poor's Service, Inc. Service, Inc. Corporation
Intermediate Insured("Fitch") or ("Moody's") or ("S&P") Series
Series
<S> <C> <C> <C> <C>
AAA Aaa AAA 62.6% 96.4%
AA Aa AA 16.1 -
A A A 16.2
- -
F1 MIG 1/VMIG 1 SP1 3.6
3.1
F1 P1 A1 1.5
.5
100.0%
100.0%
</TABLE>
Municipal Obligations. The term "Municipal Obligations"
generally includes debt obligations issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and
water and sewer works. Other public purposes for which
Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating
expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public
authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking
facilities, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although
current tax laws place substantial limitations on the size of
such issues. Such obligations are considered to be Municipal
Obligations if the interest paid thereon qualifies as exempt
from Federal income tax in the opinion of bond counsel to the
issuer. There are, of course, variations in the security of
Municipal Obligations, both within a particular classification
and between classifications.
Floating and variable rate demand notes and bonds are tax
exempt obligations ordinarily having stated maturities in excess
of one year, but which permit the holder to demand payment of
principal at any time, or at specified intervals. The issuer of
such obligations ordinarily has a corresponding right, after a
given period, to prepay in its discretion the outstanding
principal amount of the obligation plus accrued interest upon a
specified number of days' notice to the holders thereof. The
interest rate on a floating rate demand obligation is based on a
known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest
rate on a variable rate demand obligation is adjusted
automatically at specified intervals.
The yields on Municipal Obligations are dependent on a
variety of factors, including general economic and monetary con-
ditions, money market factors, conditions in the Municipal Obli-
gations market, size of a particular offering, maturity of the
obligation and rating of the issue. The imposition of the
Fund's advisory and administration fees, as well as other
operating expenses, including fees paid under the Fund's
Shareholder Services Plan with respect to each Class and the
Distribution Plan with respect to Class B shares only, 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 Fund
will seek to minimize these risks by not investing more than 15%
of a Series' total assets in lease obligations that contain
"non-appropriation" clauses, and by investing only in those
"non-appropriation" lease obligations where (1) the nature of
the leased equipment or property is such that its ownership or
use is essential to a governmental function of the municipality,
(2) the lease payments will commence amortization of principal
at an early date resulting in an average life of seven years or
less for the lease obligation, (3) appropriate covenants will be
obtained from the municipal obligor prohibiting the substitution
or purchase of similar equipment if lease payments are not
appropriated, (4) the lease obligor has maintained good market
acceptability in the past, (5) the investment is of a size that
will be attractive to institutional investors, and (6) the
underlying leased equipment has elements of portability and/or
use that enhance its marketability in the event foreclosure on
the underlying equipment is ever required. The staff of the
Securities and Exchange Commission currently considers certain
lease obligations to be illiquid. Accordingly, not more than
15% of the value of a Series' net assets will be invested in
lease obligations that are illiquid and in other illiquid
securities. See "Investment Restriction No. 11" below.
The 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 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 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.
Insurance Feature (Applicable to Insured Series only). A
Mutual Fund Insurance policy provides for a policy period of one
year which the insurer typically renews for successive annual
periods at the request of the Insured Series for so long as the
Insured Series is in compliance with the terms of the policy.
The insurance premiums are payable monthly by the Insured Series
and are adjusted for purchases and sales of covered Municipal
Obligations during the month on a daily basis. Premium rates
for each issue of Municipal Obligations covered by Mutual Fund
Insurance are fixed for as long as the Insured Series owns the
security, although similar Municipal Obligations purchased at
different times may have different premiums. In addition to the
payment of premiums, a Mutual Fund Insurance policy requires
that the Insured Series notify the insurer on a daily basis as
to all Municipal Obligations in the insured portfolio and permit
the insurer to audit its records. The insurer cannot cancel
coverage already in force with respect to Municipal Obligations
owned by the Insured Series and covered by the Mutual Fund
Insurance policy, except for non-payment of premiums.
Municipal Obligations are eligible for Mutual Fund
Insurance if, at the time of purchase by the Insured Series,
they are identified separately or by category in qualitative
guidelines furnished by the insurer and are in compliance with
the aggregate limitations set forth in such guidelines. Premium
variations are based in part on the rating of the security being
insured at the time the Insured Series purchases such security.
The insurer may prospectively withdraw particular securities
from the classifications of securities eligible for insurance or
change the aggregate amount limitation of each issue or category
of eligible Municipal Obligations but must continue to insure
the full amount of such securities previously acquired so long
as they remain in the Insured Series' portfolio. The
qualitative guidelines and aggregate amount limitations
established by the insurer from time to time will not
necessarily be the same as the Insured Series or the Adviser
would use to govern selection of securities for the Insured
Series' portfolio. Therefore, from time to time such guidelines
and limitations may affect portfolio decisions.
New Issue Insurance provides that in the event of a
municipality's failure to make payment of principal or interest
on an insured Municipal Obligation, the payment will be made
promptly by the insurer. There are no deductible clauses or
cancellation provisions, and the tax exempt status of the
securities is not affected. The premiums, whether paid by the
issuing municipality or the municipal bond dealer underwriting
the issue, are paid in full for the life of the Municipal
Obligation. The statement of insurance is attached to or
printed on the instrument evidencing the Municipal Obligation
purchased by the Insured Series and becomes part of the
Municipal Obligation. The benefits of the insurance accompany
the Municipal Obligations in any resale.
Ratings of Municipal Obligations. Subsequent to its
purchase by the Fund, an issue of rated Municipal Obligations
may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event will
require the sale of such Municipal Obligations by the Fund, but
the Adviser will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the
extent that the ratings given by Moody's, S&P, Fitch or Duff for
Municipal Obligations may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for its investments in
accordance with the investment policies contained in the Fund's
Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P, Fitch and Duff 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 Adviser
also will evaluate these securities and the creditworthiness of
the issuers of such securities based upon financial and other
available information.
Futures Contracts and Options on Futures Contracts. Upon
exercise of an option, the writer of the option delivers 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 an option on a
futures contract is limited to the premium paid for the option
(plus transaction costs). Because the value of the option is
fixed at the time of sale, there are no daily cash payments to
reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that
change would be reflected in the net asset value of the Series.
Lending Portfolio Securities. To a limited extent, each
Series 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 Series can
increase its income through the investment of the cash
collateral. For purposes of this policy, the Fund considers
collateral consisting of U.S. Government securities or
irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Series to be the
equivalent of cash. Such loans may not exceed 33-1/3% of a
Series' total assets. From time to time, the Series may return
to the borrower or a third party which is unaffiliated with the
Series, 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 Series 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
Series must be able to terminate the loan at any time; (4) the
Series must receive reasonable interest on the loan, as well as
any interest or other distributions payable on the loaned
securities, and any increase in market value; and (5) the Series
may pay only reasonable custodian fees in connection with the
loan. These conditions may be subject to future modification.
Taxable Investments. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ in their interest rates,
maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of
the Federal Home Loan Banks, by the right of the issuer to
borrow from the U.S. Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the
credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. Principal and
interest may fluctuate based on generally recognized reference
rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The
Fund will invest in such securities only when it is satisfied
that the credit risk with respect to the issuer is minimal.
Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates
representing the obligation of a bank to repay funds deposited
with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event
longer than seven days) at a stated interest rate. Investments
in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of $1 billion.
Time deposits which may be held by the Fund will not benefit
from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of
the drawer to pay the face amount of the instrument upon
maturity. Other short-term bank obligations may include
uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by a Series
of an underlying debt instrument, subject to an obligation of
the seller to repurchase, and the Series to resell, the
instrument at a fixed price, usually not more than one week
after its purchase. The Fund's custodian or subcustodian will
have custody of, and will hold in a segregated account,
securities acquired by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Series
which enters into them. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, the Series will
enter into repurchase agreements only with domestic banks with
total assets in excess of $1 billion or primary government
securities dealers reporting to the Federal Reserve Bank of New
York, with respect to securities of the type in which the Series
may invest, and will require that additional securities be
deposited with it if the value of the securities purchased
should decrease below resale price. The Adviser will monitor on
an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs
may be incurred in connection with the sale of the securities if
the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the securities,
realization on the securities by a Series may be delayed or
limited. Each Series will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into
repurchase agreements.
Investment Restrictions. Each Series has adopted
investment restrictions numbered 1 through 8 as fundamental
policies. These restrictions cannot be changed, as to a Series,
without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "Act")) of such
Series' outstanding voting shares. Investment restrictions
numbered 9 through 13 are not fundamental policies and may be
changed by vote of a majority of the Directors at any time.
Neither Series may:
1. Invest more than 25% of its 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.
2. Borrow money, except to the extent permitted under
the Act. For purposes of this investment restriction, the
entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures
contracts or indexes shall not constitute borrowing.
3. Purchase or sell real estate, or oil and gas
interests, but each Series may invest in Municipal
Obligations secured by real estate or interests therein, or
prevent the Fund from purchasing and selling options,
forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or
indexes.
4. Underwrite the securities of other issuers, except
that the Series 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, and except to the extent the
Series may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of
portfolio securities.
5. Make loans to others, except through the purchase
of debt obligations and the entry into repurchase
agreements; however, each Series may lend its portfolio
securities in an amount not to exceed 33-1/3% of the value
of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the
Securities and Exchange Commission and the Fund's Board of
Directors.
6. Issue any senior security (as such term is defined
in Section 18(f) of the Act), except to the extent that the
activities permitted in Investment Restriction Nos. 2, 7, 8
and 11 may be deemed to give rise to a senior security.
7. Purchase securities on margin, but the Series 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 commodities, except that each Series may
purchase and sell forward contracts, futures contracts,
including those relating to indexes, and options on futures
contracts or indexes.
9. Purchase securities other than Municipal
Obligations and Taxable Investments and those arising out
of transactions in futures and options or as otherwise
provided in the Fund's Prospectus.
10. Invest in securities of other investment
companies, except to the extent permitted under the Act.
11. Pledge, hypothecate, mortgage or otherwise
encumber 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 the
purchase of securities on a when-issued or delayed-delivery
basis and collateral and initial or variation margin
arrangements with respect to options, forward contracts,
futures contracts, including those related to indexes and
options on futures contracts, or indexes.
12. Enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase
securities which are illiquid (which securities could
include participation interests (including municipal
lease/purchase agreements) that are not subject to the
demand feature described in the Fund's Prospectus and
floating and variable rate demand notes and bonds as to
which each Series cannot exercise the demand feature
described in the Fund's Prospectus on less than seven day's
notice and as to which there is no secondary market), if,
in the aggregate, more than 15% of its net assets would be
so invested.
13. Invest in companies for the purpose of exercising
control.
For purposes of Investment Restriction No. 1, 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 per-
centage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change
in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Series'
shares in certain states. Should the Fund determine that a
commitment is no longer in the best interests of a Series and
its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of such Series' shares in the
state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with informa-
tion as to their principal business occupations during at least
the last five years, are shown below. The Director who is
deemed to be an "interested person" of the Fund, as defined in
the Act, is indicated by an asterisk.
Directors and Officers of the Fund
*JOSEPH S. DiMARTINO, President and Director. President, Chief
Operating Officer and a Director of the Administrator,
Executive Vice President and a Director of the Distributor
and an officer, director or trustee of other investment
companies advised or administered by the Administrator. He
is also a Director of Noel Group, Inc., Director and
Corporate Member of The Muscular Dystrophy Association and
a Trustee of Bucknell University. His address is 200 Park
Avenue, New York, New York 10166.
JOHN P. GOULD, Director. Distinguished Service Professor of
Economics of the University of Chicago Graduate School of
Business. Since 1988, a Director of Vulcan Materials
Company, a chemicals manufacturer and producer of
construction aggregates. Since 1986, Director of Argonne--
Chicago Development Corporation, an affiliate of, and the
entity responsible for commercializing the technology of,
both the University of Chicago and Argonne National
Laboratory. Since 1986, Dean Gould also has served as a
Director of DFA Investment Dimensions Group, a series
mutual fund. From 1983 to 1993, Dean of the University of
Chicago Graduate School of Business. His address is 1101
East 58th Street, Chicago, Illinois 60637.
RAYMOND D. ODDI, Director. Private consultant. A Director of
Caremark International, Inc. and Medisense, Inc., companies
in the health care industry, and Baxter Credit Union. From
1978 to 1986, Senior Vice President of Baxter
International, Inc., a company engaged in the production of
medical care products. He also is a member of the Illinois
Society of Certified Public Accountants. His address is
1181 Loch Lane, Lake Forest, Illinois 60045.
Each of the "non-interested" Directors also is a trustee of
First Prairie Cash Management, First Prairie Diversified Asset
Fund, First Prairie Money Market Fund, First Prairie Tax Exempt
Money Market Fund, First Prairie U.S. Government Income Fund and
First Prairie U.S. Treasury Securities Cash Management.
The Fund does not pay any remuneration to its officers and
Directors other than fees and expenses to Directors who are not
officers, directors, employees or holders of 5% or more of the
outstanding voting securities of the Adviser or the Adminis-
trator or any affiliate of either of them. With respect to the
Intermediate Series and the Insured Series, such fees and
expenses totalled $3,983 and $1,525, respectively, for the
fiscal year ended February 28, 1993, for all such Directors as a
group.
For so long as the Fund's plans described in the section
captioned "Distribution Plan and Shareholder Services Plan"
remain in effect, the Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Act, will be
selected and nominated by the Directors who are not "interested
persons" of the Fund.
Officers of the Fund Not Listed Above
DANIEL C. MACLEAN, Vice President. Vice President and General
Counsel of the Administrator, Secretary of the Distributor
and an officer or director of other investment companies
advised or administered by the Administrator.
JEFFREY N. NACHMAN, Vice President-Financial. Vice President-
-Mutual Fund Accounting of the Administrator and an officer
of other investment companies advised or administered by
the Administrator.
JOHN J. PYBURN, Treasurer. Assistant Vice President of the
Administrator and an officer of other investment companies
advised or administered by the Administrator.
JEAN FARLEY, Controller. Senior Accounting Manager of the Fund
Accounting Department of the Administrator and an officer
of other investment companies advised or administered by
the Administrator.
MARK N. JACOBS, Secretary. Secretary and Deputy General Counsel
of the Administrator and an officer of other investment
companies advised or administered by the Administrator.
ROBERT I. FRENKEL, Assistant Secretary. Senior Assistant
General Counsel to the Administrator and an officer of
other investment companies advised or administered by the
Administrator.
CHRISTINE PAVALOS, Assistant Secretary. Assistant Secretary of
the Administrator, the Distributor and other investment
companies advised or administered by the Administrator.
The address of each officer of the Fund is 200 Park Avenue,
New York, New York 10166.
Directors and officers of the Fund, as a group, owned less
than 1% of each Series' shares of common stock outstanding on
January 12, 1994.
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"MANAGEMENT OF THE FUND."
Investment Advisory Agreement. The Adviser provides
management services pursuant to the Investment Advisory
Agreement (the "Advisory Agreement") dated December 16, 1987 (as
revised October 1, 1993) with the Fund. As to each Series, the
Advisory Agreement is subject to annual approval by (i) the
Fund's Board of Directors or (ii) vote of a majority (as defined
in the Act) of such Series' outstanding voting securities,
provided that in either event the continuance also is approved
by a majority of the Directors who are not "interested persons"
(as defined in the Act) of the Fund or the Adviser, by vote cast
in person at a meeting called for the purpose of voting on such
approval. Shareholders of each Series last approved the
Advisory Agreement on June 14, 1989, and the Board of Directors,
including a majority of the Directors who are not "interested
persons" of any party to the Advisory Agreement, last voted to
renew the Advisory Agreement at a meeting held on December 10,
1993. The Advisory Agreement is terminable without penalty, as
to each Series, on 60 days' notice, by the Fund's Board of
Directors or by vote of the holders of a majority of such
Series' shares or, upon not less than 90 days' notice, by the
Adviser. The Advisory Agreement will terminate automatically,
as to the relevant Series, in the event of its assignment (as
defined in the Act).
As compensation for the Adviser's services to the Fund, the
Fund has agreed to pay the Adviser a fee, computed daily and
paid monthly, at an annual rate of .40 of 1% of the value of
each Series' average daily net assets. For the fiscal years
ended February 28/29, 1991, 1992 and 1993, no fees were paid by
the Fund pursuant to various undertakings by the Adviser.
The Fund has agreed that neither the Adviser nor the
Administrator will be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Adviser's or the
Administrator's respective agreement with the Fund relates,
except for a loss resulting from wilful misfeasance, bad faith
or gross negligence on the part of the Adviser or the
Administrator, as the case may be, in the performance of its
obligations or from reckless disregard by it of its obligations
and duties under its respective agreement with the Fund.
Administration Agreement. Pursuant to the Administration
Agreement (the "Administration Agreement") dated December 16,
1987 (as revised October 1, 1993) with the Fund, the
Administrator furnishes the Fund clerical help and accounting,
data processing, bookkeeping, internal auditing and legal
services and certain other services required by the Fund,
prepares reports to the Fund's shareholders, tax returns,
reports to and filings with the Securities and Exchange
Commission and state Blue Sky authorities, calculates the net
asset value of each Series' shares and generally assists in all
aspects of the Fund's operation, other than providing investment
advice. The Administrator bears all expenses in connection with
the performance of its services and pays the salaries of all
officers and employees who are employed by both it and the Fund.
As to each Series, the Administration Agreement is subject
to annual approval by (i) the Fund's Board of Directors or (ii)
vote of a majority (as defined in the Act) of such Series'
outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Directors who
are not "interested persons" (as defined in the Act) of the Fund
or the Administrator, by vote cast in person at a meeting called
for the purpose of voting on such approval. Shareholders of
each Series last approved the Administration Agreement on June
14, 1989, and the Board of Directors, including a majority of
the Directors who are not "interested persons" of any party to
the Administration Agreement, last voted to renew the
Administration Agreement at a meeting held on December 10, 1993.
The Administration Agreement is terminable without penalty, as
to each Series, on not more than 60 days' notice, by the Fund's
Board of Directors or by vote of the holders of a majority of
such Series' shares or, upon not less than 90 days' notice, by
the Administrator. The Administration Agreement will terminate
automatically, as to the relevant Series, in the event of its
assignment (as defined in the Act).
As compensation for the Administrator's services to the
Fund, the Fund has agreed to pay the Administrator a fee,
computed daily and paid monthly, at an annual rate of .20 of 1%
of the value of each Series' average daily net assets. For the
fiscal years ended February 28/29, 1991, 1992 and 1993, no fees
were paid by the Fund pursuant to various undertakings by the
Administrator.
In addition to the persons named as such in the section
entitled "Management of the Fund," the following persons are
officers and/or directors of the Administrator: Howard Stein,
Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board of Directors; Alan M.
Eisner, Vice President and Chief Financial Officer; David W.
Burke, Vice President and Chief Administrative Officer;
Robert F. Dubuss, Vice President; Elie M. Genadry, Vice
President--Institutional Sales; Peter A. Santoriello, Vice
President; Robert H. Schmidt, Vice President; Kirk V. Stumpp,
Vice President--New Product Development; Philip L. Toia, Vice
President; Katherine C. Wickham, Assistant Vice President;
Maurice Bendrihem, Controller; and Mandell L. Berman, Alvin E.
Friedman, Lawrence M. Greene, Abigail Q. McCarthy and David B.
Truman, directors.
Expenses and Expense Information. All expenses incurred in
the operation of the Fund are borne by the Fund, except to the
extent specifically assumed by the Adviser and/or the
Administrator. The expenses borne by the Fund include the
following: organizational costs, taxes, interest, brokerage
fees and commissions, if any, fees of Directors who are not
officers, directors, employees or holders of 5% or more of the
outstanding voting securities of the Adviser or the
Administrator, Securities and Exchange Commission fees, state
Blue Sky qualification fees, advisory and administration fees,
charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of maintaining
corporate existence, costs of independent pricing services,
costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of
shareholders' reports and corporate meetings, and any extra-
ordinary expenses. Class A and Class B shares are subject to an
annual service fee for ongoing personal services relating to
shareholder accounts and services related to the maintenance of
shareholder accounts. In addition, Class B shares are subject
to an annual distribution fee for advertising, marketing and
distributing Class B shares pursuant to a distribution plan
adopted in accordance with Rule 12b-1 under the Act. See
"Distribution Plan and Shareholder Services Plan." Expenses
attributable to a particular Series are charged against the
assets of that Series; other expenses of the Fund are allocated
between the Series on the basis determined by the Board of
Directors, including, but not limited to, proportionately in
relation to the net assets of each Series.
The Adviser and the Administrator have agreed that, as to
each Series, if in any fiscal year the aggregate expenses of the
Series (including fees pursuant to the Advisory Agreement and
the Administration Agreement, but excluding interest, taxes,
brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the
Series, the Series may deduct from the fees to be paid to each
of the Adviser and the Administrator, or the Adviser and the
Administrator will bear, approximately 2/3 and 1/3,
respectively, of 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 the Adviser and the
Administrator is not subject to reduction as the value of the
Series' net assets increases.
Glass-Steagall Act. For a discussion of the Glass-Steagall
Act in connection with the Fund's operations, see the Fund's
Prospectus.
From time to time, legislation has been introduced and may
be reintroduced in Congress, which would permit a bank, a bank
holding company or a subsidiary thereof to organize, sponsor,
control and distribute shares of an investment company such as
the Fund, notwithstanding present restrictions under the
Glass-Steagall Act and the Federal Bank Holding Company Act of
1956. As described herein, the Fund is currently distributed by
the Distributor, and the Administrator, its parent, sponsors the
Fund and provides it with administrative services. If current
restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing shares of an investment
company were relaxed, the Fund expects that the Adviser would
consider the possibility of offering to perform some or all of
the services now provided by the Administrator or the
Distributor. It is not possible, of course, to predict whether
or in what form such legislation might be enacted or the terms
upon which the Adviser might offer to provide services.
PURCHASE OF FUND SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"HOW TO BUY FUND SHARES."
The Distributor. The Distributor serves as the Fund's
distributor pursuant to an agreement which is renewable
annually. The Distributor also acts as distributor for the
other funds in the First Prairie Family of Funds, the funds in
the Dreyfus Family of Funds and certain other investment
companies.
Sales Loads--Class A. The scale of sales loads applies to
purchases of Class A shares made by any "purchaser," which term
includes an individual and/or spouse purchasing securities for
his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities
for a single trust estate or a single fiduciary account
(including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code"))
although more than one beneficiary is involved; or a group of
accounts established by or on behalf of the employees of an
employer or affiliated employers pursuant to an employee benefit
plan or other program (including accounts established pursuant
to Sections 403(b), 408(k), and 457 of the Code); or an
organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company
and provided that the purchases are made through a central
administration or a single dealer, or by other means which
result in economy of sales effort or expense.
TeleTransfer Privilege. TeleTransfer purchase orders may
be made between the hours of 8:00 a.m. and 4:00 p.m., New York
time, on any business day that The Shareholder Services Group,
Inc., the Fund's transfer and dividend disbursing agent (the
"Transfer Agent"), and the New York Stock Exchange are open,
except Martin Luther King, Jr. Day, Columbus Day and Veterans
Day. Such purchases will be credited to the shareholder's Fund
account on the next bank business day. To qualify to use the
TeleTransfer Privilege, the initial payment for purchase of Fund
shares must be drawn on, and redemption proceeds paid to, the
same bank and account as are designated on the Account
Application or Optional Services Form on file. If the proceeds
of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and
signature-guaranteed. See "Redemption of Fund
Shares--TeleTransfer Privilege."
Offering Price
The method of computing the offering price of Class A
shares of the Intermediate Series for individual sales
aggregating less than $100,000, based upon the price in effect
at the close of business on February 28, 1993, is as follows:
NET ASSET VALUE and redemption price per share. . . .$12.79
Sales load, 3.0 percent of offering price
(approximately 3.1 percent of net asset
value per share). . . . . . . . . . . . . . . . . . .40
Offering price to public. . . . . . . . . . . . . . .$13.19
The method of computing the offering price of Class A
shares of the Insured Series for individual sales aggregating
less than $50,000, based upon the price in effect at the close
of business on February 28, 1993, is as follows:
NET ASSET VALUE and redemption price per share. . . .$13.25
Sales load, 4.5 percent of offering price
(approximately 4.7 percent of net asset
value per share). . . . . . . . . . . . . . . . . . .62
Offering price to public. . . . . . . . . . . . . . .$13.87
Reopening an Account. An investor may reopen an account
with a minimum investment of $100 without filing a new Account
Application during the calendar year the account is closed or
during the following calendar year, provided the information on
the old Account Application is still applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN."
Class A and Class B shares are subject to a Shareholder
Services Plan and Class B shares only are subject to a
Distribution Plan.
Distribution Plan. Rule l2b-1 (the "Rule") adopted by the
Securities and Exchange Commission under the Act provides, among
other things, that an investment company may bear expenses of
distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Board of Directors has
adopted such a plan (the "Distribution Plan") with respect to
Class B shares pursuant to which the Fund pays for advertising,
marketing and distributing Class B shares. Under the
Distribution Plan, the Fund may make payments to the Adviser,
its affiliates, including First Chicago Investment Services,
Inc., the Distributor or certain securities dealers, financial
institutions and other financial industry professionals
(collectively, "Service Agents") in respect of these services.
The Fund's Board of Directors believes that there is a
reasonable likelihood that the Distribution Plan will benefit
each Series and holders of its Class B shares. In some states,
certain financial institutions effecting transactions in Fund
shares may be required to register as dealers pursuant to state
law.
A quarterly report of the amounts expended under the
Distribution Plan, and the purposes for which such expenditures
were incurred, must be made to the Directors for their review.
In addition, the Distribution Plan provides that it may not be
amended to increase materially the costs which holders of Class
B shares may bear for distribution pursuant to the Distribution
Plan without the approval of the holders of Class B shares and
that other material amendments of the Distribution Plan must be
approved by the Board of Directors, and by the Directors who are
neither "interested persons" (as defined in the Act) of the Fund
or the Adviser nor have any direct or indirect financial
interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution
Plan, by vote cast in person at a meeting called for the purpose
of considering such amendments. The Distribution Plan is
subject to annual approval by such vote of the Directors cast in
person at a meeting called for the purpose of voting on the
Distribution Plan. The Distribution Plan was approved by the
Fund's Board of Directors, including a majority of the Directors
who are not "interested persons," at a meeting held on
October 1, 1993. The Distribution Plan is terminable at any
time by vote of a majority of the Directors who are not
"interested persons" and have no direct or indirect financial
interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution
Plan, or by vote of the holders of a majority of Class B shares.
Shareholder Services Plan. The Fund has adopted a
Shareholder Services Plan, pursuant to which the Fund pays
Service Agents for the provision of certain services to the
holders of Class A and Class B shares.
A quarterly report of the amounts expended under the
Shareholder Services Plan, and the purposes for which such
expenditures were incurred, must be made to the Directors for
their review. In addition, the Shareholder Services Plan
provides that it may not be amended without approval of the
Board of Directors, and by the Directors who are neither
"interested persons" (as defined in the Act) of the Fund nor
have any direct or indirect financial interest in the operation
of the Shareholder Services Plan or in any agreements entered
into in connection with the Shareholder Services Plan, by vote
cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is
subject to annual approval by such vote of the Directors 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 October 1, 1993. The Shareholder Services Plan is
terminable at any time by vote of a majority of the Directors
who are not "interested persons" and who have no direct or
indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan.
Prior Rule 12b-1 Plan. As of February 8, 1994, the Fund
terminated its then existing Rule 12b-1 plan, which provided for
payments to be made to Service Agents for advertising, marketing
and/or distributing Class A shares and servicing holders of
Class A shares. During the fiscal year ended February 28, 1993,
no payments were made under the prior Rule 12b-1 plan by either
Series pursuant to various undertakings in effect.
REDEMPTION OF FUND SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"HOW TO REDEEM FUND SHARES."
Check Redemption Privilege--Class A. An investor may
indicate on the Account Application or by later written request
that the Fund provide Redemption Checks ("Checks") drawn on the
Fund's account. Checks will be sent only to the registered
owner(s) of the account and only to the address of record. The
Account Application or later written request must be manually
signed by the registered owner(s). Checks may be made payable
to the order of any person in an amount of $500 or more. When a
Check is presented to the Transfer Agent for payment, the
Transfer Agent, as the investor's agent, will cause the Fund to
redeem a sufficient number of full or fractional Class A shares
in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a
copy of the Check will be returned to the investor. Investors
generally will be subject to the same rules and regulations that
apply to checking accounts, although election of this Privilege
creates only a shareholder-transfer agent relationship with the
Transfer Agent.
If the amount of the Check is greater than the value of the
shares in an investor's account, the Check will be returned
marked insufficient funds. Checks should not be used to close
an account.
Redemption by Wire or Telephone. By using this Privilege,
the investor authorizes the Transfer Agent to act on wire or
telephone redemption instructions from any person representing
himself or herself to be the investor, or a representative of
the investor's Service Agent, and reasonably believed by the
Transfer Agent to be genuine. Ordinarily, the Fund will
initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt by the Transfer Agent of
a redemption request in proper form. Redemption proceeds will
be transferred by Federal Reserve wire only to the commercial
bank account specified by the investor on the Account
Application or Optional Services Form. Redemption proceeds, if
wired, must be in the amount of $1,000 or more and will be wired
to the investor's account at the bank of record designated in
the investor's file at the Transfer Agent, if the investor's
bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and are borne by the
investor. Immediate notification by the correspondent bank to
the investor's bank is necessary to avoid a delay in crediting
the funds to the investor's bank account. Holders of jointly
registered Fund or bank accounts may redeem by wire only up to
$50,000 within any 30-day period. Proceeds of less than $1,000
will be paid by check and mailed to the investor's address.
Investors with access to telegraphic equipment may wire
redemption requests to the Transfer Agent by employing the
following transmittal code which may be used for domestic or
overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic
equipment may have the wire transmitted by contacting a TRT
Cables operator toll free at 1-800-654-7171. Investors should
advise the operator that the above transmittal code must be used
and should also inform the operator of the Transfer Agent's
answer back sign.
To qualify to use this Privilege, the initial payment for
purchase of Fund shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on
the Account Application or the Optional Services Form. If the
proceeds of a particular redemption are to be wired to an
account with any other bank, the request must be in writing and
signature-guaranteed.
To change the commercial bank or account designated to
receive redemption proceeds, a written request must be sent to
the Transfer Agent. This request must be signed by each
shareholder, with each signature guaranteed as described below
under "Stock Certificates; Signatures."
TeleTransfer Privilege. Investors should be aware that if
they have selected the TeleTransfer Privilege, any request for a
wire redemption will be effected as a TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more
prompt transmittal specifically is requested. Redemption
proceeds will be on deposit in the investor's account at an ACH
member bank ordinarily two business days after receipt of the
redemption request. See "Purchase of Fund Shares--TeleTransfer
Privilege."
Stock Certificates; Signatures. Any certificate
representing Series' shares to be redeemed must be submitted
with the redemption request. Written redemption requests must
be signed by each shareholder, including each holder of a joint
account, and each signature must be guaranteed. Signatures on
endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and
procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers,
dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and
savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities
Transfer Agents Medallion Program ("STAMP") and the Stock
Exchanges Medallion Program. Guarantees must be signed by an
authorized signatory of the guarantor and "Signature-Guaranteed"
must appear with the signature. The Transfer Agent may request
additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other
suitable verification arrangements from foreign investors, such
as consular verification. For more information with respect to
signature-guarantees, please call the telephone number listed on
the cover.
Redemption Commitment. The Fund has committed itself to
pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser
of $250,000 or 1% of the value of the Series' 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 Directors 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 Series to the detriment of the
existing shareholders. In such event, the securities would be
valued in the same manner as the Series' portfolio is valued.
If the recipient sold such securities, brokerage charges would
be incurred.
Suspension of Redemptions. The right of redemption may be
suspended or the date of payment postponed (a) during any period
when the New York Stock Exchange is closed (other than customary
weekend and holiday closings), (b) when trading in the markets
the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission
so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for
such other periods as the Securities and Exchange Commission by
order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Exchange Privilege. The Exchange Privilege permits
investors to purchase, in exchange for all or part of their
shares of Class A or Class B of a Series, shares of the same
Class of the other Series, shares of the same Class of certain
other funds advised by the Adviser or shares of the same Class
of certain funds advised by the Administrator, on the basis of
relative net asset value per share at the time of the exchange
as follows:
A. Class A shares of funds purchased without a sales load
may be exchanged for Class A shares of other funds
sold with a sales load, and the applicable sales load
will be deducted.
B. Class A shares of funds purchased with or without a
sales load may be exchanged without a sales load for
Class A shares of other funds sold without a sales
load.
C. Class A shares of funds purchased with a sales load,
Class A shares of funds acquired by a previous
exchange from Class A shares purchased with a sales
load, and additional Class A shares acquired through
reinvestment of dividends or distributions of any such
funds (collectively referred to herein as "Purchased
Shares") may be exchanged for Class A shares of other
funds sold with a sales load (referred to herein as
"Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum
sales load that could have been imposed in connection
with the Purchased Shares (at the time the Purchased
Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
D. Class B shares of any fund may be exchanged for Class
B shares of other funds without a sales load. Class B
shares of any fund exchanged for Class B shares of
another fund will be subject to the higher applicable
contingent deferred sales charge ("CDSC") of the two
funds and, for purposes of calculating CDSC rates and
conversion periods, will be deemed to have been held
since the date the Class B shares being exchanged were
initially purchased.
To accomplish an exchange under item C above, an investor's
Service Agent must notify the Transfer Agent of the investor's
prior ownership of such Class A shares and the investor's
account number.
To use this Privilege, an investor, or the investor's
Service Agent acting on the investor's behalf, must give
exchange instructions to the Transfer Agent in writing, by wire
or by telephone. Telephone exchanges may be made only if the
appropriate "YES" box has been checked on the Account
Application, or a separate signed Optional Services Form is on
file with the Transfer Agent. By using this Privilege, the
investor authorizes the Transfer Agent to act on telephonic,
telegraphic or written exchange instructions from any person
representing himself or herself to be the investor or a
representative of the investor's Service Agent, and reasonably
believed by the Transfer Agent to be genuine. Telephone
exchanges may be subject to limitations as to the amount
involved or the number of telephone exchanges permitted. Shares
issued in certificate form are not eligible for telephone
exchanges.
Auto-Exchange Privilege. Auto-Exchange permits an investor
to purchase, in exchange for Class A or Class B shares of the
Series, shares of the same Class of the other Series or certain
other funds in the First Prairie Family of Funds or certain
funds advised by the Administrator. This Privilege is available
only for existing accounts. Shares will be exchanged on the
basis of relative net asset value as described above under
"Exchange Privilege." Enrollment in or modification or
cancellation of this Privilege is effective three business days
following notification by the investor. An investor will be
notified if his account falls below the amount designated to be
exchanged under this Privilege. In this case, an investor's
account will fall to zero unless additional investments are made
in excess of the designated amount prior to the next Auto-
Exchange transaction. Shares held under IRA and other
retirement plans are eligible for this Privilege. Exchanges of
IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular
accounts. With respect to all other retirement accounts,
exchanges may be made only among those accounts.
The Exchange Privilege and Auto-Exchange Privilege are
available to shareholders resident in any state in which shares
of the fund being acquired legally may be sold. Shares may be
exchanged only between accounts having identical names and other
identifying designations.
Optional Services Forms and prospectuses of the other funds
may be obtained from the Distributor, 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144. The Fund reserves
the right to reject any exchange request in whole or in part.
The Exchange Privilege or Auto-Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan
permits an investor with a $5,000 minimum account to request
withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis. Withdrawal payments are
the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and
distributions, the investor's shares will be reduced and
eventually may be depleted. An Automatic Withdrawal Plan may be
established by completing the appropriate application available
from the Distributor, the Adviser, certain affiliates of the
Adviser or certain Service Agents. Automatic Withdrawal may be
terminated at any time by the investor, the Fund or the Transfer
Agent. Shares for which stock certificates have been issued may
not be redeemed through the Automatic Withdrawal Plan. Class B
shares withdrawn pursuant to the Automatic Withdrawal Plan will
be subject to any applicable CDSC.
Dividend Sweep Privilege. The Dividend Sweep Privilege
allows investors to invest on the payment date their dividends
or dividends and capital gains distributions, if any, from a
Series in shares of the same Class of the other Series or
another fund in the First Prairie Family of Funds or certain
funds advised or administered by the Administrator of which the
investor is a shareholder. Shares of the same Class of other
funds purchased pursuant to this Privilege will be purchased on
the basis of relative net asset value per share as follows:
A. Dividends and distributions paid with respect to Class
A shares by a fund may be invested without imposition
of a sales load in Class A shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid with respect to Class
A shares by a fund which does not charge a sales load
may be invested in Class A shares of other funds sold
with a sales load, and the applicable sales load will
be deducted.
C. Dividends and distributions paid with respect to Class
A shares by a fund which charges a sales load may be
invested in Class A shares of other funds sold with a
sales load (referred to herein as "Offered Shares"),
provided that, if the sales load applicable to the
Offered Shares exceeds the maximum sales load charged
by the fund from which dividends or distributions are
being swept, without giving effect to any reduced
loads, the difference will be deducted.
D. Dividends and distributions paid with respect to Class
B shares by a fund may be invested without imposition
of any applicable CDSC in Class B shares of other
funds and the Class B shares of such other funds will
be subject on redemption to any applicable CDSC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"How to Buy Fund Shares."
Valuation of Portfolio Securities. Each Series'
investments are valued by an independent pricing service (the
"Service") approved by the Board of Directors. When, in the
judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the
market, these investments are valued at the mean between the
quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio
securities) are carried at fair value as determined by the
Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ
electronic data processing techniques and/or a matrix system to
determine valuations. The Service's procedures are reviewed by
the Fund's officers under the general supervision of the Board
of Directors. Expenses and fees of each Series, including the
investment advisory and administration fees (reduced by the
expense limitation, if any) and expenses under the Shareholder
Services Plan with respect to the Class A and Class B shares,
and fees pursuant to the Distribution Plan, with respect to the
Class B shares only, are accrued daily and taken into account
for the purpose of determining the net asset value of each
Series' shares. Because of the difference in operating expenses
incurred by each Class, the per share net asset value of each
Class will differ.
Subject to guidelines established by the Fund's Board of
Directors, the Adviser intends to retain in the Insured Series'
portfolio Municipal Obligations which are insured under the
Mutual Fund Insurance policy and which are in default or in
significant risk of default in the payment of principal or
interest until the default has been cured or the principal and
interest are paid by the issuer or the insurer. In establishing
fair value for these securities the Board of Directors will give
recognition to the value of the insurance feature as well as the
market value of the securities. Absent any unusual or
unforeseen circumstances, the Adviser will recommend valuing
these securities at the same price as similar securities of a
minimum investment grade (i.e., rated Baa by Moody's or BBB by
S&P, Fitch or Duff).
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
Portfolio securities ordinarily are purchased from and sold
to parties acting as either principal or agent. Newly-issued
securities are purchased directly from the issuer or from an
underwriter; other purchases and sales usually are placed with
those dealers from which it appears that the best price or
execution will be obtained. Ordinarily, no brokerage
commissions, as such, are paid by the Fund for such purchases
and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and
purchases of after-market securities from dealers ordinarily are
executed at a price between the bid and asked price. No
brokerage commissions have been paid by either Series to date.
Transactions are allocated to various dealers by the Fund's
investment personnel in their best judgment. The primary
consideration is prompt and effective execution of orders at the
most favorable price. Subject to that primary consideration,
dealers may be selected for research, statistical or other
services to enable the Adviser to supplement its own research
and analysis with the views and information of other securities
firms and may be selected based upon their sales of Fund shares.
Research services furnished by brokers through which the
Fund effects securities transactions may be used by the Adviser
in advising other funds or accounts it may advise and,
conversely, research services furnished to the Adviser by
brokers in connection with other funds or accounts the Adviser
may advise may be used by the Adviser in advising the Fund.
Although it is not possible to place a dollar value on these
services, it is the opinion of the Adviser that the receipt and
study of such services should not reduce its overall research
expenses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Dividends, Distributions and Taxes."
The Code provides that if a shareholder has not held his
shares of a Series for more than six months (or such shorter
period as the Internal Revenue Service may prescribe by
regulation) and has received an exempt-interest dividend with
respect to such shares, any loss incurred on the sale of such
shares will be disallowed to the extent of the exempt-interest
dividend received. In addition, any dividend or distribution
paid shortly after an investor's purchase may have the effect of
reducing the net asset value of his shares below the cost of his
investment. Such a distribution would be a return on the
investment in an economic sense although taxable as stated in
"Dividends, Distributions and Taxes" in the Prospectus.
Under Section 1256 of the Code, gain or loss a Series
realizes from certain futures and options transactions 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 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 a Series' taxable year will
be treated as sold for their then fair market value, resulting
in additional gain or loss to the Series characterized in the
manner described above.
Ordinarily, gains and losses realized from portfolio
transactions will be treated as capital gain or loss. However,
all or a portion of the gain realized from the disposition of
certain market discount bonds will be treated as ordinary income
under Section 1276. In addition, all or a portion of the gain
realized from engaging in "conversion transactions" may be
treated as ordinary income under Section 1258. "Conversion
transactions" are defined to include certain option and straddle
transactions, transactions marketed or sold to produce capital
gains, or transactions described in Treasury regulations to be
issued in the future.
Offsetting positions held by a Series involving certain
futures and options transactions 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 Section 1256. As such, all or a portion of any
short or long-term capital gain from certain "straddle" and/or
conversion transactions may be characterized as ordinary income.
If a Series were treated as entering into "straddles" by
reason of its futures and options transactions, such "straddles"
would be characterized as "mixed straddles" if the futures or
options transactions comprising a part of such "straddles" were
governed by Section 1256 of the Code. A Series may make one or
more elections with respect to "mixed straddles." If no
election is made, to the extent the "straddle" and conversion
transaction rules apply to positions established by the Series,
losses realized by the Series will be deferred to the extent of
unrealized gain in the offsetting position. Moreover, as a
result of the "straddle" rules, short-term capital losses on
"straddle" positions may be recharacterized as long-term capital
loss, and long-term capital gain may be treated as short-term
capital gain or ordinary income.
PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"PERFORMANCE INFORMATION."
Class B shares had not been offered as of the date of the
financials and, accordingly, no performance data are available
for Class B.
The Intermediate Series' current yield for Class A for the
30-day period ended August 31, 1993 was 4.25%, which reflects
the absorption of certain expenses by the Adviser and
Administrator and/or a waiver of the advisory and administration
fees, without which the Intermediate Series' yield for the
30-day period ended August 31, 1993 would have been 3.12%. The
Insured Series' current yield for Class A for such period was
4.40%, which reflects the absorption of certain expenses by the
Adviser and Administrator and/or a waiver of the advisory and
administration fees, without which the Insured Series' yield for
the 30-day period ended August 31, 1993 would have been 3.09%.
Current yield is computed pursuant to a formula which operates
as follows: The amount of the Series' expenses accrued for the
30-day period (net of reimbursements) is subtracted from the
amount of the dividends and interest earned (computed in
accordance with regulatory requirements) by the Series during
the period. That result is then divided by the product of: (a)
the average daily number of shares outstanding during the period
that were entitled to receive dividends, and (b) the maximum
offering price per share in the case of Class A or the net asset
value per share in the case of Class B 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.
Based upon a 1993 Federal income tax rate of 39.6%, the
Intermediate Series' tax equivalent yield for the 30-day period
ended August 31, 1993 was 7.04%, which reflects the absorption
of certain expenses by the Adviser and Administrator and/or a
waiver of the advisory and administration fees, without which
the Intermediate Series' yield for the 30-day period ended
August 31, 1993 would have been 5.17%. Based upon such tax
rate, the Insured Series' tax equivalent yield for such period
was 7.28%, which reflects the absorption of certain expenses by
the Adviser and Administrator and/or a waiver of the advisory
and administration fees, without which the Insured Series' yield
for the 30-day period ended August 31, 1993 would have been
5.12%. See "Management of the Fund" in the Prospectus. Tax
equivalent yield is computed by dividing that portion of the
current yield (calculated as described above) which is tax
exempt by 1 minus a stated tax rate and adding the quotient to
that portion, if any, of the yield of the Series that is not tax
exempt.
The tax equivalent yields noted above represent the
application of the highest Federal marginal personal income tax
rate presently in effect. The tax equivalent yield figures,
however, do not reflect the potential effect of any state or
local (including, but not limited to, county, district or city)
taxes, including applicable surcharges. In addition, there may
be pending legislation which could affect such stated tax rate
or yields. Each investor should consult its tax adviser, and
consider its own factual circumstances and applicable tax laws,
in order to ascertain the relevant tax equivalent yield.
The Intermediate Series' average annual total return for
Class A for the 1, 5 and 5.504 year periods ended August 31,
1993 was 4.75%, 8.48% and 8.09%, respectively. Average annual
total return of the Insured Series (which operated as the
Long-Term Series until September 12, 1989) for Class A for such
periods was 6.69%, 9.65% and 8.84%, respectively.
Average annual total return is calculated by determining
the ending redeemable value of an investment purchased with a
hypothetical $1,000 payment made at the beginning of the period
(assuming the reinvestment of dividends and distributions),
dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in
the period) and subtracting 1 from the result. A Class's
average annual total return figures calculated in accordance
with such formula assume that in the case of Class A the maximum
sales load had been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class B the
maximum applicable CDSC has been paid upon redemption at the end
of the period.
Total return is calculated by subtracting the amount of the
applicable Series' maximum offering price per share in the case
of Class A or the net asset value per share in the case of Class
B 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 maximum offering price per share
in the case of Class A or the net asset value per share in the
case of Class B at the beginning of the period. Total return
also may be calculated based on the net asset value per share at
the beginning of the period instead of the maximum offering
price per share at the beginning of the period for Class A
shares or without giving effect to any applicable CDSC at the
end of the period for Class B shares. In such cases, the
calculation would not reflect the deduction of the sales load
which, if reflected, would reduce the performance quoted.
The Intermediate Series' total return for Class A for the
period March 1, 1988 (commencement of operations) to August 31,
1993, based on maximum offering price per share, was 53.48%.
Based on net asset value per share, the Intermediate Series'
total return for Class A was 60.71% for this period. Total
return of the Insured Series (which operated as the Long-Term
Series until September 12, 1989) for Class A for the period
March 1, 1988 (commencement of operations) to August 31, 1993,
based upon maximum offering price per share, was 59.38%. Based
on net asset value per share, the Insured Series' total return
for Class A was 66.85% for this period.
The performance figures set forth above for the
Intermediate Series for periods prior to July 1, 1992 reflect
such Series' management policy at the time to invest in
Municipal Obligations rated A or better by Moody's or S&P. The
Intermediate Series currently must invest in Municipal
Obligations rated at least Baa by Moody's or BBB by S&P, Fitch
or Duff.
From time to time, the Fund may use hypothetical tax
equivalent yields or charts in its advertising. These
hypothetical yields or charts will be used for illustrative
purposes only and are not indicative of a Series' past or future
performance.
From time to time, advertising for the Fund may describe
the costs of a college education at public or private
institutions; how such costs may increase over time, based on an
assumed rate of growth; and how investments in the Fund can be
used to help pay for such costs. Advertisements for the Fund
also may refer to comparisons of a Series' performance with
historical rates of inflation or may describe how an investment
in the Fund may be used to fund retirement costs or other
economic goals.
INFORMATION ABOUT THE FUND
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE FUND'S PROSPECTUS ENTITLED
"GENERAL INFORMATION."
Each Series' share has one vote and, when issued and paid
for in accordance with the terms of the offering, is fully paid
and non-assessable. Series' shares have no preemptive or
subscription rights and are freely transferable.
The Fund sends annual and semi-annual financial statements
to all its shareholders and sends statements concerning
shareholder accounts monthly.
On June 14, 1989, shareholders of the Fund approved a
proposal to change the Fund's name from First Lakeshore Tax
Exempt Bond Fund, Inc. to First Prairie Tax Exempt Bond Fund,
Inc. On August 1, 1989, shareholders of the Insured Series
(then the Long-Term Series) approved a proposal to change such
Series' name to the Insured Series.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New
York 10286, is the Fund's custodian. The Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, P.O. Box
9671, Providence, Rhode Island 02940-9671, is the Fund's
transfer and dividend disbursing agent. Neither The Bank of New
York nor The Shareholder Services Group, Inc. has any part in
determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New
York 10004-2696, as counsel for the Fund, has rendered its
opinion as to certain legal matters regarding the due
authorization and valid issuance of the shares of Common Stock
being sold pursuant to the Fund's Prospectus.
Ernst & Young, 787 Seventh Avenue, New York, New York
10019, independent auditors, have been selected as auditors of
the Fund.
<PAGE>
APPENDIX A
Description of S&P and Moody's ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment
of the creditworthiness of an obligor with respect to a specific
obligation.
The ratings are based on current information furnished
by the issuer or obtained by S&P from other sources it considers
reliable, and will include: (1) likelihood of default-capacity
and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms
of the obligation; (2) nature and provisions of the obligation;
and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA
Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in a small degree.
A
Principal and interest payments on bonds in this
category are regarded as safe. This rating describes the third
strongest capacity for payment of debt service. It differs from
the two higher ratings because:
General Obligation Bonds -- There is some weakness in
the local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness might
impair the ability of the issuer to meet debt obligations at
some future date.
Revenue Bonds -- Debt service coverage is good, but
not exceptional. Stability of the pledged revenues could show
some variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute to a
lesser capacity for payment of debt service. The difference
between "A" and "BBB" rating is that the latter shows more than
one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds -- Debt coverage is only fair.
Stability of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject to
erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
Plus (+) or minus (-): The ratings from AA to BBB may
be modified by the addition of a plus or minus designation to
show relative standing within the major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics
are given a plus sign (+) designation.
SP-2
The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Issues assigned an A rating
are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and
3 to indicate the relative degree of safety.
A-1
This designation 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.
A-2
Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety
is not as high as for issues designated A-1.
Moody's
Municipal 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 some time in the
future.
Baa
Bonds which are rated Baa are considered as medium-
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to
show relative standing within the major rating categories,
except in the Aaa category. The modifier 1 indicates a ranking
for the security in the higher end of a rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's Investment Grade
(MIG). Such ratings recognize the differences between
short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major
importance in bond risk, long-term secular trends for example,
may be less important over the short run.
A short-term rating may also be assigned on an issue
having a demand feature. Such ratings will be designated as
VMIG or, if the demand feature is not rated, as NR.
Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity.
Additionally, investors should be alert to the fact that the
source of payment may be limited to the external liquidity with
no or limited legal recourse to the issuer in the event the
demand is not met.
Moody's short-term ratings are designated Moody's
Investment Grade as MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As
the name implies, when Moody's assigns a MIG or VMIG rating, all
categories define an investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
Commercial Paper Ratings
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.
<PAGE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
STATEMENT OF INVESTMENTS FEBRUARY 28, 1993
INTERMEDIATE SERIES
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MUNICIPAL BONDS--97.9% VALUE
- ------- -----------
<S> <C> <C>
ALASKA--2.1%
Alaska Student Ln. Corp.,
Student Ln. Rev.:
$ 125,000 7.60%, 7/1/1998 (Insd.; AMBAC)... $ 136,520
40,000 7.90%, 7/1/1998 (Insd.; AMBAC).................
43,714
375,000 North Slope Boro., Ref.,
7.50%, 6/30/1997 (Insd.; AMBAC).............. 425,239
ARIZONA--1.6%
150,000 Arizona Transn. Brd., Excise Tax Rev.
(Maricopa Cnty. Regl. Area Rd.),
6.90%, 7/1/1999 (Insd.; MBIA).......................
170,781
250,000 Univ. of Arizona, Univ. Revs.,
6.75%, 6/1/2001.....................................
285,233
COLORADO--1.8%
500,000 Denver City and Cnty., Arpt. Sys.
Sub. Rev.,
6.35%, 12/1/1994 (LC; Sumitomo Trust
and Banking Co., Ltd.)(a)...................
520,710
DISTRICT OF COLUMBIA--.8%
200,000 District of Columbia,
7.25%, 6/1/2002 (Insd.; AMBAC)..............
227,686
FLORIDA--.8%
200,000 Hillsborough Cnty. Sch. Dist., Ref.,
6.95%, 8/15/1999...........................
226,992
GEORGIA--3.9%
500,000 Georgia Municipal Elec. Auth., Pwr.
Rev., Ref.,
7.20%, 1/1/2000...........................
571,665
500,000 Met. Atlanta Rapid Tran. Auth.,
Sales Tax Rev., Ref.,
5.60%, 7/1/2000 (Insd.; AMBAC)...............
536,940
HAWAII--.8%
200,000 Honolulu City and Cnty.,
7.25%, 7/1/2002...........................
236,622
ILLINOIS--8.5%
1,450,000 State of Illinois, Sales Tax Rev.,
7.90%, 6/15/2010
(Prerefunded 6/15/1998)(b).........................
1,734,983
575,000 Winnebago and Boone Cntys.,
Sch. Dist. No. 205,
7%, 2/1/1999 (Insd.; Cap. Gty.) ................... 651,464
INDIANA--1.8%
500,000 Indiana Bond Bank, Rev.
(State Gtee. Revolving Fund Program),
5.80%, 2/1/2002..................................... 519,550
LOUISIANA--6.3%
900,000 State of Louisiana,
8%, 5/1/1996 (Insd.; MBIA)......................... 1,014,174
660,000 Baton Rouge, Pub. Impt. Sales and Use Tax
Rev., Ref.,
9%, 8/1/1996 (Insd.; FSA).......................... 768,451
MASSACHUSETTS--2.7%
200,000 Comwlth. of Massachusetts, Cons. Ln.,
7%, 3/1/2000 (Insd.; FGIC)......................... 229,002
500,000 Massachusetts Wtr. Res. Auth., Rev.,
5.60%, 7/15/1996................................... 527,665
MINNESOTA--5.7%
1,550,000 Minneapolis and St. Paul Met. Arpts.
Commn.,
5%, 1/1/1996....................................... 1,607,706
NEVADA--14.2%
300,000 Clark Cnty. Sch. Dist.,
7.40%, 3/1/2000.................................... 341,511
325,000 City of Henderson, Swr. Rev.,
7.20%, 1/1/2007 (Insd.; MBIA)...................... 351,975
500,000 City of Las Vegas, Ref.,
6.20%, 10/1/2001................................... 548,690
2,150,000 Las Vegas-Clark Cnty. Library Dist.,
7.50%, 2/1/2002 (Insd.; FGIC)...................... 2,559,854
200,000 Nevada Hsg. Div.
(Single Family Program),
7.20%, 10/1/1998................................... 212,140
NEW HAMPSHIRE--.4%
100,000 New Hampshire Municipal Bond Bank,
6.90%, 7/15/1999................................... 112,712
NEW JERSEY--4.2%
1,000,000 Hudson Cnty., Ctfs. Partn.
(Correctional Facs.),
7.60%, 12/1/2021 (Insd.; BIGI,
Prerefunded 12/1/1998)(b).......................... 1,195,500
NEW YORK--.9%
200,000 New York State Dorm. Auth.,
Spl. Oblig. Revs.
(State Univ. Edl. Facs.),
6.50%, 5/1/1998.................................... 221,298
NORTH CAROLINA--2.0%
500,000 North Carolina Eastn. Municipal Pwr.
Agy., Pwr. Sys. Rev., Ref.,
6.25%, 1/1/2003.................................... 544,260
NORTH DAKOTA--.3%
75,000 State of North Dakota, Student Ln.
Rev.,
7.40%, 1/1/1998 (Insd.; AMBAC)..................... 81,348
OHIO--3.8%
1,000,000 Ohio Pub. Facs. Commn.,
Higher Ed. Cap. Facs.,
5.30%, 12/1/1996................................... 1,057,830
OKLAHOMA--3.8%
1,000,000 McGee Creek Auth., Wtr. Rev.,
5.90%, 1/1/2006 (Insd.; MBIA)...................... 1,058,470
PENNSYLVANIA--.6%
150,000 Scranton-Lackawanna Health and
Welfare Auth., Hosp. Facs. Rev.
(Mercy Health Sys.),
6.75%, 1/1/2000 (Insd.; MBIA)...................... 160,827
TENNESSEE--.7%
200,000 Tennessee Hsg. Dev. Agy.,
Homeownership Program,
8.50%, 7/1/1997..................................... 209,906
TEXAS--20.9%
500,000 State of Texas, College Student Ln.,
6.80%, 8/1/2000..................................... 546,705
500,000 Austin, Util. Sys. Rev.,
9.25%, 11/15/1998 (Insd.; MBIA)..................... 618,815
600,000 Bexar Cnty.,
9%, 5/15/1998....................................... 738,084
500,000 San Antonio, Elec. and Gas Rev., Ref.,
5.80%, 2/1/2006.....................................
523,310
1,500,000 Tarrant Cnty., Wtr. Ctl. and Impt. Dist.
No.1, Wtr. Rev.,
5.60%, 3/1/2000..................................... 1,591,815
150,000 Texas A&M, Univ. Sys. Revs.
(Tarleton State Univ.),
8%, 4/1/2002........................................ 183,609
50,000 Texas Hsg. Agy., Single Family Mtg.
Rev.,
7.35%, 3/1/1998..................................... 52,336
1,385,000 Texas Municipal Pwr. Agy., Rev., Ref.,
5.75%, 9/1/2002 (Insd.; MBIA)....................... 1,484,083
150,000 Texas Wtr. Res. Fin. Auth., Rev.,
7.25%, 2/15/1997................................... 161,842
UTAH--1.4%
200,000 Utah Brd. Regents, Student Ln. Rev.,
7.25%, 11/1/1997 (Insd.; AMBAC).................... 216,992
100,000 Utah Bldg. Ownership Auth.,
Lease Rev.
(Dept. Employment Sec. Proj.),
7.50%, 8/15/2003................................... 116,718
60,000 Utah Hsg. Fin. Agy., Single Family Mtg.,
7.70%, 1/1/1998.................................... 62,414
WASHINGTON--6.7%
State of Washington :
1,000,000 5.75%, 2/1/2017.................................... 1,003,970 480,000 Ref., 6.10%,
9/1/2000.............................. 530,381
300,000 Washington Pub. Pwr. Supply Sys., Rev.,
Ref. (Nuclear Proj. No. 1),
7.40%, 7/1/1999.................................... 340,896
WISCONSIN--1.2%
200,000 State of Wisconsin, Trans. Rev.,
5.60%, 7/1/1997.................................... 212,720
Wisconsin Hsg. and Economic Dev. Auth.,
Homeownership Rev.:
50,000 7.50%, 9/1/1997................................... 52,066
75,000 7.70%, 9/1/1998................................... 77,678
- -----------
TOTAL MUNICIPAL BONDS
(cost $26,151,269).................................. $27,605,852
===========
SHORT-TERM TAX EXEMPT INVESTMENTS--2.1%
ILLINOIS--.4%
100,000 Illinois Dev. Facs. Auth., Rev.,
Variable Rate Demand Notes,
2.50% (LC; American Natl.
Bank and Tr.)(a,c)................................. 100,000
INDIANA--1.1%
130,000 Indiana Health Facs. Fing. Auth., Rev.,
Variable Rate Demand Notes
(Cap. Designated Access
Pooled Program),
1.85% (LC; Comerica Bank)(a,c)..................... 130,000
200,000 Indiana Hosp. Equip. Fing. Auth., Rev.,
Variable Rate Demand Notes,
1.85% (Insd.; MBIA)(c)............................. 200,000
MICHIGAN--.4%
100,000 Farmington Hills Hosp. Fin. Auth., Hosp.
Rev.,
Variable Rate Demand Notes
(Botsford Gen. Hosp.),
2.15% (Insd.; MBIA)(c)............................. 100,000
WASHINGTON--.2%
50,000 Washington Health Care Facs. Auth., Rev.,
Variable Rate Demand Notes
(Fred Hutchinson Cancer Research
Center),
2.35% (LC; Morgan Gty. Tr. Co.)(a,c)............... 50,000
- -----------
TOTAL SHORT-TERM
TAX EXEMPT INVESTMENTS
(cost $580,000).................................... $580,000
===========
TOTAL INVESTMENTS--100.0%
(cost $26,731,269).................................. $28,185,852
===========
INSURED SERIES
MUNICIPAL BONDS--99.1%
ARIZONA--12.7%
$1,000,000 Maricopa Cnty., Sch. Dist. No. 11,
Peoria Univ., Ref.,
6.05%, 7/1/2003 (Insd.; MBIA)...................... $1,087,290
250,000 Tempe Un. High Sch. Dist., No. 213,
7.70%, 7/1/2001 (Insd.; FGIC)...................... 301,003
CALIFORNIA--4.8%
500,000 Northn. Pwr. Agy., Multiple Cap. Facs.
Rev.,
5.40%, 8/1/1999 (Insd.; MBIA)...................... 531,460
FLORIDA--2.9%
300,000 Jacksonville, Gtd. Entitlement Rev.,
Ref., 5.60%, 10/1/2003 (Insd.; AMBAC)............... 318,828
GEORGIA--3.0%
300,000 Met. Atlanta Rapid Tran. Auth.,
Sales Tax Rev., Ref.,
6.10%, 7/1/2005 (Insd.; AMBAC)...................... 328,740
ILLINOIS--22.4%
400,000 Chicago (Cent. Pub. Libr.),
6.40%, 1/1/2002 (Insd.; AMBAC)...................... 443,728
250,000 Cook Cnty.,
7.25%, 11/1/2007 (Insd.; MBIA)...................... 294,523
535,000 Illinois Health Facs. Auth., Rev., Ref.
(Bro Menn Healthcare),
5.45%, 8/15/2000 (Insd.; FGIC)...................... 558,294
250,000 Macon Cnty. and Decatur, Ctfs. Partn.,
6.40%, 1/1/2002 (Insd.; FGIC)....................... 277,140
400,000 Northn. Cook Cnty. Solid Waste Agy.,
Contract Rev.,
6%, 5/1/2001 (Insd.; MBIA).......................... 432,908
400,000 Winnebago and Boone Cntys.,
Sch. Dist. No. 205,
7%, 2/1/1999 (Insd.; Cap. Gty.)..................... 453,192
INDIANA--3.1%
300,000 Marion Cnty. Convention and
Recreational Facs. Auth., Lease Rental,
Excise Tax Rev.,
6.60%, 6/1/2003 (Insd.; AMBAC)...................... 335,415
IOWA--2.9%
300,000 Muscatine, Elec. Rev., Ref.,
5.50%, 1/1/2001 (Insd.; AMBAC)...................... 316,353
LOUISIANA--5.3%
500,000 Baton Rouge, Pub. Impt. Sales and Use Tax
Rev., Ref.,
9%, 8/1/1996 (Insd.; FSA)........................... 582,160
MICHIGAN--2.9%
300,000 Wayne-Westland Commn. Sch., Ref.,
5.50%, 5/1/2004 (Insd.; FGIC)....................... 314,388
NEW JERSEY--6.4%
600,000 Atlantic Cnty., Ctfs. Partn., Pub.
Facs. Lease Agreement
(Atlantic Cnty. Proj.),
7.30%, 3/1/2003 (Insd.; FGIC)....................... 703,248
NEVADA--4.9%
300,000 Clark Cnty., Passenger Fac. Charge Rev.
(Las Vegas McCarran Intl. Arpt.),
5.80%, 7/1/2003 (Insd.; AMBAC)...................... 320,304
200,000 Las Vegas-Clark Cnty. Library Dist.,
6.40%, 6/1/2001 (Insd.; FGIC)....................... 222,570
OREGON--2.4%
250,000 Portland, Swr. Sys. Rev.,
5.50%, 10/1/2003 (Insd.; FGIC) 265,555
TEXAS--16.4%
1,000,000 Coastal Bend Health Facs. Dev. Corp.,
Incarnate Word Health Svc.,
5.20%, 11/15/2000 (Insd.; AMBAC).................... 1,037,810
250,000 Houston Wtr. and Swr. Sys. Rev., Ref.,
5.75%, 12/1/2003 (Insd.; MBIA)...................... 266,607
400,000 Katy Indpt. Sch. Dist.,
7.90%, 8/15/2006 (Insd.; FGIC)...................... 499,268
UTAH--2.1%
205,000 Utah Municipal Fin. Coop., Loc. Govt.
Rev. (Vy. Cmnty. College),
6.75%, 11/1/2002 (Insd.; MBIA)...................... 228,872
WASHINGTON--6.9%
400,000 Port of Seattle, Rev.,
Sub. Lien,
5.90%, 8/1/2000 (Insd.; MBIA)....................... 435,780
300,000 Tacoma, Elec. Sys. Rev., Ref.,
5.80%, 1/1/2004 (Insd.; AMBAC)...................... 318,453
- -----------
TOTAL MUNICIPAL BONDS
(cost $10,137,497)................................... $10,873,889
===========
SHORT-TERM TAX EXEMPT INVESTMENT--.9%
Virginia;
$100,000 Newport Beach Hosp. Rev.,
Variable Rate Demand Notes
(Hoag Mem. Hosp. Presbyterian),
2.10%(c)
(cost $100,000)..................................... $ 100,000
===========
TOTAL INVESTMENTS--100.0%
(cost $10,237,497)................................... $10,973,889
===========
</TABLE>
<TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
- ---------------------------------------------------------
<CAPTION>
PERCENTAGE OF VALUE
-----------------------
STANDARD INTERMEDIATE INSURED
FITCH (D) OR MOODY'S OR & POOR'S SERIES SERIES
<S> <C> <C> <C> <C>
AAA Aaa AAA 58.6% 99.1%
AA Aa AA 22.4 --
A A A 16.9 --
F1 MIG1 & VMIG1 SP1 1.7 .9
F1(e) P1(e) A1(e) .4 --
----- ------
100.0% 100.0%
NOTES TO STATEMENTS OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Bonds which are prerefunded are collateralized by U.S.
Government securities which are held in escrow and are used to pay
principal and interest on the tax-exempt issue and to retire the bonds
in full at the earliest refunding date.
(c) Securities payable on demand. The interest rate, which is
subject to change is based upon bank prime rates or an index of market
interest rates.
(d) Fitch currently provides creditworthiness information for a
limited amount of investments.
(e) The ratings F1, P1, and A1 are the highest ratings assigned
tax exempt commercial paper by Fitch, Moody's and Standard &
Poors', respectively.
(f) At February 28, 1993, 28.6% of the Insured Series'
investments are insured by FGIC, 29.9% are insured by MBIA and 31.2% are
insured by AMBAC.
See notes to financial statements.
</TABLE>
<TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1993
<CAPTION>
INTERMEDIATE
INSURED
SERIES
SERIES
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $26,731,269 and $10,237,497 respectively)
- --see statement $28,185,852 $10,973,889
Cash............................. .. 48,872 --
Receivable for investment
securities sold 2,628,727 1,132,598
Interest receivable........... 325,342 129,522
Receivable for subscriptions
to Common Stock.............. -- 53,165
Prepaid expenses........ 6,144 5,115
Due from administrator...... 103,847 63,516
31,298,784 12,357,805
LIABILITIES:
Payable for investment
securities purchased....... 3,063,886 1,030,042
Payable for Common Stock redeemed 309,479 981
Accrued expenses and other
liabilities................... 40,552 36,590
3,413,917 1,067,613
----------- -----------
NET ASSETS......... $27,884,867 $11,290,192
=========== ===========
REPRESENTED BY:
Paid-in capital......... $26,171,913 $10,443,235
Accumulated undistributed net
realized gain on investments 258,371 110,565
Gross unrealized appreciation
on investments.............. 1,454,583 736,392
----------- -----------
NET ASSETS at value.......... $27,884,867 $11,290,192
=========== ===========
Shares of Common Stock outstanding
(2.5 billion shares of $.001 par value
authorized for each series).... 2,180,226 851,800
=========== ===========
NET ASSET VALUE per share:
Intermediate Series ($27,884,867
divide 2,180,226
shares)................... $12.79
======
Insured Series ($11,290,192 divide 851,800
shares)............... $13.25
======
The method of computing the offering
price for individual sales aggregating
less
than $50,000, based upon the price in effect at the close of business on
February 28, 1993, is as follows:
NET ASSET VALUE per share, as
above................................. $12.79 $13.25
Sales load, 4.5 percent of offering price
(approximately 4.7 percent of
net
asset value per
share).................................. .60 .62
Offering price to
public......................... $13.39 $13.87
</TABLE>
The redemption price is equivalent to the net asset value as
shown above. For further information relative to determination of
net asset value and offering and redemption prices, see the
Prospectus and pages B-00, B-00 and B-00.
STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1993
<TABLE>
<CAPTION>
INTERMEDIATE INSURED
SERIES SERIES
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME............................ $ 1,174,284 $ 474,329
----------- -----------
EXPENSES--Note 1(c):
Investment advisory fee--Note 2(a)..... $ 91,104 $ 34,547
Administration fee--Note 2(a)......... 45,552 17,273
Shareholder servicing costs--Note 2(b).... 70,442 32,661
Auditing fees........................ 22,025 10,699
Registration fees.................... 18,957 18,033
Prospectus and shareholders' reports--Note 2(b). 15,382 7,780
Legal fees................................. 7,459 3,051
Custodian fees............................. 7,102 3,600
Directors' fees and expenses--Note 2(c).. 3,983 1,525
Miscellaneous....................... 15,437 7,759
297,443 136,928
Less--expense reimbursement from
Investment Adviser and
Administrator due to undertakings--Note 2(a) 297,443 136,928
----------- -----------
TOTAL EXPENSES......................--
--
----------- -----------
INVESTMENT INCOME--NET.............. 1,174,284 474,329
----------- -----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments--Note 3.......$ 302,855 $ 249,775
Net unrealized appreciation on investments..... 1,086,267 556,530
----------- -----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS............. 1,389,122 806,305
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............ $ 2,563,406 $ 1,280,634
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
FIRST PRAIRE TAX EXEMPT BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
INTERMEDIATE SERIES INSURED SERIES
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1992 1993 1992 1993
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income--net. . ....... $ 772,049 $ 1,174,284 $ 286,277 $ 474,329
Net realized gain on investments.... 280,258 302,855 60,929 249,775
Net unrealized appreciation on
investments for the year........... 156,641 1,086,267 140,685 556,530
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 1,208,948 2,563,406 487,891 1,280,634
----------- ----------- ----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net.............. (772,049) (1,174,284) (286,277) (474,329)
Net realized gain on investments.... (88,466) (251,807) (36,591) (172,263)
----------- ----------- ----------- -----------
TOTAL DIVIDENDS.................... (860,515) (1,426,091) (322,868) (646,592)
-----------
- ----------- ----------- ---------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold......... 13,878,200 12,024,536 4,627,067 6,253,771
Dividends reinvested.................. 544,379 952,307 246,413 515,334
Cost of shares redeemed............... (3,712,122) (4,539,502) (690,934) (2,704,291)
----------- ----------- ----------- ----------
INCREASE IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS........... 10,710,457 8,437,341 4,182,546 4,064,814
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS........ 11,058,890 9,574,656 4,347,569 4,698,856
NET ASSETS:
Beginning of year..................... 7,251,321 18,310,211 2,243,767 6,591,336
----------- ----------- ----------- -----------
End of year........................... $18,310,211 $27,884,867 $6,591,336 $11,290,192
=========== ===========
========== ===========
SHARES SHARES SHARES SHARES
----------- -----------
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Shares sold......................... 1,147,533 976,152 378,044 496,701
Issued for dividends reinvested... . 44,835 77,235 19,953 40,732
Shares redeemed................ . (304,322) (367,959) (55,928) (213,167)
----------- ----------- ----------- -----------
NET INCREASE IN SHARES OUTSTANDING. 888,046 685,428 342,069 324,266
See notes to financial statements.
</TABLE>
<TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
CONDENSED FINANCIAL INFORMATION
INTERMEDIATE SERIES
Selected data for a share of Common Stock outstanding throughout
each year.
<CAPTION>
FISCAL YEAR ENDED FEBRUARY,
- ---------------------------------------------------
1989(1) 1990 1991 1992 1993
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Investment income $ .79 $ .78 $ .80 $ .76 $ .64
Expenses..... -- -- -- -- --
----- ----- ----- ----- -----
Investment income-
- -net............ .79 .78 .80 .76 .64
Net realized and
unrealized gain (loss)
on investments... (.03) .22 .31 .37 .68
----- ----- ----- ----- -----
Net increase in net
asset value resulting
from operations...... .76 1.00 1.11 1.13 1.32
Dividends from investment
income--net......... (.79) (.78) (.80) (.76) (.64)
Dividends from net
realized gain on
investments.......... -- -- (.01) (.07) (.14)
----- ----- ----- ----- -----
Net increase (decrease) in
net asset value.... (.03) .22 .30 .30 .54
Net asset value:
Beginning of year.... 11.46 11.43 11.65 11.95 12.25
----- ----- ----- ----- -----
End of year... $11.43 $11.65 $11.95 $12.25 $12.79
=====
===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS (annualized basis):
Investment income.. 6.83% 6.62% 6.76% 6.15% 5.16%
Expenses...... -- -- -- -- --
----- ----- ----- ----- -----
Investment
income--net...... 6.83 6.62 6.76 6.15 5.16
Net realized and
unrealized gain (loss) on
investments..... (.03) 1.36 3.21 3.48 6.09
----- ----- ----- ----- -----
Net increase in
net assets resulting
from operations... 6.80% 7.98% 9.97% 9.63% 11.25%
=====
===== ===== ===== =====
Decrease reflected in above expense ratios due to
undertakings by the
Adviser and Administrator
(limited to the expense
limitation provision of the
Investment Advisory and
Administration Agreements). 2.25% 2.75% 2.75% 1.72% 1.31%
=====
===== ===== ===== =====
PORTFOLIO TURNOVER RATE... 101.17%(2) 46.68% 12.22% 86.91% 63.67%
THOUSANDS OF SHARES OUTSTANDING
AT END OF YEAR........... 227 393 607 1,495 2,180
- ---------------
(1) From March 1, 1988 (commencement of operations) to
February 28, 1989.
(2) Not annualized.
See notes to financial statements.
</TABLE>
<TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
CONDENSED FINANCIAL INFORMATION
INSURED SERIES
Selected data for a share of Common Stock outstanding throughout
each year.
<CAPTION>
FISCAL YEAR ENDED FEBRUARY,
- ---------------------------------------------------
1989(1) 1990 1991 1992 1993
-------
- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Investment income.. $ .89 $ .81 $ .81 $ .76 $ .70
expenses............ -- -- -- -- --
----- ----- ----- ----- -----
Investment income--net .89 .81 .81 .76 .70
Net realized and
unrealized gain
(loss) on investments (.12)(2) .28 .33 .47 1.01
----- ----- ----- ----- -----
Net increase in net
asset value resulting
from operations...... .77 1.09 1.14 1.23 1.71
Dividends from
investment income--net.. (.89) (.81) (.81) (.76) (.70)
Dividends from net
realized gain on investments -- (.33) -- (.08) (.25)
-----
- ----- ----- ----- -----
Net increase
(decrease) in
net asset value..... (.12) (.05) .33 .39 .76
Net asset value:
Beginning of year..... 11.94 11.82 11.77 12.10 12.49
----- ----- ----- ----- -----
End of year........ $11.82 $11.77 $12.10 $12.49 $13.25
======
====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
(annualized basis):
Investment income... 7.46% 6.60% 6.87% 5.99% 5.49%
Expenses.............. -- -- -- -- --
-----
- ----- ----- ----- -----
Investment income
- --net................. 7.46 6.60 6.87 5.99 5.49
Net realized and
unrealized gain on
investments.......... 2.91 1.51 3.30 4.21 9.34
Net increase in net
assets resulting
from operations..... 10.37% 8.11% 10.17% 10.20% 14.83%
====== ====== ====== ====== ======
Decrease reflected in
above expense ratios due to
undertakings by
the Adviser and Administrator
(limited to the
expense limitation provision of the
Investment Advisory
and Administration Agreements). 2.25% 2.75% 2.75% 2.75% 1.59%
====== ====== ====== ====== ======
PORTFOLIO TURNOVER RATE...... 36.19%(3) 85.07%3 2.40% 66.28% 88.53%
THOUSANDS OF SHARES OUTSTANDING
AT END OF YEAR................. 57 101 185 528 852
(1) From March 1, 1988
(commencement of operations) to
February 28, 1989.
(2) In addition to net realized and unrealized gain on investments, this
amount includes a decrease in net asset value per share resulting
from the timing of issuances and redemptions of Series shares in
relation to fluctuating market values for that Series' portfolio.
(3) Not annualized.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of
1940
("Act") as a non-diversified open-end management investment
company and
operates as a series company issuing two classes of Common
Stock: the
Intermediate Series and the Insured Series. The Fund accounts
separately
for the assets, liabilities and operations of each series. The
First
National Bank of Chicago ("Adviser") serves as the Fund's
investment
adviser. The Dreyfus Corporation ("Administrator") serves as the
Fund's
administrator. Dreyfus Service Corporation ("Distributor"), a
wholly-
owned subsidiary of the Administrator, acts as the distributor
of the
Fund's shares.
(A) PORTFOLIO VALUATION: Each series' investments are valued
each
business day by an independent pricing service ("Service")
approved by
the Board of Directors. Investments for which quoted bid prices
in the
judgment of the Service are readily available and are
representative of
the bid side of the market are valued at the mean between the
quoted bid
prices (as obtained by the Service from dealers in such
securities) and
asked prices (as calculated by the Service based upon its
evaluation of
the market for such securities). Other investments (which
constitute a
majority of the portfolio securities) are carried at fair value
as
determined by the Service, based on methods which include
consideration
of: yields or prices of municipal securities of comparable
quality,
coupon, maturity and type; indications as to values from
dealers; and
general market conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain
and loss from securities transactions are recorded on the
identified
cost basis. Interest income, adjusted for amortization of
premiums and,
when appropriate, discounts on investments, is earned from
settlement
date and recognized on the accrual basis. Securities purchased
or sold
on a when-issued or delayed-delivery basis may be settled a
month or
more after the trade date.
(C) EXPENSES: Expenses directly attributable to each series
are
charged to that series' operations; expenses which are
applicable to
both series are allocated between them.
(D) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund,
with
respect to both series, to declare dividends daily from
investment
income--net. Such dividends are paid monthly. Dividends from net
realized capital gain, with respect to both series, are normally
declared and paid annually, but each series may make
distributions on a
more frequent basis to comply with the distribution requirements
of the
Internal Revenue Code. However, to the extent that a net
realized
capital gain of either series can be reduced by capital loss
carryovers,
if any, of that series, such gain will not be distributed.
(E) FEDERAL INCOME TAXES: It is the policy of each series to
continue
to qualify as a regulated investment company, which can
distribute tax
exempt dividends, by complying with the provisions available to
certain
investment companies, as defined in applicable sections of the
Internal
Revenue Code, and to make distributions of income and net
realized
capital gain sufficient to relieve it from all, or substantially
all,
Federal income taxes. For Federal income tax purposes, each
series is
treated as a single entity for the purpose of determining such
qualification.
NOTE 2--INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER
TRANSACTIONS WITH AFFILIATES:
(A) Fees payable by the Fund pursuant to the provisions of an
Investment Advisory Agreement with the Adviser and an
Administration
Agreement with the Administrator are payable monthly based on
annual
rates of .40 of 1% and .20 of 1%, respectively, of the average
daily
value of each series, net assets. The agreements further provide
that if
in any full fiscal year the aggregate expenses of either series'
excluding interest on borrowings, taxes, brokerage and
extraordinary
expenses, exceed the expense limitation of any state having
jurisdiction
over the Fund, that series may deduct from the payments to be
made to
the Adviser and the Administrator, or the Adviser and the
Administrator
will bear their proportionate share of such excess to the extent
required by state law. The most stringent state expense
limitation
applicable to the Fund presently requires reimbursement of
expenses in
any full fiscal year that such expenses (exclusive of
distribution
expenses and certain expenses as described above) exceed 2-1/2%
of the
first $30 million, 2% of the next $70 million and 1-1/2% of the
excess
over $100 million of the average value of either series' net
assets in
accordance with the California "blue sky" regulations.
During the year ended February 28, 1993, the Adviser and the
Administrator had undertaken to reimburse all fees and expenses
of each
series. Pursuant to the undertakings, with respect to the
Intermediate
Series, the Adviser and the Administrator reimbursed the series
$91,104
and $206,339, respectively and with respect to the Insured
Series, the
Adviser and the Administrator reimbursed the series $34,547 and
$102,381
respectively.
First Chicago Investment Services, Inc. an affiliate of the
Adviser,
retained $233,541 and $85,836 during the year ended February 28,
1993
from commissions earned on sales of Intermediate Series shares
and
Insured Series shares, respectively.
The Distributor retained $21,481 and $7,199 during the year
ended
February 28, 1993 from commissions earned on sales of
Intermediate
Series shares and Insured Series shares, respectively.
(B) The Fund has adopted a Service Plan (the "Plan") pursuant
to which
it has agreed to pay costs and expenses in connection with
advertising
and marketing shares of the Fund and payments made to one or
more
Service Agents (which may include the Adviser, the Administrator
and the
Distributor) based on the value of the Fund's shares owned by
clients of
the Service Agent. These advertising and marketing expenses and
fees of
the Service Agents may not exceed an annual rate of .25 of 1% of
each
series' average daily net assets. The Plan also separately
provides for
the Fund to bear the costs of preparing, printing and
distributing
certain of the Fund's prospectuses and statements of additional
information and costs associated with implementing and operating
the
Plan, not to exceed the greater of $100,000 or .005 of 1% of
each
series' average daily net assets for any full fiscal year. For
the year
ended February 28, 1993, $69,524 and $30,934 were chargeable to
the
Intermediate Series and the Insured Series, respectively,
pursuant to
the Plan, but these amounts were not paid pursuant to the
undertakings
in effect (see Note 2(a)).
(C) Certain officers and directors of the Fund are "affiliated
persons," as defined in the Act, of the Adviser or the
Administrator.
Each director who is not an "affiliated person" receives from
the Fund
an annual fee of $1,500 and an attendance fee of $250 per
meeting.
NOTE 3--SECURITIES TRANSACTIONS:
The following summarizes the securities transactions by the
Fund, which consisted entirely of municipal bonds and short-term
tax exempt investments, for the year ended February 28, 1993:
PURCHASES SALES
Intermediate Series......... $38,956,083 $30,337,679
Insured Series.............. $18,323,005 $14,833,060
At February 28, 1993, the cost of investments for Federal
income tax purposes was substantially the same as the cost for
financial reporting purposes (see the Statement of Investments).
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
We have audited the accompanying statement of assets and
liabilities, including the statements of investments, of First
Prairie Tax Exempt Bond Fund, Inc. (comprising, respectively, the
Intermediate Series and the Insured Series) as of February 28,
1993, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two
years in the period then ended, and condensed financial
information for each of the years indicated therein.
These financial statements and condensed financial information
are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and condensed financial information based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and condensed financial information are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures
included confirmation of securities owned as of February 28,
1993 by
correspondence with the custodian and brokers. An audit also
includes
assessing the accounting principles used and significant
estimates made
by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable
basis for
our opinion.
In our opinion, the financial statements and condensed financial
information referred to above present fairly, in all material
respects,
the financial position of each of the respective series
constituting
First Prairie Tax Exempt Bond Fund, Inc. at February 28, 1993,
the
results of their operations for the year then ended, the changes
in
their net assets for each of the two years in the period then
ended, and
the condensed financial information for each of the indicated
years, in
conformity with generally accepted accounting principles.
ERNST & YOUNG
New York, New York
April 1, 1993
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the Series hereby designates
all the dividends paid from investment income-net during the
fiscal year ended February 28, 1993 as "exempt-interest
dividends" (not generally subject to regular Federal income tax).
As required by Federal tax law rules, shareholders will receive
notification of their portion of the Series' taxable ordinary
dividends (if any) and capital gain distributions (if any) paid
for the 1993 calendar year on Form 1099-DIV which will be mailed
early in 1994.
<TABLE>
<CAPTION>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INTERMEDIATE SERIES
STATEMENT OF INVESTMENTS AUGUST 31, 1993 (UNAUDITED)
PRINCIPAL
MUNICIPAL BONDS__82.3% AMOUNT VALUE
<S> <C> <C>
ALASKA-3.9%
Alaska Student Loan Corp., Student Loan Revenue:
7.60%, 7/1/1998 (Insured; AMBAC)...... $ 125,000 $ 134,624
7.90%, 7/1/1998 (Insured; AMBAC)...... 40,000 43,386
5.50%, 7/1/2004 (Insured; AMBAC)...... 1,000,000 1,019,700
ARIZONA-.9%
University of Arizona, University Revenues 6.75%,
6/1/2001.. 250,000 284,537
COLORADO-1.7%
Denver City and County, Airport Systems Subordinated
Revenue 6.35%, 12/1/1994 (LOC;
Sumitomo Trust and Banking Co., Ltd.)(a)... 500,000 517,865
DISTRICT OF COLUMBIA-.8%
District of Columbia 7.25%, 6/1/2022
(Insured; AMBAC)......................... 200,000 230,558
GEORGIA-1.8%
Metropolitan Atlanta Rapid
Transit Authority, Sales Tax Revenue, Refunding
5.60%, 7/1/2000 (Insured; AMBAC).......... 500,000 534,735
HAWAII-.8%
Honolulu City and County 7.25%,
7/1/2002.................................. 200,000 235,552
ILLINOIS-10.4%
Chicago O'Hare International Airport,
Revenue, Refunding (General Second Lien)
5.20%, 1/1/2001 (Insured; MBIA)............ 1,000,000 1,023,690
Illinois Health Facilities Authority,
Improvement Revenue, Refunding:
(Elmhurst Memorial Hospital) 4.75%, 1/1/2001 1,100,000 1,106,006
(Swedish Covenant) 6.10%, 8/1/2008...... 1,000,000 1,028,710
INDIANA-3.4%
Indiana Bond Bank, Revenue
(Revolving Fund Program) 5.80%, 2/1/2002. . 500,000 524,430
Metropolitan Pier and Exposition Authority,
Dedicated State Tax Revenue
6.125%, 6/1/2000.......................... 500,000 540,155
IOWA-13.2%
Iowa School Corps.,Warrants
Certificates 3.60%, 12/30/1994..... ....... 4,000,000 4,020,560
MINNESOTA-5.2%
Minneapolis and Saint Paul Metropolitan
Airports Commission 5%, 1/1/1996........... 1,550,000 1,592,796
MISSISSIPPI-3.4%
Mississippi Hospital Equipment and
Facilities Authority, Improvement Revenue, Refunding
North Mississippi Health Service)
5.10%, 5/15/2001 (Insured; AMBAC)........... 1,000,000 1,024,230
NEVADA-3.7%
City of Henderson, Sewer Revenue
7.20%, 1/1/2007 (Insured; MBIA)............. 325,000 365,515
City of Las Vegas, Refunding 6.20%,
10/1/2001......... ........................ 500,000 544,670
Nevada Housing Division
(Single Family Program) 7.20%, 10/1/1998....... 200,000 211,562
NEW HAMPSHIRE-.4%
New Hampshire Municipal Bond Bank
6.90%, 7/15/1999............................. 100,000 111,276
NORTH DAKOTA-.3%
State of North Dakota,
Student Loan Revenue 7.40%,
1/1/1998 (Insured; AMBAC)................ 70,000 75,843
OHIO-4.0%
Franklin County, HR, Riverside
UTD Methodist, Refunding:
5.10%, 5/15/2000.......................... 780,000 787,870
5.20%, 5/15/2001....................... 435,000 439,080
<PAGE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INTERMEDIATE SERIES (CONTINUED)
STATEMENT OF INVESTMENTS (CONTINUED)
AUGUST 31, 1993 (UNAUDITED)
PRINCIPAL
MUNICIPAL BONDS (CONTINUED)
AMOUNT VALUE
------------ ------------
OKLAHOMA-3.5%
McGee Creek Authority,
Water Revenue 5.90%, 1/1/2006 (Insured; MBIA).... $ 1,000,000 $
1,071,540
PENNSYLVANIA-.5%
Scranton-Lackawanna Health and Welfare
Authority, Hospital Facilities Revenue
(Mercy Health System) 6.75%, 1/1/2000 (Insured; MBIA) 150,000
163,152
SOUTH CAROLINA-1.7%
South Carolina Public Service Authority, Revenue,
Refunding 4.80%, 7/1/2000................. . 500,000
511,360
TEXAS-7.7%
Tarrant County, Water Control and Improvement
District No. 1, Water Revenue 5.60%, 3/1/2000.. 1,500,000
1,597,290
State of Texas, College Student
Loan 6.80%, 8/1/2000........................... 500,000
548,925
Texas Housing Agency, SFMR 7.35%, 3/1/1998...... 50,000
52,248
Texas Water Resources Finance Authority,
Revenue 7.25%, 2/15/1997....................... 150,000
165,480
UTAH-.5%
Utah Building Ownership Authority,
LR (Department Employment Security Project)
7.50%, 8/15/2003........................... 100,000 115,298
Utah Housing Finance Agency, Single Family Mortgage
7.70%, 1/1/1998............................ 40,000 41,462
WASHINGTON-1.7%
State of Washington, Refunding 6.10%, 9/1/2000. 480,000 529,306
WISCONSIN-12.8%
State of Wisconsin, Revenue 4.25%, 11/1/1999... 2,000,000 2,011,740
Wisconsin Health and Educational Facilities
Authority, Revenue (Hospital Sisters Services):
4.90%, 6/1/2002............................ 750,000 759,525
5.20%, 6/1/2005............................ 1,000,000 1,016,640
Wisconsin Housing and Economic
Development Authority, Homeownership Revenue:
7.50%, 9/1/1997.............................. 50,000 51,931
7.70%, 9/1/1998........................... 75,000 77,564
------------
TOTAL MUNICIPAL BONDS (cost $24,272,898).. $ 25,110,811
============
SHORT-TERM TAX EXEMPT INVESTMENTS-17.7%
ILLINOIS-7.5%
Illinois Health Facilities Authority, Revenue, VRDN (Central Dupage-Health
Corp. Project)
4.25% (LOC; Industrial Bank of Japan)
(a,b).............................................. $ 2,300,000 $ 2,300,000
INDIANA-7.7%
Indiana Hospital Equipment Financing Authority,
Revenue, VRDN 4% (Insured; MBIA) (b)......... 2,350,000 2,350,000
IOWA-1.3%
VHI Capital Resource Group, HR, VRDN
(Volunteer Hospital Cooperative Associates Capital)
2.70% (Insured; AMBAC) (b)................ 400,000 400,000
WASHINGTON-1.2%
Pierce County Economic Development Corp.,
Industrial Revenue, VRDN (Pooled Bond Program)
2.30% (LOC; Industrial Bank of Japan) (a,b) 350,000 350,000
------------
TOTAL SHORT-TERM TAX EXEMPT INVESTMENTS
(cost $5,400,000).............. $ 5,400,000
============
TOTAL INVESTMENTS-100.0% (cost $29,672,898) ......... $ 30,510,811
============
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INSURED SERIES
STATEMENT OF INVESTMENTS (CONTINUED)
AUGUST 31, 1993 (UNAUDITED)
PRINCIPAL
MUNICIPAL BONDS__84.9%
AMOUNT VALUE
------------ ------------
CALIFORNIA-5.0%
Industry, Refunding 5.10%, 7/1/2003 (Insured; MBIA).... $ 500,000 $ 515,565
FLORIDA-3.1%
Jacksonville, Guaranteed Entitlement Revenue,
Refunding 5.60%, 10/1/2003 (Insured; AMBAC).... 300,000 320,478
GEORGIA-3.2%
Metropolitan Atlanta Rapid Transit Authority,
Sales Tax Revenue, Refunding
6.10%, 7/1/2005 (Insured; AMBAC)................... 300,000 329,460
ILLINOIS-21.8%
Chicago Public Building Commission,
Building Revenue 5.25%, 12/1/2006 (Insured; MBIA). 500,000 507,115
Chicago O'Hare International Airport, Revenue
(General Second Lien)
5.10%, 1/1/2001 (Insured; MBIA)................ 1,000,000 1,023,240
Hoffman Estates, Refunding 5.30%, 2/1/2004
(Insured; MBIA)................................... 250,000 257,755
Northern Cook County Solid Waste Agency, Contract Revenue
6.40%, 5/1/2006 (Insured; MBIA) ............. 400,000 442,164
IOWA-17.8%
Iowa School Corp., Warrants Certificates
3.60%, 12/30/1994 (Insured; Capital
Guaranty Insurance Co.).............................. 1,500,000 1,507,710
Muscatine, Electric Revenue,
Refunding 5.50%, 1/1/2001 (Insured; AMBAC)........... 300,000 316,623
MICHIGAN-3.1%
Wayne-Wasteland Community School, Refunding
5.50%, 5/1/2004 (Insured; FGIC).................. 300,000 316,833
NEVADA-8.1%
Clark County, Passenger Facility Charge Revenue
(Las Vegas McCarran International Airport)
5.80%, 7/1/2003 (Insured; AMBAC)................. 300,000 319,638
Las Vegas Valley Water District 4.90%,
9/1/2001 (Insured; AMBAC)............................. 500,000 511,890
OREGON-2.6%
Portland, Sewer System Revenue 5.50%,
10/1/2003 (Insured; FGIC).............................. 250,000 266,110
SOUTH DAKOTA-7.8%
Heartland Consumers Power District,
Electric Revenue 5.80%, 1/1/2003 (Insured; FSA).......... 750,000 797,123
TEXAS-2.6%
Houston, Water and Sewer System Revenue,
Refunding 5.75%, 12/1/2003 (Insured; MBIA).......... 250,000 267,770
WISCONSIN-9.8%
Wisconsin Health and Educational Facility
Authority, Revenue (Hospital Sisters Services)
5.30%, 6/1/2006 (Insured; MBIA).................... 1,000,000 1,003,370
------------
TOTAL MUNICIPAL BONDS (cost $8,434,531). $ 8,702,844
============
SHORT-TERM TAX EXEMPT INVESTMENTS-15.1%
ILLINOIS-11.7%
Illinois Health Facilities Authority, Revenue, VRDN:
(Central Dupage-Health Corp. Project)
4.25% (LOC; Industrial Bank of Japan) (a,b)........ $ 700,000 $ 700,000
(Palos Community Hospital) 2.55%
(LOC; Toronto-Dominion Bank) (a,b)...................... 500,000 500,000
INDIANA-1.0%
Indiana Hospital Equipment
Financing Authority, Revenue, VRDN 4% (Insured; MBIA) (b) 100,000 100,000
<PAGE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INSURED SERIES (CONTINUED)
STATEMENT OF INVESTMENTS (CONTINUED)
AUGUST 31, 1993 (UNAUDITED)
PRINCIPAL
SHORT-TERM TAX EXEMPT INVESTMENTS (CONTINUED)
AMOUNT VALUE
------------ ------------
WASHINGTON-2.4%
Pierce County Economic Development Corp.,
Industrial Revenue, VRDN (Pooled Bond Program)
2.65% (LOC; Industrial Bank of Japan) (a,b)........ $ 150,000 $ 150,000
Washington Health Care Facilities Authority, Revenue,
VRDN (Fred Hutchinson Cancer)
2.55% (LOC; Morgan Guaranty Trust Co.)(a,b) ...... 100,000 100,000
------------
TOTAL SHORT-TERM TAX EXEMPT INVESTMENTS
(cost $1,550,000).................... . $ 1,550,000
============
TOTAL INVESTMENTS-100.0% (cost $9,984,531)... .............. $ 10,252,844
============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS
PERCENTAGE OF VALUE
-----------------------
STANDARD INTERMEDIATE INSURED
FITCH(C) OR MOODY'S OR & POOR'S SERIES SERIES
- -------- ------- -------- ------------ -------
<S> <C> <C> <C> <C>
AAA Aaa AAA 31.6% 70.2%
AA Aa AA 23.7 1.4
A A A 14.6 --
F1 MIG1 & VMIG1 SP1 30.1 23.5
F1(d) P1(d) A1(d) -- 4.9
------ ------
100.0% 100.0%
NOTES TO STATEMENTS OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Securities payable on demand. The interest rate, which is subject to
change is based upon
bank prime rates or an index of market interest rates.
(c) Fitch currently provides creditworthiness information for a limited
amount of investments.
(d) The ratings F1, P1 and A1 are the highest ratings assigned tax exempt
commercial paper by
Fitch, Moody's and Standard & Poor's, respectively.
(e) At August 31, 1993, 40.21% of the Insured Series' investments are insured
by MBIA.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LR Lease
Revenue
FGIC Financial Guaranty Insurance Corporation MBIA Municipal
Bond Insurance Association
FSA Financial Security Association SFMR Single
Family Mortgage Revenue
HR Hospital Revenue VRDN Variable
Rate Demand Notes
LOC Letter of Credit
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1993 (UNAUDITED)
INTERMEDIATE INSURED
SERIES SERIES
<S> <C> <C>
<
ASSETS:
Investments in securities, at value
(cost $29,672,898 and $9,984,531,
respectively)-see statement............................ $ 30,510,811 $ 10,252,844
Receivable for investment securities sold. ........... 2,241,899
1,969,741
Interest receivable..................................... 294,946 112,835
Receivable for subscriptions to Common Stock.......... . 27,750 8,979
Prepaid expenses....................................... 7,659 7,108
Due from Administrator.................................... 49,397 26,594
33,132,462 12,378,101
LIABILITIES:
Payable for investment securities purchased............... 1,992,872 --
Payable for Common Stock redeemed......................... 15,517 9,873
Accrued expenses and other liabilities...................... 1,869,024 1,040,929
------------ ------------
N
============ ============
REPRESENTED BY:
Paid-in capital........................................ $ 27,750,092 $ 10,614,213
Accumulated undistributed net realized
gain on investments................................... 667,044 444,773
Accumulated net unrealized
appreciation on investments-Note 3.................... 837,913 268,313
------------ ------------
NET ASSETS at value applicable to 2,304,863
and 863,900 outstanding shares
of Common Stock, equivalent
to $12.69 and $13.11 per share, respectively
(2.5 billion shares of $.001
par value authorized for each series).................... $ 29,255,049 $11,327,299
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1993 (UNAUDITED)
INTERMEDIATE
INSURED
SERIES
SERIES
------------
- ------------
<S>
<C> <C>
INVESTMENT INCOME:
INTEREST INCOME................................... $ 740,762 $
279,255
------------ ------------
EXPENSES-Note 1(c):
Investment advisory fee-Note 2(a)............. $ 56,632 $
21,354
Administration fee-Note 2(a).................. 28,316
10,677
Shareholder servicing costs-Note 2(b)......... 43,475
19,022
Auditing fees........................ ........ 12,018
3,490
Registration fees............................. 5,870
5,429
Prospectus and shareholders' reports-Note 2(b) 5,050
2,719
Legal fees.................................... 4,335
1,510
Custodian fees................................ 4,298
2,108
Directors' fees and expenses-Note 2(c)........ 2,237
767
Miscellaneous................................. 7,509
4,895
------------ ------------
169,740 71,971
Less-expense reimbursement from Adviser and
Administrator due to undertakings-Note 2(a) 169,740
71,971
------------ ------------
TOTAL EXPENSES............................. ---
- ---
------------ ------------
INVESTMENT INCOME-NET................... 740,762
279,255
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments-Note 3............. $ 668,222 $
444,905
Net unrealized (depreciation) on investments....... (616,670)
(468,079)
------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS. 51,552
(23,174)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...$ 792,314 $
256,081
============ ============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
INTERMEDIATE SERIES
INSURED SERIES
---------------------------
- ---------------------------
YEAR ENDED SIX
MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST
31, 1993 FEBRUARY 28, AUGUST 31, 1993
1993
(UNAUDITED) 1993 (UNAUDITED)
- ------------ ------------ ------------ ------------
<S> <C>
<C> <C> <C>
OPERATIONS:
Investment income-net.......................................... $
1,174,284 $ 740,762 $ 474,329 $ 279,255
Net realized gain on investments...............................
302,855 668,222 249,775 444,905
Net unrealized appreciation (depreciation)
on investments for the period..............................
1,086,267 (616,670) 556,530 (468,079)
- ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................
2,563,406 792,314 1,280,634 256,081
- ------------ ------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:Investment income-net.............
(1,174,284) (740,762) (474,329)
(279,255)
Net realized gain on investments...............................
(251,807) (259,549) (172,263) (110,697)
- ------------ ------------ ------------ ------------
TOTAL DIVIDENDS............................................
(1,426,091) (1,000,311) (646,592) (389,952)
- ------------ ------------ ------------ ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold..................................
12,024,536 3,076,380 6,253,771 3,308,924
Dividends reinvested...........................................
952,307 689,583 515,334 284,363
Cost of shares redeemed........................................
(4,539,502) (2,187,784) (2,704,291) (3,422,309)
- ------------ ------------ ------------ ------------
INCREASE IN NET ASSETS FROM CAPITAL
STOCK TRANSACTIONS.....................................
8,437,341 1,578,179 4,064,814 170,978
- ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS.......................
9,574,656 1,370,182 4,698,856 37,107
NET ASSETS:
Beginning of period............................................
18,310,211 27,884,867 6,591,336 11,290,192
- ------------ ------------ ------------ ------------
End of period.................................................. $
27,884,867 $ 29,255,049 $ 11,290,192 $ 11,327,299
============ ============ ============ ============
SHARES
SHARES SHARES SHARES
- ------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold....................................................
976,152 243,284 496,701 253,408
Shares issued for dividends reinvested.........................
77,235 54,543 40,732 21,807
Shares redeemed................................................
(367,959) (173,190) (213,167) (263,115)
- ------------ ------------ ------------ ------------
NET INCREASE IN SHARES OUTSTANDING.........................
685,428 124,637 324,266 12,100
============ ============ ============ ============
See notes to
financial statements.
</TABLE>
<TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INTERMEDIATE SERIES
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total
investment return, ratios to average net assets and other supplemental data
for each period indicated.
This information has been derived from information provided in the Fund's
financial statements.
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY, SIX MONTHS ENDED
- ---------------------------------------------- ----------------
AUGUST 31, 1993
PER SHARE DATA: 1989(1) 1990 1991
1992 1993 (UNAUDITED)
------ ------ ------
- ------ ------ -----------
<S> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of period...... $11.46 $11.43 $11.65
$11.95 $12.25 $12.79
------ ------ ------
- ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net..................... .79 .78 .80
.76 .64 .33
Net realized and unrealized gain (loss) on
investments........................... (.03) .22 .31
.37 .68 .01
------ ------ ------
- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS...... .76 1.00 1.11
1.13 1.32 .34
------ ------ ------
- ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net...... (.79) (.78) (.80)
(.76) (.64) (.33)
Dividends from net realized gain on
investments........................... -- -- (.01)
(.07) (.14) (.11)
------ ------ ------
- ------ ------ ------
TOTAL DISTRIBUTIONS................... (.79) (.78) (.81)
(.83) (.78) (.44)
------ ------ ------
- ------ ------ ------
Net asset value, end of period............ $11.43 $11.65 $11.95
$12.25 $12.79 $12.69
====== ====== ======
====== ====== ======
TOTAL INVESTMENT RETURN 6.82% 9.00% 9.94%
9.78% 11.26% 5.53%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets... -- -- --
- -- -- --
Ratio of net investment income to average
net assets............................ 6.83% 6.62% 6.76%
6.15% 5.16% 5.23%(2)
Decrease reflected in above expense ratios
due to undertakings by the Adviser and
Administrator (limited to the expense
limitation provision of the Investment
Advisory and Administration
Agreements)........................... 2.25% 2.75% 2.75%
1.72% 1.31% 1.20%(2)
Portfolio Turnover Rate................... 101.17% 46.68% 12.22%
86.91% 63.67% 64.54%(3)
Net Assets, end of period (000's Omitted). $2,593 $4,582 $7,251
$18,310 $27,885 $29,255
- ----------------------
(1) From March 1, 1988 (commencement of operations) to February 28, 1989.
(2) Annualized.
(3) Not annualized.
See notes to financial statements.
</TABLE>
<TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC., INSURED SERIES
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total
investment return, ratios to average net assets and other supplemental data
for each period indicated.
This information has been derived from information provided in the Fund's
financial statements.
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY, SIX MONTHS ENDED
- ---------------------------------------------- ----------------
AUGUST 31, 1993
PER SHARE DATA: 1989(1) 1990 1991
1992 1993 (UNAUDITED)
------ ------ ------
- ------ ------ -----------
<S> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of period...... $11.94 $11.82 $11.77
$12.10 $12.49 $13.25
------ ------ ------
- ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net..................... .89 .81 .81
.76 .70 .35
Net realized and unrealized gain (loss)
on investments........................ (.12)(2) .28 .33
.47 1.01 (.01)
------ ------ ------
- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS...... .77 1.09 1.14
1.23 1.71 .34
------ ------ ------
- ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net...... (.89) (.81) (.81)
(.76) (.70) (.35)
Dividends from net realized gain on
investments........................... -- (.33) --
(.08) (.25) (.13)
------ ------ ------
- ------ ------ ------
TOTAL DISTRIBUTIONS................... (.89) (1.14) (.81)
(.84) (.95) (.48)
------ ------ ------
- ------ ------ ------
Net asset value, end of period............ $11.82 $11.77 $12.10
$12.49 $13.25 $13.11
====== ====== ======
====== ====== ======
TOTAL INVESTMENT RETURN 6.82% 9.39% 10.13%
10.50% 14.37% 5.16%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets... -- -- --
- -- -- --
Ratio of net investment income to average
net assets............................ 7.46% 6.60% 6.87%
5.99% 5.49% 5.23%(3)
Decrease reflected in above expense ratios
due to undertakings by the Adviser and
Administrator (limited to the expense
limitation provision of the Investment
Advisory and Administration
Agreements)........................... 2.25% 2.75% 2.75%
2.75% 1.59% 1.35%(3)
Portfolio Turnover Rate................... 36.19% 85.07% 32.40%
66.28% 88.53% 72.70%(4)
Net Assets, end of period (000's Omitted). $673 $1,192 $2,244
$6,591 $11,290 $11,327
See notes to financial statements.
</TABLE>
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of
1940 ("Act") as
a non-diversified open-end
management investment company and operates as a series company
issuing two
classes of Common Stock: the Intermediate Series and the Insured
Series. The
Fund accounts separately for the assets, liabilities and
operations of each
series. The First National Bank of Chicago ("Adviser") serves as
the Fund's
investment adviser. The Dreyfus Corporation ("Administrator")
serves as the
Fund's administrator. Dreyfus Service Corporation
("Distributor"), a
wholly-owned subsidiary of the Administrator, acts as the
distributor of the
Fund's shares.
(A) PORTFOLIO VALUATION: Each series' investments are valued
each business
day by an independent pricing
service ("Service") approved by the Board of Directors.
Investments for which
quoted bid prices in the judgment of the Service are readily
available and are
representative of the bid side of the market are valued at the
mean between
the quoted bid prices (as obtained by the Service from dealers
in such
securities) and asked prices (as calculated by the Service based
upon its
evaluation of the market for such securities). Other investments
(which
constitute a
majority of the portfolio securities) are carried at fair value
as determined
by the Service, based on methods which include consideration of:
yields or
prices of municipal securities of comparable quality, coupon,
maturity and
type; indications as to values from dealers; and general market
conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions
are recorded on a trade date basis. Realized gain and loss from
securities
transactions are recorded on the identified cost basis. Interest
income,
adjusted for amortization of premiums and, when appropriate,
discounts on
investments, is earned from settlement date and recognized on
the accrual
basis. Securities purchased or sold on a when-issued or
delayed-delivery basis
may be settled a month or more after the trade date.
(C) EXPENSES: Expenses directly attributable to each series
are charged to
that series' operations; expenses which are applicable to both
series are
allocated between them.
(D) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund,
with respect
to both series, to declare dividends daily from investment
income-net. Such
dividends are paid monthly. Dividends from net realized capital
gain, with
respect to both series, are normally declared and paid annually,
but each
series may make distributions on a more frequent basis to comply
with the
distribution requirements of the Internal Revenue Code. However,
to the extent
that a net realized capital gain of either series can be reduced
by capital
loss carryovers, if any, of that series, such gain will not be
distributed.
(E) FEDERAL INCOME TAXES: It is the policy of each series to
continue to
qualify as a regulated investment
company, which can distribute tax exempt dividends, by complying
with the
provisions available to certain investment companies, as defined
in applicable
sections of the Internal Revenue Code, and to make distributions
of income and
net realized capital gain sufficient to relieve it from all, or
substantially
all, Federal income taxes. For Federal income tax purposes, each
series is
treated as a single entity for the purpose of determining such
qualification.
NOTE 2 - INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER
TRANSACTIONS
WITH AFFILIATES:
(A) Fees payable by the Fund pursuant to the provisions of
an Investment
Advisory Agreement with the Adviser and an Administration
Agreement with the
Administrator are payable monthly based on annual rates of .40
of 1% and .20
of 1%, respectively, of the average daily value of each series'
net assets.
The agreements further provide that if in any full fiscal year
the aggregate
expenses of either series, excluding interest on borrowings,
taxes, brokerage
and extraordinary expenses, exceed the expense limitation of any
state having
jurisdiction over the Fund, that series may deduct from the
payments to be
made to the Adviser and the Administrator, or the Adviser and
the
Administrator will bear their proportionate share of such excess
to the extent
required by state law. The most
FIRST PRAIRIE TAX EXEMPT BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
stringent state expense limitation applicable to the Fund
presently requires
reimbursement of expenses in any full
fiscal year that such expenses (exclusive of distribution
expenses and certain
expenses as described above) exceed
2 1/2% of the first $30 million, 2% of the next $70 million and
11/2% of the
excess over $100 million of the average value of either series'
net assets in
accordance with California "blue sky" regulations.
During the six months ended August 31, 1993, the Adviser and
the
Administrator had undertaken to reimburse all fees and expenses
of each
series. Pursuant to the undertakings, with respect to the
Intermediate Series,
the Adviser and the Administrator reimbursed the series $56,632
and $113,108,
respectively and with respect to the Insured Series, the Adviser
and the
Administrator reimbursed the series $21,354 and $50,617,
respectively.
First Chicago Investment Services, Inc. an affiliate of the
Adviser,
retained $62,056 and $23,942 during the six months ended August
31, 1993 from
commissions earned on sales of Intermediate Series shares and
Insured Series
shares, respectively.
The Distributor retained $5,050 and $1,600 during the six
months ended
August 31, 1993 from commissions earned on sales of Intermediate
Series shares
and Insured Series shares,respectively.
(B) The Fund has adopted a Service Plan (the "Plan")
pursuant to which it
has agreed to pay costs and expenses in connection with
advertising and
marketing shares of the Fund and payments made to one or more
Service Agents
(which may include the Adviser, the Administrator and the
Distributor) based
on the value of the Fund's shares owned by clients of the
Service Agent. These
advertising and marketing expenses and fees of the Service
Agents may not
exceed an annual rate of .25 of 1% of each series' average daily
net assets.
The Plan also separately provides for the Fund to bear the costs
of preparing,
printing and distributing certain of the Fund's prospectuses and
statements of
additional information and costs associated with implementing
and operating
the Plan, not to exceed the greater of $100,000 or .005 of 1% of
each series'
average daily net assets for any full fiscal year. For the six
months ended
August 31, 1993, $38,596 and $15,937 were chargeable to the
Intermediate
Series and the Insured Series, respectively, pursuant to the
Plan, but these
amounts were not paid pursuant to the undertakings in effect
(see Note 2(a)).
(C) Certain officers and directors of the Fund are
"affiliated persons,"
as defined in the Act, of the Adviser or the Administrator. Each
director who
is not an "affiliated person" receives from the Fund an annual
fee of $1,500
and an attendance fee of $250 per meeting.
NOTE 3-SECURITIES TRANSACTIONS:
The following summarizes the securities transactions by the
Fund, which
consisted entirely of municipal bonds and short-term tax exempt
investments,
for the six months ended August 31, 1993:
PURCHASES SALES
----------- -----------
Intermediate Series............ $32,194,565 $29,870,130
Insured Series................. $13,413,050 $14,103,614
At August 31, 1993, accumulated gross unrealized
appreciation on investments was $837,913 for the Intermediate
Series.
At August 31, 1993, accumulated net unrealized appreciation
on investments was $268,313, consisting of $268,549 gross
unrealized appreciation and $236 gross unrealized depreciation
for the Insured Series.
At August 31, 1993, the cost of investments for Federal
income tax purposes was substantially the same as the cost for
financial reporting purposes (see the Statements of Investments).
