FIRST AMERICAN INVESTMENT FUNDS, INC.
EQUITY FUNDS
RETAIL CLASSES
STOCK FUND REGIONAL EQUITY FUND
EQUITY INDEX FUND SPECIAL EQUITY FUND
BALANCED FUND TECHNOLOGY FUND
ASSET ALLOCATION FUND HEALTH SCIENCES FUND
EQUITY INCOME FUND REAL ESTATE SECURITIES FUND
DIVERSIFIED GROWTH FUND INTERNATIONAL FUND
EMERGING GROWTH FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 8
Class A Share Fees and Expenses 8
Class B Share Fees and Expenses 10
Information Concerning Fees and
Expenses 12
FINANCIAL HIGHLIGHTS 14
THE FUNDS 18
INVESTMENT OBJECTIVES AND
POLICIES 18
Stock Fund 19
Equity Index Fund 20
Balanced Fund 21
Asset Allocation Fund 23
Equity Income Fund 24
Diversified Growth Fund 26
Emerging Growth Fund 26
Regional Equity Fund 27
Special Equity Fund 28
Technology Fund 30
Health Sciences Fund 31
Real Estate Securities Fund 32
International Fund 34
Risks to Consider 35
MANAGEMENT 36
Investment Adviser 36
Sub-Adviser to International
Fund 37
Portfolio Managers 38
Custodian 41
Administrator 41
Transfer Agent 42
DISTRIBUTOR 42
INVESTING IN THE FUNDS 43
Share Purchases 43
Minimum Investment Required 44
Alternative Sales Charge Options 44
Systematic Exchange Program 50
Systematic Investment Program 50
Exchanging Securities for Fund
Shares 50
Certificates and Confirmations 50
Dividends and Distributions 51
Exchange Privilege 51
REDEEMING SHARES 53
By Telephone 53
By Mail 54
By Systematic Withdrawal Program 55
Redemption Before Purchase
Instruments Clear 55
Accounts with Low Balances 55
DETERMINING THE PRICE OF SHARES 56
Determining Net Asset Value 56
Foreign Securities 57
FEDERAL INCOME TAXES 57
FUND SHARES 59
CALCULATION OF PERFORMANCE DATA 59
SPECIAL INVESTMENT METHODS 60
Cash Items 61
Repurchase Agreements 61
When-Issued and Delayed-Delivery
Transactions 61
Lending of Portfolio Securities 62
Options Transactions 62
Futures and Options on Futures 63
Fixed Income Securities 64
Foreign Securities 65
Foreign Currency Transactions 67
Mortgage-Backed Securities 68
Asset-Backed Securities 69
Bank Instruments 69
Portfolio Transactions 70
Portfolio Turnover 70
Investment Restrictions 70
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class A and
Class B Shares of the following funds (the "Funds"):
* STOCK FUND * REGIONAL EQUITY FUND
* EQUITY INDEX FUND * SPECIAL EQUITY FUND
* BALANCED FUND * TECHNOLOGY FUND
* ASSET ALLOCATION FUND * HEALTH SCIENCES FUND
* EQUITY INCOME FUND * REAL ESTATE SECURITIES FUND
* DIVERSIFIED GROWTH FUND * INTERNATIONAL FUND
* EMERGING GROWTH FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE TO
FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds has
been filed with the Securities and Exchange Commission and is incorporated in
its entirety by reference in this Prospectus. To obtain copies of the Statement
of Additional Information at no charge, or to obtain other information or make
inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment company
which offers shares in several different mutual funds. This Prospectus provides
information with respect to the Class A and Class B Shares of the following
funds (the "Funds"):
STOCK FUND has a primary objective of capital appreciation and a secondary
objective to provide current income. Under normal market conditions, the Fund
invests at least 80% of its total assets in equity securities diversified among
a broad range of industries and among companies that have a market
capitalization of at least $500 million. In selecting equity securities, the
Fund's adviser employs a value-based selection discipline.
EQUITY INDEX FUND has an objective of providing investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500"). The Fund invests substantially in common stocks included
in the S&P 500. The Fund's adviser believes that its objective can best be
achieved by investing in the common stocks of approximately 250 to 500 of the
issues included in the S&P 500.
BALANCED FUND has an objective of maximizing total return (capital appreciation
plus income). The Fund seeks to achieve its objective by investing in a balanced
portfolio of equity securities and fixed income securities. Over the long term,
it is anticipated that the Fund's asset mix will average approximately 60%
equity securities and 40% fixed income securities, with the asset mix normally
ranging between 40% and 75% equity securities, between 25% and 60% fixed income
securities, and between 0% and 25% money market instruments.
ASSET ALLOCATION FUND has an objective of maximizing total return over the long
term by allocating its assets principally among common stocks, bonds, and
short-term instruments. There are no limitations on the proportions in which the
Fund's adviser may allocate the Fund's investments among these three classes of
assets, and the Fund may at times be fully invested in a single asset class if
the adviser believes that it offers the most favorable total return outlook.
EQUITY INCOME FUND has an objective of long-term growth of capital and income.
Under normal market conditions, the Fund invests at least 80% of its total
assets in equity securities of issuers believed by the Fund's adviser to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends.
DIVERSIFIED GROWTH FUND has a primary objective of long-term growth of capital
and a secondary objective to provide current income. Under normal market
conditions, the Fund invests at least 80% of its total assets in equity
securities of a diverse group of companies that will provide representation
across all economic sectors included in the S&P 500. The adviser may overweight
the Fund's portfolio holdings in sectors that it believes provide above average
total return potential.
EMERGING GROWTH FUND has an objective of growth of capital. Under normal market
conditions, the Fund invests at least 65% of its total assets in equity
securities of small-sized companies that exhibit, in the adviser's opinion,
outstanding potential for superior growth. Companies that participate in sectors
that are identified by the adviser as having long-term growth potential
generally are expected to make up a substantial portion of the Fund's holdings.
REGIONAL EQUITY FUND has an objective of capital appreciation. The Fund seeks to
achieve its objective by investing, in normal market conditions, at least 65% of
its total assets in equity securities of small-sized companies headquartered in
Minnesota, North and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska,
Colorado and Illinois. The Fund invests in the securities of rapidly growing
companies within this size category and geographic area.
SPECIAL EQUITY FUND has an objective of capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities. The Fund's policy is to invest in equity securities which the Fund's
adviser believes offer the potential for greater than average capital
appreciation. The adviser believes that this policy can best be achieved by
investing in the equity securities of companies where fundamental changes are
occurring, are likely to occur, or have occurred and where, in the opinion of
the adviser, the changes have not been adequately reflected in the price of the
securities.
TECHNOLOGY FUND has an objective of long-term growth of capital. Under normal
market conditions, the Fund invests at least 80% of its total assets in equity
securities of companies which the Fund's adviser believes have, or will develop,
products, processes or services that will provide or will benefit significantly
from technological advances and improvements.
HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 80% of its total assets in
equity securities of companies which the Fund's adviser considers to be
principally engaged in the development, production or distribution of products
or services connected with health care or medicine.
REAL ESTATE SECURITIES FUND has an objective of providing above average current
income and long-term capital appreciation by investing primarily in equity
securities of real estate companies. Under normal market conditions, the Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry. A
majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"), with an expected emphasis on equity REITs.
INTERNATIONAL FUND has an objective of long-term growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in an
internationally diversified portfolio of equity securities which trade in
markets other than the United States. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
Fund also may invest in emerging markets where smaller capitalization companies
are the norm.
INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the
"Adviser") serves as investment adviser to each of the Funds. Marvin & Palmer
Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to International
Fund. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus a
maximum sales charge of 4.50%. These sales charges are reduced on purchases of
$50,000 or more. Class A Shares of the Funds are redeemed at net asset value
without any additional charge. Class A Shares of each Fund are subject to a Rule
12b-1 distribution and service fee computed at an annual rate of 0.25% of the
average daily net assets of that class. See "Investing in the Funds -Alternative
Sales Charge Options."
Class B Shares of the Funds are sold at net asset value without an initial sales
charge. Class B Shares of each Fund are subject to Rule 12b-1 distribution and
service fees computed at an annual rate totaling 1.00% of the average daily net
assets of that class. If Class B Shares are redeemed within six years after
purchase, they are subject to a contingent deferred sales charge declining from
5.00% in the first year to zero after six years. Class B Shares automatically
convert into Class A Shares approximately eight years after purchase. See
"Investing in the Funds -- Alternative Sales Charge Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are possible.
See "Investing in the Funds -Minimum Investment Required" and "-- Systematic
Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Investing in the Funds -- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, less any applicable contingent deferred sales charge. Each Fund
may, upon 60 days written notice, redeem an account if the account's net asset
value falls below $500. See "Investing in the Funds" and "Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to the risk of generally adverse
equity markets. Investors also should recognize that market prices of equity
securities generally, and of particular companies' equity securities, frequently
are subject to greater volatility than prices of fixed income securities.
Because each of the Funds other than Equity Index Fund is actively managed to
a greater or lesser degree, their performance will reflect in part the ability
of the Adviser or Sub-Adviser to select securities which are suited to achieving
their investment objectives. Due to their active management, these Funds could
underperform other mutual funds with similar investment objectives or the market
generally.
In addition, (i) certain of the Funds are subject to risks associated with
investing in smaller-capitalization companies; (ii) Regional Equity Fund is
subject to risks associated with concentrating its investments in a single
geographic region; (iii) Technology Fund, Health Sciences Fund and Real Estate
Securities Fund are subject to risks associated with concentrating their
investments in a single or related economic sectors; (iv) Real Estate Securities
Fund is subject to risks associated with direct investments in REITs; (v)
International Fund is subject to risks associated with investing in foreign
securities and to currency risk; (vi) Equity Income Fund may invest a portion of
its assets in less than investment grade convertible debt obligations; (vii)
certain Funds other than International Fund may invest specified portions of
their assets in securities of foreign issuers which are listed on a United
States stock exchange or represented by American Depository Receipts or, in the
case of Balanced Fund, are debt obligations of foreign issuers denominated in
United States dollars; and (viii) certain Funds may invest (but not for
speculative purposes) in stock index futures contracts, options on stock
indices, options on stock index futures, index participation contracts based on
the S&P 500, and/or exchange traded put and call options on interest rate
futures contracts and on interest rates indices. See "Investment Objectives and
Policies" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES RETAIL CLASSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET EQUITY
STOCK INDEX BALANCED ALLOCATION INCOME
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price)(1) 4.50% 4.50% 4.50% 4.50% 4.50%
Maximum sales load imposed on
reinvested dividends None None None None None
Deferred sales load None None None None None
Redemption fees None None None None None
Exchange fees None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fee (after
voluntary fee waivers and
reimbursements)(2) 0.57% 0.12% 0.57% 0.49% 0.40%
Rule 12b-1 fees 0.25% 0.25% 0.25% 0.25% 0.25%
Other expenses (after voluntary fee
waivers and reimbursements)(2) 0.23% 0.23% 0.23% 0.31% 0.35%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(2) 1.05% 0.60% 1.05% 1.05% 1.00%
EXAMPLE(3)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year $ 55 $ 51 $ 55 $ 55 $ 55
3 years $ 77 $ 63 $ 77 $ 77 $ 75
5 years $ 100 $ 77 $ 100 $ 100 $ 98
10 years $ 167 $ 117 $ 167 $ 167 $ 162
</TABLE>
(table continued)
<TABLE>
<CAPTION>
SPECIAL HEALTH REAL ESTATE
DIVERSIFIED EMERGING REGIONAL EQUITY TECHNOLOGY SCIENCES SECURITIES INTERNATIONAL
GROWTH FUND GROWTH FUND EQUITY FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
None None None None None None None None
None None None None None None None None
None None None None None None None None
None None None None None None None None
0.50% 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19%
0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
0.30% 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56%
1.05% 1.15% 1.15% 1.15% 1.15% 1.15% 1.05% 2.00%
$ 55 $ 56 $ 56 $ 56 $ 56 $ 56 $ 55 $ 64
$ 77 $ 80 $ 80 $ 80 $ 80 $ 80 $ 77 $ 105
$ 100 $ 105 $ 105 $ 105 $ 105 $ 100 $ 148
$ 167 $ 178 $ 178 $ 178 $ 178 $ 167 $ 267
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the
maximum sales charge be reflected in the above table. However, certain
investors may qualify for reduced sales charges. See "Investing in the
Funds -- Alternative Sales Charge Options."
(2) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees as an
annualized percentage of average daily net assets would be 0.70% for
each Fund except International Fund, as to which they would be 1.25%;
and total fund operating expenses calculated on such basis would be
1.19% for Stock Fund, 1.20% for Equity Index Fund, 1.19% for Balanced
Fund, 1.26% for Asset Allocation Fund, 1.31% for Equity Income Fund,
1.26% for Diversified Growth Fund, 1.44% for Emerging Growth Fund,
1.20% for Regional Equity Fund, 1.20% for Special Equity Fund, 1.55%
for Technology Fund, 1.62% for Health Sciences Fund, 2.59% for Real
Estate Securities Fund, and 2.06% for International Fund. Other
expenses includes an administration fee and, in the case of Health
Sciences Fund, is based on estimated amounts for the current fiscal
year.
(3) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $57, $81, $107 and $183; Equity Index Fund, $57, $81, $108
and $184; Balanced Fund, $57, $83, $110 and $188; Asset Allocation
Fund, $57, $83, $111 and $190; Equity Income Fund, $58, $85, $114 and
$196; Diversified Growth Fund, $57, $83, $111 and $190; Emerging Growth
Fund, $59, $89, $120 and $210; Regional Equity Fund, $57, $81, $108 and
$184; Special Equity Fund, $57, $81, $108 and $184; Technology Fund,
$60, $92, $126 and $221; Health Sciences Fund, $61, $94, $129, and
$229; Real Estate Securities Fund, $70, $122, $176 and $324; and
International Fund, $65, $107, $151 and $273.
FEES AND EXPENSES RETAIL CLASSES
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET EQUITY
STOCK INDEX BALANCED ALLOCATION INCOME
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price) None None None None None
Maximum sales load imposed on
reinvested dividends None None None None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) 5.00% 5.00% 5.00% 5.00% 5.00%
Redemption fees None None None None None
Exchange fees None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.57% 0.12% 0.57% 0.49% 0.40%
Rule 12b-1 fees 1.00% 1.00% 1.00% 1.00% 1.00%
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.23% 0.23% 0.23% 0.31% 0.35%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(1) 1.80% 1.35% 1.80% 1.80% 1.75%
EXAMPLE:
ASSUMING REDEMPTION(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion to Class A shares at the end
of year 8:
1 year $ 68 $ 64 $ 68 $ 68 $ 68
3 years $ 97 $ 83 $ 97 $ 97 $ 95
5 years $ 117 $ 94 $ 117 $ 117 $ 115
10 years $ 192 $ 142 $ 192 $ 192 $ 186
Assuming No Redemption(3)
You would pay the following expenses on the same investment, assuming no
redemption:
1 year $ 18 $ 13 $ 18 $ 18 $ 18
3 years $ 57 $ 43 $ 57 $ 57 $ 55
5 years $ 97 $ 74 $ 97 $ 97 $ 95
10 years $ 192 $ 142 $ 192 $ 192 $ 186
</TABLE>
(table continued)
<TABLE>
<CAPTION>
EMERGING REGIONAL SPECIAL HEALTH REAL ESTATE
DIVERSIFIED GROWTH EQUITY EQUITY TECHNOLOGY SCIENCES SECURITIES INTERNATIONAL
GROWTH FUND FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None
None None None None None None None None
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
None None None None None None None 0.00%
None None None None None None None None
0.50% 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19%
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
0.30% 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56%
1.80% 1.90% 1.90% 1.90% 1.90% 1.90% 1.80% 2.75%
$ 68 $ 69 $ 69 $ 69 $ 69 $ 69 $ 68 $ 78
$ 97 $ 100 $ 100 $ 100 $ 100 $ 100 $ 97 $ 125
$ 117 $ 123 $ 123 $ 123 $ 123 $ 123 $ 117 $ 165
$ 192 $ 202 $ 202 $ 202 $ 202 $ 202 $ 192 $ 290
$ 18 $ 19 $ 19 $ 19 $ 19 $ 19 $ 18 $ 28
$ 57 $ 60 $ 60 $ 60 $ 60 $ 60 $ 57 $ 85
$ 97 $ 103 $ 103 $ 103 $ 103 $ 97 $ 145
$ 192 $ 202 $ 202 $ 202 $ 202 $ 192 $ 290
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees for
each Fund as an annualized percentage of average daily net assets would
be 0.70% for each Fund except International Fund, as to which they
would be 1.25%; and total fund operating expenses calculated on such
basis would be 1.94% for Stock Fund, 1.95% for Equity Index Fund, 1.94%
for Balanced Fund, 2.01% for Asset Allocation Fund, 2.06% for Equity
Income Fund, 2.01% for Diversified Growth Fund, 2.19% for Emerging
Growth Fund, 1.95% for Regional Equity Fund, 1.95% for Special Equity
Fund, 2.30% for Technology Fund 2.37% for Health Sciences Fund, 3.34%
for Real Estate Securities Fund, and 2.81% for International Fund.
Other expenses includes an administration fee and, in the case of
Health Sciences Fund, is based on estimated amounts for the current
fiscal year.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $70, $101, $125 and $207; Equity Index Fund, $70, $101,
$125 and $208; Balanced Fund, $70, $101, $125 and $207; Asset
Allocation Fund, $70, $103, $128 and $214; Equity Income Fund; $71,
$105, $131 and $219; Diversified Growth Fund, $70, $103, $128 and $214;
Emerging Growth Fund, $72, $109, $137 and $233; Regional Equity Fund,
$70, $101, $125 and $208; Special Equity Fund, $70, $101, $125 and
$208; Technology Fund, $73, $112, $143 and $244; Health Sciences Fund,
$74, $114, $147 and $252; Real Estate Securities Fund, $84, $143, $194
and $346; and International Fund, $78, $127, $168 and $296.
(3) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $20, $61, $105 and $207; Equity Index Fund, $20, $61, $105
and $208; Balanced Fund, $20, $61, $105 and $207; Asset Allocation
Fund, $20, $63, $108 and $214; Equity Income Fund; $21, $65, $111 and
$219; Diversified Growth Fund, $20, $63, $108 and $214; Emerging Growth
Fund, $22, $69, $117 and $233; Regional Equity Fund, $20, $61, $105 and
$207; Special Equity Fund, $20, $61, $105 and $208; Technology Fund,
$23, $72, $123 and $244; Health Sciences Fund, $24, $74, $127 and $252;
Real Estate Securities Fund, $34, $103, $174 and $346; and
International Fund, $28, $87, $148 and $296.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in understanding
the various costs and expenses that an investor in a Fund may bear directly or
indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The information set forth in the foregoing tables and
examples relates only to the Class A and Class B Shares of the Funds. The Funds
also offer Class C Shares which are subject to the same expenses except that
they bear no sales loads and distribution fees.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the Adviser,
the Distributor and the Administrator. Although these persons intend to maintain
such waivers in effect for the current fiscal year, any such waivers are
voluntary and may be discontinued at any time. Prior to fee waivers, investment
advisory fees accrue at the annual rate as a percentage of average daily net
assets of 0.70% for each of the Funds except International Fund, as to which
they are 1.25%.
The Class A Shares of each Fund may pay distribution and service fees to the
Distributor in an amount equaling 0.25% per year of each such class's average
daily net assets, and the Class B Shares of each Fund bear distribution and
servicing fees totaling 1.00% per year of each such class's average daily net
assets. The Distributor also receives the sales charge for distributing the
Funds' Class A Shares. Due to the distribution fees paid by these classes of
shares, long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by NASD rules. For additional
information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for providing
various services necessary to operate the Funds. These include shareholder
servicing and certain accounting and other services. The Administrator provides
these services for a fee calculated at an annual rate of 0.12% of average daily
net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal
year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds also
includes the cost of maintaining shareholder records, furnishing shareholder
statements and reports, and other services. Investment advisory fees,
administrative fees and other expenses are reflected in the Funds' daily
dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the independent
auditors' report of KPMG Peat Marwick LLP appearing in the Statement of
Additional Information. Further information about the Funds' performance is
contained in FAIF's annual report to shareholders, which may be obtained without
charge by calling (800) 637-2548 or by writing SEI Financial Services Company,
680 East Swedesford Road, Wayne, Pennsylvania 19087.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
STOCK FUND
Class A
1995 $16.51 $0.33 $ 3.64 $(0.32)
1994 16.00 0.31 1.00 (0.30)
1993 14.04 0.22 1.99 (0.23)
1992 13.62 0.24 0.81 (0.29)
1991(6) 10.64 0.28 2.95 (0.22)
1990(7) 12.09 0.25 (1.17) (0.25)
1989(7) 10.35 0.25 1.70 (0.20)
1988(7)(8) 10.03 0.27 0.35 (0.30)
Class B
1995 $16.49 $0.26 $ 3.55 $(0.22)
1994(2) 16.65 0.03 (0.10) (0.09)
EQUITY INDEX FUND
Class A
1995 $10.68 $0.25 $ 2.76 $(0.25)
1994 10.60 0.25 0.09 (0.25)
1993(1) 10.00 0.20 0.60 (0.20)
Class B
1995 $10.66 $0.23 $ 2.68 $(0.18)
1994(2) 10.68 0.01 0.04 (0.07)
BALANCED FUND
Class A
1995 $10.54 $0.38 $ 1.72 $(0.37)
1994 10.73 0.34 (0.02) (0.34)
1993(1) 10.00 0.28 0.75 (0.28)
Class B
1995 $10.53 $0.29 $ 1.71 $(0.29)
1994(2) 10.66 0.06 (0.12) (0.07)
ASSET ALLOCATION FUND
Class A
1995 $10.39 $0.36 $ 1.58 $(0.35)
1994 10.60 0.27 (0.08) (0.26)
1993(1) 10.00 0.19 0.60 (0.19)
Class B
1995 $10.37 $0.27 $ 1.57 $(0.28)
1994(2) 10.40 0.05 (0.03) (0.05)
</TABLE>
(table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $19.57 25.26% $ 13,076 1.00% 1.89% 1.19% 52%
(0.50) 16.51 8.35% 8,421 0.76 1.51 1.20 65
(0.02) 16.00 15.82% 134,186 0.75 1.94 1.28 48
(0.34) 14.04 7.88% 3,644 1.45 1.75 4.46 39
(0.03) 13.62 30.49%+ 2,386 1.45 2.47 7.42 76
(0.28) 10.64 (8.22%) 1,161 1.45 2.24 9.47 41
(0.01) 12.09 20.33% 323 1.24 2.26 36.39 74
-- 10.35 6.40%+ 206 1.02 2.67 28.60 80
$(0.59) $19.49 24.20% $ 7,051 1.79% 1.10% 1.94% 52%
-- 16.49 (0.43%)+ 346 1.75 1.58 2.01 65
$(0.09) $13.35 28.90% $ 2,140 0.57% 2.16% 1.20% 9%
(0.01) 10.68 3.25% 758 0.35 2.23 1.23 11
-- 10.60 8.02%+ 139,957 0.35 2.52 1.30 1
$(0.09) $13.30 27.87% $ 1,197 1.35% 1.34% 1.95% 9%
-- 10.66 0.48%+ 29 1.35 1.68 2.03 11
$(0.15) $12.12 20.57% $ 15,288 0.99% 3.41% 1.19% 77%
(0.17) 10.54 3.02% 13,734 0.77 2.63 1.24 98
(0.02) 10.73 10.39%+ 111,225 0.75 3.31 1.29 77
$(0.15) $12.09 19.58% $ 3,120 1.79% 2.60% 1.94% 77%
-- 10.53 (0.55%)+ 270 1.75 2.80 2.05 98
$(0.25) $11.73 19.51% $ 993 0.99% 3.29% 1.26% 87%
(0.14) 10.39 1.81% 707 0.75 2.01 1.29 32
-- 10.60 8.01%+ 56,393 0.75 2.40 1.34 31
$(0.25) $11.68 18.51% $ 571 1.79% 2.35% 2.01% 87%
-- 10.37 0.19% 11 1.75 1.94 2.12 32
</TABLE>
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) Commenced operations on December 14, 1992. All ratios for the period
have been annualized.
(2) Class B shares have been offered since August 15, 1994. All ratios for
the period have been annualized.
(3) On April 28, 1994 the Board of Directors approved a change in this
Fund's fiscal year end from November 30 to September 30, effective
September 30, 1994. All ratios for the period have been annualized.
(4) For the period ended November 30.
(5) Commenced operations on December 18, 1992. All ratios for the period
have been annualized.
(6) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(7) For the period ended October 31.
(8) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
(9) Commenced operations on April 4, 1994. All ratios for the period have
been annualized.
(10) Class A shares have been offered since April 7, 1994. All ratios for
the period have been annualized.
(11) Commenced operations on September 29, 1995. All ratios for the period
have been annualized.
FINANCIAL HIGHLIGHTS
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
EQUITY INCOME FUND
Class A
1995 $ 9.89 $ 0.41 $ 1.33 $(0.39)
1994(3) 9.87 0.41 -- (0.39)
1993(4)(5) 10.00 0.57 (0.14) (0.56)
Class B
1995 $ 9.88 $ 0.33 $ 1.32 $(0.33)
1994(2) 9.87 0.04 0.02 (0.05)
DIVERSIFIED GROWTH FUND
Class A
1995 $ 9.09 $ 0.15 $ 2.66 $(0.15)
1994(3) 9.39 0.10 (0.29) (0.11)
1993(4)(5) 10.00 0.11 (0.63) (0.09)
Class B
1995 $ 9.09 $ 0.09 $ 2.65 $(0.10)
1994(2) 8.87 0.01 0.23 (0.02)
EMERGING GROWTH FUND
Class A
1995 $10.57 $ 0.01 $ 2.99 $(0.02)
1994(9) 10.00 0.01 0.57 (0.01)
Class B
1995 $10.55 $(0.03) $ 2.92 $ --
1994(2) 9.89 (0.01) 0.67 --
REGIONAL EQUITY FUND
Class A
1995 $12.52 $ 0.08 $ 4.90 $(0.06)
1994 11.96 0.08 0.71 (0.07)
1993(1) 10.00 0.05 1.96 (0.05)
Class B
1995 $12.50 $ 0.04 $ 4.80 $(0.03)
1994(2) 12.19 -- 0.33 (0.02)
SPECIAL EQUITY FUND
Class A
1995 $17.30 $ 0.35 $ 1.60 $(0.34)
1994 15.81 0.28 2.52 (0.28)
1993 13.61 0.23 2.32 (0.25)
1992 12.98 0.21 1.61 (0.27)
1991(6) 10.33 0.30 2.61 (0.26)
1990(7) 12.96 0.47 (2.03) (0.46)
1989(7) 11.55 0.47 1.39 (0.41)
1988(7)(8) 10.03 0.34 1.57 (0.39)
Class B
1995 $17.29 $ 0.29 $ 1.51 $(0.24)
1994(2) 16.51 0.01 0.85 (0.08)
TECHNOLOGY FUND
Class A
1995 $11.19 $(0.03) $ 7.31 $ --
1994(9) 10.00 (0.01) 1.20 --
Class B
1995 $11.17 $(0.04) $ 7.12 $ --
1994(2) 9.85 (0.02) 1.34 --
REAL ESTATE SECURITIES FUND
Class A
1995(11) $10.37 $ -- $ 0.01 $ --
Class B
1995(11) $10.37 $ -- $ -- $ --
INTERNATIONAL FUND
Class A
1995 $10.21 $ -- $ 0.07 $ --
1994(10) 9.98 (0.01) 0.24 --
Class B
1995 $10.21 $(0.03) $ 0.02 $ --
1994(2) 10.23 (0.01) (0.01) --
</TABLE>
(table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME (LOSS) ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET TO AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $11.24 18.06% $ 1,995 0.92% 3.91% 1.31% 23%
-- 9.89 4.22%+ 1,852 0.88 4.88 1.39 108
-- 9.87 4.44%+ 28,786 0.75 6.09 1.36 68
$ -- $11.20 17.10% $ 1,233 1.75% 3.05% 2.06% 23%
-- 9.88 0.57%+ 1 1.75 4.39 2.14 108
$ -- $11.75 31.21% $ 2,710 0.92% 1.52% 1.26% 28%
-- 9.09 (2.07%)+ 1,900 0.90 1.15 1.33 101
-- 9.39 (5.18%)+ 31,084 0.78 1.26 1.25 5
$ -- $11.73 30.29% $ 819 1.75% 0.58% 2.01% 28%
-- 9.09 2.75%+ 12 1.75 1.20 2.08 101
$(0.15) $13.40 28.82% $ 386 1.04% 0.00% 1.44% 51%
-- 10.57 5.88%+ 91 0.79 0.23 2.84 19
$(0.15) $13.29 27.89% $ 268 1.84% (0.83)% 2.19% 51%
-- 10.55 6.67%+ 18 1.80 (0.85) 3.59 19
$(0.32) $17.12 41.17% $14,917 1.05% 0.58% 1.20% 42%
(0.16) 12.52 6.76% 8,345 0.82 0.59 1.25 41
-- 11.96 20.17%+ 58,427 0.80 0.59 1.30 28
$(0.32) $16.99 39.98% $ 7,630 1.84% (0.25)% 1.95% 42%
-- 12.50 2.73%+ 185 1.80 (0.41) 2.05 41
$(1.02) $17.89 12.63% $11,609 1.09% 2.08% 1.20% 72%
(1.03) 17.30 18.70% 7,333 0.81 1.88 1.23 116
(0.10) 15.81 18.91% 81,899 0.81 2.07 1.31 104
(0.92) 13.61 15.17% 3,586 1.50 1.61 4.18 146
-- 12.98 28.38%+ 3,423 1.50 2.60 5.13 116
(0.61) 10.33 (13.24%) 2,761 1.50 4.09 4.21 113
(0.04) 12.96 17.41% 2,000 1.38 4.07 8.68 102
-- 11.55 19.56%+ 578 1.20 4.02 15.60 51
$(1.02) $17.83 11.64% $ 4,847 1.88% 1.22% 1.95% 72%
-- 17.29 5.22%+ 370 1.68 0.47 2.03 116
$(0.23) $18.24 66.22% $ 1,464 1.13% (0.61)% 1.55% 74%
-- 11.19 11.90%+ 61 0.80 (0.21) 3.37 43
$(0.23) $18.02 64.52% $ 2,031 1.88% (1.41)% 2.30% 74%
-- 11.17 13.40%+ 2 1.80 (1.44) 4.12 43
$ -- $10.38 0.00% $ 1 1.05% 0.00% 2.59% 0%
$ -- $10.37 0.00% $ 1 1.80% 0.00% 3.34% 0%
$ -- $10.28 0.69% $ 876 1.93% (0.13)% 2.06% 57%
-- 10.21 2.30%+ 464 1.75 (0.26) 2.30 16
$ -- $10.20 (0.10)% $ 306 2.76% (0.95)% 2.81% 57%
-- 10.21 (0.20)%+ 22 2.75 (0.71) 3.05 16
</TABLE>
THE FUNDS
FAIF is an open-end management investment company which offers shares in several
different mutual funds (collectively, the "FAIF Funds"), each of which evidences
an interest in a separate and distinct investment portfolio. Shareholders may
purchase shares in each FAIF Fund through three separate classes (Class A, Class
B and Class C) which provide for variations in distribution costs, voting rights
and dividends. Except for these differences among classes, each share of each
FAIF Fund represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal offices
are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class A and Class B Shares of the Funds
named on the cover hereof. Information regarding the Class C Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF
may authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The Funds'
investment objectives are not fundamental and therefore may be changed without a
vote of shareholders. Such changes could result in a Fund having investment
objectives different from those which shareholders considered appropriate at the
time of their investment in a Fund. Shareholders will receive written
notification at least 30 days prior to any change in a Fund's investment
objectives. Each of the Funds except Technology Fund, Health Sciences Fund, and
Real Estate Securities Fund is a diversified investment company, as defined in
the Investment Company Act of 1940 (the "1940 Act"). Technology Fund, Health
Sciences Fund, and Real Estate Securities Fund are non-diversified companies
under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an investment,
a later increase or decrease in percentage resulting from changes in asset
values will not be deemed to violate the limitation except in the case of the
limitation on illiquid investments. Similarly, if the Fund is required or
permitted to invest a stated percentage of its assets in companies with no more
or no less than a stated market capitalization, deviations from the stated
percentages which result from changes in companies' market capitalizations after
the Fund purchases their shares will not be deemed to violate the limitation. A
Fund which is limited to investing in securities with specified ratings is not
required to sell a security if its rating is reduced or discontinued after
purchase, but the Fund may consider doing so. However, except in the case of
Equity Income Fund, in no event will more than 5% of any Fund's net assets be
invested in non-investment grade securities. Descriptions of the rating
categories of Standard & Poor's Corporation ("Standard & Poor's") and Moody's
Investors Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.
When the term "equity securities" is used in this Prospectus, it refers to
common stock and securities which are convertible into or exchangeable for, or
which carry warrants or other rights to acquire, common stock.
This section also contains information concerning certain investment risks borne
by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and related
matters is set forth under "Special Investment Methods." Stock Fund
OBJECTIVES. Stock Fund has a primary objective of capital appreciation. A
secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Stock Fund invests at least
80% of its total assets in equity securities (and at least 65% in common stocks)
diversified among a broad range of industries and among companies that have a
market capitalization of at least $500 million. In selecting equity securities,
the Adviser employs a value-based selection discipline. The Adviser anticipates
investing in equity securities of companies it believes are selling at less than
fair value and offer the potential for appreciation as a result of improved
profitability reflecting corporate restructuring or elimination of unprofitable
operations, change in management or management goals, or improving demand for
the companies' goods or services.
The Fund also may invest up to 20% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than $500
million and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
EQUITY INDEX FUND
OBJECTIVE. Equity Index Fund has an objective of providing investment results
that correspond to the performance of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500").
INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65% of
total assets) in common stocks included in the S&P 500. The Adviser believes
that the Fund's objective can best be achieved by investing in the common stocks
of approximately 250 to 500 of the issues included in the S&P 500, depending on
the size of the Fund.
Standard & Poor's designates the stocks included in the S&P 500 on a statistical
basis. A particular stock's weighting in the S&P 500 is based on its total
market value (that is, its market price per share times the number of shares
outstanding) relative to that of all stocks included in the S&P 500. From time
to time, Standard & Poor's may add or delete stocks to or from the S&P 500.
Inclusion of a particular stock in the S&P 500 does not imply any opinion by
Standard & Poor's as to its merits as an investment, nor is Standard & Poor's a
sponsor of or in any way affiliated with the Fund.
The Fund is managed by utilizing a computer program that identifies which stocks
should be purchased or sold in order to replicate, as closely as possible, the
composition of the S&P 500. The Fund includes a stock in its investment
portfolio in the order of the stock's weighting in the S&P 500, starting with
the most heavily weighted stock. Thus, the proportion of Fund assets invested in
a stock or industry closely approximates the percentage of the S&P 500
represented by that stock or industry. Portfolio turnover is expected to be well
below that of actively managed mutual funds. Inasmuch as the common stock of the
Adviser's parent company First Bank System, Inc. is included in the S&P 500,
such stock may be purchased by the Fund consistent with its indexing-based
policies.
Although the Fund will not duplicate the S&P 500's performance precisely, it is
anticipated that there will be a close correlation between the Fund's
performance and that of the S&P 500 in both rising and falling markets. The Fund
will attempt to achieve a correlation between the performance of its portfolio
and that of the S&P 500 of at least 95%, without taking into account expenses of
the Fund. A perfect correlation would be indicated by a figure of 100%, which
would be achieved if the Fund's net asset value, including the value of its
dividends and capital gains distributions, increased or decreased in exact
proportion to changes in the S&P 500. The Fund's ability to replicate the
performance of the S&P 500 may be affected by, among other things, changes in
securities markets, the manner in which Standard & Poor's calculates the S&P
500, and the amount and timing of cash flows into and out of the Fund. Although
cash flows into and out of the Fund will affect the Fund's portfolio turnover
rate and its ability to replicate the S&P 500's performance, investment
adjustments will be made, as practicably as possible, to account for these
circumstances.
The Fund also may invest up to 20% of its total assets in the aggregate in stock
index futures contracts, options on stock indices, options on stock index
futures, and index participation contracts based on the S&P 500. The Fund will
not invest in these types of contracts and options for speculative purposes, but
rather to maintain sufficient liquidity to meet redemption requests; to increase
the level of Fund assets devoted to replicating the composition of the S&P 500;
and to reduce transaction costs. These types of contracts and options and
certain associated risks are described under "Special Investment Methods --
Options Transactions."
In order to maintain liquidity during times of unusual market conditions, the
Fund also may invest temporarily in cash and cash items of the kinds described
under "Special Investment Methods -- Cash Items."
BALANCED FUND
OBJECTIVE. Balanced Fund has an objective of maximizing total return (capital
appreciation plus income).
INVESTMENT POLICIES. Balanced Fund seeks to achieve its objective by investing
in a balanced portfolio of equity securities and fixed income securities. The
asset mix of the Fund normally will range between 40% and 75% equity securities,
between 25% and 60% fixed income securities (including only that portion of the
value of convertible securities attributable to their fixed income
characteristics), and between 0% and 25% money market instruments. Over the long
term, it is anticipated that the Fund's asset mix will average approximately 60%
equity securities and 40% fixed income securities. The Adviser may make moderate
shifts among asset classes in order to attempt to increase returns or reduce
risk.
With respect to the equity security portion of the Fund's portfolio, the Adviser
follows the same investment policies as are described above under "--Stock Fund
- -- Investment Policies."
The fixed income portion of the Fund's portfolio is invested in investment grade
debt securities, at least 65% of which are United States Government obligations
and corporate debt obligations and mortgage-related securities rated at least A
by Standard & Poor's or Moody's or which have been assigned an equivalent rating
by another nationally recognized statistical rating organization. Under normal
market conditions, the weighted average maturity of the fixed income securities
held by the Fund will not exceed 15 years.
The Fund's permitted fixed income investments include notes, bonds and discount
notes of United States Government agencies or instrumentalities; domestic issues
of corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of the
Adviser; other investments, including mortgage-backed securities, which are
rated in one of the four highest categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Adviser; and commercial paper which is rated A-1 by Standard &
Poor's or P-1 by Moody's or which has been assigned an equivalent rating by
another nationally recognized statistical rating organization. Unrated
securities will not exceed 10% in the aggregate of the value of the total fixed
income securities held by the Fund.
Subject to the foregoing limitations, the fixed income securities in which the
Fund may invest include (i) mortgage-backed securities (provided that the Fund
will not invest more than 10% of its total fixed income assets in interest-only,
principal-only or inverse floating rate mortgage-backed securities); (ii)
asset-backed securities; and (iii) bank instruments. In addition, the Fund may
invest up to 15% of its total fixed income assets in foreign securities payable
in United States dollars. For information about these kinds of investments and
certain associated risks, see the related headings under "Special Investment
Methods," and for information concerning certain risks associated with investing
in fixed income securities generally, see "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; (v) engage in the lending of portfolio securities;
(vi) in order to attempt to reduce risk, invest in exchange traded put and call
options on interest rate futures contracts and on interest rate indices; and
(vii) in order to attempt to reduce risk, write covered call options on interest
rate indices. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
ASSET ALLOCATION FUND
OBJECTIVE. Asset Allocation Fund has an objective of maximizing total return
over the long term by allocating its assets principally among common stocks,
bonds, and short-term instruments.
INVESTMENT POLICIES. Asset Allocation Fund allocates its investments principally
among (i) common stocks included in the S&P 500, (ii) direct obligations of the
United States Treasury, and (iii) short-term instruments. There are no
limitations on the proportions in which the Adviser may allocate the Fund's
investments among these three classes of assets. The Fund thus is not a
"balanced" fund, in that it is not required to allocate its investments in
specific proportions or ranges among these asset classes.
The Adviser regularly reviews the Fund's investment allocation and varies the
allocation to emphasize the asset class or classes that, in the Adviser's
then-current judgment, provide the most favorable total return outlook. There is
no limitation on the amount that may be invested in any one asset class, and the
Fund may at times be fully invested in a single asset class if the Adviser
believes that it offers the most favorable total return outlook.
In making asset allocation decisions, the Adviser utilizes a proprietary
quantitative model which predicts future asset class returns based on historical
experience using probability theory. By investing in common stocks intended to
approximate the total return of the S&P 500, as described below, the Adviser
attempts to minimize the risk of individual equity security selection in the
common stock class. By limiting the bond class to direct obligations of the
United States Treasury, the Adviser attempts to eliminate credit risk from this
class.
Within the common stock asset class, the Adviser seeks to produce a total return
approximating that of the S&P 500. In order to achieve this result, the Adviser
follows the same indexing-based policies for this asset class as are described
above under "-- Equity Index Fund -- Investment Policies." Inasmuch as the
common stock of the Adviser's parent company First Bank System, Inc. is included
in the S&P 500, such stock may be purchased by the Fund consistent with its
indexing-based policies.
Within the bond asset class, the Fund may invest in any maturity of direct
obligations of the United States Treasury. The Adviser thus has discretion in
determining the weighted average maturity of the investments within this asset
class. For information concerning certain risks associated with investing in
fixed income securities generally, see "Special Investment Methods -- Fixed
Income Securities."
Within the short-term asset class, the Fund may hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash Items."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) purchase securities on a when-issued or delayed-delivery
basis; (iv) engage in the lending of portfolio securities; (v) in order to
attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices; and (vi) in order
to manage allocations among asset classes efficiently, invest in interest rate
and stock index futures. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
EQUITY INCOME FUND
OBJECTIVE. Equity Income Fund has an objective of long-term growth of capital
and income.
INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund invests
at least 80% of its total assets in equity securities of issuers believed by the
Adviser to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.
The Fund invests in equity securities that have relatively high dividend yields
and which, in the Adviser's opinion, will result in a relatively stable Fund
dividend with a growth rate sufficient to maintain the purchasing power of the
income stream. Although the Adviser anticipates that higher yielding equity
securities will generally represent the core holdings of the Fund, the Fund may
invest in lower yielding but higher growth equity securities to the extent that
the Adviser believes such investments are appropriate to achieve portfolio
balance. All securities held by the Fund will provide current income consistent
with the Fund's investment objective.
The "equity securities" in which the Fund may invest include corporate debt
obligations which are convertible into common stock. These convertible debt
obligations may include obligations rated at the time of purchase as low as CCC
by Standard & Poor's or Caa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the Adviser.
Debt obligations rated less than BBB by Standard & Poor's or Baa by Moody's are
considered to be less than "investment grade" and are sometimes referred to as
"junk bonds." Obligations rated CCC by Standard & Poor's or Caa by Moody's are
considered to be of poor standing and are predominantly speculative.
Descriptions of Standard & Poor's and Moody's rating categories are contained in
the Statement of Additional Information. If the rating of an obligation is
reduced below the categories set forth above after purchase or is discontinued,
the Fund is not required to sell the obligation but may consider doing so.
Purchases of less than investment grade convertible debt obligations are
intended to advance the Fund's objective of long-term growth of capital through
the "upside" potential of the obligations' conversion features and to advance
the Fund's objective of income through receipt of interest payable on the
obligations. The Fund will not invest more than 25% of its total assets in
convertible debt obligations which are rated less than investment grade or which
are of comparable quality in the judgment of the Adviser. For the year ended
September 30, 1995, the following weighted average percentages of the Fund's
total assets were invested in convertible and nonconvertible debt obligations
with the indicated Standard & Poor's ratings or their equivalents: AAA, 0%; AA,
0%; A, 0%; BBB, 4%; BB, 0%; B, 7%; and CCC, 0%.
Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income and
principal due to default by the issuer than are higher-rated obligations. The
value of these obligations tends to reflect short-term corporate, economic,
interest rate and market developments and investor perceptions of the issuer's
credit quality to a greater extent than investment grade obligations. In
addition, since the market for these obligations is relatively new and does not
have as many participants as the market for higher-rated obligations, it may be
more difficult to dispose of or to determine the value of these obligations. In
the case of a convertible debt obligation, these risks may be present in a
greater degree where the principal amount of the obligation is greater than the
current market value of the common stock into which it is convertible.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
DIVERSIFIED GROWTH FUND
OBJECTIVES. Diversified Growth Fund has a primary objective of long-term growth
of capital. A secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Diversified Growth Fund
invests at least 80% of its total assets in equity securities of a diverse group
of companies that will provide representation across all economic sectors
included in the S&P 500. The Adviser may overweight the Fund's portfolio
holdings in sectors that it believes provide above average total return
potential and may underweight the Fund's holdings in those sectors that it
believes have a lower total return potential. Within a given sector, the Fund's
assets are invested in securities of those companies that, in the Adviser's
judgment, exhibit a combination of above average growth in revenue and earnings,
strong management and sound and improving financial condition.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order
to attempt to reduce risk, purchase put and call options on equity securities
and on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
EMERGING GROWTH FUND
OBJECTIVE. Emerging Growth Fund has an objective of growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund
invests at least 65% of its total assets in equity securities of small-sized
companies that exhibit, in the Adviser's opinion, outstanding potential for
superior growth. For these purposes, small-sized companies are deemed those with
market capitalizations of less than $1 billion. Companies that participate in
sectors that are identified by the Adviser as having long-term growth potential
generally are expected to make up a substantial portion of the Fund's holdings.
These companies often have established a market niche or have developed unique
products or technologies that are expected by the Adviser to produce superior
growth in revenues and earnings.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or more
and in fixed income securities of the kinds described under "Special Investment
Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
REGIONAL EQUITY FUND
OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective by
investing, in normal market conditions, at least 65% of its total assets in
equity securities of small-sized companies headquartered in Minnesota, North and
South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado and
Illinois.
The Adviser anticipates investing primarily in the securities of rapidly growing
small-sized companies which generally will have the following characteristics,
in the Adviser's opinion: (i) company-specific fundamentals that grow
shareholder value, (ii) experienced, shareholder-oriented management, and (iii)
undervaluation by the market. For these purposes, small-sized companies are
deemed those with market capitalizations of less than $1 billion.
In addition to the risks associated with investing in smaller-capitalization
companies, see "-- Risk Factors -- Smaller-Capitalization Companies" below, the
Fund's policy of concentrating its equity investments in a geographic region
means that it will be subject to adverse economic, political or other
developments in that region. Although the region in which the Fund principally
invests has a diverse industrial base (including, but not limited to,
agriculture, mining, retail, transportation, utilities, heavy and light
manufacturing, financial services, insurance, computer technology and medical
technology), this industrial base is not as diverse as that of the country as a
whole. The Fund therefore may be less diversified by industry and company than
other funds with a similar investment objective and no geographic limitation.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities without regard to the location of the issuer's headquarters or
the issuer's market capitalization and in fixed income securities of the kinds
described under "Special Investment Methods -- Fixed Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
SPECIAL EQUITY FUND
OBJECTIVE. Special Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund invests
at least 65% of its total assets in equity securities. The Fund's policy is to
invest in equity securities which the Adviser believes offer the potential for
greater than average capital appreciation. The Adviser believes that this policy
can best be achieved by investing in the equity securities of companies where
fundamental changes are occurring, are likely to occur, or have occurred and
where, in the opinion of the Adviser, the changes have not been adequately
reflected in the price of the securities and thus are considered by the Adviser
to be undervalued.
Undervalued securities may include securities of companies which (i) have been
unpopular for some time but where, in the Adviser's opinion, recent developments
(such as those listed in the next sentence) suggest the possibility of improved
operating results; (ii) have recently experienced marked popularity but which,
in the opinion of the Adviser, have temporarily fallen out of favor for reasons
that are considered by the Adviser to be non-recurring or short-term; and (iii)
appear to the Adviser to be undervalued in relation to popular securities of
other companies in the same industry. Typically, but not exclusively, the
Adviser will consider investing in undervalued issues in which it sees the
possibility of substantially improved market price due to increasing demand for
an issuer's products or services, the development of new or improved products or
services, the probability of increased operating efficiencies, the elimination
of unprofitable products or operations, changes in management or management
goals, fundamental changes in the industry in which the issuer operates, new or
increased emphasis on research and development, or possible mergers or
acquisitions.
In selecting securities judged to be undervalued and in investing in potential
"turnaround" situations, the Adviser will be acting on opinions and exercising
judgments which may be contrary to those of the majority of investors. These
opinions and judgments involve the risks of either (i) a correct judgment by the
majority, in which case losses may be incurred or profits may be limited, or
(ii) a long delay before majority recognition of the accuracy of the Adviser's
judgment, in which case capital invested by the Fund in an individual security
or group of securities may be nonproductive for an extended period.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
TECHNOLOGY FUND
OBJECTIVE. Technology Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Technology Fund invests at
least 80% of its total assets in equity securities of companies which the
Adviser believes have, or will develop, products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. The description of the technology sector is interpreted broadly by
the Adviser and may include such products or services as inexpensive computing
power, such as personal computers; improved methods of communications, such as
satellite transmission; or labor saving machines or instruments, such as
computer-aided design equipment. The prime emphasis of the Fund is to identify
those companies positioned, in the Adviser's opinion, to benefit from
technological advances in areas such as semiconductors, minicomputers and
peripheral equipment, scientific instruments, computer software, communications,
and future automation trends in both office and factory settings.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Technology Fund operates as a non-diversified investment company, as defined in
the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Internal Revenue Code of 1986,
as amended. Since a relatively high percentage of the assets of the Fund may be
invested in the securities of a limited number of issuers which will be in the
same or related economic sectors, the Fund's portfolio securities may be more
susceptible to any single economic, technological or regulatory occurrence than
the portfolio securities of diversified investment companies. In addition,
competitive pressures may have a significant effect on the financial condition
of companies in the technology industry. For example, if technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continue to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
HEALTH SCIENCES FUND
OBJECTIVE. Health Sciences Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 80% of its total assets in equity securities of companies which
the Adviser considers to be principally engaged in the development, production
or distribution of products or services connected with health care or medicine.
Examples of these products and services include pharmaceuticals, health care
services and administration, diagnostics, medical equipment and supplies,
medical technology, and medical research and development. The Adviser
anticipates investing in companies that have the potential for above average
growth in revenue and earnings as a result of new or unique products, processes
or services, increasing demand for a company's products or services, established
market leadership, or exceptional management. A company will be deemed
"principally engaged" in the health sciences industries if at the time of
investment the Adviser determines that at least 50% of its assets, revenues or
profits are derived from those industries.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to qualify
as a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended. Since a relatively high percentage of the assets of the Fund
may be invested in the securities of a limited number of issuers which will be
in the same or related economic sectors, the Fund's portfolio securities may be
more susceptible to any single economic, technological or regulatory occurrence
than the portfolio securities of diversified investment companies. Many products
and services in the health sciences industries may become rapidly obsolete due
to technological and scientific advances. In addition, the health sciences
industries generally are subject to greater governmental regulation than many
other industries, so that changes in governmental policies may have a material
effect on the demand for products and services in these industries. Regulatory
approvals generally are required before new drugs, medical devices or medical
procedures can be introduced and before health care providers can acquire
additional facilities or equipment.
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing primarily
in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry.
For this purpose, a company is deemed to be "principally engaged" in the real
estate industry if (i) it derives at least 50% of its revenues or profits from
the ownership, construction, management, financing or sale of residential,
commercial or industrial real estate, or (ii) has at least 50% of the fair
market value of its assets invested in such real estate. The Fund seeks to
invest in equity securities that provide a dividend yield that exceeds the
composite dividend yield of the securities included in the S&P 500.
A majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"). REITs are publicly traded corporations or
trusts that specialize in acquiring, holding, and managing residential,
commercial or industrial real estate. A REIT is not taxed at the entity level on
income distributed to its shareholders or unitholders if it distributes to
shareholders or unitholders at least 95% of its taxable income for each taxable
year and complies with regulatory requirements relating to its organization,
ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and Hybrid
REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
derives its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that industry. The
real estate industry has been subject to substantial fluctuations and declines
on a local, regional and national basis in the past and may continue to be in
the future. Real property values and incomes from real property may decline due
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, regulatory limitations on rents,
changes in neighborhoods and in demographics, increases in market interest
rates, or other factors. Factors such as these may adversely affect companies
which own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry. Although the
Fund will operate as a non-diversified investment company under the 1940 Act, it
intends to conduct its operations so as to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended.
Because the Fund may invest a substantial portion of its assets in REITs, it
also is subject to risks associated with direct investments in REITs. Equity
REITs will be affected by changes in the values of and incomes from the
properties they own, while Mortgage REITs may be affected by the credit quality
of the mortgage loans they hold. In addition, REITs are dependent on specialized
management skills and on their ability to generate cash flow for operating
purposes and to make distributions to shareholders or unitholders. REITs may
have limited diversification and are subject to risks associated with obtaining
financing for real property, as well as to the risk of self-liquidation. REITs
also can be adversely affected by their failure to qualify for tax-free
pass-through treatment of their income under the Code or their failure to
maintain an exemption from registration under the 1940 Act. By investing in
REITs indirectly through the Fund, a shareholder bears not only a proportionate
share of the expenses of the Fund, but also may indirectly bear similar expenses
of some of the REITs in which it invests.
INTERNATIONAL FUND
OBJECTIVE. International Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, International Fund invests
at least 65% of its total assets in an internationally diversified portfolio of
equity securities which trade in markets other than the United States. Generally
these securities are issued by companies (i) domiciled in countries other than
the United States, or (ii) that derive at least 50% of either their revenues or
their pre-tax income from activities outside of the United States. The
securities in which the Fund invests include common and preferred stock,
securities (bonds and preferred stock) convertible into common stock, warrants
and securities representing underlying international securities such as American
Depositary Receipts and European Depositary Receipts. The Fund also may hold
securities of other investment companies (which investments are also subject to
the advisory fee) and depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.
The Fund may invest in securities of issuers in, but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, China, Columbia, the Czech Republic,
Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel,
Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand,
Norway, Peru, the Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan,
Thailand, the United Kingdom, and Venezuela. Normally, the Fund will invest at
least 65% of its total assets in securities traded in at least three foreign
countries, including the countries listed above. It is possible, although not
currently anticipated, that up to 35% of the Fund's assets could be invested in
United States companies.
In investing the Fund's assets, the Sub-Adviser expects to place primary
emphasis on country selection, followed by selection of industries or sectors
within or across countries and by selection of individual stocks corresponding
to the industries or sectors selected. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
Fund also may invest in emerging markets where smaller capitalization companies
are the norm.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 50% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; (v) engage in the lending of portfolio securities;
(vi) engage in foreign currency transactions; (vii) in order to attempt to
reduce risk, purchase put and call options on foreign currencies; (viii) write
covered call options on foreign currencies owned by the Fund; and (ix) enter
into contracts for the future purchase or delivery of securities, foreign
currencies, and indices, purchase or sell options on any such futures contracts
and engage in related closing transactions. For information about these
investment methods, restrictions on their use, and certain associated risks, see
the related headings under "Special Investment Methods."
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, for temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash items of
the kinds described under "Special Investment Methods -- Cash Items."
International Fund is subject to special risks associated with investing in
foreign securities and to declines in net asset value resulting from changes in
exchange rates between the United States dollar and foreign currencies. These
risks are discussed under "Special Investment Methods -- Foreign Securities" and
"-- Foreign Currency Transactions" elsewhere here. Because of the special risks
associated with foreign investing and the Sub-Adviser's ability to invest
substantial portions of the Fund's assets in a small number of countries, the
Fund may be subject to greater volatility than most mutual funds which invest
principally in domestic securities.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks in addition to those
noted above with respect to particular Funds. These include the following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally, and
of particular companies' equity securities, frequently are subject to greater
volatility than prices of fixed income securities. Market prices of equity
securities as a group have dropped dramatically in a short period of time on
several occasions in the past, and they may do so again in the future. Each of
the Funds is subject to the risk of generally adverse equity markets.
SMALLER-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity Fund
emphasize investments in companies with relatively small market capitalizations,
and the remaining Funds (excluding Equity Index Fund and Asset Allocation Fund)
are permitted to invest in equity securities of such companies. The equity
securities of smaller-capitalization companies frequently have experienced
greater price volatility in the past than those of larger-capitalization
companies, and they may be expected to do so in the future. To the extent that
the Funds invest in smaller-capitalization companies, they are subject to this
risk of greater volatility.
ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are actively
managed to a greater or lesser degree by the Adviser or, in the case of
International Fund, the Sub-Adviser. The performance of these Funds therefore
will reflect in part the ability of the Adviser or Sub-Adviser to select
securities which are suited to achieving the Funds' investment objectives. Due
to their active management, these Funds could underperform other mutual funds
with similar investment objectives or the market generally.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser acts
as investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, acts as the Funds' investment adviser through its First Asset Management
group. The Adviser has acted as an investment adviser to FAIF since its
inception in 1987 and has acted as investment adviser to First American Funds,
Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts
with an aggregate value of approximately $29 billion, including mutual fund
assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds other than International Fund has agreed to pay the Adviser
monthly fees calculated on an annual basis equal to 0.70% of its average daily
net assets. International Fund pays the Adviser a monthly fee calculated on the
same basis equal to 1.25% of its average daily net assets, out of which the
Adviser pays the Sub-Adviser's fee. The Adviser may, at its option, waive any or
all of its fees, or reimburse expenses, with respect to any Fund from time to
time. Any such waiver or reimbursement is voluntary and may be discontinued at
any time. The Adviser also may absorb or reimburse expenses of the Funds from
time to time, in its discretion, while retaining the ability to be reimbursed by
the Funds for such amounts prior to the end of the fiscal year. This practice
would have the effect of lowering a Fund's overall expense ratio and of
increasing yield to investors, or the converse, at the time such amounts are
absorbed or reimbursed, as the case may be.
While the advisory fee payable to the Adviser with respect to International Fund
is higher than the advisory fee paid by most mutual funds, the Adviser believes
it is comparable to that paid by many funds having similar investment objectives
and policies.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Funds have received an opinion from their counsel that
the Adviser is not prohibited from performing the investment advisory services
described above, and that FBS Investment Services, Inc. ("ISI"), a wholly owned
broker-dealer subsidiary of the Adviser, is not prohibited from serving as a
Participating Institution as described herein. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser and ISI
might be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
SUB-ADVISER TO INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser is
responsible for the investment and reinvestment of International Fund's assets
and the placement of brokerage transactions in connection therewith. For its
services under the Sub-Advisory Agreement, the Sub-Adviser is paid a monthly fee
by the Adviser calculated on an annual basis equal to 0.75% of the first $100
million of International Fund's average daily net assets, 0.70% of the second
$100 million of International Fund's average daily net assets, 0.65% of the
third $100 million of International Fund's average daily net assets, and 0.60%
of International Fund's average daily net assets in excess of $300 million.
The Sub-Adviser, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr. Marvin,
Mr. Palmer and 21 other holders. The Sub-Adviser is engaged in the management of
global, non-United States and emerging markets equity portfolios for
institutional accounts. At September 30, 1995, the Sub-Adviser managed a total
of $3.1 billion in investments for 55 institutional investors.
PORTFOLIO MANAGERS
Stock Fund, Equity Index Fund and Balanced Fund are managed by a committee
comprised of Mr. Doak, Mr. Jensen, Ms. Lilly, Mr. Murphy, Mr. Rinkoff and Mr.
Rovner, whose backgrounds are set forth below. Asset Allocation Fund, Equity
Income Fund and Diversified Growth Fund are managed by a committee comprised
of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Halbe, Ms. Hoyme, Ms. Johnson, Mr.
Murphy and Mr. Whitcomb, whose backgrounds also are set forth below. The
remaining Funds are managed or co-managed as indicated below.
JAMES DOAK is a member of the committees which manage six of the Funds, as set
forth above. Jim joined the Adviser in 1982 after serving for two years as vice
president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing in equity investments, and served as the analyst and
portfolio manager for Stock Fund since its inception in December 1987. Jim
received his bachelor's degree from Brown University and his master's degree in
business administration from the Wharton School of Business. He is a Chartered
Financial Analyst.
RICHARD W. JENSEN is a member of the committee which manages three of the Funds,
as set forth above, and he supervises and monitors the performance of the
Sub-Adviser with respect to International Fund. He is Senior Managing Director
and a portfolio manager with the Adviser, having joined it in 1967. Prior to
that time he was employed by Merrill Lynch, Pierce, Fenner & Smith and Irving
Trust Company. He received his bachelor's degree from the University of
Minnesota and is a Chartered Financial Analyst.
ELIZABETH M. LILLY is a member of the committee which manages three of the
Funds, as set forth above, and she is co-manager of Regional Equity Fund. Beth
joined the Adviser in 1992 after several years in the investment industry with
The St. Paul Companies, Fund American Companies and Goldman Sachs & Co. She
received her bachelor's degree from Hobart /William Smith College and is a
Chartered Financial Analyst.
JOHN M. MURPHY, JR. is a member of the committees which manage six of the
Funds, as set forth above. John is Chief Investment Officer of the Adviser's
First Asset Management group, having joined the Adviser in 1984. He has more
than 30 years in the investment management field and served with Investment
Advisers, Inc. and Blyth, Eastman, Dillon & Co. before joining the Adviser.
He received his bachelor's degree from Regis College.
RICHARD J. RINKOFF is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Regional Equity
Fund. Rick joined the Adviser in 1977 after serving as an investment officer for
two years for Pittsburgh National Bank. Since then, he has managed assets for
individuals and institutional clients of the Adviser, specializing in managing
investments in regional equities. He has served as portfolio manager for the
regional fund management style since 1981. Rick received his bachelor's degree
in mathematics and his master's degree in business from Carnegie-Mellon
University. He is a Chartered Financial Analyst.
JAMES S. ROVNER is a member of the committee which manages three of the Funds,
as set forth above, and he is portfolio manager for Special Equity Fund. Jim
joined the Adviser in 1986 and has managed assets for institutional and
individual clients for over 15 years, specializing in equity and balanced
investment strategies. Jim received his bachelor's degree and his master's
degree in business administration from the University of Wisconsin. He is a
Chartered Financial Analyst.
GERALD C. BREN is a member of the committee which manages three of the Funds, as
set forth above, and he is portfolio co-manager for Emerging Growth Fund and
Health Sciences Fund. Gerald joined the Adviser in 1972 as an investment
analyst. He received his master's degree in business administration from the
University of Chicago in 1972 and his Chartered Financial Analyst certification
in 1977.
ALBIN S. DUBIAK is a member of the committee which manages three of the Funds,
as set forth above, and he is portfolio co-manager for Emerging Growth Fund. Al
began his investment career as a security trader with The First National Bank of
Chicago in 1963 before joining the Adviser as an investment analyst in 1969. Al
received his bachelor's degree from Indiana University in 1962 and his master's
degree in business administration from the University of Arizona in 1969.
JOYCE A.K. HALBE is a member of the committee which manages three of the Funds,
as set forth above, and she is co-manager of Health Sciences Fund. Joyce joined
the Adviser in 1990 after serving as a trust investment officer at Norwest Bank
Minnesota, N.A. and as a research analyst at Edward D. Jones and Company. She
received her master of science degree and her master's degree in business
administration from the University of Wisconsin -Madison. She is a Chartered
Financial Analyst.
MARY M. HOYME is a member of the committee which manages three of the Funds, as
set forth above, and she is portfolio manager for Real Estate Securities Fund.
Mary joined the Adviser in 1989 as a research analyst, prior to which she was
employed for seven years as an equity and economic analyst with IDS Financial
Services. She received her bachelor's degree from the University of Wisconsin --
Eau Claire and her master's degree in business administration from the College
of St. Thomas. She is a Chartered Financial Analyst.
CORI B. JOHNSON is a member of the committee which manages three of the Funds,
as set forth above. Cori has been managing assets using quantitative analysis
techniques since 1992. She joined the Adviser in 1991 as a securities analyst.
Cori received her bachelor's degree from Concordia College and her master's
degree in business administration from the University of Minnesota. She is a
Chartered Financial Analyst.
ROLAND P. WHITCOMB is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Technology Fund.
Roland joined the Adviser in 1986 after serving as an account executive with
Smith Barney & Co. since 1979. He received his bachelor's degree from the
University of Chicago and is a Chartered Financial Analyst.
JEFF A. JOHNSON is portfolio co-manager for Technology Fund. Jeff has been
employed by the Adviser in investment management since 1991 and in commercial
lending from 1985 to 1991. He received his master of arts degree from the
University of Iowa.
A committee comprised of the following five individuals shares the management of
International Fund on behalf of the Sub-Adviser:
DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm together
with Mr. Palmer in 1986. Before founding the Sub-Adviser, Mr. Marvin was Vice
President in charge of DuPont Corporation's $10 billion internally-managed
pension fund. Prior to that Mr. Marvin was Associate Portfolio Manager, and then
Head Portfolio Manager, for Investors Diversified Services' IDS Stock Fund. Mr.
Marvin started in the investment business in 1965 as a securities analyst for
Chicago Title & Trust. He received his bachelor's degree from the University of
Illinois and his master's degree in business administration from Northwestern
University. He is a Chartered Financial Analyst and a member of the Financial
Analysts Federation.
STANLEY PALMER is President of the Sub-Adviser and co-founder of the firm. Mr.
Palmer was Equity Portfolio Manager for DuPont Corporation from 1978 through
1986, an analyst and portfolio manager at Investors Diversified Services from
1971 through 1978, and an analyst at Harris Trust & Savings Bank from 1964
through 1971. He received his bachelor's degree from Gustavus Adolphus College
and his master's degree in business administration from the University of Iowa.
He is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
TERRY B. MASON is a Vice President and Portfolio Manager of the Sub-Adviser.
Before joining the Sub-Adviser, Mr. Mason was employed for 14 years by DuPont
Corporation, the last five as international equity analyst and international
trader. He received his bachelor's degree from Glassboro State College and his
master's degree in business administration from Widener University.
JAY F. MIDDLETON is a Vice President and Portfolio Manager for the Sub-Adviser
and joined the firm in 1989. He received his bachelor's degree from Wesleyan
University.
TODD D. MARVIN is a Vice President and Portfolio Manager for the Sub-Adviser
and joined the firm in 1991. Before joining the Sub-Adviser, Mr. Marvin was
employed by Oppenheimer & Company as an analyst in investment banking. Mr.
Marvin received his bachelor's degree from Wesleyan University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to Stock Fund, Equity Index Fund, Balanced
Fund, Asset Allocation Fund, Regional Equity Fund, and Special Equity Fund, the
Custodian is paid the following fees: (i) an annual administration fee of $750
per Fund; (ii) an issue held fee, computed as of the end of each month, at the
annual rate of $30 per securities issue held by each Fund; (iii) transaction
fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such
transaction, and (b) a payment received fee of $12 for each principal pay down
payment received on collateralized mortgage pass-through instruments; (iv) a
wire transfer fee of $10 per transaction; (v) a cash management fee, for
"sweeping" cash into overnight investments, at an annual rate of 0.25% of the
amounts so invested; and (vi) a remittance fee, for payment of each Fund's
expenses, of $3.50 per each check drawn for such remittances. The Custodian is
paid monthly fees equal to 0.03% of the average daily net assets of Equity
Income Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund,
Health Sciences Fund, and Real Estate Securities Fund and 0.25% of the average
daily net assets of International Fund. Sub-custodian fees with respect to
International Fund are paid by the Custodian out of this amount. In addition,
the Custodian is reimbursed for its out-of-pocket expenses incurred while
providing its services to the Funds.
Rules adopted under the 1940 Act permit International Fund to maintain its
securities and cash in the custody of certain eligible foreign banks and
depositories. International Fund's portfolio of non-United States securities are
held by sub-custodians which are approved by the directors of FAIF in accordance
with these rules. This determination is made pursuant to these rules following a
consideration of a number of factors including, but not limited to, the
reliability and financial stability of the institution; the ability of the
institution to perform custodian services for International Fund; the reputation
of the institution in its national market; the political and economic stability
of the country in which the institution is located; and the risks of potential
nationalization or expropriation of International Fund's assets.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds
with certain administrative services necessary to operate the Funds. These
services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at an
annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First American
funds exceed $8 billion, the percentage stated above is reduced to 0.105%. From
time to time, the Administrator may voluntarily waive its fees or reimburse
expenses with respect to any of the Funds. Any such waivers or reimbursements
may be made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania corporation
and is the principal distributor for a number of investment companies. The
Distributor is a wholly-owned subsidiary of SEI Corporation and is located at
680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and other
industry professionals (the "Participating Institutions") which enter into sales
agreements with the Distributor to perform share distribution or shareholder
support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to Rule
12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Alternative Sales
Charge Options." Under the Class A Distribution Plan, each Fund also pays the
Distributor a distribution fee monthly at an annual rate of 0.25% of the Fund's
Class A Shares' average daily net assets, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to Class A Shares of the Funds. From time to time, the
Distributor may voluntarily waive its distribution fees with respect to the
Class A Shares of any of the Funds. Any such waivers may be made at the
Distributor's discretion and may be terminated at any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Funds may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the average
daily net assets of the Class B Shares of the Funds, which fee may be used by
the Distributor to provide compensation for sales support and distribution
activities with respect to Class B Shares of the Funds. This fee is calculated
and paid each month based on the average daily net assets for that month. In
addition to this fee, the Distributor may be paid a shareholder servicing fee of
0.25% of the average daily net assets of the Class B Shares pursuant to a
service plan (the "Class B Service Plan"), which fee may be used by the
Distributor to provide compensation for personal, ongoing servicing and/or
maintenance of shareholder accounts with respect to Class B Shares of the Funds.
Although Class B Shares are sold without an initial sales charge, the
Distributor pays a total of 4.25% of the amount invested (including a prepaid
service fee of 0.25% of the amount invested) to dealers who sell Class B Shares
(excluding exchanges from other Class B Shares in the First American family).
The service fee payable under the Class B Service Plan is prepaid for the first
year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in their
discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may be
commenced or discontinued by any of these persons at any time. In addition,
while there is no sales charge on purchases of Class A Shares of $1 million and
more, the Adviser may pay amounts to broker-dealers from its own assets with
respect to such sales. ISI, a subsidiary of the Adviser, is a Participating
Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after an
order is received, plus any applicable sales charge, on days on which the New
York Stock Exchange is open for business. Shares may be purchased as described
below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor may
call his or her financial institution to place an order. Purchase orders must be
received by the financial institution by the time specified by the institution
to be assured same day processing, and purchase orders must be transmitted to
and received by the Funds by 3:00 p.m. Central time in order for shares to be
purchased at that day's price. It is the financial institution's responsibility
to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. In order to purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City,
Missouri 64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before 3:00
p.m. Central time. All information needed will be taken over the telephone, and
the order will be considered placed when the Custodian receives payment by wire.
If the Custodian does not receive the wire by 3:00 p.m. Central time, the order
will be executed the next business day. Federal funds should be wired as
follows: First Bank National Association, Minneapolis, Minnesota, ABA Number
091000022; For Credit to: DST Systems: Account Number 6023458026; For Further
Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc. and
their respective affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund at a
price equal to its net asset value per share plus a sales charge which, at the
investor's election, may be imposed either (i) at the time of the purchase (the
Class A "initial sales charge alternative"), or (ii) on a contingent deferred
basis (the Class B "deferred sales charge alternative"). Each of Class A and
Class B represents a Fund's interest in its portfolio of investments. The
classes have the same rights and are identical in all respects except that (i)
Class B Shares bear the expenses of the contingent deferred sales charge
arrangement and distribution and service fees resulting from such sales
arrangement; (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A Shares as long as Class B Shares convert into Class A Shares); (iii)
only Class B Shares carry a conversion feature; and (iv) each class has
different exchange privileges. Sales personnel of financial institutions
distributing the Funds' shares, and other persons entitled to receive
compensation for selling shares, may receive differing compensation for selling
Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the method
of purchasing shares that is more beneficial to that investor. The amount of a
purchase, the length of time an investor expects to hold the shares, and whether
the investor wishes to receive dividends in cash or in additional shares, will
all be factors in determining which sales charge option is best for a particular
investor. An investor should consider whether, over the time he or she expects
to maintain the investment, the accumulated sales charges on Class B Shares
prior to conversion would be less than the initial sales charge on Class A
Shares, and to what extent the differential may be offset by the expected higher
yield of Class A Shares. Class A Shares will normally be more beneficial to an
investor if he or she qualifies for reduced sales charges as described below.
Accordingly, orders for Class B Shares for $250,000 or more ordinarily will be
treated as orders for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state laws,
will seek to ensure that no such conflict arises.
CLASS A SHARES.
What Class A Shares Cost. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
EACH FUND:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM AMOUNT
AS PERCENTAGE SALES CHARGE AS OF SALES
OF OFFERING PERCENTAGE OF CHARGE REALLOWED TO
PRICE NET ASSET VALUE PARTICIPATING INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 4.50% 4.75% 4.05%
$50,000 but less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50% 3.63% 3.15%
$250,000 but less than $500,000 2.75% 2.83% 2.47%
$500,000 but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
Net asset value is determined at 3:00 p.m. Central time Monday through Friday
except on (i) days on which there are not sufficient changes in the value of a
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) on the following federal
holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not
be calculated on Good Friday.
Dealer Concession. A dealer will normally receive up to 90% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. In addition, the Distributor may, from time to
time in its sole discretion, institute one or more promotional incentive
programs which will be paid by the Distributor from the sales charge it receives
or from any other source available to it. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation including merchandise, airline vouchers, trips and vacation
packages, to all dealers selling shares of the Funds. Promotional incentives of
these kinds will be offered uniformly to all dealers and predicated upon the
amount of shares of the Funds sold by the dealer. Whenever 90% or more of a
sales charge is paid to a dealer, that dealer may be deemed to be an underwriter
as defined in the Securities Act of 1933.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the Distributor. The Distributor may pay fees to financial
institutions out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the institution's customers in connection with
the initiation of customer accounts and purchases of Fund shares.
Reducing the Class A Sales Charge. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* Quantity Discounts and Accumulated Purchases: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by
an investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent
purchases of Class A Shares of any FAIF Fund will be considered in
determining the sales charge reduction. In order for an investor to
receive the sales charge reduction on Class A Shares, the Transfer
Agent must be notified by the investor in writing or by his or her
financial institution at the time the purchase is made that Fund shares
are already owned or that purchases are being combined.
* Letter of Intent: If an investor intends to purchase at least $50,000
of Class A Shares in a Fund and other FAIF Funds over the next 13
months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all
FAIF Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
Sales of Class A Shares at Net Asset Value. Purchases of a Fund's Class A Shares
by the Adviser, the Sub-Adviser or any of their affiliates, or any of their or
FAIF's officers, directors, employees, retirees, sales representatives and
partners, registered representatives of any broker/dealer authorized to sell
Fund shares, and full-time employees of FAIF's general counsel, and members of
their immediate families (i.e., parent, child, spouse, sibling, step or adopted
relationships, and UTMA accounts naming qualifying persons), may be made at net
asset value without a sales charge. A Fund's Class A Shares also may be
purchased at net asset value without a sales charge by fee-based registered
investment advisers, financial planners and registered broker/dealers who are
purchasing shares on behalf of their customers.
If Class A Shares of a Fund have been redeemed, the shareholder has a one-time
right, within 30 days, to reinvest the redemption proceeds in Class A Shares of
any FAIF Fund at the next-determined net asset value without any sales charge.
The Transfer Agent must be notified by the shareholder in writing or by his or
her financial institution of the reinvestment in order to eliminate a sales
charge. If the shareholder redeems his or her shares of a Fund, there may be tax
consequences.
In addition, purchases of Class A Shares of a Fund that are funded by proceeds
received upon the redemption (within 60 days of the purchase of Fund shares) of
shares of any unrelated open-end investment company that charges a sales load
and rollovers from retirement plans that utilize the Funds as investment options
may be made at net asset value. To make such a purchase at net asset value, an
investor or the investor's broker must, at the time of purchase, submit a
written request to the Transfer Agent that the purchase be processed at net
asset value pursuant to this privilege, accompanied by a photocopy of the
confirmation (or similar evidence) showing the redemption from the unrelated
fund. The redemption of the shares of the non-related fund is, for federal
income tax purposes, a sale upon which a gain or loss may be realized.
CLASS B SHARES.
Contingent Deferred Sales Charge. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares within
eight years of purchase, he or she will pay a contingent deferred sales charge
at the rates set forth below. This charge is assessed on an amount equal to the
lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price or on shares derived from reinvestment of
dividends or capital gain distributions.
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
Shares in the shareholder's Fund account; second, of any Class B Shares held for
more than eight years and Class B Shares acquired pursuant to reinvestment of
dividends or other distributions; and third, of Class B Shares held longest
during the eight-year period. This method should result in the lowest possible
sales charge.
The contingent deferred sales charge is waived on redemption of Class B Shares
(i) within one year following the death or disability (as defined in the
Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2 . A shareholder or his or her representative must notify the
Transfer Agent prior to the time of redemption if such circumstances exist and
the shareholder is eligible for this waiver.
Conversion Feature. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis of
the relative net asset values of the two classes.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions from
a shareholder's account in the same class of shares of Prime Obligations Fund of
First American Funds, Inc. Under a systematic exchange program, a shareholder
enters an agreement to purchase a specified class of shares of one or more Funds
over a specified period of time, and initially purchases Prime Obligations Fund
shares of the same class in an amount equal to the total amount of the
investment. On a monthly basis a specified dollar amount of shares of Prime
Obligations Fund is exchanged for shares of the same class of the Funds
specified. The systematic exchange program of investing a fixed dollar amount at
regular intervals over time has the effect of reducing the average cost per
share of the Funds. This effect also can be achieved through the systematic
investment program described below. Because purchases of Class A Shares are
subject to an initial sales charge, it may be beneficial for an investor to
execute a Letter of Intent in connection with the systematic exchange program. A
shareholder may apply for participation in this program through his or her
financial institution or by calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus any applicable sales charge. A shareholder may apply for
participation in this program through his or her financial institution or call
(800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow such
exchanges only upon the prior approval by the Fund and a determination by the
Fund and the Adviser that the securities to be exchanged are acceptable.
Securities accepted by a Fund will be valued in the same manner that a Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to Stock Fund, Equity Index
Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified
Growth Fund and Special Equity Fund, to all shareholders of record on the record
date. Dividends are declared paid quarterly with respect to Emerging Growth
Fund, Regional Equity Fund, Technology Fund, Health Sciences Fund, and Real
Estate Securities Fund, and annually with respect to International Fund.
Distributions of any net realized long-term capital gains will be made at least
once every 12 months. A portion of the quarterly distributions paid by Real
Estate Securities Fund may be a return of capital. Dividends and distributions
are automatically reinvested in additional shares of the Fund paying the
dividend on payment dates at the ex-dividend date net asset value without a
sales charge, unless shareholders request cash payments on the new account form
or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares are
purchased before a record date for a dividend or a distribution of capital
gains, a shareholder will pay the full price for the shares and will receive
some portion of the purchase price back as a taxable dividend or distribution
(to the extent, if any, that the dividend or distribution is otherwise taxable
to holders of Fund shares). If shares are redeemed or exchanged before the
record date for a dividend or distribution or are purchased after the record
date, those shares are not entitled to the dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will be
less than the dividends payable on Class C Shares because of the distribution
expenses charged to Class A and Class B Shares. The amount of dividends payable
on Class A Shares generally will be more than the dividends payable on the Class
B Shares because of the distribution and service fees paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of a Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds or of
other funds in the First American family. Class A Shares of the Funds, whether
acquired by direct purchase, reinvestment of dividends on such shares, or
otherwise, may be exchanged for Class A Shares of other funds without the
payment of any sales charge (i.e., at net asset value). Exchanges of shares
among the FAIF Funds must meet any applicable minimum investment of the fund for
which shares are being exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period or
contingent deferred sales charges payable upon redemption, the holding period of
Class B Shares of the "old" fund and the holding period of Class B Shares of the
"new" fund are aggregated.
The ability to exchange shares of the Funds does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. An investor who is considering acquiring shares in another
First American fund pursuant to the exchange privilege should obtain and
carefully read a prospectus of the fund to be acquired. Exchanges may be
accomplished by a written request, or by telephone if a preauthorized exchange
authorization is on file with the Transfer Agent, shareholder servicing agent,
or financial institution.
Written exchange requests must be signed exactly as shown on the authorization
form, and the signatures may be required to be guaranteed as for a redemption of
shares by an entity described below under "Redeeming Shares -- Directly From the
Funds -- Signatures." Neither the Funds, the Distributor, the Transfer Agent,
any shareholder servicing agent, or any financial institution will be
responsible for further verification of the authenticity of the exchange
instructions.
Telephone exchange instructions made by an investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Transfer Agent, shareholder servicing agent, or financial institution. Shares
may be exchanged between two FAIF Funds by telephone only if both FAIF Funds
have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent
or financial institution by the time specified by it, in order for shares to be
exchanged the same day. Neither the Transfer Agent nor any Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures.
Shareholders of the Funds may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his or her broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to DST Systems, Inc., 210 West
10th Street, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange Class A
Shares for Class C Shares. An example of such an exchange would be a situation
in which an individual holder of Class A Shares subsequently opens a custody or
agency account with a financial institution which invests in Class C Shares.
The terms of any exchange privilege may be modified or terminated by the Funds
at any time. There are currently no additional fees or charges for the exchange
service. The Funds do not contemplate establishing such fees or charges, but
they reserve the right to do so. Shareholders will be notified of any
modification or termination of the exchange privilege and of the imposition of
any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net asset
value next determined after the Fund receives the redemption request from the
financial institution. Redemption requests must be received by the financial
institution by the time specified by the institution in order for shares to be
redeemed at that day's net asset value, and redemption requests must be
transmitted to and received by the Funds by 3:00 p.m. Central time in order for
shares to be redeemed at that day's net asset value. Pursuant to instructions
received from the financial institution, redemptions will be made by check or by
wire transfer. It is the financial institution's responsibility to transmit
redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event more than seven days after the
request. The minimum amount for a wire transfer is $1,000. If at any time the
Funds determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming shares by telephone. If this should occur, another
method of redemption should be considered. Neither the Transfer Agent nor any
Fund will be responsible for the authenticity of redemption instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Funds and the Transfer Agent will each employ reasonable procedures
to confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if they
do not employ these procedures. These procedures may include taping of telephone
conversations.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should call
the Fund, shareholder servicing agent or financial institution for assistance in
redeeming by mail. A check for redemption proceeds normally is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have signatures
on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which
are insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate in
the Systematic Withdrawal Program. Under this program, Fund shares are redeemed
to provide for periodic withdrawal payments in an amount directed by the
shareholder. A shareholder may apply to participate in this program through his
or her financial institution. It is generally not in a shareholder's best
interest to participate in the Systematic Withdrawal Program at the same time
that the shareholder is purchasing additional shares if a sales charge must be
paid in connection with such purchases. Because automatic withdrawals with
respect to Class B Shares are subject to the contingent deferred sales charge,
it may not be in the best interest of a Class B shareholder to participate in
the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the purchase
date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if the
account balance falls below the required minimum value of $500. Shares will not
be redeemed in this manner, however, if the balance falls below $500 because of
changes in a Fund's net asset value. Before shares are redeemed to close an
account, the shareholder will be notified in writing and allowed 60 days to
purchase additional shares to meet the minimum account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Funds -- Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New York
Stock Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for that Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset value of
the Fund's shares. The price per share for purchases or redemptions is such
value next computed after the Transfer Agent receives the purchase order or
redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of redemptions
and repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent or Fund may require additional documents to evidence appropriate authority
in order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by dividing
the value of the securities owned by the Fund plus any cash and other assets
(including interest accrued and dividends declared but not collected), less all
liabilities, by the number of Fund shares outstanding. For the purpose of
determining the aggregate net assets of the Funds, cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued and dividends
will be recorded on the ex-dividend date. Investments in equity securities which
are traded on a national securities exchange (or reported on the NASDAQ national
market system) are stated at the last quoted sales price if readily available
for such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no sale
was reported on that date are stated at the last quoted bid price. Debt
obligations exceeding 60 days to maturity which are actively traded are valued
by an independent pricing service at the most recently quoted bid price. Debt
obligations with 60 days or less remaining until maturity may be valued at their
amortized cost. Foreign securities are valued based upon quotation from the
primary market in which they are traded. When market quotations are not readily
available, securities are valued at fair value as determined in good faith by
procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the exchange
prior to the time when assets are valued, unless the bid price is higher or the
asked price is lower, in which event the bid or asked price is used. In the
absence of any sales that day, options will be valued at the current closing bid
price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution expenses charged to Class A and Class B Shares.
FOREIGN SECURITIES
Any assets or liabilities of the Funds initially expressed in terms of foreign
currencies are translated into United States dollars using current exchange
rates. Trading in securities on foreign markets may be completed before the
close of business on each business day of the Funds. Thus, the calculation of
the Funds' net asset value may not take place contemporaneously with the
determination of the prices of foreign securities held in the Funds' portfolios.
If events materially affecting the value of foreign securities occur between the
time when their price is determined and the time when the Funds' net asset value
is calculated, such securities will be valued at fair value as determined in
good faith by or under the direction of the Board of Directors. In addition,
trading in securities on foreign markets may not take place on all days on which
the New York Stock Exchange is open for business or may take place on days on
which the Exchange is not open for business. Therefore, the net asset value of a
Fund which holds foreign securities might be significantly affected on days when
an investor has no access to the Fund.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), during its
current taxable year in order to be relieved of payment of federal income taxes
on amounts of taxable income it distributes to shareholders.
Dividends paid from each Fund's net investment income and net short-term capital
gains will be taxable to shareholders as ordinary income, whether or not the
shareholder elects to have such dividends automatically reinvested in additional
shares. Dividends paid by the Funds attributable to investments in the
securities of foreign issuers or REITs will not be eligible for the 70%
deduction for dividends received by corporations.
Dividends paid from the net capital gains of each Fund and designated as capital
gain dividends will be taxable to shareholders as long-term capital gains,
regardless of the length of time for which they have held their shares in the
Fund. Long-term capital gains of individuals are currently subject to a maximum
tax rate of 28%.
Gain or loss realized upon the sale of shares in the Funds will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
International Fund may be required to pay withholding and other taxes imposed by
foreign countries, generally at rates from 10% to 40%, which would reduce the
Fund's investment income. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If at the end of International
Fund's taxable year more than 50% of its total assets consist of securities of
foreign corporations, it will be eligible to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their respective pro rata portions of such foreign taxes in gross
income, treat such amounts as foreign taxes paid by them, and deduct such
amounts in computing their taxable income or, alternatively, use them as foreign
tax credits against their federal income taxes. If such an election is filed for
a year, International Fund shareholders will be notified of the amounts which
they may deduct as foreign taxes paid or use as foreign tax credits.
Alternatively, if the amount of foreign taxes paid by International Fund is not
large enough to warrant its making the election described above, the Fund may
claim the amount of foreign taxes paid as a deduction against its own gross
income. In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.
Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In order
to avoid this withholding requirement, each shareholder will be asked to certify
on the shareholder's account application that the social security or taxpayer
identification number provided is correct and that the shareholder is not
subject to backup withholding for previous underreporting to the IRS.
This is a general summary of the federal tax laws applicable to the Funds and
their shareholders as of the date of this Prospectus. See the Statement of
Additional Information for further details. Before investing in the Funds, an
investor should consult his or her tax adviser about the consequences of state
and local tax laws.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares may
be issued as either full or fractional shares. Fractional shares have pro rata
the same rights and privileges as full shares. Shares of the Funds have no
preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The shares
do not have cumulative voting rights. Consequently, the holders of more than 50%
of the shares voting for the election of directors are able to elect all of the
directors if they choose to do so. On issues affecting only a particular Fund or
Class, the shares of that Fund or Class will vote as a separate series. Examples
of such issues would be proposals to alter a fundamental investment restriction
pertaining to a Fund or to approve, disapprove or alter a distribution plan
pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are required
by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more
of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total return,"
its "average annual total return" and its "distribution rate." Distribution
rates may only be used in connection with sales literature and shareholder
communications preceded or accompanied by a Prospectus. Each of these
performance figures is based upon historical results and is not intended to
indicate future performance, and, except for "distribution rate," is
standardized in accordance with Securities and Exchange Commission ("SEC")
regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day period
(which period will be stated in the advertisement) by the maximum offering price
per share on the last day of the period. Yield is an annualized figure, in that
it assumes that the same level of net investment income is generated over a one
year period. The yield formula annualizes net investment income by providing for
semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value of a
hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the contingent
deferred sales charge imposed on Class B Shares redeemed at the end of the
specified period covered by the total return figure. "Cumulative total return"
reflects a Fund's performance over a stated period of time. "Average annual
total return" reflects the hypothetical annually compounded rate that would have
produced the same cumulative total return if performance had been constant over
the entire period. Because average annual returns tend to smooth out variations
in a Fund's performance, they are not the same as actual year-by-year results.
As a supplement to total return computations, a Fund may also publish "total
investment return" computations which do not assume deduction of the maximum
sales charge imposed on Class A Shares or the contingent deferred sales charge
imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share for
a stated period by the maximum offering price per share on the last day of the
period. All distribution rates published for the Funds are measures of the level
of income dividends distributed during a specified period. Thus, these rates
differ from yield (which measures income actually earned by a Fund) and total
return (which measures actual income, plus realized and unrealized gains or
losses of a Fund's investments). Consequently, distribution rates alone should
not be considered complete measures of performance.
The performance of the Class A and Class B Shares of a Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to the
sales charges and distribution expenses applicable to Class A and Class B
Shares. In addition, the performance of Class A and Class B Shares of a Fund
will differ because of the different sales charge structures of the classes and
because of the higher distribution and service fees charged to Class B Shares.
In reports or other communications to shareholders and in advertising material,
the performance of each Fund may be compared to recognized unmanaged indices or
averages of the performance of similar securities. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent mutual fund rating services, and each Fund may include in such
reports, communications and advertising material evaluations published by
nationally recognized independent ranking services and publications. For further
information regarding the Funds' performance, see "Fund Performance" in the
Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information concerning
these matters is contained in the Statement of Additional Information.
CASH ITEMS
The "cash items" in which the Funds may invest, as described under
"Investment Objectives and Policies," include short-term obligations such as
rated commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings and time deposits (including certificates
of deposit); bankers acceptances; obligations of the United States Government
or its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. A repurchase agreement
involves the purchase by a Fund of securities with the agreement that after a
stated period of time, the original seller will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. If the
original seller defaults on its obligation to repurchase as a result of its
bankruptcy or otherwise, the purchasing Fund will seek to sell the collateral,
which could involve costs or delays. Although collateral (which may consist of
any fixed income security which is an eligible investment for the Fund entering
into the repurchase agreement) will at all times be maintained in an amount
equal to the repurchase price under the agreement (including accrued interest),
a Fund would suffer a loss if the proceeds from the sale of the collateral were
less than the agreed-upon repurchase price. The Adviser or, in the case of
International Fund, the Sub-Adviser will monitor the creditworthiness of the
firms with which the Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds (excluding Equity Index Fund) may purchase securities on a
when-issued or delayed-delivery basis. When such a transaction is negotiated,
the purchase price is fixed at the time the purchase commitment is entered, but
delivery of and payment for the securities take place at a later date. A Fund
will not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery of
the securities, each Fund will maintain in a segregated account cash or liquid
high-grade securities in an amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes a
Fund to risk because the securities may decrease in value prior to delivery. In
addition, a Fund's purchase of securities on a when-issued or delayed-delivery
basis while remaining substantially fully invested could increase the amount of
the Fund's total assets that are subject to market risk, resulting in increased
sensitivity of net asset value to changes in market prices. However, the Funds
will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with their investment
objectives, and not for the purpose of investment leverage. A seller's failure
to deliver securities to a Fund could prevent the Fund from realizing a price or
yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds (excluding Equity
Index Fund) may lend portfolio securities representing up to one-third of the
value of its total assets to broker-dealers, banks or other institutional
borrowers of securities. As with other extensions of credit, there may be risks
of delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the Funds will
only enter into loan arrangements with broker-dealers, banks, or other
institutions which the Adviser or, in the case of International Fund, the
Sub-Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Funds may purchase put and call options.
These transactions will be undertaken only for the purpose of reducing risk to
the Funds; that is, for "hedging" purposes. Depending on the Fund, these
transactions may include the purchase of put and call options on equity
securities, on stock indices, on interest rate indices, or (only in the case of
International Fund) on foreign currencies. Options on futures contracts are
discussed below under "Futures and Options on Futures."
A put option on a security gives the purchaser of the option the right (but not
the obligation) to sell, and the writer of the option the obligation to buy, the
underlying security at a stated price (the "exercise price") at any time before
the option expires. A call option on a security gives the purchaser the right
(but not the obligation) to buy, and the writer the obligation to sell, the
underlying security at the exercise price at any time before the option expires.
The purchase price for a put or call option is the "premium" paid by the
purchaser for the right to sell or buy.
Options on indices are similar to options on securities except that, rather than
the right to take or make delivery of a specific security at a stated price, an
option on an index gives the holder the right to receive, upon exercise of the
option, a defined amount of cash if the closing value of the index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
None of the Funds other than International Fund will invest more than 5% of the
value of its total assets in purchased options, provided that options which are
"in the money" at the time of purchase may be excluded from this 5% limitation.
A call option is "in the money" if the exercise price is lower than the current
market price of the underlying security or index, and a put option is "in the
money" if the exercise price is higher than the current market price. A Fund's
loss exposure in purchasing an option is limited to the sum of the premium paid
and the commission or other transaction expenses associated with acquiring the
option.
The use of purchased put and call options involves certain risks. These include
the risk of an imperfect correlation between market prices of securities held by
a Fund and the prices of options, and the risk of limited liquidity in the event
that a Fund seeks to close out an options position before expiration by entering
into an offsetting transaction.
WRITING OF COVERED CALL OPTIONS. The Funds may write (sell) covered call options
to the extent specified with respect to particular Funds under "Investment
Objectives and Policies." These transactions would be undertaken principally to
produce additional income. Depending on the Fund, these transactions may include
the writing of covered call options on equity securities or (only in the case of
International Fund) on foreign currencies which a Fund owns or has the right to
acquire or on interest rate indices.
When a Fund sells a covered call option, it is paid a premium by the purchaser.
If the market price of the security covered by the option does not increase
above the exercise price before the option expires, the option generally will
expire without being exercised, and the Fund will retain both the premium paid
for the option and the security. If the market price of the security covered by
the option does increase above the exercise price before the option expires,
however, the option is likely to be exercised by the purchaser. In that case the
Fund will be required to sell the security at the exercise price, and it will
not realize the benefit of increases in the market price of the security above
the exercise price of the option.
FUTURES AND OPTIONS ON FUTURES
Equity Index Fund, Balanced Fund, Asset Allocation Fund and International Fund
may engage in futures transactions and purchase options on futures to the extent
specified with under "Investment Objectives and Policies." Depending on the
Fund, these transactions may include the purchase of stock index futures and
options on stock index futures, and the purchase of interest rate futures and
options on interest rate futures. In addition, International Fund may enter into
contracts for the future delivery of securities or foreign currencies and
futures contracts based on a specific security, class of securities, or foreign
currency.
A futures contract on a security obligates one party to purchase, and the other
to sell, a specified security at a specified price on a date certain in the
future. A futures contract on an index obligates the seller to deliver, and
entitles the purchaser to receive, an amount of cash equal to a specific dollar
amount times the difference between the value of the index at the expiration
date of the contract and the index value specified in the contract. The
acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified exercise price,
to sell or to purchase the underlying futures contract at any time during the
option period.
A Fund may use futures contracts and options on futures in an effort to hedge
against market risks and, in the case of International Fund, as part of its
management of foreign currency transactions. In addition, Equity Index Fund may
use stock index futures and options on futures to maintain sufficient liquidity
to meet redemption requests, to increase the level of Fund assets devoted to
replicating the composition of the S&P 500, and to reduce transaction costs.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed 1/3 of the market value of a Fund's total assets.
Futures transactions will be limited to the extent necessary to maintain each
Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which Stock Fund, Equity Income Fund, Diversified
Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund,
Technology Fund, Health Sciences Fund, and Real Estate Securities Fund may
invest include securities issued or guaranteed by the United States Government
or its agencies or instrumentalities, nonconvertible preferred stocks,
nonconvertible corporate debt securities, and short-term obligations of the
kinds described above under "-- Cash Items." Investments in nonconvertible
preferred stocks and nonconvertible corporate debt securities will be limited to
securities which are rated at the time of purchase not less than BBB by Standard
& Poor's or Baa by Moody's (or equivalent short-term ratings), or which have
been assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of the
Adviser. Obligations rated BBB, Baa or their equivalent, although investment
grade, have speculative characteristics and carry a somewhat higher risk of
default than obligations rated in the higher investment grade categories.
Equity Income Fund also may invest a portion of its assets in less than
investment grade convertible debt obligations. For a description of such
obligations and the risks associated therewith, see "Investment Objectives and
Policies -- Equity Income Fund."
The fixed income securities specified above, as well as the fixed income
securities in which Balanced Fund and Asset Allocation Fund may invest as
described under "Investment Objectives and Policies," are subject to (i)
interest rate risk (the risk that increases in market interest rates will cause
declines in the value of debt securities held by a Fund); (ii) credit risk (the
risk that the issuers of debt securities held by a Fund default in making
required payments); and (iii) call or prepayment risk (the risk that a borrower
may exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests at least 65%
of its total assets in equity securities which trade in markets other than the
United States. In addition, the other Funds (excluding Equity Index Fund, Asset
Allocation Fund, Regional Equity Fund and Real Estate Securities Fund) may
invest lesser proportions of their assets in securities of foreign issuers which
are either listed on a United States securities exchange or represented by
American Depositary Receipts.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Foreign securities also may be subject to greater
fluctuations in price than securities issued by United States corporations. The
principal markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.
In addition, there may be less publicly available information about a foreign
company than about a United States domiciled company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to United States domestic
companies. There is also generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of United States banks, foreign
banks and foreign issuers may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting, and recordkeeping standards
than those applicable to domestic branches of United States banks and United
States domestic issuers.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many foreign
securities, United States dollar-denominated American Depositary Receipts, which
are traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. American Depositary Receipts represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. American Depositary Receipts do not eliminate all the risk inherent in
investing in the securities of foreign issuers. However, by investing in
American Depositary Receipts rather than directly in foreign issuers' stock, a
Fund can avoid currency risks during the settlement period for either purchases
or sales. In general, there is a large, liquid market in the United States for
many American Depositary Receipts. The information available for American
Depositary Receipts is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. International Fund also may invest in European
Depositary Receipts, which are receipts evidencing an arrangement with a
European bank similar to that for American Depositary Receipts and which are
designed for use in the European securities markets. European Depositary
Receipts are not necessarily denominated in the currency of the underlying
security.
Certain American Depositary Receipts and European Depositary Receipts, typically
those denominated as unsponsored, require the holders thereof to bear most of
the costs of the facilities while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders in respect to the deposited securities, whereas the depository
of a sponsored facility typically distributes shareholder communications and
passes through voting rights.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold in foreign
currencies. The value of its assets as measured in United States dollars
therefore may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. International Fund
also will incur costs in converting United States dollars to local currencies,
and vice versa.
International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date certain at a
specified price. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
International Fund may enter into forward currency contracts in order to hedge
against adverse movements in exchange rates between currencies. It may engage in
"transaction hedging" to protect against a change in the foreign currency
exchange rate between the date the Fund contracts to purchase or sell a security
and the settlement date, or to "lock in" the United States dollar equivalent of
a dividend or interest payment made in a foreign currency. It also may engage in
"portfolio hedging" to protect against a decline in the value of its portfolio
securities as measured in United States dollars which could result from changes
in exchange rates between the United States dollar and the foreign currencies in
which the portfolio securities are purchased and sold. International Fund also
may hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
Although a foreign currency hedge may be effective in protecting the Fund from
losses resulting from unfavorable changes in exchanges rates between the United
States dollar and foreign currencies, it also would limit the gains which might
be realized by the Fund from favorable changes in exchange rates. The
Sub-Adviser's decision whether to enter into currency hedging transactions will
depend in part on its view regarding the direction and amount in which exchange
rates are likely to move. The forecasting of movements in exchange rates is
extremely difficult, so that it is highly uncertain whether a hedging strategy,
if undertaken, would be successful. To the extent that the Sub-Adviser's view
regarding future exchange rates proves to have been incorrect, International
Fund may realize losses on its foreign currency transactions.
International Fund does not intend to enter into forward currency contracts
or maintain a net exposure in such contracts where it would be obligated to
deliver an amount of foreign currency in excess of the value of its portfolio
securities or other assets denominated in that currency.
MORTGAGE-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in mortgage-backed securities which are Agency Pass-Through Certificates
or collateralized mortgage obligations ("CMOs"), as described below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
The obligation of GNMA with respect to such certificates is backed by the full
faith and credit of the United States, while the obligations of FNMA and FHLMC
with respect to such certificates rely solely on the assets and credit of those
entities. The mortgage loans underlying GNMA certificates are partially or fully
guaranteed by the Federal Housing Administration or the Veterans Administration,
while the mortgage loans underlying FNMA certificates and FHLMC certificates are
conventional mortgage loans which are, in some cases, insured by private
mortgage insurance companies. Agency Pass-Through Certificates may be issued in
a single class with respect to a given pool of mortgage loans or in multiple
classes.
CMOs are debt obligations typically issued by a private special-purpose entity
and collateralized by residential or commercial mortgage loans or Agency
Pass-Through Certificates. Balanced Fund will invest only in CMOs which are
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Adviser. Because CMOs are debt obligations of private entities,
payments on CMOs generally are not obligations of or guaranteed by any
governmental entity, and their ratings and creditworthiness typically depend,
among other factors, on the legal insulation of the issuer and transaction from
the consequences of a sponsoring entity's bankruptcy. CMOs generally are issued
in multiple classes, with holders of each class entitled to receive specified
portions of the principal payments and prepayments and/or of the interest
payments on the underlying mortgage loans. These entitlements can be specified
in a wide variety of ways, so that the payment characteristics of various
classes may differ greatly from one another. Examples of the more common classes
are provided in the Statement of Additional Information. The CMOs in which the
Fund may invest include classes which are subordinated in right of payment to
other classes, as long as they have the required rating referred to above.
It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases. The
return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds. When
interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely to
decline more sharply in periods of increasing interest rates than that of a
fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. Balanced Fund will
not invest more than 10% of its total fixed income assets in interest-only,
principal-only or inverse floating rate mortgage backed securities.
ASSET-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in asset-backed securities. Asset-backed securities generally constitute
interests in, or obligations secured by, a pool of receivables other than
mortgage loans, such as automobile loans and leases, credit card receivables,
home equity loans and trade receivables. Asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and creditworthiness
typically depend on the legal insulation of the issuer and transaction from the
consequences of a sponsoring entity's bankruptcy, as well as on the credit
quality of the underlying receivables and the amount and credit quality of any
third-party credit enhancement supporting the underlying receivables or the
asset-backed securities. Asset-backed securities and their underlying
receivables generally are not issued or guaranteed by any governmental entity.
BANK INSTRUMENTS
The bank instruments in which Balanced Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or foreign
banks; Eurodollar Time Deposits, which are United States dollar-denominated
deposits in foreign branches of United States or foreign banks; and Yankee
Certificates of Deposit, which are United States dollar-denominated certificates
of deposit issued by United States branches of foreign banks and held in the
United States. For a description of certain risks of investing in foreign
issuers' securities, see "-- Foreign Securities" above. In each instance,
Balanced Fund may only invest in bank instruments issued by an institution which
has capital, surplus and undivided profits of more than $100 million or the
deposits of which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most portfolio
transactions involving debt securities will be executed on a principal basis.
Also, with respect to the placement of portfolio transactions with securities
firms, subject to the overall policy to seek to place portfolio transactions as
efficiently as possible and at the best price, research services and placement
of orders by securities firms for a Fund's shares may be taken into account as a
factor in placing portfolio transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits, they
may dispose of a security without regard to the time it has been held when such
action appears advisable to the Adviser or, in the case of International Fund,
the Sub-Adviser. The portfolio turnover rate for a Fund may vary from year to
year and may be affected by cash requirements for redemptions of shares. High
portfolio turnover rates generally would result in higher transaction costs and
could result in additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are set
forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets, except for Asset Allocation Fund,
which may borrow in amounts not to exceed 33-1/3% of its total assets.
None of the Funds will borrow money for leverage purposes. For the
purpose of this investment restriction, the use of options and futures
transactions and the purchase of securities on a when-issued or
delayed-delivery basis shall not be deemed the borrowing of money. If a
Fund engages in borrowing, its share price may be subject to greater
fluctuation, and the interest expense associated with the borrowing may
reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Emerging Growth Fund,
Technology Fund, and International Fund as may be necessary to make
margin payments in connection with foreign currency futures and other
derivative transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of its
net assets in all forms of illiquid investments, as determined pursuant to
applicable Securities and Exchange Commission rules and interpretations. Section
4(2) commercial paper may be determined to be "liquid" under guidelines adopted
by the Board of Directors. Rule 144A securities may in the future be determined
to be "liquid" under guidelines adopted by the Board of Directors if the current
position of certain state securities regulators regarding such securities is
modified. Investing in Rule 144A securities could have the effect of increasing
the level of illiquidity in a Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
Pursuant to an undertaking to certain state securities regulators, Real Estate
Securities Fund will purchase securities that meet the investment objectives and
policies of the Fund, are acquired for investment and not for resale, that are
liquid and not restricted as to transfer, and that have a value that is readily
ascertainable as evidenced by a listing on the New York Stock Exchange, the
American Stock Exchange, or NASDAQ.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1003 (1/96)R
FIRST AMERICAN INVESTMENT FUNDS, INC.
EQUITY FUNDS
INSTITUTIONAL CLASS
STOCK FUND REGIONAL EQUITY FUND
EQUITY INDEX FUND SPECIAL EQUITY FUND
BALANCED FUND TECHNOLOGY FUND
ASSET ALLOCATION FUND HEALTH SCIENCES FUND
EQUITY INCOME FUND REAL ESTATE SECURITIES FUND
DIVERSIFIED GROWTH FUND INTERNATIONAL FUND
EMERGING GROWTH FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 8
Class C Share Fees and Expenses 8
Information Concerning Fees and
Expenses 10
FINANCIAL HIGHLIGHTS 12
THE FUNDS 16
INVESTMENT OBJECTIVES AND POLICIES 16
Stock Fund 17
Equity Index Fund 18
Balanced Fund 19
Asset Allocation Fund 21
Equity Income Fund 22
Diversified Growth Fund 23
Emerging Growth Fund 24
Regional Equity Fund 25
Special Equity Fund 26
Technology Fund 27
Health Sciences Fund 28
Real Estate Securities Fund 29
International Fund 31
Risks to Consider 32
MANAGEMENT 33
Investment Adviser 33
Sub-Adviser to International Fund 34
Portfolio Managers 35
Custodian 38
Administrator 38
Transfer Agent 39
DISTRIBUTOR 39
PURCHASES AND REDEMPTIONS OF SHARES 39
Share Purchases and Redemptions 39
What Shares Cost 40
Exchanging Securities for Fund Shares 41
Certificates and Confirmations 41
Dividends and Distributions 41
Exchange Privilege 42
FEDERAL INCOME TAXES 43
FUND SHARES 44
CALCULATION OF PERFORMANCE DATA 44
SPECIAL INVESTMENT METHODS 45
Cash Items 45
Repurchase Agreements 46
When-Issued and Delayed-Delivery
Transactions 46
Lending of Portfolio Securities 46
Options Transactions 47
Futures and Options on Futures 48
Fixed Income Securities 49
Foreign Securities 50
Foreign Currency Transactions 51
Mortgage-Backed Securities 52
Asset-Backed Securities 53
Bank Instruments 53
Portfolio Transactions 54
Portfolio Turnover 54
Investment Restrictions 54
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class C
Shares of the following funds (the "Funds"):
* STOCK FUND * REGIONAL EQUITY FUND
* EQUITY INDEX FUND * SPECIAL EQUITY FUND
* BALANCED FUND * TECHNOLOGY FUND
* ASSET ALLOCATION FUND * HEALTH SCIENCES FUND
* EQUITY INCOME FUND * REAL ESTATE SECURITIES FUND
* DIVERSIFIED GROWTH FUND * INTERNATIONAL FUND
* EMERGING GROWTH FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they act
in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE TO
FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds has
been filed with the Securities and Exchange Commission and is incorporated in
its entirety by reference in this Prospectus. To obtain copies of the Statement
of Additional Information at no charge, or to obtain other information or make
inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment company
which offers shares in several different mutual funds. This Prospectus provides
information with respect to the Class C Shares of the following funds (the
"Funds"):
STOCK FUND has a primary objective of capital appreciation and a secondary
objective to provide current income. Under normal market conditions, the Fund
invests at least 80% of its total assets in equity securities diversified among
a broad range of industries and among companies that have a market
capitalization of at least $500 million. In selecting equity securities, the
Fund's adviser employs a value-based selection discipline.
EQUITY INDEX FUND has an objective of providing investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500"). The Fund invests substantially in common stocks included
in the S&P 500. The Fund's adviser believes that its objective can best be
achieved by investing in the common stocks of approximately 250 to 500 of the
issues included in the S&P 500.
BALANCED FUND has an objective of maximizing total return (capital appreciation
plus income). The Fund seeks to achieve its objective by investing in a balanced
portfolio of equity securities and fixed income securities. Over the long term,
it is anticipated that the Fund's asset mix will average approximately 60%
equity securities and 40% fixed income securities, with the asset mix normally
ranging between 40% and 75% equity securities, between 25% and 60% fixed income
securities, and between 0% and 25% money market instruments.
ASSET ALLOCATION FUND has an objective of maximizing total return over the long
term by allocating its assets principally among common stocks, bonds, and
short-term instruments. There are no limitations on the proportions in which the
Fund's adviser may allocate the Fund's investments among these three classes of
assets, and the Fund may at times be fully invested in a single asset class if
the adviser believes that it offers the most favorable total return outlook.
EQUITY INCOME FUND has an objective of long-term growth of capital and income.
Under normal market conditions, the Fund invests at least 80% of its total
assets in equity securities of issuers believed by the Fund's adviser to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends.
DIVERSIFIED GROWTH FUND has a primary objective of long-term growth of capital
and a secondary objective to provide current income. Under normal market
conditions, the Fund invests at least 80% of its total assets in equity
securities of a diverse group of companies that will provide representation
across all economic sectors included in the S&P 500. The adviser may overweight
the Fund's portfolio holdings in sectors that it believes provide above average
total return potential.
EMERGING GROWTH FUND has an objective of growth of capital. Under normal market
conditions, the Fund invests at least 65% of its total assets in equity
securities of small-sized companies that exhibit, in the adviser's opinion,
outstanding potential for superior growth. Companies that participate in sectors
that are identified by the adviser as having long-term growth potential
generally are expected to make up a substantial portion of the Fund's holdings.
REGIONAL EQUITY FUND has an objective of capital appreciation. The Fund seeks to
achieve its objective by investing, in normal market conditions, at least 65% of
its total assets in equity securities of small-sized companies headquartered in
Minnesota, North and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska,
Colorado and Illinois. The Fund invests in the securities of rapidly growing
companies within this size category and geographic area.
SPECIAL EQUITY FUND has an objective of capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities. The Fund's policy is to invest in equity securities which the Fund's
adviser believes offer the potential for greater than average capital
appreciation. The adviser believes that this policy can best be achieved by
investing in the equity securities of companies where fundamental changes are
occurring, are likely to occur, or have occurred and where, in the opinion of
the adviser, the changes have not been adequately reflected in the price of the
securities.
TECHNOLOGY FUND has an objective of long-term growth of capital. Under normal
market conditions, the Fund invests at least 80% of its total assets in equity
securities of companies which the Fund's adviser believes have, or will develop,
products, processes or services that will provide or will benefit significantly
from technological advances and improvements.
HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 80% of its total assets
in equity securities of companies which the Fund's adviser considers to be
principally engaged in the development, production or distribution of products
or services connected with health care or medicine.
REAL ESTATE SECURITIES FUND has an objective of providing above average current
income and long-term capital appreciation by investing primarily in equity
securities of real estate companies. Under normal market conditions, the Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry. A
majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"), with an expected emphasis on equity REITs.
INTERNATIONAL FUND has an objective of long-term growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in an
internationally diversified portfolio of equity securities which trade in
markets other than the United States. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
Fund also may invest in emerging markets where smaller capitalization companies
are the norm.
INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the
"Adviser") serves as investment adviser to each of the Funds. Marvin & Palmer
Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to International
Fund. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and
certain other institutions for the investment of their own funds and funds for
which they act in a fiduciary, agency or custodial capacity. Class C Shares are
sold at net asset value without any front-end or deferred sales charges. See
"Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other FAIF funds at the shares' respective net asset values with no
additional charge. See "Purchases and Redemptions of Shares -- Exchange
Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, with no additional charge. See "Purchases and
Redemptions of Shares."
RISKS TO CONSIDER Each of the Funds is subject to the risk of generally adverse
equity markets. Investors also should recognize that market prices of equity
securities generally, and of particular companies' equity securities, frequently
are subject to greater volatility than prices of fixed income securities.
Because each of the Funds other than Equity Index Fund is actively managed to a
greater or lesser degree, their performance will reflect in part the ability of
the Adviser or Sub-Adviser to select securities which are suited to achieving
their investment objectives. Due to their active management, these Funds could
underperform other mutual funds with similar investment objectives or the market
generally.
In addition, (i) certain of the Funds are subject to risks associated with
investing in smaller-capitalization companies; (ii) Regional Equity Fund is
subject to risks associated with concentrating its investments in a single
geographic region; (iii) Technology Fund, Health Sciences Fund and Real Estate
Securities Fund are subject to risks associated with concentrating their
investments in a single or related economic sectors; (iv) Real Estate Securities
Fund is subject to risks associated with direct investments in REITs; (v)
International Fund is subject to risks associated with investing in foreign
securities and to currency risk; (vi) Equity Income Fund may invest a portion of
its assets in less than investment grade convertible debt obligations; (vii)
certain Funds other than International Fund may invest specified portions of
their assets in securities of foreign issuers which are listed on a United
States stock exchange or represented by American Depository Receipts or, in the
case of Balanced Fund, are debt obligations of foreign issuers denominated in
United States dollars; and (viii) certain Funds may invest (but not for
speculative purposes) in stock index futures contracts, options on stock
indices, options on stock index futures, index participation contracts based on
the S&P 500, and/or exchange traded put and call options on interest rate
futures contracts and on interest rate indices. See "Investment Objectives and
Policies" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES INSTITUTIONAL CLASSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET
STOCK INDEX BALANCED ALLOCATION
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None None None None
Maximum sales load imposed on
reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(1) 0.57% 0.12% 0.57% 0.49%
Rule 12b-1 fees None None None None
Other expenses (after voluntary fee
waivers)(1) 0.23% 0.23% 0.23% 0.31%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(1) 0.80% 0.35% 0.80% 0.80%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 8 $ 4 $ 8 $ 8
3 years $ 26 $ 11 $ 26 $ 26
5 years $ 44 $ 20 $ 44 $ 44
10 years $ 99 $ 44 $ 99 $ 99
</TABLE>
(table continued)
<TABLE>
<CAPTION>
EQUITY SPECIAL HEALTH
INCOME DIVERSIFIED EMERGING REGIONAL EQUITY TECHNOLOGY SCIENCES REAL ESTATE INTERNATIONAL
FUND GROWTH FUND GROWTH FUND EQUITY FUND FUND FUND FUND SECURITIES FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
0.40% 0.50% 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19%
None None None None None None None None None
0.35% 0.30% 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56%
0.75% 0.80% 0.90% 0.90% 0.90% 0.90% 0.90% 0.80% 1.75%
$ 8 $ 8 $ 9 $ 9 $ 9 $ 9 $ 9 $ 8 $ 18
$ 24 $ 26 $ 29 $ 29 $ 29 $ 29 $ 29 $ 26 $ 55
$ 42 $ 44 $ 50 $ 50 $ 50 $ 50 $ 44 $ 95
$ 93 $ 99 $ 111 $ 111 $ 111 $ 111 $ 99 $ 206
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees as an
annualized percentage of average daily net assets would be 0.70% for
each Fund except International Fund, as to which they would be 1.25%;
and total fund operating expenses calculated on such basis would be
0.94% for Stock Fund, 0.95% for Equity Index Fund, 0.94% for Balanced
Fund, 1.01% for Asset Allocation Fund, 1.06% for Equity Income Fund,
1.01% for Diversified Growth Fund, 1.19% for Emerging Growth Fund,
0.95% for Regional Equity Fund, 0.95% for Special Equity Fund, 1.30%
for Technology Fund, 1.37% for Health Sciences Fund, 2.34% for Real
Estate Securities Fund, and 1.81% for International Fund. Other
expenses includes an administration fee and, in the case of Health
Sciences Fund, is based on estimated amounts for the current fiscal
year.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $10, $30, $52 and $115; Equity Index Fund, $10, $30, $53
and $117; Balanced Fund, $10, $30, $52 and $115; Asset Allocation Fund,
$10, $32, $56 and $124; Equity Income Fund, $11, $34, $58 and $129;
Diversified Growth Fund, $10, $32, $56 and $124; Emerging Growth Fund,
$12, $36, $65 and $144; Regional Equity Fund, $10, $30, $53 and $117;
Special Equity Fund, $10, $30, $53 and $117; Technology Fund, $13, $41,
$71 and $157; Health Sciences Fund, $14, $43, $75 and $165; Real Estate
Securities Fund, $24, $73, $125 and $268; and International Fund, $18,
$57, $98 and $213.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in understanding
the various costs and expenses that an investor in a Fund may bear directly or
indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The information set forth in the foregoing tables and
examples relates only to the Class C Shares of the Funds. The Funds also offer
Class A and Class B Shares which are subject to the same expenses and, in
addition, to a front-end or contingent deferred sales load and certain
distribution expenses.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the Adviser
and the Administrator. Although these persons intend to maintain such waivers in
effect for the current fiscal year, any such waivers are voluntary and may be
discontinued at any time. Prior to fee waivers, investment advisory fees accrue
at the annual rate as a percentage of average daily net assets of 0.70% for each
of the Funds except International Fund, as to which they are 1.25%.
Other expenses include fees paid by each Fund to the Administrator for providing
various services necessary to operate the Funds. These include shareholder
servicing and certain accounting and other services. The Administrator provides
these services for a fee calculated at an annual rate of 0.12% of average daily
net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal
year; provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. Other expenses of the Funds also includes the cost of maintaining
shareholder records, furnishing shareholder statements and reports, and other
services. Investment advisory fees, administrative fees and other expenses are
reflected in the Funds' daily dividends and are not charged to individual
shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the independent
auditors' report of KPMG Peat Marwick LLP appearing in the Statement of
Additional Information. Further information about the Funds' performance is
contained in FAIF's annual report to shareholders, which may be obtained without
charge by calling (800) 637-2548 or by writing SEI Financial Services Company,
680 East Swedesford Road, Wayne, Pennsylvania 19087. The Financial Highlights
for the Class A shares of the Funds have been provided below along with the
Financial Highlights for Class C shares. Class A shares are subject to sales
charges and fees that may differ from those applicable to Class C shares.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
STOCK FUND
Class C
1995 $16.50 $0.36 $ 3.64 $(0.35)
1994(1) 16.47 0.25 0.03 (0.25)
Class A
1995 $16.51 $0.33 $ 3.64 $(0.32)
1994 16.00 0.31 1.00 (0.30)
1993 14.04 0.22 1.99 (0.23)
1992 13.62 0.24 0.81 (0.29)
1991(7) 10.64 0.28 2.95 (0.22)
1990(8) 12.09 0.25 (1.17) (0.25)
1989(8) 10.35 0.25 1.70 (0.20)
1988(8)(9) 10.03 0.27 0.35 (0.30)
EQUITY INDEX FUND
Class C
1995 $10.67 $0.28 $ 2.75 $(0.27)
1994(1) 10.85 0.20 (0.18) (0.20)
Class A
1995 $10.68 $0.25 $ 2.76 $(0.25)
1994 10.60 0.25 0.09 (0.25)
1993(2) 10.00 0.20 0.60 (0.20)
BALANCED FUND
Class C
1995 $10.54 $0.40 $ 1.73 $(0.39)
1994(1) 10.86 0.25 (0.32) (0.25)
Class A
1995 $10.54 $0.38 $ 1.72 $(0.37)
1994 10.73 0.34 (0.02) (0.34)
1993(2) 10.00 0.28 0.75 (0.28)
ASSET ALLOCATION FUND
Class C
1995 $10.38 $0.38 $ 1.58 $(0.37)
1994(1) 10.68 0.20 (0.30) (0.20)
Class A
1995 $10.39 $0.36 $ 1.58 $(0.35)
1994 10.60 0.27 (0.08) (0.26)
1993(2) 10.00 0.19 0.60 (0.19)
</TABLE>
(table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $19.56 25.50% $312,559 0.79% 2.10% 0.94% 52%
-- 16.50 1.70%+ 154,949 0.75 2.28 1.01 65
$(0.59) $19.57 25.26% $ 13,076 1.00% 1.89% 1.19% 52%
(0.50) 16.51 8.35% 8,421 0.76 1.51 1.20 65
(0.02) 16.00 15.82% 134,186 0.75 1.94 1.28 48
(0.34) 14.04 7.88% 3,644 1.45 1.75 4.46 39
(0.03) 13.62 30.49%+ 2,386 1.45 2.47 7.42 76
(0.28) 10.64 (8.22%) 1,161 1.45 2.24 9.47 41
(0.01) 12.09 20.33% 323 1.24 2.26 36.39 74
-- 10.35 6.40%+ 206 1.02 2.67 28.60 80
$(0.09) $13.34 29.17% $218,932 0.35% 2.41% 0.95% 9%
-- 10.67 0.18%+ 163,688 0.35 2.59 1.03 11
$(0.09) $13.35 28.90% $ 2,140 0.57% 2.16% 1.20% 9%
(0.01) 10.68 3.25% 758 0.35 2.23 1.23 11
-- 10.60 8.02%+ 139,957 0.35 2.52 1.30 1
$(0.15) $12.13 20.89% $192,145 0.79% 3.61% 0.94% 77%
-- 10.54 (0.64%)+ 125,285 0.75 3.51 1.05 98
$(0.15) $12.12 20.57% $ 15,288 0.99% 3.41% 1.19% 77%
(0.17) 10.54 3.02% 13,734 0.77 2.63 1.24 98
(0.02) 10.73 10.39%+ 111,225 0.75 3.31 1.29 77
$(0.25) $11.72 19.75% $ 43,210 0.79% 3.53% 1.01% 87%
-- 10.38 (0.90%)+ 47,227 0.75 2.91 1.12 32
$(0.25) $11.73 19.51% $ 993 0.99% 3.29% 1.26% 87%
(0.14) 10.39 1.81% 707 0.75 2.01 1.29 32
-- 10.60 8.01%+ 56,393 0.75 2.40 1.34 31
</TABLE>
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) Class C shares have been offered since February 4, 1994. All ratios for
the period have been annualized.
(2) Commenced operations on December 14, 1992. All ratios for the period
have been annualized.
(3) Class C shares have been offered since August 2, 1994. All ratios for
the period have been annualized.
(4) On April 28, 1994 the Board of Directors approved a change in this
Fund's fiscal year end from November 30 to September 30, effective
September 30, 1994. All ratios for the period have been annualized.
(5) For the period ended November 30.
(6) Commenced operations on December 18, 1992. All ratios for the period
have been annualized.
(7) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(8) For the period ended October 31.
(9) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
(10) Commenced operations on April 4, 1994. All ratios for the period have
been annualized.
(11) Commenced operations on June 30, 1995. All ratios for the period have
been annualized.
FINANCIAL HIGHLIGHTS (CONTINUED)
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
PERIOD INCOME INVESTMENTS INCOME GAINS
<S> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
Class C
1995 $ 9.89 $ 0.41 $ 1.35 $(0.41) $ --
1994(3) 9.90 0.07 (0.03) (0.05) --
Class A
1995 $ 9.89 $ 0.41 $ 1.33 $(0.39) $ --
1994(4) 9.87 0.41 -- (0.39) --
1993(5)(6) 10.00 0.57 (0.14) (0.56) --
DIVERSIFIED GROWTH FUND
Class C
1995 $ 9.10 $ 0.17 $ 2.67 $(0.16) $ --
1994(3) 8.92 0.03 0.18 (0.03) --
Class A
1995 $ 9.09 $ 0.15 $ 2.66 $(0.15) $ --
1994(4) 9.39 0.10 (0.29) (0.11) --
1993(5)(6) 10.00 0.11 (0.63) (0.09) --
EMERGING GROWTH FUND
Class C
1995 $10.56 $ 0.03 $ 2.99 $(0.02) $(0.15)
1994(10) 10.00 0.01 0.56 (0.01) --
REGIONAL EQUITY FUND
Class C
1995 $12.52 $ 0.11 $ 4.90 $(0.08) $(0.32)
1994(1) 12.41 0.07 0.11 (0.07) --
Class A
1995 $12.52 $ 0.08 $ 4.90 $(0.06) $(0.32)
1994 11.96 0.08 0.71 (0.07) (0.16)
1993(2) 10.00 0.05 1.96 (0.05) --
SPECIAL EQUITY FUND
Class C
1995 $17.30 $ 0.38 $ 1.61 $(0.38) $(1.02)
1994(1) 16.34 0.22 0.96 (0.22) --
Class A
1995 $17.30 $ 0.35 $ 1.60 $(0.34) $(1.02)
1994 15.81 0.28 2.52 (0.28) (1.03)
1993 13.61 0.23 2.32 (0.25) (0.10)
1992 12.98 0.21 1.61 (0.27) (0.92)
1991(7) 10.33 0.30 2.61 (0.26) --
1990(8) 12.96 0.47 (2.03) (0.46) (0.61)
1989(8) 11.55 0.47 1.39 (0.41) (0.04)
1988(8)(9) 10.03 0.34 1.57 (0.39) --
TECHNOLOGY FUND
Class C
1995 $11.19 $(0.03) $ 7.31 $ -- $(0.23)
1994(10) 10.00 (0.01) 1.20 -- --
REAL ESTATE SECURITIES FUND
Class C
1995(11) $10.00 $ 0.13 $ 0.39 $(0.11) $ --
INTERNATIONAL FUND
Class C
1995 $10.22 $ 0.01 $ 0.07 $ -- $ --
1994(10) 10.00 (0.01) 0.23 -- --
</TABLE>
(table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME (LOSS) ASSETS
FROM RETURN OF VALUE END OF PERIOD AVERAGE NET TO AVERAGE NET (EXCLUDING PORTFOLIO
CAPITAL OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $11.24 18.24% $ 52,126 0.75% 4.11% 1.06% 23%
-- 9.89 0.45%+ 17,489 0.75 5.61 1.14 108
$ -- $11.24 18.06% $ 1,995 0.92% 3.91% 1.31% 23%
-- 9.89 4.22%+ 1,852 0.88 4.88 1.39 108
-- 9.87 4.44%+ 28,786 0.75 6.09 1.36 68
$ -- $11.78 31.57% $132,854 0.75% 1.69% 1.01% 28%
-- 9.10 2.36%+ 31,875 0.75 2.37 1.08 101
$ -- $11.75 31.21% $ 2,710 0.92% 1.52% 1.26% 28%
-- 9.09 (2.07%)+ 1,900 0.90 1.15 1.33 101
-- 9.39 (5.18%)+ 31,084 0.78 1.26 1.25 5
$ -- $13.41 29.16% $ 41,716 0.84% 0.20% 1.19% 51%
-- 10.56 5.68%+ 6,849 0.80 0.23 2.59 19
$ -- $17.13 41.40% $188,583 0.84% 0.78% 0.95% 42%
-- 12.52 1.46%+ 96,045 0.80 0.82 1.05 41
$ -- $17.12 41.17% $ 14,917 1.05% 0.58% 1.20% 42%
-- 12.52 6.76% 8,345 0.82 0.59 1.25 41
-- 11.96 20.17%+ 58,427 0.80 0.59 1.30 28
$ -- $17.89 12.84% $201,786 0.88% 2.30% 0.95% 72%
-- 17.30 7.31%+ 128,806 0.79 1.93 1.03 116
$ -- $17.89 12.63% $ 11,609 1.09% 2.08% 1.20% 72%
-- 17.30 18.70% 7,333 0.81 1.88 1.23 116
-- 15.81 18.91% 81,899 0.81 2.07 1.31 104
-- 13.61 15.17% 3,586 1.50 1.61 4.18 146
-- 12.98 28.38%+ 3,423 1.50 2.60 5.13 116
-- 10.33 (13.24%) 2,761 1.50 4.09 4.21 113
-- 12.96 17.41% 2,000 1.38 4.07 8.68 102
-- 11.55 19.56%+ 578 1.20 4.02 15.60 51
$ -- $18.24 66.22% $ 29,272 0.88% (0.35)% 1.30% 74%
-- 11.19 11.90%+ 6,491 0.80 (0.21) 3.12 43
$(0.04) $10.37 5.19%+ $ 5,756 0.80% 6.01% 2.34% 0%
$ -- $10.30 0.78% $ 94,400 1.74% 0.12% 1.81% 57%
-- 10.22 2.20%+ 47,963 1.75 (0.19) 2.05 16
</TABLE>
THE FUNDS
FAIF is an open-end management investment company which offers shares in several
different mutual funds (collectively, the "FAIF Funds"), each of which evidences
an interest in a separate and distinct investment portfolio. Shareholders may
purchase shares in each FAIF Fund through three separate classes (Class A, Class
B and Class C) which provide for variations in distribution costs, voting rights
and dividends. Except for these differences among classes, each share of each
FAIF Fund represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal offices
are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A and Class B Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF
may authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The Funds'
investment objectives are not fundamental and therefore may be changed without a
vote of shareholders. Such changes could result in a Fund having investment
objectives different from those which shareholders considered appropriate at the
time of their investment in a Fund. Shareholders will receive written
notification at least 30 days prior to any change in a Fund's investment
objectives. Each of the Funds except Technology Fund, Health Sciences Fund, and
Real Estate Securities Fund is a diversified investment company, as defined in
the Investment Company Act of 1940 (the "1940 Act"). Technology Fund, Health
Sciences Fund, and Real Estate Securities Fund are non-diversified companies
under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an investment,
a later increase or decrease in percentage resulting from changes in asset
values will not be deemed to violate the limitation except in the case of the
limitation on illiquid investments. Similarly, if the Fund is required or
permitted to invest a stated percentage of its assets in companies with no more
or no less than a stated market capitalization, deviations from the stated
percentages which result from changes in companies' market capitalizations after
the Fund purchases their shares will not be deemed to violate the limitation. A
Fund which is limited to investing in securities with specified ratings is not
required to sell a security if its rating is reduced or discontinued after
purchase, but the Fund may consider doing so. However, except in the case of
Equity Income Fund, in no event will more than 5% of any Fund's net assets be
invested in non-investment grade securities. Descriptions of the rating
categories of Standard & Poor's Corporation ("Standard & Poor's") and Moody's
Investors Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.
When the term "equity securities" is used in this Prospectus, it refers to
common stock and securities which are convertible into or exchangeable for, or
which carry warrants or other rights to acquire, common stock.
This section also contains information concerning certain investment risks borne
by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and related
matters is set forth under "Special Investment Methods."
STOCK FUND
OBJECTIVES. Stock Fund has a primary objective of capital appreciation. A
secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Stock Fund invests at least
80% of its total assets in equity securities (and at least 65% in common stocks)
diversified among a broad range of industries and among companies that have a
market capitalization of at least $500 million. In selecting equity securities,
the Adviser employs a value-based selection discipline. The Adviser anticipates
investing in equity securities of companies it believes are selling at less than
fair value and offer the potential for appreciation as a result of improved
profitability reflecting corporate restructuring or elimination of unprofitable
operations, change in management or management goals, or improving demand for
the companies' goods or services.
The Fund also may invest up to 20% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than $500
million and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
EQUITY INDEX FUND
OBJECTIVE. Equity Index Fund has an objective of providing investment results
that correspond to the performance of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500").
INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65% of
total assets) in common stocks included in the S&P 500. The Adviser believes
that the Fund's objective can best be achieved by investing in the common stocks
of approximately 250 to 500 of the issues included in the S&P 500, depending on
the size of the Fund.
Standard & Poor's designates the stocks included in the S&P 500 on a statistical
basis. A particular stock's weighting in the S&P 500 is based on its total
market value (that is, its market price per share times the number of shares
outstanding) relative to that of all stocks included in the S&P 500. From time
to time, Standard & Poor's may add or delete stocks to or from the S&P 500.
Inclusion of a particular stock in the S&P 500 does not imply any opinion by
Standard & Poor's as to its merits as an investment, nor is Standard & Poor's a
sponsor of or in any way affiliated with the Fund.
The Fund is managed by utilizing a computer program that identifies which stocks
should be purchased or sold in order to replicate, as closely as possible, the
composition of the S&P 500. The Fund includes a stock in its investment
portfolio in the order of the stock's weighting in the S&P 500, starting with
the most heavily weighted stock. Thus, the proportion of Fund assets invested in
a stock or industry closely approximates the percentage of the S&P 500
represented by that stock or industry. Portfolio turnover is expected to be well
below that of actively managed mutual funds. Inasmuch as the common stock of the
Adviser's parent company First Bank System, Inc. is included in the S&P 500,
such stock may be purchased by the Fund consistent with its indexing-based
policies.
Although the Fund will not duplicate the S&P 500's performance precisely, it is
anticipated that there will be a close correlation between the Fund's
performance and that of the S&P 500 in both rising and falling markets. The Fund
will attempt to achieve a correlation between the performance of its portfolio
and that of the S&P 500 of at least 95%, without taking into account expenses of
the Fund. A perfect correlation would be indicated by a figure of 100%, which
would be achieved if the Fund's net asset value, including the value of its
dividends and capital gains distributions, increased or decreased in exact
proportion to changes in the S&P 500. The Fund's ability to replicate the
performance of the S&P 500 may be affected by, among other things, changes in
securities markets, the manner in which Standard & Poor's calculates the S&P
500, and the amount and timing of cash flows into and out of the Fund. Although
cash flows into and out of the Fund will affect the Fund's portfolio turnover
rate and its ability to replicate the S&P 500's performance, investment
adjustments will be made, as practicably as possible, to account for these
circumstances.
The Fund also may invest up to 20% of its total assets in the aggregate in stock
index futures contracts, options on stock indices, options on stock index
futures, and index participation contracts based on the S&P 500. The Fund will
not invest in these types of contracts and options for speculative purposes, but
rather to maintain sufficient liquidity to meet redemption requests; to increase
the level of Fund assets devoted to replicating the composition of the S&P 500;
and to reduce transaction costs. These types of contracts and options and
certain associated risks are described under "Special Investment Methods --
Options Transactions."
In order to maintain liquidity during times of unusual market conditions, the
Fund also may invest temporarily in cash and cash items of the kinds described
under "Special Investment Methods -- Cash Items."
BALANCED FUND
OBJECTIVE. Balanced Fund has an objective of maximizing total return (capital
appreciation plus income).
INVESTMENT POLICIES. Balanced Fund seeks to achieve its objective by investing
in a balanced portfolio of equity securities and fixed income securities. The
asset mix of the Fund normally will range between 40% and 75% equity securities,
between 25% and 60% fixed income securities (including only that portion of the
value of convertible securities attributable to their fixed income
characteristics), and between 0% and 25% money market instruments. Over the long
term, it is anticipated that the Fund's asset mix will average approximately 60%
equity securities and 40% fixed income securities. The Adviser may make moderate
shifts among asset classes in order to attempt to increase returns or reduce
risk.
With respect to the equity security portion of the Fund's portfolio, the Adviser
follows the same investment policies as are described above under "-Stock Fund
- -- Investment Policies."
The fixed income portion of the Fund's portfolio is invested in investment grade
debt securities, at least 65% of which are United States Government obligations
and corporate debt obligations and mortgage-related securities rated at least A
by Standard & Poor's or Moody's or which have been assigned an equivalent rating
by another nationally recognized statistical rating organization. Under normal
market conditions, the weighted average maturity of the fixed income securities
held by the Fund will not exceed 15 years.
The Fund's permitted fixed income investments include notes, bonds and discount
notes of United States Government agencies or instrumentalities; domestic issues
of corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of the
Adviser; other investments, including mortgage-backed securities, which are
rated in one of the four highest categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Adviser; and commercial paper which is rated A-1 by Standard &
Poor's or P-1 by Moody's or which has been assigned an equivalent rating by
another nationally recognized statistical rating organization. Unrated
securities will not exceed 10% in the aggregate of the value of the total fixed
income securities held by the Fund.
Subject to the foregoing limitations, the fixed income securities in which the
Fund may invest include (i) mortgage-backed securities (provided that the Fund
will not invest more than 10% of its total fixed income assets in interest-only,
principal-only or inverse floating rate mortgage-backed securities); (ii)
asset-backed securities; and (iii) bank instruments. In addition, the Fund may
invest up to 15% of its total fixed income assets in foreign securities payable
in United States dollars. For information about these kinds of investments and
certain associated risks, see the related headings under "Special Investment
Methods," and for information concerning certain risks associated with investing
in fixed income securities generally, see "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; (v) engage in the lending of portfolio securities;
(vi) in order to attempt to reduce risk, invest in exchange traded put and call
options on interest rate futures contracts and on interest rate indices; and
(vii) in order attempt to to reduce risk, write covered call options on interest
rate indices. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
ASSET ALLOCATION FUND
OBJECTIVE. Asset Allocation Fund has an objective of maximizing total return
over the long term by allocating its assets principally among common stocks,
bonds, and short-term instruments.
INVESTMENT POLICIES. Asset Allocation Fund allocates its investments principally
among (i) common stocks included in the S&P 500, (ii) direct obligations of the
United States Treasury, and (iii) short-term instruments. There are no
limitations on the proportions in which the Adviser may allocate the Fund's
investments among these three classes of assets. The Fund thus is not a
"balanced" fund, in that it is not required to allocate its investments in
specific proportions or ranges among these asset classes.
The Adviser regularly reviews the Fund's investment allocation and varies the
allocation to emphasize the asset class or classes that, in the Adviser's
then-current judgment, provide the most favorable total return outlook. There is
no limitation on the amount that may be invested in any one asset class, and the
Fund may at times be fully invested in a single asset class if the Adviser
believes that it offers the most favorable total return outlook.
In making asset allocation decisions, the Adviser utilizes a proprietary
quantitative model which predicts future asset class returns based on historical
experience using probability theory. By investing in common stocks intended to
approximate the total return of the S&P 500, as described below, the Adviser
attempts to minimize the risk of individual equity security selection in the
common stock class. By limiting the bond class to direct obligations of the
United States Treasury, the Adviser attempts to eliminate credit risk from this
class.
Within the common stock asset class, the Adviser seeks to produce a total return
approximating that of the S&P 500. In order to achieve this result, the Adviser
follows the same indexing-based policies for this asset class as are described
above under "-- Equity Index Fund -- Investment Policies." Inasmuch as the
common stock of the Adviser's parent company First Bank System, Inc. is included
in the S&P 500, such stock may be purchased by the Fund consistent with its
indexing-based policies.
Within the bond asset class, the Fund may invest in any maturity of direct
obligations of the United States Treasury. The Adviser thus has discretion in
determining the weighted average maturity of the investments within this asset
class. For information concerning certain risks associated with investing in
fixed income securities generally, see "Special Investment Methods -- Fixed
Income Securities."
Within the short-term asset class, the Fund may hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash Items."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) purchase securities on a when-issued or delayed-delivery
basis; (iv) engage in the lending of portfolio securities; (v) in order to
attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices; and (vi) in order
to manage allocations among asset classes efficiently, invest in interest rate
and stock index futures. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
EQUITY INCOME FUND
OBJECTIVE. Equity Income Fund has an objective of long-term growth of capital
and income.
INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund invests
at least 80% of its total assets in equity securities of issuers believed by the
Adviser to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.
The Fund invests in equity securities that have relatively high dividend yields
and which, in the Adviser's opinion, will result in a relatively stable Fund
dividend with a growth rate sufficient to maintain the purchasing power of the
income stream. Although the Adviser anticipates that higher yielding equity
securities will generally represent the core holdings of the Fund, the Fund may
invest in lower yielding but higher growth equity securities to the extent that
the Adviser believes such investments are appropriate to achieve portfolio
balance. All securities held by the Fund will provide current income consistent
with the Fund's investment objective.
The "equity securities" in which the Fund may invest include corporate debt
obligations which are convertible into common stock. These convertible debt
obligations may include obligations rated at the time of purchase as low as CCC
by Standard & Poor's or Caa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the Adviser.
Debt obligations rated less than BBB by Standard & Poor's or Baa by Moody's are
considered to be less than "investment grade" and are sometimes referred to as
"junk bonds." Obligations rated CCC by Standard & Poor's or Caa by Moody's are
considered to be of poor standing and are predominantly speculative.
Descriptions of Standard & Poor's and Moody's rating categories are contained in
the Statement of Additional Information. If the rating of an obligation is
reduced below the categories set forth above after purchase or is discontinued,
the Fund is not required to sell the obligation but may consider doing so.
Purchases of less than investment grade convertible debt obligations are
intended to advance the Fund's objective of long-term growth of capital through
the "upside" potential of the obligations' conversion features and to advance
the Fund's objective of income through receipt of interest payable on the
obligations. The Fund will not invest more than 25% of its total assets in
convertible debt obligations which are rated less than investment grade or which
are of comparable quality in the judgment of the Adviser. For the year ended
September 30, 1995, the following weighted average percentages of the Fund's
total assets were invested in convertible and nonconvertible debt obligations
with the indicated Standard & Poor's ratings or their equivalents: AAA, 0%; AA,
0%; A, 0%; BBB, 4%; BB, 0%; B, 7%; and CCC, 0%.
Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income and
principal due to default by the issuer than are higher-rated obligations. The
value of these obligations tends to reflect short-term corporate, economic,
interest rate and market developments and investor perceptions of the issuer's
credit quality to a greater extent than investment grade obligations. In
addition, since the market for these obligations is relatively new and does not
have as many participants as the market for higher-rated obligations, it may be
more difficult to dispose of or to determine the value of these obligations. In
the case of a convertible debt obligation, these risks may be present in a
greater degree where the principal amount of the obligation is greater than the
current market value of the common stock into which it is convertible.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
DIVERSIFIED GROWTH FUND
OBJECTIVES. Diversified Growth Fund has a primary objective of long-term growth
of capital. A secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Diversified Growth Fund
invests at least 80% of its total assets in equity securities of a diverse group
of companies that will provide representation across all economic sectors
included in the S&P 500. The Adviser may overweight the Fund's portfolio
holdings in sectors that it believes provide above average total return
potential and may underweight the Fund's holdings in those sectors that it
believes have a lower total return potential. Within a given sector, the Fund's
assets are invested in securities of those companies that, in the Adviser's
judgment, exhibit a combination of above average growth in revenue and earnings,
strong management and sound and improving financial condition.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
EMERGING GROWTH FUND
OBJECTIVE. Emerging Growth Fund has an objective of growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund
invests at least 65% of its total assets in equity securities of small-sized
companies that exhibit, in the Adviser's opinion, outstanding potential for
superior growth. For these purposes, small-sized companies are deemed those with
market capitalizations of less than $1 billion. Companies that participate in
sectors that are identified by the Adviser as having long-term growth potential
generally are expected to make up a substantial portion of the Fund's holdings.
These companies often have established a market niche or have developed unique
products or technologies that are expected by the Adviser to produce superior
growth in revenues and earnings.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or more
and in fixed income securities of the kinds described under "Special Investment
Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
REGIONAL EQUITY FUND
OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective by
investing, in normal market conditions, at least 65% of its total assets in
equity securities of small-sized companies headquartered in Minnesota, North and
South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado and
Illinois.
The Adviser anticipates investing primarily in the securities of rapidly growing
small-sized companies which generally will have the following characteristics,
in the Adviser's opinion: (i) company-specific fundamentals that grow
shareholder value, (ii) experienced, shareholder-oriented management, and (iii)
undervaluation by the market. For these purposes, small-sized companies are
deemed those with market capitalizations of less than $1 billion.
In addition to the risks associated with investing in smaller-capitalization
companies, see "-- Risk Factors -- Smaller-Capitalization Companies" below,
the Fund's policy of concentrating its equity investments in a geographic region
means that it will be subject to adverse economic, political or other
developments in that region. Although the region in which the Fund principally
invests has a diverse industrial base (including, but not limited to,
agriculture, mining, retail, transportation, utilities, heavy and light
manufacturing, financial services, insurance, computer technology and medical
technology), this industrial base is not as diverse as that of the country as a
whole. The Fund therefore may be less diversified by industry and company than
other funds with a similar investment objective and no geographic limitation.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities without regard to the location of the issuer's headquarters or
the issuer's market capitalization and in fixed income securities of the kinds
described under "Special Investment Methods -- Fixed Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
SPECIAL EQUITY FUND
OBJECTIVE. Special Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund invests
at least 65% of its total assets in equity securities. The Fund's policy is to
invest in equity securities which the Adviser believes offer the potential for
greater than average capital appreciation. The Adviser believes that this policy
can best be achieved by investing in the equity securities of companies where
fundamental changes are occurring, are likely to occur, or have occurred and
where, in the opinion of the Adviser, the changes have not been adequately
reflected in the price of the securities and thus are considered by the Adviser
to be undervalued.
Undervalued securities may include securities of companies which (i) have been
unpopular for some time but where, in the Adviser's opinion, recent developments
(such as those listed in the next sentence) suggest the possibility of improved
operating results; (ii) have recently experienced marked popularity but which,
in the opinion of the Adviser, have temporarily fallen out of favor for reasons
that are considered by the Adviser to be non-recurring or short-term; and (iii)
appear to the Adviser to be undervalued in relation to popular securities of
other companies in the same industry. Typically, but not exclusively, the
Adviser will consider investing in undervalued issues in which it sees the
possibility of substantially improved market price due to increasing demand for
an issuer's products or services, the development of new or improved products or
services, the probability of increased operating efficiencies, the elimination
of unprofitable products or operations, changes in management or management
goals, fundamental changes in the industry in which the issuer operates, new or
increased emphasis on research and development, or possible mergers or
acquisitions.
In selecting securities judged to be undervalued and in investing in potential
"turnaround" situations, the Adviser will be acting on opinions and exercising
judgments which may be contrary to those of the majority of investors. These
opinions and judgments involve the risks of either (i) a correct judgment by the
majority, in which case losses may be incurred or profits may be limited, or
(ii) a long delay before majority recognition of the accuracy of the Adviser's
judgment, in which case capital invested by the Fund in an individual security
or group of securities may be nonproductive for an extended period.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
TECHNOLOGY FUND
OBJECTIVE. Technology Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Technology Fund invests at
least 80% of its total assets in equity securities of companies which the
Adviser believes have, or will develop, products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. The description of the technology sector is interpreted broadly by
the Adviser and may include such products or services as inexpensive computing
power, such as personal computers; improved methods of communications, such as
satellite transmission; or labor saving machines or instruments, such as
computer-aided design equipment. The prime emphasis of the Fund is to identify
those companies positioned, in the Adviser's opinion, to benefit from
technological advances in areas such as semiconductors, minicomputers and
peripheral equipment, scientific instruments, computer software, communications,
and future automation trends in both office and factory settings.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Technology Fund operates as a non-diversified investment company, as defined in
the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Internal Revenue Code of 1986,
as amended. Since a relatively high percentage of the assets of the Fund may be
invested in the securities of a limited number of issuers which will be in the
same or related economic sectors, the Fund's portfolio securities may be more
susceptible to any single economic, technological or regulatory occurrence than
the portfolio securities of diversified investment companies. In addition,
competitive pressures may have a significant effect on the financial condition
of companies in the technology industry. For example, if technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continue to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
HEALTH SCIENCES FUND
OBJECTIVE. Health Sciences Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 80% of its total assets in equity securities of companies which
the Adviser considers to be principally engaged in the development, production
or distribution of products or services connected with health care or medicine.
Examples of these products and services include pharmaceuticals, health care
services and administration, diagnostics, medical equipment and supplies,
medical technology, and medical research and development. The Adviser
anticipates investing in companies that have the potential for above average
growth in revenue and earnings as a result of new or unique products, processes
or services, increasing demand for a company's products or services, established
market leadership, or exceptional management. A company will be deemed
"principally engaged" in the health sciences industries if at the time of
investment the Adviser determines that at least 50% of its assets, revenues or
profits are derived from those industries.
The Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of its
total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts. For
information about these kinds of investments and certain associated risks, see
"Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to qualify
as a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended. Since a relatively high percentage of the assets of the Fund
may be invested in the securities of a limited number of issuers which will be
in the same or related economic sectors, the Fund's portfolio securities may be
more susceptible to any single economic, technological or regulatory occurrence
than the portfolio securities of diversified investment companies. Many products
and services in the health sciences industries may become rapidly obsolete due
to technological and scientific advances. In addition, the health sciences
industries generally are subject to greater governmental regulation than many
other industries, so that changes in governmental policies may have a material
effect on the demand for products and services in these industries. Regulatory
approvals generally are required before new drugs, medical devices or medical
procedures can be introduced and before health care providers can acquire
additional facilities or equipment.
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing primarily
in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry.
For this purpose, a company is deemed to be "principally engaged" in the real
estate industry if (i) it derives at least 50% of its revenues or profits from
the ownership, construction, management, financing or sale of residential,
commercial or industrial real estate, or (ii) has at least 50% of the fair
market value of its assets invested in such real estate. The Fund seeks to
invest in equity securities that provide a dividend yield that exceeds the
composite dividend yield of the securities included in the S&P 500.
A majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"). REITs are publicly traded corporations or
trusts that specialize in acquiring, holding, and managing residential,
commercial or industrial real estate. A REIT is not taxed at the entity level on
income distributed to its shareholders or unitholders if it distributes to
shareholders or unitholders at least 95% of its taxable income for each taxable
year and complies with regulatory requirements relating to its organization,
ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and Hybrid
REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains
on real estate appreciation which are realized through property sales. A
Mortgage REIT invests the majority of its assets in real estate mortgage loans
and derives its income primarily from interest payments. A Hybrid REIT combines
the characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that industry. The
real estate industry has been subject to substantial fluctuations and declines
on a local, regional and national basis in the past and may continue to be in
the future. Real property values and incomes from real property may decline due
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, regulatory limitations on rents,
changes in neighborhoods and in demographics, increases in market interest
rates, or other factors. Factors such as these may adversely affect companies
which own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry. Although the
Fund will operate as a non-diversified investment company under the 1940 Act, it
intends to conduct its operations so as to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended.
Because the Fund may invest a substantial portion of its assets in REITs, it
also is subject to risks associated with direct investments in REITs. Equity
REITs will be affected by changes in the values of and incomes from the
properties they own, while Mortgage REITs may be affected by the credit quality
of the mortgage loans they hold. In addition, REITs are dependent on specialized
management skills and on their ability to generate cash flow for operating
purposes and to make distributions to shareholders or unitholders. REITs may
have limited diversification and are subject to risks associated with obtaining
financing for real property, as well as to the risk of self-liquidation. REITs
also can be adversely affected by their failure to qualify for tax-free
pass-through treatment of their income under the Code or their failure to
maintain an exemption from registration under the 1940 Act. By investing in
REITs indirectly through the Fund, a shareholder bears not only a proportionate
share of the expenses of the Fund, but also may indirectly bear similar expenses
of some of the REITs in which it invests.
INTERNATIONAL FUND
OBJECTIVE. International Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, International Fund invests
at least 65% of its total assets in an internationally diversified portfolio of
equity securities which trade in markets other than the United States. Generally
these securities are issued by companies (i) domiciled in countries other than
the United States, or (ii) that derive at least 50% of either their revenues or
their pre-tax income from activities outside of the United States. The
securities in which the Fund invests include common and preferred stock,
securities (bonds and preferred stock) convertible into common stock, warrants
and securities representing underlying international securities such as American
Depositary Receipts and European Depositary Receipts. The Fund also may hold
securities of other investment companies (which investments are also subject to
the advisory fee) and depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.
The Fund may invest in securities of issuers in, but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, China, Columbia, the Czech Republic,
Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel,
Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand,
Norway, Peru, the Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan,
Thailand, the United Kingdom, and Venezuela. Normally, the Fund will invest at
least 65% of its total assets in securities traded in at least three foreign
countries, including the countries listed above. It is possible, although not
currently anticipated, that up to 35% of the Fund's assets could be invested in
United States companies.
In investing the Fund's assets, the Sub-Adviser expects to place primary
emphasis on country selection, followed by selection of industries or sectors
within or across countries and by selection of individual stocks corresponding
to the industries or sectors selected. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
Fund also may invest in emerging markets where smaller capitalization companies
are the norm.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 50% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; (v) engage in the lending of portfolio securities;
(vi) engage in foreign currency transactions; (vii) in order to attempt to
reduce risk, purchase put and call options on foreign currencies; (viii) write
covered call options on foreign currencies owned by the Fund; and (ix) enter
into contracts for the future purchase or delivery of securities, foreign
currencies, and indices, purchase or sell options on any such futures contracts
and engage in related closing transactions. For information about these
investment methods, restrictions on their use, and certain associated risks, see
the related headings under "Special Investment Methods."
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, for temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash items of
the kinds described under "Special Investment Methods -- Cash Items."
International Fund is subject to special risks associated with investing in
foreign securities and to declines in net asset value resulting from changes in
exchange rates between the United States dollar and foreign currencies. These
risks are discussed under "Special Investment Methods -- Foreign Securities" and
"-- Foreign Currency Transactions" elsewhere here. Because of the special risks
associated with foreign investing and the Sub-Adviser's ability to invest
substantial portions of the Fund's assets in a small number of countries, the
Fund may be subject to greater volatility than most mutual funds which invest
principally in domestic securities.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks in addition to those
noted above with respect to particular Funds. These include the following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally, and
of particular companies' equity securities, frequently are subject to greater
volatility than prices of fixed income securities. Market prices of equity
securities as a group have dropped dramatically in a short period of time on
several occasions in the past, and they may do so again in the future. Each of
the Funds is subject to the risk of generally adverse equity markets.
SMALLER-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity Fund
emphasize investments in companies with relatively small market capitalizations,
and the remaining Funds (excluding Equity Index Fund and Asset Allocation Fund)
are permitted to invest in equity securities of such companies. The equity
securities of smaller-capitalization companies frequently have experienced
greater price volatility in the past than those of larger-capitalization
companies, and they may be expected to do so in the future. To the extent that
the Funds invest in smaller-capitalization companies, they are subject to this
risk of greater volatility.
ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are actively
managed to a greater or lesser degree by the Adviser or, in the case of
International Fund, the Sub-Adviser. The performance of these Funds therefore
will reflect in part the ability of the Adviser or Sub-Adviser to select
securities which are suited to achieving the Funds' investment objectives. Due
to their active management, these Funds could underperform other mutual funds
with similar investment objectives or the market generally.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing the
overall management and electing the officers of FAIF. Subject to the overall
direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, acts as the Funds' investment adviser through its First Asset Management
group. The Adviser has acted as an investment adviser to FAIF since its
inception in 1987 and has acted as investment adviser to First American Funds,
Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts
with an aggregate value of approximately $29 billion, including mutual fund
assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds other than International Fund has agreed to pay the Adviser
monthly fees calculated on an annual basis equal to 0.70% of its average daily
net assets. International Fund pays the Adviser a monthly fee calculated on the
same basis equal to 1.25% of its average daily net assets, out of which the
Adviser pays the Sub-Adviser's fee. The Adviser may, at its option, waive any or
all of its fees, or reimburse expenses, with respect to any Fund from time to
time. Any such waiver or reimbursement is voluntary and may be discontinued at
any time. The Adviser also may absorb or reimburse expenses of the Funds from
time to time, in its discretion, while retaining the ability to be reimbursed by
the Funds for such amounts prior to the end of the fiscal year. This practice
would have the effect of lowering a Fund's overall expense ratio and of
increasing yield to investors, or the converse, at the time such amounts are
absorbed or reimbursed, as the case may be.
While the advisory fee payable to the Adviser with respect to International Fund
is higher than the advisory fee paid by most mutual funds, the Adviser believes
it is comparable to that paid by many funds having similar investment objectives
and policies.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Funds have received an opinion from their counsel that
the Adviser is not prohibited from performing the investment advisory services
described above. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their bank
and nonbank subsidiaries, the Adviser might be prohibited from continuing these
arrangements. In that event, it is expected that the Board of Directors would
make other arrangements and that shareholders would not suffer adverse financial
consequences.
SUB-ADVISER TO INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser is
responsible for the investment and reinvestment of International Fund's assets
and the placement of brokerage transactions in connection therewith. For its
services under the Sub-Advisory Agreement, the Sub-Adviser is paid a monthly fee
by the Adviser calculated on an annual basis equal to 0.75% of the first $100
million of International Fund's average daily net assets, 0.70% of the second
$100 million of International Fund's average daily net assets, 0.65% of the
third $100 million of International Fund's average daily net assets, and 0.60%
of International Fund's average daily net assets in excess of $300 million.
The Sub-Adviser, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr. Marvin,
Mr. Palmer and 21 other holders. The Sub-Adviser is engaged in the management of
global, non-United States and emerging markets equity portfolios for
institutional accounts. At September 30, 1995, the Sub-Adviser managed a total
of $3.1 billion in investments for 55 institutional investors.
PORTFOLIO MANAGERS
Stock Fund, Equity Index Fund and Balanced Fund are managed by a committee
comprised of Mr. Doak, Mr. Jensen, Ms. Lilly, Mr. Murphy, Mr. Rinkoff and Mr.
Rovner, whose backgrounds are set forth below. Asset Allocation Fund, Equity
Income Fund and Diversified Growth Fund are managed by a committee comprised
of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Halbe, Ms. Hoyme, Ms. Johnson, Mr.
Murphy and Mr. Whitcomb, whose backgrounds also are set forth below. The
remaining Funds are managed or co-managed as indicated below.
JAMES DOAK is a member of the committees which manage six of the Funds, as set
forth above. Jim joined the Adviser in 1982 after serving for two years as vice
president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing in equity investments, and served as the analyst and
portfolio manager for Stock Fund since its inception in December 1987. Jim
received his bachelor's degree from Brown University and his master's degree in
business administration from the Wharton School of Business. He is a Chartered
Financial Analyst.
RICHARD W. JENSEN is a member of the committee which manages three of the Funds,
as set forth above, and he supervises and monitors the performance of the
Sub-Adviser with respect to International Fund. He is Senior Managing Director
and a portfolio manager with the Adviser, having joined it in 1967. Prior to
that time he was employed by Merrill Lynch, Pierce, Fenner & Smith and Irving
Trust Company. He received his bachelor's degree from the University of
Minnesota and is a Chartered Financial Analyst.
ELIZABETH M. LILLY is a member of the committee which manages three of the
Funds, as set forth above, and she is co-manager of Regional Equity Fund. Beth
joined the Adviser in 1992 after several years in the investment industry with
The St. Paul Companies, Fund American Companies and Goldman Sachs & Co. She
received her bachelor's degree from Hobart /William Smith College and is a
Chartered Financial Analyst.
JOHN M. MURPHY, JR. is a member of the committees which manage six of the
Funds, as set forth above. John is Chief Investment Officer of the Adviser's
First Asset Management group, having joined the Adviser in 1984. He has more
than 30 years in the investment management field and served with Investment
Advisers, Inc. and Blyth, Eastman, Dillon & Co. before joining the Adviser.
He received his bachelor's degree from Regis College.
RICHARD J. RINKOFF is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Regional Equity
Fund. Rick joined the Adviser in 1977 after serving as an investment officer for
two years for Pittsburgh National Bank. Since then, he has managed assets for
individuals and institutional clients of the Adviser, specializing in managing
investments in regional equities. He has served as portfolio manager for the
regional fund management style since 1981. Rick received his bachelor's degree
in mathematics and his master's degree in business from Carnegie-Mellon
University. He is a Chartered Financial Analyst.
JAMES S. ROVNER is a member of the committee which manages three of the Funds,
as set forth above, and he is portfolio manager for Special Equity Fund. Jim
joined the Adviser in 1986 and has managed assets for institutional and
individual clients for over 15 years, specializing in equity and balanced
investment strategies. Jim received his bachelor's degree and his master's
degree in business administration from the University of Wisconsin. He is a
Chartered Financial Analyst.
GERALD C. BREN is a member of the committee which manages three of the Funds, as
set forth above, and he is portfolio co-manager for Emerging Growth Fund and
Health Sciences Fund. Gerald joined the Adviser in 1972 as an investment
analyst. He received his master's degree in business administration from the
University of Chicago in 1972 and his Chartered Financial Analyst certification
in 1977.
ALBIN S. DUBIAK is a member of the committee which manages three of the Funds,
as set forth above, and he is portfolio co-manager for Emerging Growth Fund. Al
began his investment career as a security trader with The First National Bank of
Chicago in 1963 before joining the Adviser as an investment analyst in 1969. Al
received his bachelor's degree from Indiana University in 1962 and his master's
degree in business administration from the University of Arizona in 1969.
JOYCE A.K. HALBE is a member of the committee which manages three of the Funds,
as set forth above, and she is co-manager of Health Sciences Fund. Joyce joined
the Adviser in 1990 after serving as a trust investment officer at Norwest Bank
Minnesota, N.A. and as a research analyst at Edward D. Jones and Company. She
received her master of science degree and her master's degree in business
administration from the University of Wisconsin -Madison. She is a Chartered
Financial Analyst.
MARY M. HOYME is a member of the committee which manages three of the Funds, as
set forth above, and she is portfolio manager for Real Estate Securities Fund.
Mary joined the Adviser in 1989 as a research analyst, prior to which she was
employed for seven years as an equity and economic analyst with IDS Financial
Services. She received her bachelor's degree from the University of Wisconsin --
Eau Claire and her master's degree in business administration from the College
of St. Thomas. She is a Chartered Financial Analyst.
CORI B. JOHNSON is a member of the committee which manages three of the Funds,
as set forth above. Cori has been managing assets using quantitative analysis
techniques since 1992. She joined the Adviser in 1991 as a securities analyst.
Cori received her bachelor's degree from Concordia College and her master's
degree in business administration from the University of Minnesota. She is a
Chartered Financial Analyst.
ROLAND P. WHITCOMB is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Technology Fund.
Roland joined the Adviser in 1986 after serving as an account executive with
Smith Barney & Co. since 1979. He received his bachelor's degree from the
University of Chicago and is a Chartered Financial Analyst.
JEFF A. JOHNSON is portfolio co-manager for Technology Fund. Jeff has been
employed by the Adviser in investment management since 1991 and in commercial
lending from 1985 to 1991. He received his master of arts degree from the
University of Iowa.
A committee comprised of the following five individuals shares the management of
International Fund on behalf of the Sub-Adviser:
DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm together
with Mr. Palmer in 1986. Before founding the Sub-Adviser, Mr. Marvin was Vice
President in charge of DuPont Corporation's $10 billion internally-managed
pension fund. Prior to that Mr. Marvin was Associate Portfolio Manager, and then
Head Portfolio Manager, for Investors Diversified Services' IDS Stock Fund. Mr.
Marvin started in the investment business in 1965 as a securities analyst for
Chicago Title & Trust. He received his bachelor's degree from the University of
Illinois and his master's degree in business administration from Northwestern
University. He is a Chartered Financial Analyst and a member of the Financial
Analysts Federation.
STANLEY PALMER is President of the Sub-Adviser and co-founder of the firm. Mr.
Palmer was Equity Portfolio Manager for DuPont Corporation from 1978 through
1986, an analyst and portfolio manager at Investors Diversified Services from
1971 through 1978, and an analyst at Harris Trust & Savings Bank from 1964
through 1971. He received his bachelor's degree from Gustavus Adolphus College
and his master's degree in business administration from the University of Iowa.
He is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
TERRY B. MASON is a Vice President and Portfolio Manager of the Sub-Adviser.
Before joining the Sub-Adviser, Mr. Mason was employed for 14 years by DuPont
Corporation, the last five as international equity analyst and international
trader. He received his bachelor's degree from Glassboro State College and his
master's degree in business administration from Widener University.
JAY F. MIDDLETON is a Vice President and Portfolio Manager for the Sub-Adviser
and joined the firm in 1989. He received his bachelor's degree from Wesleyan
University.
TODD D. MARVIN is a Vice President and Portfolio Manager for the Sub-Adviser
and joined the firm in 1991. Before joining the Sub-Adviser, Mr. Marvin was
employed by Oppenheimer & Company as an analyst in investment banking. Mr.
Marvin received his bachelor's degree from Wesleyan University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to Stock Fund, Equity Index Fund, Balanced
Fund, Asset Allocation Fund, Regional Equity Fund, and Special Equity Fund, the
Custodian is paid the following fees: (i) an annual administration fee of $750
per Fund; (ii) an issue held fee, computed as of the end of each month, at the
annual rate of $30 per securities issue held by each Fund; (iii) transaction
fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such
transaction, and (b) a payment received fee of $12 for each principal pay down
payment received on collateralized mortgage pass-through instruments; (iv) a
wire transfer fee of $10 per transaction; (v) a cash management fee, for
"sweeping" cash into overnight investments, at an annual rate of 0.25% of the
amounts so invested; and (vi) a remittance fee, for payment of each Fund's
expenses, of $3.50 per each check drawn for such remittances. The Custodian is
paid monthly fees equal to 0.03% of the average daily net assets of Equity
Income Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund,
Health Sciences Fund, and Real Estate Securities Fund and 0.25% of the average
daily net assets of International Fund. Sub-custodian fees with respect to
International Fund are paid by the Custodian out of this amount. In addition,
the Custodian is reimbursed for its out-of-pocket expenses incurred while
providing its services to the Funds.
Rules adopted under the 1940 Act permit International Fund to maintain its
securities and cash in the custody of certain eligible foreign banks and
depositories. International Fund's portfolio of non-United States securities are
held by sub-custodians which are approved by the directors of FAIF in accordance
with these rules. This determination is made pursuant to these rules following a
consideration of a number of factors including, but not limited to, the
reliability and financial stability of the institution; the ability of the
institution to perform custodian services for International Fund; the reputation
of the institution in its national market; the political and economic stability
of the country in which the institution is located; and the risks of potential
nationalization or expropriation of International Fund's assets.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds
with certain administrative services necessary to operate the Funds. These
services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at an
annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First American
funds exceed $8 billion, the percentage stated above is reduced to 0.105%. From
time to time, the Administrator may voluntarily waive its fees or reimburse
expenses with respect to any of the Funds. Any such waivers or reimbursements
may be made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania corporation
and is the principal distributor for a number of investment companies. The
Distributor is a wholly-owned subsidiary of SEI Corporation and is located at
680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion use
their own assets to pay for certain costs of distributing Fund shares. They also
may discontinue any payment of such costs at any time.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York Stock
Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of federal
funds for share purchases should be sent to First Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems:
Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name).
Shares cannot be purchased by Federal Reserve wire on days on which the New York
Stock Exchange is closed and on Federal holidays upon which wire transfers are
restricted. Purchase orders will be effective and eligible to receive dividends
declared the same day if the Transfer Agent receives an order before 3:00 p.m.
Central time and the Custodian receives Federal funds before the close of
business that day. Otherwise, the purchase order will be effective the next
Business Day. The net asset value per share is calculated as of 3:00 p.m.
Central time each Business Day. The Funds reserve the right to reject a purchase
order.
The Funds are required to redeem for cash all full and fractional shares of the
Funds. Redemption orders may be made any time before 3:00 p.m. Central time in
order to receive that day's redemption price. For redemption orders received
before 3:00 p.m. Central time, payment will ordinarily be made the same day by
transfer of Federal funds, but payment may be made up to 7 days later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The net
asset value per share is determined as of the earlier of the close of the New
York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock
Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for that Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset value of
the Fund's shares. The price per share for purchases or redemptions is such
value next computed after the Transfer Agent receives the purchase order or
redemption request. In the case of redemptions and repurchases of shares owned
by corporations, trusts or estates, the Transfer Agent may require additional
documents to evidence appropriate authority in order to effect the redemption,
and the applicable price will be that next determined following the receipt of
the required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the Funds
is determined by dividing the value of the securities owned by the Fund plus any
cash and other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding. For
the purpose of determining the aggregate net assets of the Funds, cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued and dividends will be recorded on the ex-dividend date. Investments in
equity securities which are traded on a national securities exchange (or
reported on the NASDAQ national market system) are stated at the last quoted
sales price if readily available for such equity securities on each business
day; other equity securities traded in the over-the-counter market and listed
equity securities for which no sale was reported on that date are stated at the
last quoted bid price. Debt obligations exceeding 60 days to maturity which are
actively traded are valued by an independent pricing service at the most
recently quoted bid price. Debt obligations with 60 days or less remaining until
maturity may be valued at their amortized cost. Foreign securities are valued
based upon quotation from the primary market in which they are traded. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith by procedures established and approved by the Board
of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the exchange
prior to the time when assets are valued, unless the bid price is higher or the
asked price is lower, in which event the bid or asked price is used. In the
absence of any sales that day, options will be valued at the current closing bid
price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of different
classes of shares of the same Fund may differ because of the distribution
expenses charged to Class A and Class B Shares.
FOREIGN SECURITIES. Any assets or liabilities of the Funds initially expressed
in terms of foreign currencies are translated into United States dollars using
current exchange rates. Trading in securities on foreign markets may be
completed before the close of business on each business day of the Funds. Thus,
the calculation of the Funds' net asset value may not take place
contemporaneously with the determination of the prices of foreign securities
held in the Funds' portfolios. If events materially affecting the value of
foreign securities occur between the time when their price is determined and the
time when the Funds' net asset value is calculated, such securities will be
valued at fair value as determined in good faith by or under the direction of
the Board of Directors. In addition, trading in securities on foreign markets
may not take place on all days on which the New York Stock Exchange is open for
business or may take place on days on which the Exchange is not open for
business. Therefore, the net asset value of a Fund which holds foreign
securities might be significantly affected on days when an investor has no
access to the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow such
exchanges only upon the prior approval by the Fund and a determination by the
Fund and the Adviser that the securities to be exchanged are acceptable.
Securities accepted by a Fund will be valued in the same manner that a Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder. In
addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to Stock Fund, Equity Index
Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified
Growth Fund, and Special Equity Fund, to all shareholders of record on the
record date. Dividends are declared paid quarterly with respect to Emerging
Growth Fund, Regional Equity Fund, Technology Fund, Health Sciences Fund, and
Real Estate Securities Fund and annually with respect to International Fund.
Distributions of any net realized long-term capital gains will be made at least
once every 12 months. A portion of the quarterly distributions paid by Real
Estate Securities Fund may be a return of capital. Dividends and distributions
are automatically reinvested in additional shares of the Fund paying the
dividend on payment dates at the ex-dividend date net asset value without a
sales charge, unless shareholders request cash payments on the new account form
or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares are
purchased before a record date for a dividend or a distribution of capital
gains, a shareholder will pay the full price for the shares and will receive
some portion of the purchase price back as a taxable dividend or distribution
(to the extent, if any, that the dividend or distribution is otherwise taxable
to holders of Fund shares). If shares are redeemed or exchanged before the
record date for a dividend or distribution or are purchased after the record
date, those shares are not entitled to the dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more than
the dividends payable on Class A or Class B Shares because of the distribution
expenses charged to Class A and Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available Class
C Shares of the other FAIF Funds or of other funds in the First American family
at net asset value. Exchanges of shares among the FAIF Funds must meet any
applicable minimum investment of the fund for which shares are being exchanged.
The ability to exchange shares of the Funds does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. An investor who is considering acquiring shares in another
First American fund pursuant to the exchange privilege should obtain and
carefully read a prospectus of the fund to be acquired. Exchanges may be
accomplished by a written request, or by telephone if a preauthorized exchange
authorization is on file with the Transfer Agent, shareholder servicing agent,
or financial institution. Neither the Transfer Agent nor any Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures. These procedures may include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate may
be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in which
Class C Shares of a Fund held by a financial institution in a trust or agency
capacity for one or more individual beneficiaries are exchanged for Class A
Shares of that Fund and distributed to the individual beneficiaries.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), during its
current taxable year in order to be relieved of payment of federal income taxes
on amounts of taxable income it distributes to shareholders.
Dividends paid from each Fund's net investment income and net short-term capital
gains will be taxable to shareholders as ordinary income, whether or not the
shareholder elects to have such dividends automatically reinvested in additional
shares. Dividends paid by the Funds attributable to investments in the
securities of foreign issuers or REITs will not be eligible for the 70%
deduction for dividends received by corporations. Dividends paid from the net
capital gains of each Fund and designated as capital gain dividends will be
taxable to shareholders as long-term capital gains, regardless of the length of
time for which they have held their shares in the Fund.
Gain or loss realized upon the sale of shares in the Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
International Fund may be required to pay withholding and other taxes imposed by
foreign countries, generally at rates from 10% to 40%, which would reduce the
Fund's investment income. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If at the end of International
Fund's taxable year more than 50% of its total assets consist of securities of
foreign corporations, it will be eligible to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their respective pro rata portions of such foreign taxes in gross
income, treat such amounts as foreign taxes paid by them, and deduct such
amounts in computing their taxable income or, alternatively, use them as foreign
tax credits against their federal income taxes. If such an election is filed for
a year, International Fund shareholders will be notified of the amounts which
they may deduct as foreign taxes paid or use as foreign tax credits.
Alternatively, if the amount of foreign taxes paid by International Fund is not
large enough to warrant its making the election described above, the Fund may
claim the amount of foreign taxes paid as a deduction against its own gross
income. In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.
This is a general summary of the federal tax laws applicable to the Funds and
their shareholders as of the date of this Prospectus. See the Statement of
Additional Information for further details. Before investing in the Funds, an
investor should consult his or her tax adviser about the consequences of state
and local tax laws.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares may
be issued as either full or fractional shares. Fractional shares have pro rata
the same rights and privileges as full shares. Shares of the Funds have no
preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The shares
do not have cumulative voting rights. Consequently, the holders of more than 50%
of the shares voting for the election of directors are able to elect all of the
directors if they choose to do so. On issues affecting only a particular Fund or
Class, the shares of that Fund or Class will vote as a separate series. Examples
of such issues would be proposals to alter a fundamental investment restriction
pertaining to a Fund or to approve, disapprove or alter a distribution plan
pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are required
by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more
of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total return,"
its "average annual total return" and its "distribution rate." Distribution
rates may only be used in connection with sales literature and shareholder
communications preceded or accompanied by a Prospectus. Each of these
performance figures is based upon historical results and is not intended to
indicate future performance, and, except for "distribution rate," is
standardized in accordance with Securities and Exchange Commission ("SEC")
regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day period
(which period will be stated in the advertisement) by the maximum offering price
per share on the last day of the period. Yield is an annualized figure, in that
it assumes that the same level of net investment income is generated over a one
year period. The yield formula annualizes net investment income by providing for
semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value of a
hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the contingent
deferred sales charge imposed on Class B Shares redeemed at the end of the
specified period covered by the total return figure. "Cumulative total return"
reflects a Fund's performance over a stated period of time. "Average annual
total return" reflects the hypothetical annually compounded rate that would have
produced the same cumulative total return if performance had been constant over
the entire period. Because average annual returns tend to smooth out variations
in a Fund's performance, they are not the same as actual year-by-year results.
As a supplement to total return computations, a Fund may also publish "total
investment return" computations which do not assume deduction of the maximum
sales charge imposed on Class A Shares or the contingent deferred sales charge
imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share for
a stated period by the maximum offering price per share on the last day of the
period. All distribution rates published for the Funds are measures of the level
of income dividends distributed during a specified period. Thus, these rates
differ from yield (which measures income actually earned by a Fund) and total
return (which measures actual income, plus realized and unrealized gains or
losses of a Fund's investments). Consequently, distribution rates alone should
not be considered complete measures of performance.
The performance of the Class C Shares of a Fund will normally be higher than for
the Class A and Class B Shares because Class C Shares are not subject to the
sales charges and distribution expenses applicable to Class A and Class B
Shares.
In reports or other communications to shareholders and in advertising material,
the performance of each Fund may be compared to recognized unmanaged indices or
averages of the performance of similar securities. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent mutual fund rating services, and each Fund may include in such
reports, communications and advertising material evaluations published by
nationally recognized independent ranking services and publications. For further
information regarding the Funds' performance, see "Fund Performance" in the
Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in which
the Funds may invest and related topics. Further information concerning these
matters is contained in the Statement of Additional Information.
CASH ITEMS
The "cash items" in which the Funds may invest, as described under "Investment
Objectives and Policies," include short-term obligations such as rated
commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings and time deposits (including certificates of
deposit); bankers acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. A repurchase agreement
involves the purchase by a Fund of securities with the agreement that after a
stated period of time, the original seller will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. If the
original seller defaults on its obligation to repurchase as a result of its
bankruptcy or otherwise, the purchasing Fund will seek to sell the collateral,
which could involve costs or delays. Although collateral (which may consist of
any fixed income security which is an eligible investment for the Fund entering
into the repurchase agreement) will at all times be maintained in an amount
equal to the repurchase price under the agreement (including accrued interest),
a Fund would suffer a loss if the proceeds from the sale of the collateral were
less than the agreed-upon repurchase price. The Adviser or, in the case of
International Fund, the Sub-Adviser will monitor the creditworthiness of the
firms with which the Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds (excluding Equity Index Fund) may purchase securities on a
when-issued or delayed-delivery basis. When such a transaction is negotiated,
the purchase price is fixed at the time the purchase commitment is entered, but
delivery of and payment for the securities take place at a later date. A Fund
will not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery of
the securities, each Fund will maintain in a segregated account cash or liquid
high-grade securities in an amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes a
Fund to risk because the securities may decrease in value prior to delivery. In
addition, a Fund's purchase of securities on a when-issued or delayed-delivery
basis while remaining substantially fully invested could increase the amount of
the Fund's total assets that are subject to market risk, resulting in increased
sensitivity of net asset value to changes in market prices. However, the Funds
will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with their investment
objectives, and not for the purpose of investment leverage. A seller's failure
to deliver securities to a Fund could prevent the Fund from realizing a price or
yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds (excluding Equity
Index Fund) may lend portfolio securities representing up to one-third of the
value of its total assets to broker-dealers, banks or other institutional
borrowers of securities. As with other extensions of credit, there may be risks
of delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the Funds will
only enter into loan arrangements with broker-dealers, banks, or other
institutions which the Adviser or, in the case of International Fund, the
Sub-Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Funds may purchase put and call options.
These transactions will be undertaken only for the purpose of reducing risk to
the Funds; that is, for "hedging" purposes. Depending on the Fund, these
transactions may include the purchase of put and call options on equity
securities, on stock indices, on interest rate indices, or (only in the case of
International Fund) on foreign currencies. Options on futures contracts are
discussed below under "Futures and Options on Futures."
A put option on a security gives the purchaser of the option the right (but not
the obligation) to sell, and the writer of the option the obligation to buy, the
underlying security at a stated price (the "exercise price") at any time before
the option expires. A call option on a security gives the purchaser the right
(but not the obligation) to buy, and the writer the obligation to sell, the
underlying security at the exercise price at any time before the option expires.
The purchase price for a put or call option is the "premium" paid by the
purchaser for the right to sell or buy.
Options on indices are similar to options on securities except that, rather than
the right to take or make delivery of a specific security at a stated price, an
option on an index gives the holder the right to receive, upon exercise of the
option, a defined amount of cash if the closing value of the index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
None of the Funds other than International Fund will invest more than 5% of the
value of its total assets in purchased options, provided that options which are
"in the money" at the time of purchase may be excluded from this 5% limitation.
A call option is "in the money" if the exercise price is lower than the current
market price of the underlying security or index, and a put option is "in the
money" if the exercise price is higher than the current market price. A Fund's
loss exposure in purchasing an option is limited to the sum of the premium paid
and the commission or other transaction expenses associated with acquiring the
option.
The use of purchased put and call options involves certain risks. These include
the risk of an imperfect correlation between market prices of securities held by
a Fund and the prices of options, and the risk of limited liquidity in the event
that a Fund seeks to close out an options position before expiration by entering
into an offsetting transaction.
WRITING OF COVERED CALL OPTIONS. The Funds may write (sell) covered call options
to the extent specified with respect to particular Funds under "Investment
Objectives and Policies." These transactions would be undertaken principally to
produce additional income. Depending on the Fund, these transactions may include
the writing of covered call options on equity securities or (only in the case of
International Fund) on foreign currencies which a Fund owns or has the right to
acquire or on interest rate indices.
When a Fund sells a covered call option, it is paid a premium by the purchaser.
If the market price of the security covered by the option does not increase
above the exercise price before the option expires, the option generally will
expire without being exercised, and the Fund will retain both the premium paid
for the option and the security. If the market price of the security covered by
the option does increase above the exercise price before the option expires,
however, the option is likely to be exercised by the purchaser. In that case the
Fund will be required to sell the security at the exercise price, and it will
not realize the benefit of increases in the market price of the security above
the exercise price of the option.
FUTURES AND OPTIONS ON FUTURES
Equity Index Fund, Balanced Fund, Asset Allocation Fund and International Fund
may engage in futures transactions and purchase options on futures to the extent
specified with under "Investment Objectives and Policies." Depending on the
Fund, these transactions may include the purchase of stock index futures and
options on stock index futures, and the purchase of interest rate futures and
options on interest rate futures. In addition, International Fund may enter into
contracts for the future delivery of securities or foreign currencies and
futures contracts based on a specific security, class of securities, or foreign
currency.
A futures contract on a security obligates one party to purchase, and the other
to sell, a specified security at a specified price on a date certain in the
future. A futures contract on an index obligates the seller to deliver, and
entitles the purchaser to receive, an amount of cash equal to a specific dollar
amount times the difference between the value of the index at the expiration
date of the contract and the index value specified in the contract. The
acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified exercise price,
to sell or to purchase the underlying futures contract at any time during the
option period.
A Fund may use futures contracts and options on futures in an effort to hedge
against market risks and, in the case of International Fund, as part of its
management of foreign currency transactions. In addition, Equity Index Fund may
use stock index futures and options on futures to maintain sufficient liquidity
to meet redemption requests, to increase the level of Fund assets devoted to
replicating the composition of the S&P 500, and to reduce transaction costs.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed 1/3 of the market value of a Fund's total assets.
Futures transactions will be limited to the extent necessary to maintain each
Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which Stock Fund, Equity Income Fund, Diversified
Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund,
Technology Fund, Health Sciences Fund and Real Estate Securities Fund may invest
include securities issued or guaranteed by the United States Government or its
agencies or instrumentalities, nonconvertible preferred stocks, nonconvertible
corporate debt securities, and short-term obligations of the kinds described
above under "-- Cash Items." Investments in nonconvertible preferred stocks and
nonconvertible corporate debt securities will be limited to securities which are
rated at the time of purchase not less than BBB by Standard & Poor's or Baa by
Moody's (or equivalent short-term ratings), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the Adviser.
Obligations rated BBB, Baa or their equivalent, although investment grade, have
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
Equity Income Fund also may invest a portion of its assets in less than
investment grade convertible debt obligations. For a description of such
obligations and the risks associated therewith, see "Investment Objectives and
Policies -- Equity Income Fund."
The fixed income securities specified above, as well as the fixed income
securities in which Balanced Fund and Asset Allocation Fund may invest as
described under "Investment Objectives and Policies," are subject to (i)
interest rate risk (the risk that increases in market interest rates will cause
declines in the value of debt securities held by a Fund); (ii) credit risk (the
risk that the issuers of debt securities held by a Fund default in making
required payments); and (iii) call or prepayment risk (the risk that a borrower
may exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests at least 65%
of its total assets in equity securities which trade in markets other than the
United States. In addition, the other Funds (excluding Equity Index Fund, Asset
Allocation Fund, Regional Equity Fund and Real Estate Securities Fund) may
invest lesser proportions of their assets in securities of foreign issuers which
are either listed on a United States securities exchange or represented by
American Depositary Receipts.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Foreign securities also may be subject to greater
fluctuations in price than securities issued by United States corporations. The
principal markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.
In addition, there may be less publicly available information about a foreign
company than about a United States domiciled company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to United States domestic
companies. There is also generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of United States banks, foreign
banks and foreign issuers may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting, and recordkeeping standards
than those applicable to domestic branches of United States banks and United
States domestic issuers.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many foreign
securities, United States dollar-denominated American Depositary Receipts, which
are traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. American Depositary Receipts represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. American Depositary Receipts do not eliminate all the risk inherent in
investing in the securities of foreign issuers. However, by investing in
American Depositary Receipts rather than directly in foreign issuers' stock, a
Fund can avoid currency risks during the settlement period for either purchases
or sales. In general, there is a large, liquid market in the United States for
many American Depositary Receipts. The information available for American
Depositary Receipts is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. International Fund also may invest in European
Depositary Receipts, which are receipts evidencing an arrangement with a
European bank similar to that for American Depositary Receipts and which are
designed for use in the European securities markets. European Depositary
Receipts are not necessarily denominated in the currency of the underlying
security.
Certain American Depositary Receipts and European Depositary Receipts, typically
those denominated as unsponsored, require the holders thereof to bear most of
the costs of the facilities while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders in respect to the deposited securities, whereas the depository
of a sponsored facility typically distributes shareholder communications and
passes through voting rights.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold in foreign
currencies. The value of its assets as measured in United States dollars
therefore may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. International Fund
also will incur costs in converting United States dollars to local currencies,
and vice versa.
International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date certain at a
specified price. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
International Fund may enter into forward currency contracts in order to hedge
against adverse movements in exchange rates between currencies. It may engage in
"transaction hedging" to protect against a change in the foreign currency
exchange rate between the date the Fund contracts to purchase or sell a security
and the settlement date, or to "lock in" the United States dollar equivalent of
a dividend or interest payment made in a foreign currency. It also may engage in
"portfolio hedging" to protect against a decline in the value of its portfolio
securities as measured in United States dollars which could result from changes
in exchange rates between the United States dollar and the foreign currencies in
which the portfolio securities are purchased and sold. International Fund also
may hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
Although a foreign currency hedge may be effective in protecting the Fund from
losses resulting from unfavorable changes in exchanges rates between the United
States dollar and foreign currencies, it also would limit the gains which might
be realized by the Fund from favorable changes in exchange rates. The
Sub-Adviser's decision whether to enter into currency hedging transactions will
depend in part on its view regarding the direction and amount in which exchange
rates are likely to move. The forecasting of movements in exchange rates is
extremely difficult, so that it is highly uncertain whether a hedging strategy,
if undertaken, would be successful. To the extent that the Sub-Adviser's view
regarding future exchange rates proves to have been incorrect, International
Fund may realize losses on its foreign currency transactions.
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency.
MORTGAGE-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in mortgage-backed securities which are Agency Pass-Through Certificates
or collateralized mortgage obligations ("CMOs"), as described below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
The obligation of GNMA with respect to such certificates is backed by the full
faith and credit of the United States, while the obligations of FNMA and FHLMC
with respect to such certificates rely solely on the assets and credit of those
entities. The mortgage loans underlying GNMA certificates are partially or fully
guaranteed by the Federal Housing Administration or the Veterans Administration,
while the mortgage loans underlying FNMA certificates and FHLMC certificates are
conventional mortgage loans which are, in some cases, insured by private
mortgage insurance companies. Agency Pass-Through Certificates may be issued in
a single class with respect to a given pool of mortgage loans or in multiple
classes.
CMOs are debt obligations typically issued by a private special-purpose entity
and collateralized by residential or commercial mortgage loans or Agency
Pass-Through Certificates. Balanced Fund will invest only in CMOs which are
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Adviser. Because CMOs are debt obligations of private entities,
payments on CMOs generally are not obligations of or guaranteed by any
governmental entity, and their ratings and creditworthiness typically depend,
among other factors, on the legal insulation of the issuer and transaction from
the consequences of a sponsoring entity's bankruptcy. CMOs generally are issued
in multiple classes, with holders of each class entitled to receive specified
portions of the principal payments and prepayments and/or of the interest
payments on the underlying mortgage loans. These entitlements can be specified
in a wide variety of ways, so that the payment characteristics of various
classes may differ greatly from one another. Examples of the more common classes
are provided in the Statement of Additional Information. The CMOs in which the
Fund may invest include classes which are subordinated in right of payment to
other classes, as long as they have the required rating referred to above.
It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases. The
return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds. When
interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely to
decline more sharply in periods of increasing interest rates than that of a
fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. Balanced Fund will
not invest more than 10% of its total fixed income assets in interest-only,
principal-only or inverse floating rate mortgage backed securities.
ASSET-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in asset-backed securities. Asset-backed securities generally constitute
interests in, or obligations secured by, a pool of receivables other than
mortgage loans, such as automobile loans and leases, credit card receivables,
home equity loans and trade receivables. Asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and creditworthiness
typically depend on the legal insulation of the issuer and transaction from the
consequences of a sponsoring entity's bankruptcy, as well as on the credit
quality of the underlying receivables and the amount and credit quality of any
third-party credit enhancement supporting the underlying receivables or the
asset-backed securities. Asset-backed securities and their underlying
receivables generally are not issued or guaranteed by any governmental entity.
BANK INSTRUMENTS
The bank instruments in which Balanced Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or foreign
banks; Eurodollar Time Deposits, which are United States dollar-denominated
deposits in foreign branches of United States or foreign banks; and Yankee
Certificates of Deposit, which are United States dollar-denominated certificates
of deposit issued by United States branches of foreign banks and held in the
United States. For a description of certain risks of investing in foreign
issuers' securities, see "-- Foreign Securities" above. In each instance,
Balanced Fund may only invest in bank instruments issued by an institution which
has capital, surplus and undivided profits of more than $100 million or the
deposits of which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most portfolio
transactions involving debt securities will be executed on a principal basis.
Also, with respect to the placement of portfolio transactions with securities
firms, subject to the overall policy to seek to place portfolio transactions as
efficiently as possible and at the best price, research services and placement
of orders by securities firms for a Fund's shares may be taken into account as a
factor in placing portfolio transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits, they
may dispose of a security without regard to the time it has been held when such
action appears advisable to the Adviser or, in the case of International Fund,
the Sub-Adviser. The portfolio turnover rate for a Fund may vary from year to
year and may be affected by cash requirements for redemptions of shares. High
portfolio turnover rates generally would result in higher transaction costs and
could result in additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are set
forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets, except for Asset Allocation Fund,
which may borrow in amounts not to exceed 33-1/3% of its total assets.
None of the Funds will borrow money for leverage purposes. For the
purpose of this investment restriction, the use of options and futures
transactions and the purchase of securities on a when-issued or
delayed-delivery basis shall not be deemed the borrowing of money. If a
Fund engages in borrowing, its share price may be subject to greater
fluctuation, and the interest expense associated with the borrowing may
reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Emerging Growth Fund,
Technology Fund, and International Fund, as may be necessary to make
margin payments in connection with foreign currency futures and other
derivative transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of its
net assets in all forms of illiquid investments, as determined pursuant to
applicable Securities and Exchange Commission rules and interpretations. Section
4(2) commercial paper may be determined to be "liquid" under guidelines adopted
by the Board of Directors. Rule 144A securities may in the future be determined
to be "liquid" under guidelines adopted by the Board of Directors if the current
position of certain state securities regulators regarding such securities is
modified. Investing in Rule 144A securities could have the effect of increasing
the level of illiquidity in a Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
Pursuant to an undertaking to certain state securities regulators, Real Estate
Securities Fund will purchase securities that meet the investment objectives and
policies of the Fund, are acquired for investment and not for resale, that are
liquid and not restricted as to transfer, and that have a value that is readily
ascertainable as evidenced by a listing on the New York Stock Exchange, the
American Stock Exchange, or NASDAQ.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1503 (1/96)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIXED INCOME FUNDS
RETAIL CLASSES
LIMITED TERM FIXED INCOME FUND
INCOME FUND
INTERMEDIATE TERM INTERMEDIATE GOVERNMENT
INCOME FUND BOND FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class A Share Fees and Expenses 6
Class B Share Fees and Expenses 8
Information Concerning Fees and
Expenses 10
FINANCIAL HIGHLIGHTS 12
THE FUNDS 14
INVESTMENT OBJECTIVES AND
POLICIES 14
Limited Term Income Fund,
Intermediate Term Income Fund,
and Fixed Income Fund 15
Intermediate Government Bond Fund 17
Risks to Consider 18
MANAGEMENT 20
Investment Adviser 20
Portfolio Managers 21
Custodian 21
Administrator 21
Transfer Agent 22
DISTRIBUTOR 22
INVESTING IN THE FUNDS 23
Share Purchases 23
Minimum Investment Required 24
Alternative Sales Charge Options 24
Systematic Exchange Program 30
Systematic Investment Program 30
Exchanging Securities for Fund
Shares 30
Certificates and Confirmations 30
Dividends and Distributions 31
Exchange Privilege 31
REDEEMING SHARES 33
By Telephone 33
By Mail 34
By Systematic Withdrawal Program 35
Redemption Before Purchase
Instruments Clear 35
Accounts with Low Balances 35
DETERMINING THE PRICE OF SHARES 36
Determining Net Asset Value 36
Foreign Securities 37
FEDERAL INCOME TAXES 37
General 37
State and Local Taxation 38
FUND SHARES 38
CALCULATION OF PERFORMANCE DATA 39
SPECIAL INVESTMENT METHODS 40
Bank Instruments 40
Asset-Backed Securities 40
Foreign Securities 41
Mortgage-Backed Securities 41
Repurchase Agreements 43
When-Issued and Delayed-Delivery
Transactions 44
Lending of Portfolio Securities 44
Options Transactions 45
Portfolio Transactions 46
Portfolio Turnover 46
Investment Restrictions 46
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class A
and Class B Shares of the following funds (the "Funds"):
* LIMITED TERM INCOME FUND * FIXED INCOME FUND
* INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE
TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A and Class B
Shares of the following funds (the "Funds"):
LIMITED TERM INCOME FUND has an objective of providing current income while
attempting to provide a high degree of principal stability. This Fund invests in
investment grade debt securities, at least 65% of which are United States
Government obligations and corporate debt obligations and mortgage-backed and
asset-backed securities rated at least A by Standard & Poor's or Moody's or
which have been assigned an equivalent rating by another nationally recognized
statistical rating organization. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 6 months to
2 years.
INTERMEDIATE TERM INCOME FUND has an objective of providing current income to
the extent consistent with preservation of capital. This Fund generally invests
in the same kinds of debt securities as Limited Term Income Fund. Under normal
market conditions, the weighted average maturity of the securities held by this
Fund will range from 3 to 7 years.
FIXED INCOME FUND has an objective of providing a high level of current income
consistent with limited risk to capital. This Fund generally invests in the same
kinds of debt securities as Limited Term Income Fund. Under normal market
conditions, the weighted average maturity of the securities held by this Fund
will not exceed 15 years.
INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current income
to the extent consistent with preservation of capital. Under normal market
conditions, this Fund invests at least 65% of its total assets in securities
issued or guaranteed by the United States Government and its agencies and
instrumentalities. Under normal market conditions, the weighted average maturity
of the securities held by this Fund will range from 3 to 7 years.
At the present time, Class B Shares are offered only with respect to Fixed
Income Fund.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus a
maximum sales charge of 2.00% for Limited Term Income Fund, 3.00% for
Intermediate Government Bond Fund, and 3.75% for Intermediate Term Income Fund
and Fixed Income Fund. These sales charges are reduced on purchases of $50,000
or more. Class A Shares of the Funds are redeemed at net asset value without any
additional charge. Class A Shares of each Fund are subject to a Rule 12b-1
distribution and service fee computed at an annual rate of 0.25% of the average
daily net assets of that class. See "Investing in the Funds -- Alternative Sales
Charge Options."
Class B Shares of the Funds are sold at net asset value without an initial
sales charge. Class B Shares of each Fund are subject to Rule 12b-1
distribution and service fees computed at an annual rate totaling 1.00% of
the average daily net assets of that class. If Class B Shares are redeemed
within six years after purchase, they are subject to a contingent deferred
sales charge declining from 5.00% in the first year to zero after six years.
Class B Shares automatically convert into Class A Shares approximately eight
years after purchase. See "Investing in the Funds -- Alternative Sales Charge
Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are possible.
See "Investing in the Funds -- Minimum Investment Required" and "-- Systematic
Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Investing in the Funds -- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, less any applicable contingent deferred sales charge. Each Fund
may, upon 60 days written notice, redeem an account if the account's net asset
value falls below $500. See "Investing in the Funds" and "Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk (the
risk that increases in market interest rates will cause declines in the value of
debt securities held by a Fund); (ii) credit risk (the risk that the issuers of
debt securities held by a Fund default in making required payments); and (iii)
call or prepayment risk (the risk that a borrower may exercise the right to
prepay a debt obligation before its stated maturity, requiring a Fund to
reinvest the prepayment at a lower interest rate). In addition, those Funds
which may invest in mortgage-backed securities are subject to certain additional
risks associated with investing in securities representing interests in, or
secured by, pools of residential mortgage loans. The Funds also may, in order to
attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices. See "Investment
Objectives and Policies -- Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED
TERM INTERMEDIATE FIXED INTERMEDIATE
INCOME TERM INCOME INCOME GOVERNMENT
FUND FUND FUND BOND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price)(1) 2.00% 3.75% 3.75% 3.00%
Maximum sales load imposed on reinvested
dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers)(2) 0.36% 0.48% 0.48% 0.46%
Rule 12b-1 fees (after voluntary
fee waivers)(2) 0% 0% 0.25% 0%
Other expenses (after voluntary
fee waivers and reimbursements)(2) 0.24% 0.22% 0.22% 0.24%
Total fund operating expenses (after
voluntary fee waivers and
reimbursements)(2) 0.60% 0.70% 0.95% 0.70%
EXAMPLE(3)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year $ 26 $ 44 $ 47 $ 37
3 years $ 39 $ 59 $ 67 $ 52
5 years $ 53 $ 75 $ 88 $ 68
10 years $ 94 $ 121 $ 150 $ 114
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the
maximum sales charge be reflected in the above table. However, certain
investors may qualify for reduced sales charges. See "Investing in the
Funds -- Alternative Sales Charge Options."
(2) The Adviser, the Distributor and the Administrator intend to waive a
portion of their fees and/or reimburse expenses on a voluntary basis,
and the amounts shown reflect these waivers and reimbursements as of
the date of this Prospectus. Each of these persons intends to maintain
such waivers and reimbursements in effect for the current fiscal year
but reserves the right to discontinue such waivers and reimbursements
at any time in its sole discretion. Absent any fee waivers, investment
advisory fees for each Fund as an annualized percentage of average
daily net assets would be 0.70%; Rule 12b-1 fees calculated on such
basis would be 0.25%; and total fund operating expenses calculated on
such basis would be 1.22% for Limited Term Income Fund, 1.19% for
Intermediate Term Income Fund, 1.19% for Fixed Income Fund and 1.22%
for Intermediate Government Bond Fund. Other expenses includes an
administration fee.
(3) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $32, $58, $86 and $165; Intermediate Term
Income Fund, $49, $74, $100 and $176; Fixed Income Fund, $49, $74, $100
and $176; and Intermediate Government Bond Fund, $42, $68, $95 and
$173.
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED
TERM INTERMEDIATE FIXED INTERMEDIATE
INCOME TERM INCOME INCOME GOVERNMENT
FUND FUND FUND BOND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price) None None None None
Maximum sales load imposed on
reinvested dividends None None None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) 5.00% 5.00% 5.00% 5.00%
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.36% 0.48% 0.48% 0.46%
Rule 12b-1 fees 1.00% 1.00% 1.00% 1.00%
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.24% 0.22% 0.22% 0.24%
Total fund operating expenses (after
voluntary fee waivers and
reimbursements)(1) 1.60% 1.70% 1.70% 1.70%
EXAMPLE:
ASSUMING REDEMPTION(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion at the end of year 8:
1 year $ 66 $ 67 $ 67 $ 67
3 years $ 90 $ 94 $ 94 $ 94
5 years $ 107 $ 112 $ 112 $ 112
10 years $ 163 $ 174 $ 181 $ 174
ASSUMING NO REDEMPTION(3)
You would pay the following expenses on the same investment, assuming no
redemption:
1 year $ 16 $ 17 $ 17 $ 17
3 years $ 50 $ 54 $ 54 $ 54
5 years $ 87 $ 92 $ 92 $ 92
10 years $ 163 $ 174 $ 181 $ 174
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees for
each Fund as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses calculated on such basis
would be 1.97% for Limited Term Income Fund, 1.94% for Intermediate
Term Income Fund, 1.94% for Fixed Income Fund and 1.97% for
Intermediate Government Bond Fund. Other expenses includes an
administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $70, $102, $126 and $210; Intermediate Term
Income Fund, $70, $102, $125 and $207; Fixed Income Fund, $70, $101,
$125 and $207; and Intermediate Government Bond Fund, $70, $102, $126
and $210.
(3) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $20, $62, $106 and $210; Intermediate Term
Income Fund, $20, $61, $105 and $207; Fixed Income Fund, $20, $61, $105
and $207; and Intermediate Government Bond Fund, $20, $62, $106 and
$210.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class A and Class B Shares
of the Funds. The Funds also offer Class C Shares which are subject to the
same expenses except that they bear no sales loads and distribution fees.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the
Adviser, the Distributor and the Administrator. Although these persons intend
to maintain such waivers in effect for the current fiscal year, any such
waivers are voluntary and may be discontinued at any time. Prior to fee
waivers, investment advisory fees accrue at the annual rate as a percentage
of average daily net assets of 0.70% for each of the Funds.
The Class A Shares of each Fund may pay distribution and service fees to the
Distributor in an amount equaling 0.25% per year of each such class's average
daily net assets, and the Class B Shares of each Fund bear distribution and
servicing fees totaling 1.00% per year of each such class's average daily net
assets. The Distributor also receives the sales charge for distributing the
Funds' Class A Shares. Due to the distribution fees paid by these classes of
shares, long-term shareholders may pay more than the equivalent of the
maximum front-end sales charges otherwise permitted by NASD rules. For
additional information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in the
Statement of Additional Information. Further information about the Funds'
performance is contained in FAIF's annual report to shareholders, which may
be obtained without charge by calling (800) 637-2548 or by writing SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087.
For the periods ended September 30,
For a share outstanding throughout the period
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
LIMITED TERM INCOME FUND
Class A
1995 $ 9.85 $0.56 $ 0.07 $(0.56)
1994 10.06 0.44 (0.22) (0.43)
1993(1) 10.00 0.29 0.07 (0.30)
Class B
1995(2) $ 9.84 $0.13 $(0.08) $(0.14)
1994(3) 9.86 0.04 0.01 (0.07)
INTERMEDIATE TERM INCOME FUND
Class A
1995 $ 9.55 $0.59 $ 0.38 $(0.58)
1994 10.22 0.46 (0.56) (0.46)
1993(1) 10.00 0.41 0.29 (0.41)
FIXED INCOME FUND
Class A
1995 $10.37 $0.66 $ 0.61 $(0.63)
1994 11.38 0.57 (0.89) (0.57)
1993 11.13 0.62 0.36 (0.61)
1992 10.59 0.66 0.60 (0.66)
1991(4) 10.01 0.65 0.58 (0.65)
1990(5) 10.44 0.74 (0.26) (0.74)
1989(5) 10.13 0.74 0.31 (0.74)
1988(5)(6) 10.03 0.62 0.13 (0.65)
Class B
1995 $10.35 $0.58 $ 0.60 $(0.56)
1994(3) 10.54 0.08 (0.17) (0.10)
INTERMEDIATE GOVERNMENT BOND FUND
Class A
1995 $ 8.98 $0.54 $ 0.31 $(0.54)
1994 9.52 0.41 (0.51) (0.39)
1993 10.18 0.44 0.02 (0.44)
1992 10.25 0.60 0.28 (0.60)
1991(4) 10.01 0.65 0.24 (0.65)
1990(5) 10.05 0.75 (0.04) (0.75)
1989(5) 9.99 0.74 0.06 (0.74)
1988(5)(6) 10.03 0.58 (0.01) (0.61)
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) Commenced operations on December 14, 1992. All ratios for the period
have been annualized.
(2) Closed operations on January 31, 1995. All ratios for the period have
been annualized.
(3) Class B shares have been offered since August 15, 1994. All ratios for
the period have been annualized.
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 9.92 6.57% $ 9,977 0.60% 5.60% 1.22% 120%
-- 9.85 2.21% 9,509 0.60 4.17 1.23 48
-- 10.06 3.61%+ 121,800 0.60 3.61 1.27 104
$ -- $ -- 0.52%+ $ -- 1.60% 5.22% 1.97% 120%
-- 9.84 0.51%+ 1 1.60 3.50 2.03 48
$ -- $ 9.94 10.51% $ 2,437 0.70% 5.97% 1.19% 69%
(0.11) 9.55 (1.05%) 3,208 0.69 2.48 1.24 177
(0.07) 10.22 7.21%+ 67,291 0.70 4.90 1.29 163
$(0.03) $10.98 12.78% $ 7,853 0.86% 6.14% 1.19% 106%
(0.12) 10.37 (2.92%) 8,028 0.68 3.83 1.06 142
(0.12) 11.38 9.20% 53,601 0.70 5.65 1.14 91
(0.06) 11.13 12.34% 5,645 0.99 6.12 2.68 180
-- 10.59 12.48%+ 6,045 0.99 6.85 4.11 176
(0.17) 10.01 5.14% 2,209 1.07 7.49 5.46 144
-- 10.44 10.93% 555 1.22 7.26 22.44 157
-- 10.13 8.07%+ 240 0.96 7.18 20.70 93
$(0.03) $10.94 11.75% $ 7,280 1.70% 5.12% 1.94% 106%
-- 10.35 (0.88%)+ 115 1.70 4.89 1.92 142
$ -- $ 9.29 9.82% $ 2,860 0.70% 6.10% 1.22% 17%
(0.05) 8.98 (1.13%) 1,977 0.53 4.49 2.14 74
(0.68) 9.52 4.99% 3,716 0.71 4.00 4.73 182
(0.35) 10.18 8.88% 589 0.99 6.03 14.14 101
-- 10.25 9.13%+ 1,756 0.99 6.99 6.76 100
-- 10.01 7.41% 1,573 1.08 7.57 5.55 40
-- 10.05 8.35% 1,501 1.19 7.49 9.65 72
-- 9.99 6.18%+ 375 0.95 6.78 17.20 0
</TABLE>
(4) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(5) For the period ended October 31.
(6) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class A and Class B Shares of the Funds
named on the cover hereof. Information regarding the Class C Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of
FAIF may authorize additional series or classes of common stock in the
future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be changed
without a vote of shareholders. Such changes could result in a Fund having
investment objectives different from those which shareholders considered
appropriate at the time of their investment in a Fund. Shareholders will
receive written notification at least 30 days prior to any change in a Fund's
investment objectives. Each of the Funds is a diversified investment company,
as defined in the Investment Company Act of 1940 (the "1940 Act").
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes
in asset values will not be deemed to violate the limitation except in the
case of the limitation on illiquid investments. A Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Fund may consider doing so. However, in no event will more than 5% of any
Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND,
AND FIXED INCOME FUND
OBJECTIVES. Limited Term Income Fund has an objective of providing current
income while attempting to provide a high degree of principal stability.
Intermediate Term Income Fund has an objective of providing current income to
the extent consistent with preservation of capital. Fixed Income Fund has an
objective of providing a high level of current income consistent with limited
risk to capital.
INVESTMENT POLICIES. Each of these Funds invests in investment grade debt
securities, at least 65% of which are United States Government obligations and
corporate debt obligations and mortgage-backed and asset-backed securities rated
at least A by Standard & Poor's or Moody's or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization.
Under normal market conditions, the weighted average maturity of the
securities held by Limited Term Income Fund will range from 6 months to 2
years; that of Intermediate Term Income Fund will range from 3 to 7 years;
and that of Fixed Income Fund will not exceed 15 years.
These Funds' permitted investments include notes, bonds and discount notes of
United States Government agencies or instrumentalities; domestic issues of
corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of
the Adviser; other fixed income securities, including mortgage-backed
securities, which are rated in one of the four highest categories by a
nationally recognized statistical rating organization or which are of
comparable quality in the judgment of the Adviser; and commercial paper which
is rated A-1 by Standard & Poor's or P-1 by Moody's or which has been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of any of these Funds. At least 65% of the
total assets of Fixed Income Fund will be invested in fixed rate obligations.
Subject to the foregoing limitations, each of these Funds may invest in the
following kinds of securities, as described under the related headings under
"Special Investment Methods:" (i) mortgage-backed securities (provided that
Limited Term Income Fund will not invest in interest-only, principal-only or
inverse floating rate mortgage-backed securities, and each of Intermediate
Term Income Fund and Fixed Income Fund will not invest more than 10% of its
total assets in the aggregate in these kinds of securities); (ii)
asset-backed securities; and (iii) bank instruments.
In addition, each of these Funds may (i) invest up to 15% of its total assets
in foreign securities payable in United States dollars; (ii) enter into
repurchase agreements; (iii) in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices; (iv) purchase securities on a when-issued or
delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
Limited Term Income Fund also may purchase investment-type insurance products
such as Guaranteed Investment Contracts ("GICs"). A GIC is a deferred annuity
under which the purchaser agrees to pay money to an insurer (either in a lump
sum or in installments) and the insurer promises to pay interest at a
guaranteed rate for the life of the contract. GICs may have fixed or variable
interest rates. A GIC is a general obligation of the issuing insurance
company. The purchase price paid for a GIC becomes part of the general assets
of the insurer, and the contract is paid at maturity from the general assets
of the insurer. In general, GICs are not assignable or transferable without
the permission of the issuing insurance companies and can be redeemed before
maturity only at a substantial discount or penalty. GICs therefore are
usually considered to be illiquid investments. Limited Term Income Fund will
purchase only GICs which are obligations of insurance companies with a
policyholder's rating of A or better by A.M. Best Company. A description of
these ratings is contained in the Statement of Additional Information.
Although these Funds will not make direct purchases of common or preferred
stocks or rights to acquire common or preferred stocks, they may invest in
debt securities which are convertible into or exchangeable for, or which
carry warrants or other rights to acquire, such stocks. Equity interests
acquired through conversion, exchange or exercise of rights to acquire stock
will be disposed of by these Funds as soon as practicable in an orderly
manner.
For temporary defensive purposes during times of unusual market conditions,
these Funds may without limitation hold cash or invest in cash items. The
Funds also may invest not more than 35% of their total assets in cash and
cash items in order to utilize assets awaiting normal investment. Cash items
may include short-term obligations such as rated commercial paper and
variable amount master demand notes; time and savings deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; and repurchase
agreements collateralized by eligible investments.
INTERMEDIATE GOVERNMENT BOND FUND
OBJECTIVE. Intermediate Government Bond Fund has an objective of providing
current income to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Government
Bond Fund invests at least 65% of its total assets in securities issued or
guaranteed by the United States Government and its agencies and
instrumentalities. The Fund's share price and yield, however, are not guaranteed
or insured by the United States Government or any of its agencies or
instrumentalities. Under normal market conditions, the weighted average maturity
of the securities held by this Fund will range from 3 to 7 years.
The types of securities in which the Fund may invest include direct
obligations of the United States Treasury, such as United States Treasury
bonds, notes and bills. In addition, the Fund may invest in obligations
issued or guaranteed as to principal and interest by agencies of the United
States Government or by instrumentalities which have been established or
sponsored by the United States Government, provided, in each case, that
interest on the obligations is excludable from state taxable income by the
holders thereof. Such agencies and instrumentalities include, but are not
limited to, the Farm Credit System Financial Assistance Corporation, the
Federal Home Loan Banks System, the Student Loan Marketing Association and
the Tennessee Valley Authority. Obligations issued or guaranteed by some of
these agencies or instrumentalities are not guaranteed by the United States
Government, but instead rely solely on the assets and credit of the issuing
agency or instrumentality.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order
to attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices; (iii) purchase
securities on a when-issued or delayed-delivery basis; and (iv) engage in the
lending of portfolio securities. For information about these investment
methods, restrictions on their use, and certain associated risks, see the
related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in short-term government
securities maturing within 13 months from the date of purchase or repurchase
agreements with respect to government securities. The Fund also may so invest
not more than 35% of its total assets in order to utilize assets awaiting
normal investment. See "Special Investment Methods -- Repurchase Agreements."
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Funds invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Funds bear the risk that increases in market interest rates will cause the
value of their Fund's portfolio investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund which
invests in securities with longer weighted average maturities, such as Fixed
Income Fund, should be expected to have greater volatility in periods of
changing market interest rates than that of a Fund which invests in
securities with shorter weighted average maturities, such as Limited Term
Income Fund. Similarly, the volatility of Intermediate Term Income Fund and
Intermediate Government Bond Fund generally should be expected to be between
that of Fixed Income Fund and Limited Term Income Fund. As described below
under "-- Mortgage-Backed Securities," it is more difficult to generalize
about the effect of changes in market interest rates on the values of
mortgage-backed securities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in debt
securities, they are subject to credit risk.
Securities issued or guaranteed by the United States Government generally are
viewed as carrying minimal credit risk. Securities issued by governmental
entities but not backed by the full faith and credit of the United States,
and securities issued by private entities, are subject to higher levels of
credit risk. The ratings and certain other requirements which apply to the
Funds' permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that Limited Term Income Fund, Intermediate Term
Income Fund and Fixed Income Fund can invest in debt securities rated as low
as BBB by Standard & Poor's or Baa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. Although these rating categories are investment grade, obligations
with these ratings are viewed as having speculative characteristics and carry
a somewhat higher risk of default than obligations rated in the higher
investment grade categories.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for a corporate issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest rate
than that of the called bonds. Call risk is the risk that corporate bonds will
be called during a period of declining market interest rates so that such
refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it at
a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Fund's income. To the extent that the Funds invest in
callable corporate bonds, Fund shareholders bear the risk that reductions in
income will result from the call of bonds. Most United States Government
securities are not callable before their stated maturity, although U.S.
agency securities often are.
MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can be
prepaid in whole or in part by the borrowers at any time without any prepayment
penalty, the holder of a mortgage-backed security which represents an interest
in a pool of such mortgage loans is subject to a form of call risk which is
generally called "prepayment risk." In addition, it is more difficult to predict
the effect of changes in market interest rates on the return on mortgaged-backed
securities than to predict the effect of such changes on the return of a
conventional fixed-rate debt instrument; the magnitude of such effects may be
greater in some cases; and the return on certain types of mortgage-backed
securities, such as interest-only, principal-only and inverse floating rate
mortgage-backed securities, is particularly sensitive to changes in interest
rates and in the rate at which the mortgage loans underlying the securities are
prepaid by borrowers. For these reasons, a Fund's investments in mortgage-backed
securities may involve greater risks than investments in governmental or
corporate bonds. For further information, see "Special Investment Methods --
Mortgage-Backed Securities."
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser acts
as investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to First
American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was
managing accounts with an aggregate value of approximately $29 billion,
including mutual fund assets in excess of $7 billion. First Bank System,
Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding
company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on an
annual basis equal to 0.70% of its average daily net assets. The Adviser may,
at its option, waive any or all of its fees, or reimburse expenses, with
respect to any Fund from time to time. Any such waiver or reimbursement is
voluntary and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior to
the end of the fiscal year. This practice would have the effect of lowering a
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case
may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve, however,
as investment advisers to registered investment companies, subject to a
number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above, and that FBS Investment
Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from serving as a Participating Institution as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their bank
and nonbank subsidiaries, the Adviser and ISI might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.
PORTFOLIO MANAGERS
MARTIN L. JONES is portfolio manager for Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed
Income Group of the Adviser and has over 20 years of investment experience.
Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb
Rhoades & Co., Martin received his bachelor's degree from Texas Tech
University, his master's degree from University of Texas, and his master's in
business administration degree from the University of Chicago.
CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond
Fund. Chris joined the fixed income department of the Adviser in 1985, having
previously served in its securities lending and corporate trust areas. He
received his master's degree in business administration from the University
of Minnesota and is a Chartered Financial Analyst.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid the
following fees: (i) an annual administration fee of $750 per Fund; (ii) an
issue held fee, computed as of the end of each month, at the annual rate of
$30 per securities issue held by each Fund; (iii) transaction fees,
consisting of (a) a securities buy/sell/maturity fee of $15 per each such
transaction, and (b) a payment received fee of $12 for each principal pay
down payment received on collateralized mortgage pass-through instruments;
(iv) a wire transfer fee of $10 per transaction; (v) a cash management fee,
for "sweeping" cash into overnight investments, at an annual rate of 0.25% of
the amounts so invested; and (vi) a remittance fee, for payment of each
Fund's expenses, of $3.50 per each check drawn for such remittances. In
addition, the Custodian is reimbursed for its out-of-pocket expenses incurred
while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the
Funds with certain administrative services necessary to operate the Funds.
These services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at
an annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. From time to time, the Administrator may voluntarily waive its fees
or reimburse expenses with respect to any of the Funds. Any such waivers or
reimbursements may be made at the Administrator's discretion and may be
terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Corporation
and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Distributor is not affiliated with the Adviser, First Bank System, Inc., the
Custodian or their respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Alternative Sales
Charge Options." Under the Class A Distribution Plan, each Fund also pays the
Distributor a distribution fee monthly at an annual rate of 0.25% of the
Fund's Class A Shares' average daily net assets, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to Class A Shares of the Funds. From time to time,
the Distributor may voluntarily waive its distribution fees with respect to
the Class A Shares of any of the Funds. Any such waivers may be made at the
Distributor's discretion and may be terminated at any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Funds may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the
average daily net assets of the Class B Shares of the Funds, which fee may be
used by the Distributor to provide compensation for sales support and
distribution activities with respect to Class B Shares of the Funds. This fee
is calculated and paid each month based on the average daily net assets for
that month. In addition to this fee, the Distributor may be paid a
shareholder servicing fee of 0.25% of the average daily net assets of the
Class B Shares pursuant to a service plan (the "Class B Service Plan"), which
fee may be used by the Distributor to provide compensation for personal,
ongoing servicing and/or maintenance of shareholder accounts with respect to
Class B Shares of the Funds. Although Class B Shares are sold without an
initial sales charge, the Distributor pays a total of 4.25% of the amount
invested (including a prepaid service fee of 0.25% of the amount invested) to
dealers who sell Class B Shares (excluding exchanges from other Class B
Shares in the First American family). The service fee payable under the Class
B Service Plan is prepaid for the first year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may be
commenced or discontinued by any of these persons at any time. In addition,
while there is no sales charge on purchases of Class A Shares of $1 million
and more, the Adviser may pay amounts to broker-dealers from its own assets
with respect to such sales. ISI, a subsidiary of the Adviser, is a
Participating Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after
an order is received, plus any applicable sales charge, on days on which the
New York Stock Exchange is open for business. Shares may be purchased as
described below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor may
call his or her financial institution to place an order. Purchase orders must be
received by the financial institution by the time specified by the institution
to be assured same day processing, and purchase orders must be transmitted to
and received by the Funds by 3:00 p.m. Central time in order for shares to be
purchased at that day's price. It is the financial institution's responsibility
to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. In order to purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before 3:00
p.m. Central time. All information needed will be taken over the telephone, and
the order will be considered placed when the Custodian receives payment by wire.
If the Custodian does not receive the wire by 3:00 p.m. Central time, the order
will be executed the next business day. Federal funds should be wired as
follows: First Bank National Association, Minneapolis, Minnesota, ABA Number
091000022; For Credit to: DST Systems: Account Number 6023458026; For Further
Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc. and
their respective affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund at a
price equal to its net asset value per share plus a sales charge which, at the
investor's election, may be imposed either (i) at the time of the purchase (the
Class A "initial sales charge alternative"), or (ii) on a contingent deferred
basis (the Class B "deferred sales charge alternative"). Each of Class A and
Class B represents a Fund's interest in its portfolio of investments. The
classes have the same rights and are identical in all respects except that (i)
Class B Shares bear the expenses of the contingent deferred sales charge
arrangement and distribution and service fees resulting from such sales
arrangement; (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A Shares as long as Class B Shares convert into Class A Shares); (iii)
only Class B Shares carry a conversion feature; and (iv) each class has
different exchange privileges. Sales personnel of financial institutions
distributing the Funds' shares, and other persons entitled to receive
compensation for selling shares, may receive differing compensation for selling
Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial to that investor. The
amount of a purchase, the length of time an investor expects to hold the
shares, and whether the investor wishes to receive dividends in cash or in
additional shares, will all be factors in determining which sales charge
option is best for a particular investor. An investor should consider
whether, over the time he or she expects to maintain the investment, the
accumulated sales charges on Class B Shares prior to conversion would be less
than the initial sales charge on Class A Shares, and to what extent the
differential may be offset by the expected higher yield of Class A Shares.
Class A Shares will normally be more beneficial to an investor if he or she
qualifies for reduced sales charges as described below. Accordingly, orders
for Class B Shares for $250,000 or more ordinarily will be treated as orders
for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
CLASS A SHARES.
What Class A Shares Cost. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
LIMITED TERM INCOME FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGEAS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 2.00% 2.04% 1.80%
$50,000 but less than $100,000 1.50% 1.52% 1.35%
$100,000 but less than $250,000 1.00% 1.01% 0.90%
$250,000 but less than $500,000 0.75% 0.76% 0.68%
$500,000 but less than
$1,000,000 0.50% 0.50% 0.45%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
INTERMEDIATE GOVERNMENT BOND FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.00% 3.09% 2.70%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.80%
$250,000 but less than $500,000 1.50% 1.52% 1.35%
$500,000 but less than
$1,000,000 1.00% 1.01% 0.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
INTERMEDIATE TERM INCOME FUND AND FIXED INCOME FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 3.38%
$50,000 but less than $100,000 3.25% 3.36% 2.93%
$100,000 but less than $250,000 2.75% 2.83% 2.48%
$250,000 but less than $500,000 2.00% 2.04% 1.80%
$500,000 but less than
$1,000,000 1.00% 1.01% 0.90%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
Net asset value is determined at 3:00 p.m. Central time Monday through Friday
except on (i) days on which there are not sufficient changes in the value of
a Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) on the following federal
holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. In addition, net asset value
will not be calculated on Good Friday.
Dealer Concession. A dealer will normally receive up to 90% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. In addition, the Distributor may, from time to
time in its sole discretion, institute one or more promotional incentive
programs which will be paid by the Distributor from the sales charge it receives
or from any other source available to it. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation including merchandise, airline vouchers, trips and vacation
packages, to all dealers selling shares of the Funds. Promotional incentives of
these kinds will be offered uniformly to all dealers and predicated upon the
amount of shares of the Funds sold by the dealer. Whenever 90% or more of a
sales charge is paid to a dealer, that dealer may be deemed to be an underwriter
as defined in the Securities Act of 1933.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the Distributor. The Distributor may pay fees to
financial institutions out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the institution's customers in
connection with the initiation of customer accounts and purchases of Fund
shares.
Reducing The Class A Sales Charge. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* Quantity Discounts and Accumulated Purchases: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by
an investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent
purchases of Class A Shares of any FAIF Fund will be considered in
determining the sales charge reduction. In order for an investor to
receive the sales charge reduction on Class A Shares, the Transfer
Agent must be notified by the investor in writing or by his or her
financial institution at the time the purchase is made that Fund shares
are already owned or that purchases are being combined.
* Letter of Intent: If an investor intends to purchase at least $50,000
of Class A Shares in a Fund and other FAIF Funds over the next 13
months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all
FAIF Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
Sales of Class A Shares at Net Asset Value. Purchases of a Fund's Class A Shares
by the Adviser, the Sub-Adviser or any of their affiliates, or any of their or
FAIF's officers, directors, employees, retirees, sales representatives, and
partners, registered representatives of any broker/dealer authorized to sell
Fund shares, and full-time employees of FAIF's general counsel, and members of
their immediate families (i.e., parent, child, spouse, sibling, step or adopted
relationships, and UTMA accounts naming qualifying persons), may be made at net
asset value without a sales charge. A Fund's Class A Shares also may be
purchased at net asset value without a sales charge by fee-based registered
investment advisers, financial planners and registered broker/dealers who are
purchasing shares on behalf of their customers.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in Class
A Shares of any FAIF Fund at the next-determined net asset value without any
sales charge. The Transfer Agent must be notified by the shareholder in
writing or by his or her financial institution of the reinvestment in order
to eliminate a sales charge. If the shareholder redeems his or her shares of
a Fund, there may be tax consequences.
In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of Fund
shares) of shares of any unrelated open-end investment company that charges a
sales load and rollovers from retirement plans that utilize the Funds as
investment options may be made at net asset value. To make such a purchase at
net asset value, an investor or the investor's broker must, at the time of
purchase, submit a written request to the Transfer Agent that the purchase be
processed at net asset value pursuant to this privilege, accompanied by a
photocopy of the confirmation (or similar evidence) showing the redemption
from the unrelated fund. The redemption of the shares of the non-related fund
is, for federal income tax purposes, a sale upon which a gain or loss may be
realized.
CLASS B SHARES.
Contingent Deferred Sales Charge. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares within
eight years of purchase, he or she will pay a contingent deferred sales charge
at the rates set forth below. This charge is assessed on an amount equal to the
lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price or on shares derived from reinvestment of
dividends or capital gain distributions.
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
Shares in the shareholder's Fund account; second, of any Class B Shares held for
more than eight years and Class B Shares acquired pursuant to reinvestment of
dividends or other distributions; and third, of Class B Shares held longest
during the eight-year period. This method should result in the lowest possible
sales charge.
The contingent deferred sales charge is waived on redemption of Class B
Shares (i) within one year following the death or disability (as defined in
the Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2 . A shareholder or his or her representative must notify
the Transfer Agent prior to the time of redemption if such circumstances
exist and the shareholder is eligible for this waiver.
Conversion Feature. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis of
the relative net asset values of the two classes.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime Obligations
Fund of First American Funds, Inc. Under a systematic exchange program, a
shareholder enters an agreement to purchase a specified class of shares of
one or more Funds over a specified period of time, and initially purchases
Prime Obligations Fund shares of the same class in an amount equal to the
total amount of the investment. On a monthly basis a specified dollar amount
of shares of Prime Obligations Fund is exchanged for shares of the same class
of the Funds specified. The systematic exchange program of investing a fixed
dollar amount at regular intervals over time has the effect of reducing the
average cost per share of the Funds. This effect also can be achieved through
the systematic investment program described below. Because purchases of Class
A Shares are subject to an initial sales charge, it may be beneficial for an
investor to execute a Letter of Intent in connection with the systematic
exchange program. A shareholder may apply for participation in this program
through his or her financial institution or by calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may
be automatically withdrawn periodically from the shareholder's checking
account and invested in Fund shares at the net asset value next determined
after an order is received, plus any applicable sales charge. A shareholder
may apply for participation in this program through his or her financial
institution or call (800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon the
net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. Dividends
and distributions are automatically reinvested in additional shares of the
Fund paying the dividend on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on
the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will
be less than the dividends payable on Class C Shares because of the
distribution expenses charged to Class A and Class B Shares. The amount of
dividends payable on Class A Shares generally will be more than the dividends
payable on the Class B Shares because of the distribution and service fees
paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of a Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds or
of other funds in the First American family. Class A Shares of the Funds,
whether acquired by direct purchase, reinvestment of dividends on such
shares, or otherwise, may be exchanged for Class A Shares of other funds
without the payment of any sales charge (i.e., at net asset value). Exchanges
of shares among the FAIF Funds must meet any applicable minimum investment of
the fund for which shares are being exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period
or contingent deferred sales charges payable upon redemption, the holding
period of Class B Shares of the "old" fund and the holding period of Class B
Shares of the "new" fund are aggregated.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- Directly From the Funds -- Signatures." Neither the Funds, the
Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent, or financial institution.
Shares may be exchanged between two FAIF Funds by telephone only if both FAIF
Funds have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for
shares to be exchanged the same day. Neither the Transfer Agent nor any Fund
will be responsible for the authenticity of exchange instructions received by
telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if
they do not employ these procedures.
Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange
Class A Shares for Class C Shares. An example of such an exchange would be a
situation in which an individual holder of Class A Shares subsequently opens
a custody or agency account with a financial institution which invests in
Class C Shares.
The terms of any exchange privilege may be modified or terminated by the
Funds at any time. There are currently no additional fees or charges for the
exchange service. The Funds do not contemplate establishing such fees or
charges, but they reserve the right to do so. Shareholders will be notified
of any modification or termination of the exchange privilege and of the
imposition of any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by the time specified by the institution in order for
shares to be redeemed at that day's net asset value, and redemption requests
must be transmitted to and received by the Funds by 3:00 p.m. Central time in
order for shares to be redeemed at that day's net asset value. Pursuant to
instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System, normally within one business day, but in no event more than seven
days after the request. The minimum amount for a wire transfer is $1,000. If
at any time the Funds determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should occur,
another method of redemption should be considered. Neither the Transfer Agent
nor any Fund will be responsible for the authenticity of redemption
instructions received by telephone if it reasonably believes those
instructions to be genuine. The Funds and the Transfer Agent will each employ
reasonable procedures to confirm that telephone instructions are genuine, and
they may be liable for losses resulting from unauthorized or fraudulent
telephone instructions if they do not employ these procedures. These
procedures may include taping of telephone conversations.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should
call the Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which
are insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate
in the Systematic Withdrawal Program. Under this program, Fund shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional shares
if a sales charge must be paid in connection with such purchases. Because
automatic withdrawals with respect to Class B Shares are subject to the
contingent deferred sales charge, it may not be in the best interest of a
Class B shareholder to participate in the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the
purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below $500
because of changes in a Fund's net asset value. Before shares are redeemed to
close an account, the shareholder will be notified in writing and allowed 60
days to purchase additional shares to meet the minimum account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Funds -- Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption and
no order for that Fund's shares is received and on days on which changes in
the value of portfolio securities will not materially affect the current net
asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives the
purchase order or redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by dividing
the value of the securities owned by the Fund plus any cash and other assets
(including interest accrued and dividends declared but not collected), less
all liabilities, by the number of Fund shares outstanding. For the purpose of
determining the aggregate net assets of the Funds, cash and receivables will
be valued at their face amounts. Interest will be recorded as accrued and
dividends will be recorded on the ex-dividend date. Debt obligations
exceeding 60 days to maturity which are actively traded are valued by an
independent pricing service at the most recently quoted bid price. Debt
obligations with 60 days or less remaining until maturity may be valued at
their amortized cost. Foreign securities are valued based upon quotation from
the primary market in which they are traded. When market quotations are not
readily available, securities are valued at fair value as determined in good
faith by procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution expenses charged to Class A and Class B Shares.
FOREIGN SECURITIES
Trading in securities on foreign markets may be completed before the close of
business on each business day of the Funds. Thus, the calculation of the
Funds' net asset value may not take place contemporaneously with the
determination of the prices of foreign securities held in the Funds'
portfolios. If events materially affecting the value of foreign securities
occur between the time when their price is determined and the time when the
Funds' net asset value is calculated, such securities will be valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. In addition, trading in securities on foreign markets may not take
place on all days on which the New York Stock Exchange is open for business
or may take place on days on which the Exchange is not open for business.
Therefore, the net asset value of a Fund which holds foreign securities might
be significantly affected on days when an investor has no access to the Fund.
FEDERAL INCOME TAXES
GENERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of federal
income taxes on amounts of taxable income it distributes to shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested in
additional shares. Dividends paid by the Funds will not be eligible for the
70% deduction for dividends received by corporations.
Dividends paid from the net capital gains of each Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
gains, regardless of the length of time for which they have held their shares
in the Fund. Long-term capital gains of individuals are currently subject to
a maximum tax rate of 28%.
Gain or loss realized upon the sale of shares in the Funds will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or
loss if the shares were held for more than one year.
Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, each investor will be asked to certify on
his or her account application that the social security or taxpayer
identification number provided is correct and that the investor is not
subject to backup withholding for previous underreporting to the IRS.
This is a general summary of the federal tax laws applicable to the Funds and
their shareholders as of the date of this Prospectus. See the Statement of
Additional Information for further details.
STATE AND LOCAL TAXATION
Distributions from all of the Funds may be subject to state or local taxes.
Dividends paid by a Fund that are attributable to interest earned on
obligations of the United States government, its instrumentalities or
agencies may be exempt from state or local taxation. Shareholders should
consult their own tax advisers regarding state and local taxation.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Funds have
no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are
required by the 1940 Act, or (ii) are requested in writing by the holders of
25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution rate,"
is standardized in accordance with Securities and Exchange Commission ("SEC")
regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if performance
had been constant over the entire period. Because average annual returns tend
to smooth out variations in a Fund's performance, they are not the same as
actual year-by-year results. As a supplement to total return computations, a
Fund may also publish "total investment return" computations which do not
assume deduction of the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures of
the level of income dividends distributed during a specified period. Thus,
these rates differ from yield (which measures income actually earned by a
Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class A and Class B Shares of a Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to
the sales charges and distribution expenses applicable to Class A and Class B
Shares. In addition, the performance of Class A and Class B Shares of a Fund
will differ because of the different sales charge structures of the classes
and because of the higher distribution and service fees charged to Class B
Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities. Also,
the performance of each Fund may be compared to that of other funds of
similar size and objectives as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent mutual fund rating services,
and each Fund may include in such reports, communications and advertising
material evaluations published by nationally recognized independent ranking
services and publications. For further information regarding the Funds'
performance, see "Fund Performance" in the Statement of Additional
Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information concerning
these matters is contained in the Statement of Additional Information.
BANK INSTRUMENTS
The bank instruments in which Limited Term Income Fund, Intermediate Term
Income Fund, and Fixed Income Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or
foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" below. In each instance, the Funds may only invest in bank
instruments issued by an institution which has capital, surplus and undivided
profits of more than $100 million or the deposits of which are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund.
ASSET-BACKED SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund, and Fixed
Income Fund may invest in asset-backed securities. Asset-backed securities
generally constitute interests in, or obligations secured by, a pool of
receivables other than mortgage loans, such as automobile loans and leases,
credit card receivables, home equity loans and trade receivables. Like
collateralized mortgage obligations, asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and
creditworthiness typically depend on the legal insulation of the issuer and
transaction from the consequences of a sponsoring entity's bankruptcy, as
well as on the credit quality of the underlying receivables and the amount
and credit quality of any third-party credit enhancement supporting the
underlying receivables or the asset-backed securities. Asset-backed
securities and their underlying receivables generally are not issued or
guaranteed by any governmental entity.
FOREIGN SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars. These securities may include securities
issued or guaranteed by (i) the Government of Canada, any Canadian Province,
or any instrumentality or political subdivision thereof; (ii) any other
foreign government, agency or instrumentality; (iii) foreign subsidiaries of
United States corporations; and (iv) foreign banks having total capital and
surplus at the time of investment of at least $1 billion. Such foreign bank
or corporate securities must be rated by at least one major United States
rating agency as having a quality not less than that which would be required
for comparable domestic securities. In addition, Limited Term Income Fund,
Intermediate Term Income Fund, and Fixed Income Fund also may invest in
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit as described under "-- Bank Instruments" above.
Although investments of these kinds are not subject to currency risk because
they are denominated in United States dollars, they are subject to certain
other risks associated with foreign investments. Risks which may affect
foreign issuers include political, social or economic instability in the
country of the issuer, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets, and
nationalization of assets. Foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic United States issuers. In addition, foreign branches
of United States banks and foreign banks may be subject to less stringent
regulatory requirements than United States banks.
MORTGAGE-BACKED SECURITIES
Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund
may invest in mortgage-backed securities. Each of these Funds will invest
only in mortgage-backed securities which are Agency Pass-Through Certificates
or collateralized mortgage obligations ("CMOs"), as described below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by GNMA,
FNMA or FHLMC. The obligation of GNMA with respect to such certificates is
backed by the full faith and credit of the United States, while the
obligations of FNMA and FHLMC with respect to such certificates rely solely
on the assets and credit of those entities. The mortgage loans underlying
GNMA certificates are partially or fully guaranteed by the Federal Housing
Administration or the Veterans Administration, while the mortgage loans
underlying FNMA certificates and FHLMC certificates are conventional mortgage
loans which are, in some cases, insured by private mortgage insurance
companies.
Agency Pass-Through Certificates may be issued in a single class with respect
to a given pool of mortgage loans or in multiple classes. Holders of
single-class pass-through certificates are entitled to receive their
proportionate share of all principal payments and prepayments on the
underlying mortgage loans together with interest on the unpaid principal at a
stated pass-through rate. Holders of each class in an issue of multiple-class
pass-through certificates are entitled to receive a specified portion of all
principal payments and prepayments and/or interest at a stated pass-through
rate on the underlying mortgage loans. A class of pass-through certificates
which entitles the holder to receive all of the interest and none of the
principal on the underlying mortgage loans is referred to as an
"interest-only" class, while a class which entitles the holder to receive all
of the principal payments and prepayments and none of the interest on the
underlying mortgage loans is referred to as a "principal-only" class. Agency
Pass-Through Certificates may be based on a pool of fixed-rate mortgage loans
or on a pool of adjustable-rate mortgage loans, the interest rates on which
change periodically based on changes in a specified index rate. In the latter
case, the pass-through rate of interest on the Agency Pass-Through
Certificates changes with changes in the rates borne by the underlying
mortgage loans.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. The Funds will invest only in CMOs which
are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and creditworthiness
typically depend on, among other factors, the legal insulation of the issuer
and transaction from the consequences of a sponsoring entity's bankruptcy.
CMOs generally are issued in multiple classes, with holders of each class
entitled to receive specified portions of the principal payments and
prepayments and/or of the interest payments on the underlying mortgage loans.
These entitlements can be specified in a wide variety of ways, so that the
payment characteristics of various classes may differ greatly from one
another. Examples of the more common classes are provided in the Statement of
Additional Information. The CMOs in which the Funds may invest include
classes which are subordinated in right of payment to other classes, as long
as they have the required rating referred to above.
Residential mortgage loans generally can be prepaid in whole or in part by
the borrowers at any time without any prepayment penalty. As a result, the
rate at which mortgage loans in a given pool are prepaid (the "prepayment
speed") is likely to increase if interest rates decline (due in part to
prepayments associated with refinancings at lower rates) and to decrease if
interest rates increase, particularly in the case of a pool of fixed-rate
mortgage loans. Thus, the holder of an interest in a mortgage pool is likely
to have to reinvest greater amounts of principal during periods of declining
interest rates than during periods of increasing rates. However, the
relationship between changes in interest rates and changes in prepayment
speeds is not predictable with precision, nor is the likelihood of changes in
interest rates which might lead to changes in prepayment speeds. In addition,
changes in interest rates and prepayment speeds have differing effects on the
return on different kinds of CMO classes. For these reasons, it is more
difficult to predict the effect of changes in market interest rates on the
return on mortgaged-backed securities than to predict the effect of such
changes on the return of a conventional fixed-rate debt instrument, and the
magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely
to decline more sharply in periods of increasing interest rates than that of
a fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. The limitations
on each Fund's investments in interest-only, principal-only and inverse
floating rate mortgage-backed securities are set forth above under
"Investment Objectives and Policies."
REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase by a Fund of securities with the
agreement that after a stated period of time, the original seller will buy
back the same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. If the original seller defaults on its obligation
to repurchase as a result of its bankruptcy or otherwise, the purchasing Fund
will seek to sell the collateral, which could involve costs or delays.
Although collateral (which may consist of any fixed income security which is
an eligible investment for the Fund entering into the repurchase agreement)
will at all times be maintained in an amount equal to the repurchase price
under the agreement (including accrued interest), a Fund would suffer a loss
if the proceeds from the sale of the collateral were less than the
agreed-upon repurchase price. The Adviser will monitor the creditworthiness
of the firms with which the Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will not
accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes
a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to a
Fund could prevent the Fund from realizing a price or yield considered to be
advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As with
other extensions of credit, there may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded put
and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates, a
Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make delivery
of a specific financial instrument at a specified price, an option on an
interest rate index gives the holder the right to receive, upon exercise of
the option, a defined amount of cash if the closing value of the interest
rate index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option.
Put and call options on interest rate indices thus may be used in a fashion
similar to that of options on interest rate futures contracts to hedge the
value of a portfolio of debt securities against anticipated changes in
interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its
share price may be subject to greater fluctuation, and the interest
expense associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper may be determined to be "liquid" under
guidelines adopted by the Board of Directors. Rule 144A securities may in the
future be determined to be "liquid" under guidelines adopted by the Board of
Directors if the current position of certain state securities regulators
regarding such securities is modified. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in a Fund to the
extent that qualified institutional buyers become, for a time, uninterested
in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1001 (1/96)R
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIXED INCOME FUNDS
INSTITUTIONAL CLASS
LIMITED TERM FIXED INCOME FUND
INCOME FUND
INTERMEDIATE GOVERNMENT
INTERMEDIATE TERM BOND FUND
INCOME FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class C Share Fees and Expenses 6
Information Concerning Fees and
Expenses 7
FINANCIAL HIGHLIGHTS 8
THE FUNDS 10
INVESTMENT OBJECTIVES AND POLICIES 10
Limited Term Income Fund, Intermediate
Term Income Fund, and Fixed Income
Fund 11
Intermediate Government Bond Fund 13
Risks to Consider 14
MANAGEMENT 16
Investment Adviser 16
Portfolio Managers 17
Custodian 17
Administrator 17
Transfer Agent 18
DISTRIBUTOR 18
PURCHASES AND REDEMPTIONS OF SHARES 18
Share Purchases and Redemptions 18
What Shares Cost 19
Exchanging Securities for Fund Shares 20
Certificates and Confirmations 20
Dividends and Distributions 20
Exchange Privilege 21
FEDERAL INCOME TAXES 22
FUND SHARES 22
CALCULATION OF PERFORMANCE DATA 23
SPECIAL INVESTMENT METHODS 24
Bank Instruments 24
Asset-Backed Securities 24
Foreign Securities 25
Mortgage-Backed Securities 25
Repurchase Agreements 27
When-Issued and Delayed-Delivery
Transactions 28
Lending of Portfolio Securities 28
Options Transactions 29
Portfolio Transactions 30
Portfolio Turnover 30
Investment Restrictions 30
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class C
Shares of the following funds (the "Funds"):
* LIMITED TERM INCOME FUND * FIXED INCOME FUND
* INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE
TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class C Shares of the
following funds (the "Funds"):
LIMITED TERM INCOME FUND has an objective of providing current income while
attempting to provide a high degree of principal stability. This Fund invests
in investment grade debt securities, at least 65% of which are United States
Government obligations and corporate debt obligations and mortgage-backed and
asset-backed securities rated at least A by Standard & Poor's or Moody's or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization. Under normal market conditions,
the weighted average maturity of the securities held by this Fund will range
from 6 months to 2 years.
INTERMEDIATE TERM INCOME FUND has an objective of providing current income to
the extent consistent with preservation of capital. This Fund generally
invests in the same kinds of debt securities as Limited Term Income Fund.
Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 3 to 7 years.
FIXED INCOME FUND has an objective of providing a high level of current
income consistent with limited risk to capital. This Fund generally invests
in the same kinds of debt securities as Limited Term Income Fund. Under
normal market conditions, the weighted average maturity of the securities
held by this Fund will not exceed 15 years.
INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current
income to the extent consistent with preservation of capital. Under normal
market conditions, this Fund invests at least 65% of its total assets in
securities issued or guaranteed by the United States Government and its
agencies and instrumentalities. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 3 to 7
years.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and
certain other institutions for the investment of their own funds and funds for
which they act in a fiduciary, agency or custodial capacity. Class C Shares are
sold at net asset value without any front-end or deferred sales charges. See
"Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Purchases and Redemptions of Shares -- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, with no additional charge. See "Purchases and Redemptions of
Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk (the
risk that increases in market interest rates will cause declines in the value of
debt securities held by a Fund); (ii) credit risk (the risk that the issuers of
debt securities held by a Fund default in making required payments); and (iii)
call or prepayment risk (the risk that a borrower may exercise the right to
prepay a debt obligation before its stated maturity, requiring a Fund to
reinvest the prepayment at a lower interest rate). In addition, those Funds
which may invest in mortgage-backed securities are subject to certain additional
risks associated with investing in securities representing interests in, or
secured by, pools of residential mortgage loans. The Funds also may, in order to
attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices. See "Investment
Objectives and Policies -- Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES INSTITUTIONAL CLASSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED
TERM INTERMEDIATE FIXED INTERMEDIATE
INCOME TERM INCOME INCOME GOVERNMENT
FUND FUND FUND BOND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed
on purchases None None None None
Maximum sales load imposed
on reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.36% 0.48% 0.48% 0.46%
Rule 12b-1 fees None None None None
Other expenses (after
voluntary fee waivers)(1) 0.24% 0.22% 0.22% 0.24%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(1) 0.60% 0.70% 0.70% 0.70%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 6 $ 7 $ 7 $ 7
3 years $ 19 $ 22 $ 22 $ 22
5 years $ 33 $ 39 $ 39 $ 39
10 years $ 75 $ 87 $ 87 $ 87
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees for
each Fund as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses calculated on such basis
would be 0.97% for Limited Term Income Fund, 0.94% for Intermediate
Term Income Fund, 0.94% for Fixed Income Fund and 0.97% for
Intermediate Government Bond Fund. Other expenses includes an
administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $10, $31, $54 and $119; Intermediate Term
Income Fund, $10, $30, $52 and $115; Fixed Income Fund, $10, $30, $52
and $115; and Intermediate Government Bond Fund, $10, $31, $54 and
$119.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class C Shares of the
Funds. The Funds also offer Class A and Class B Shares which are subject to
the same expenses and, in addition, to a front-end or contingent deferred
sales load and certain distribution expenses.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the
Adviser and the Administrator. Although these persons intend to maintain such
waivers in effect for the current fiscal year, any such waivers are voluntary
and may be discontinued at any time. Prior to fee waivers, investment
advisory fees accrue at the annual rate as a percentage of average daily net
assets of 0.70% for each of the Funds.
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in the
Statement of Additional Information. Further information about the Funds'
performance is contained in FAIF's annual report to shareholders, which may
be obtained without charge by calling (800) 637-2548 or by writing SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087. The Financial Highlights for the Class A shares of the Funds have been
provided below along with the Financial Highlights for Class C shares. Class
A shares are subject to sales charges and fees that may differ from those
applicable to Class C shares.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
LIMITED TERM INCOME FUND
Class C
1995 $ 9.85 $0.56 $ 0.07 $(0.56)
1994(1) 10.02 0.29 (0.17) (0.29)
Class A
1995 $ 9.85 $0.56 $ 0.07 $(0.56)
1994 10.06 0.44 (0.22) (0.43)
1993(2) 10.00 0.29 0.07 (0.30)
INTERMEDIATE TERM INCOME FUND
Class C
1995 $ 9.55 $0.58 $ 0.39 $(0.58)
1994(1) 10.01 0.31 (0.46) (0.31)
Class A
1995 $ 9.55 $0.59 $ 0.38 $(0.58)
1994 10.22 0.46 (0.56) (0.46)
1993(2) 10.00 0.41 0.29 (0.41)
FIXED INCOME FUND
Class C
1995 $10.37 $0.66 $ 0.62 $(0.65)
1994(1) 11.11 0.38 (0.74) (0.38)
Class A
1995 $10.37 $0.66 $ 0.61 $(0.63)
1994 11.38 0.57 (0.89) (0.57)
1993 11.13 0.62 0.36 (0.61)
1992 10.59 0.66 0.60 (0.66)
1991(3) 10.01 0.65 0.58 (0.65)
1990(4) 10.44 0.74 (0.26) (0.74)
1989(4) 10.13 0.74 0.31 (0.74)
1988(4)(5) 10.03 0.62 0.13 (0.65)
INTERMEDIATE GOVERNMENT BOND FUND
Class C
1995 $ 8.98 $0.54 $ 0.31 $(0.54)
1994(1) 9.41 0.27 (0.43) (0.27)
Class A
1995 $ 8.98 $0.54 $ 0.31 $(0.54)
1994 9.52 0.41 (0.51) (0.39)
1993 10.18 0.44 0.02 (0.44)
1992 10.25 0.60 0.28 (0.60)
1991(3) 10.01 0.65 0.24 (0.65)
1990(4) 10.05 0.75 (0.04) (0.75)
1989(4) 9.99 0.74 0.06 (0.74)
1988(4)(5) 10.03 0.58 (0.01) (0.61)
</TABLE>
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) Class C shares have been offered since February 4, 1994. All ratios for
the period have been annualized.
(2) Commenced operations on December 14, 1992. All ratios for the period
have been annualized.
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 9.92 6.57% $111,439 0.60% 5.67% 0.97% 120%
-- 9.85 1.24%+ 70,266 0.60 4.40 1.03 48
$ -- $ 9.92 6.57% $ 9,977 0.60% 5.60% 1.22% 120%
-- 9.85 2.21% 9,509 0.60 4.17 1.23 48
-- 10.06 3.61%+ 121,800 0.60 3.61 1.27 104
$ -- $ 9.94 10.51% $ 88,375 0.70% 5.94% 0.94% 69%
-- 9.55 (1.48%)+ 68,445 0.58 4.81 1.07 177
$ -- $ 9.94 10.51% $ 2,437 0.70% 5.97% 1.19% 69%
(0.11) 9.55 (1.05%) 3,208 0.69 2.48 1.24 177
(0.07) 10.22 7.21%+ 67,291 0.70 4.90 1.29 163
$(0.03) $10.97 12.86% $289,816 0.70% 6.28% 0.94% 106%
-- 10.37 (3.23%)+ 90,187 0.61 5.53 0.92 142
$(0.03) $10.98 12.78% $ 7,853 0.86% 6.14% 1.19% 106%
(0.12) 10.37 (2.92%) 8,028 0.68 3.83 1.06 142
(0.12) 11.38 9.20% 53,601 0.70 5.65 1.14 91
(0.06) 11.13 12.34% 5,645 0.99 6.12 2.68 180
-- 10.59 12.48%+ 6,045 0.99 6.85 4.11 176
(0.17) 10.01 5.14% 2,209 1.07 7.49 5.46 144
-- 10.44 10.93% 555 1.22 7.26 22.44 157
-- 10.13 8.07%+ 240 0.96 7.18 20.70 93
$ -- $ 9.29 9.82% $100,168 0.70% 6.13% 0.97% 17%
-- 8.98 (1.66%)+ 27,776 0.36 5.32 1.45 74
$ -- $ 9.29 9.82% $ 2,860 0.70% 6.10% 1.22% 17%
(0.05) 8.98 (1.13%) 1,977 0.53 4.49 2.14 74
(0.68) 9.52 4.99% 3,716 0.71 4.00 4.73 182
(0.35) 10.18 8.88% 589 0.99 6.03 14.14 101
-- 10.25 9.13%+ 1,756 0.99 6.99 6.76 100
-- 10.01 7.41% 1,573 1.08 7.57 5.55 40
-- 10.05 8.35% 1,501 1.19 7.49 9.65 72
-- 9.99 6.18%+ 375 0.95 6.78 17.20 0
</TABLE>
(3) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(4) For the period ended October 31.
(5) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A and Class B Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of
FAIF may authorize additional series or classes of common stock in the
future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be changed
without a vote of shareholders. Such changes could result in a Fund having
investment objectives different from those which shareholders considered
appropriate at the time of their investment in a Fund. Shareholders will
receive written notification at least 30 days prior to any change in a Fund's
investment objectives. Each of the Funds is a diversified investment company,
as defined in the Investment Company Act of 1940 (the "1940 Act").
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an investment,
a later increase or decrease in percentage resulting from changes in asset
values will not be deemed to violate the limitation except in the case of the
limitation on illiquid investments. A Fund which is limited to investing in
securities with specified ratings is not required to sell a security if its
rating is reduced or discontinued after purchase, but the Fund may consider
doing so. However, in no event will more than 5% of any Fund's net assets be
invested in non-investment grade securities. Descriptions of the rating
categories of Standard & Poor's Corporation ("Standard & Poor's") and Moody's
Investors Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND, AND FIXED INCOME FUND
OBJECTIVES. Limited Term Income Fund has an objective of providing current
income while attempting to provide a high degree of principal stability.
Intermediate Term Income Fund has an objective of providing current income to
the extent consistent with preservation of capital. Fixed Income Fund has an
objective of providing a high level of current income consistent with limited
risk to capital.
INVESTMENT POLICIES. Each of these Funds invests in investment grade debt
securities, at least 65% of which are United States Government obligations and
corporate debt obligations and mortgage-backed and asset-backed securities rated
at least A by Standard & Poor's or Moody's or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization.
Under normal market conditions, the weighted average maturity of the
securities held by Limited Term Income Fund will range from 6 months to 2
years; that of Intermediate Term Income Fund will range from 3 to 7 years;
and that of Fixed Income Fund will not exceed 15 years.
These Funds' permitted investments include notes, bonds and discount notes of
United States Government agencies or instrumentalities; domestic issues of
corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of
the Adviser; other fixed income securities, including mortgage-backed
securities, which are rated in one of the four highest categories by a
nationally recognized statistical rating organization or which are of
comparable quality in the judgment of the Adviser; and commercial paper which
is rated A-1 by Standard & Poor's or P-1 by Moody's or which has been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of any of these Funds. At least 65% of the
total assets of Fixed Income Fund will be invested in fixed rate obligations.
Subject to the foregoing limitations, each of these Funds may invest in the
following kinds of securities, as described under the related headings under
"Special Investment Methods:" (i) mortgage-backed securities (provided that
Limited Term Income Fund will not invest in interest-only, principal-only or
inverse floating rate mortgage-backed securities, and each of Intermediate
Term Income Fund and Fixed Income Fund will not invest more than 10% of its
total assets in the aggregate in these kinds of securities); (ii)
asset-backed securities; and (iii) bank instruments.
In addition, each of these Funds may (i) invest up to 15% of its total assets
in foreign securities payable in United States dollars; (ii) enter into
repurchase agreements; (iii) in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices; (iv) purchase securities on a when-issued or
delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
Limited Term Income Fund also may purchase investment-type insurance products
such as Guaranteed Investment Contracts ("GICs"). A GIC is a deferred annuity
under which the purchaser agrees to pay money to an insurer (either in a lump
sum or in installments) and the insurer promises to pay interest at a
guaranteed rate for the life of the contract. GICs may have fixed or variable
interest rates. A GIC is a general obligation of the issuing insurance
company. The purchase price paid for a GIC becomes part of the general assets
of the insurer, and the contract is paid at maturity from the general assets
of the insurer. In general, GICs are not assignable or transferable without
the permission of the issuing insurance companies and can be redeemed before
maturity only at a substantial discount or penalty. GICs therefore are
usually considered to be illiquid investments. Limited Term Income Fund will
purchase only GICs which are obligations of insurance companies with a
policyholder's rating of A or better by A.M. Best Company. A description of
these ratings is contained in the Statement of Additional Information.
Although these Funds will not make direct purchases of common or preferred
stocks or rights to acquire common or preferred stocks, they may invest in
debt securities which are convertible into or exchangeable for, or which
carry warrants or other rights to acquire, such stocks. Equity interests
acquired through conversion, exchange or exercise of rights to acquire stock
will be disposed of by these Funds as soon as practicable in an orderly
manner.
For temporary defensive purposes during times of unusual market conditions,
these Funds may without limitation hold cash or invest in cash items. The
Funds also may invest not more than 35% of their total assets in cash and
cash items in order to utilize assets awaiting normal investment. Cash items
may include short-term obligations such as rated commercial paper and
variable amount master demand notes; time and savings deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; and repurchase
agreements collateralized by eligible investments.
INTERMEDIATE GOVERNMENT BOND FUND
OBJECTIVE. Intermediate Government Bond Fund has an objective of providing
current income to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Government
Bond Fund invests at least 65% of its total assets in securities issued or
guaranteed by the United States Government and its agencies and
instrumentalities. The Fund's share price and yield, however, are not guaranteed
or insured by the United States Government or any of its agencies or
instrumentalities. Under normal market conditions, the weighted average maturity
of the securities held by this Fund will range from 3 to 7 years.
The types of securities in which the Fund may invest include direct
obligations of the United States Treasury, such as United States Treasury
bonds, notes and bills. In addition, the Fund may invest in obligations
issued or guaranteed as to principal and interest by agencies of the United
States Government or by instrumentalities which have been established or
sponsored by the United States Government, provided, in each case, that
interest on the obligations is excludable from state taxable income by the
holders thereof. Such agencies and instrumentalities include, but are not
limited to, the Farm Credit System Financial Assistance Corporation, the
Federal Home Loan Banks System, the Student Loan Marketing Association and
the Tennessee Valley Authority. Obligations issued or guaranteed by some of
these agencies or instrumentalities are not guaranteed by the United States
Government, but instead rely solely on the assets and credit of the issuing
agency or instrumentality.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order
to attempt to reduce risk, invest in exchange traded put and call options on
interest rate futures contracts and on interest rate indices; (iii) purchase
securities on a when-issued or delayed-delivery basis; and (iv) engage in the
lending of portfolio securities. For information about these investment
methods, restrictions on their use, and certain associated risks, see the
related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in short-term government
securities maturing within 13 months from the date of purchase or repurchase
agreements with respect to government securities. The Fund also may so invest
not more than 35% of its total assets in order to utilize assets awaiting
normal investment. See "Special Investment Methods -- Repurchase Agreements."
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Funds invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Funds bear the risk that increases in market interest rates will cause the
value of their Fund's portfolio investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund which
invests in securities with longer weighted average maturities, such as Fixed
Income Fund, should be expected to have greater volatility in periods of
changing market interest rates than that of a Fund which invests in
securities with shorter weighted average maturities, such as Limited Term
Income Fund. Similarly, the volatility of Intermediate Term Income Fund and
Intermediate Government Bond Fund generally should be expected to be between
that of Fixed Income Fund and Limited Term Income Fund. As described below
under "-- Mortgage-Backed Securities," it is more difficult to generalize
about the effect of changes in market interest rates on the values of
mortgage-backed securities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in debt
securities, they are subject to credit risk.
Securities issued or guaranteed by the United States Government generally are
viewed as carrying minimal credit risk. Securities issued by governmental
entities but not backed by the full faith and credit of the United States,
and securities issued by private entities, are subject to higher levels of
credit risk. The ratings and certain other requirements which apply to the
Funds' permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that Limited Term Income Fund, Intermediate Term
Income Fund and Fixed Income Fund can invest in debt securities rated as low
as BBB by Standard & Poor's or Baa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. Although these rating categories are investment grade, obligations
with these ratings are viewed as having speculative characteristics and carry
a somewhat higher risk of default than obligations rated in the higher
investment grade categories.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for a corporate issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest rate
than that of the called bonds. Call risk is the risk that corporate bonds will
be called during a period of declining market interest rates so that
such refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it at
a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Fund's income. To the extent that the Funds invest in
callable corporate bonds, Fund shareholders bear the risk that reductions in
income will result from the call of bonds. Most United States Government
securities are not callable before their stated maturity, although U.S.
agency securities often are.
MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can be
prepaid in whole or in part by the borrowers at any time without any prepayment
penalty, the holder of a mortgage-backed security which represents an interest
in a pool of such mortgage loans is subject to a form of call risk which is
generally called "prepayment risk." In addition, it is more difficult to predict
the effect of changes in market interest rates on the return on mortgaged-backed
securities than to predict the effect of such changes on the return of a
conventional fixed-rate debt instrument; the magnitude of such effects may be
greater in some cases; and the return on certain types of mortgage-backed
securities, such as interest-only, principal-only and inverse floating rate
mortgage-backed securities, is particularly sensitive to changes in interest
rates and in the rate at which the mortgage loans underlying the securities are
prepaid by borrowers. For these reasons, a Fund's investments in mortgage-backed
securities may involve greater risks than investments in governmental or
corporate bonds. For further information, see "Special Investment Methods --
Mortgage-Backed Securities."
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser acts
as investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to First
American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was
managing accounts with an aggregate value of approximately $29 billion,
including mutual fund assets in excess of $7 billion. First Bank System,
Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding
company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on an
annual basis equal to 0.70% of its average daily net assets. The Adviser may,
at its option, waive any or all of its fees, or reimburse expenses, with
respect to any Fund from time to time. Any such waiver or reimbursement is
voluntary and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior to
the end of the fiscal year. This practice would have the effect of lowering a
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case
may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve, however,
as investment advisers to registered investment companies, subject to a
number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser might
be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGERS
MARTIN L. JONES is portfolio manager for Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed
Income Group of the Adviser and has over 20 years of investment experience.
Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb
Rhoades & Co., Martin received his bachelor's degree from Texas Tech
University, his master's degree from University of Texas, and his master's in
business administration degree from the University of Chicago.
CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond
Fund. Chris joined the fixed income department of the Adviser in 1985, having
previously served in its securities lending and corporate trust areas. He
received his master's degree in business administration from the University
of Minnesota and is a Chartered Financial Analyst.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid the
following fees: (i) an annual administration fee of $750 per Fund; (ii) an
issue held fee, computed as of the end of each month, at the annual rate of
$30 per securities issue held by each Fund; (iii) transaction fees,
consisting of (a) a securities buy/sell/maturity fee of $15 per each such
transaction, and (b) a payment received fee of $12 for each principal pay
down payment received on collateralized mortgage pass-through instruments;
(iv) a wire transfer fee of $10 per transaction; (v) a cash management fee,
for "sweeping" cash into overnight investments, at an annual rate of 0.25% of
the amounts so invested; and (vi) a remittance fee, for payment of each
Fund's expenses, of $3.50 per each check drawn for such remittances. In
addition, the Custodian is reimbursed for its out-of-pocket expenses incurred
while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the
Funds with certain administrative services necessary to operate the Funds.
These services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at
an annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. From time to time, the Administrator may voluntarily waive its fees
or reimburse expenses with respect to any of the Funds. Any such waivers or
reimbursements may be made at the Administrator's discretion and may be
terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Corporation
and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Distributor is not affiliated with the Adviser, First Bank System, Inc., the
Custodian or their respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York Stock
Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to First Bank National
Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST
Systems: Account Number 6023458026; For Further Credit To: (Investor Name and
Fund Name). Shares cannot be purchased by Federal Reserve wire on days on
which the New York Stock Exchange is closed and on Federal holidays upon
which wire transfers are restricted. Purchase orders will be effective and
eligible to receive dividends declared the same day if the Transfer Agent
receives an order before 3:00 p.m. Central time and the Custodian receives
Federal funds before the close of business that day. Otherwise, the purchase
order will be effective the next Business Day. The net asset value per share
is calculated as of 3:00 p.m. Central time each Business Day. The Funds
reserve the right to reject a purchase order.
The Funds are required to redeem for cash all full and fractional shares of
the Funds. Redemption orders may be made any time before 3:00 p.m. Central
time in order to receive that day's redemption price. For redemption orders
received before 3:00 p.m. Central time, payment will ordinarily be made the
same day by transfer of Federal funds, but payment may be made up to 7 days
later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The net
asset value per share is determined as of the earlier of the close of the New
York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock
Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no
order for that Fund's shares is received and on days on which changes in the
value of portfolio securities will not materially affect the current net
asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives the
purchase order or redemption request. In the case of redemptions and
repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent may require additional documents to evidence appropriate authority in
order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the Funds
is determined by dividing the value of the securities owned by the Fund plus any
cash and other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding. For
the purpose of determining the aggregate net assets of the Funds, cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued and dividends will be recorded on the ex-dividend date. Debt obligations
exceeding 60 days to maturity which are actively traded are valued by an
independent pricing service at the most recently quoted bid price. Debt
obligations with 60 days or less remaining until maturity may be valued at their
amortized cost. Foreign securities are valued based upon quotation from the
primary market in which they are traded. When market quotations are not readily
available, securities are valued at fair value as determined in good faith by
procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution expenses charged to Class A and Class B Shares.
FOREIGN SECURITIES. Trading in securities on foreign markets may be completed
before the close of business on each business day of the Funds. Thus, the
calculation of the Funds' net asset value may not take place contemporaneously
with the determination of the prices of foreign securities held in the Funds'
portfolios. If events materially affecting the value of foreign securities occur
between the time when their price is determined and the time when the Funds' net
asset value is calculated, such securities will be valued at fair value as
determined in good faith by or under the direction of the Board of Directors. In
addition, trading in securities on foreign markets may not take place on all
days on which the New York Stock Exchange is open for business or may take place
on days on which the Exchange is not open for business. Therefore, the net asset
value of a Fund which holds foreign securities might be significantly affected
on days when an investor has no access to the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon the
net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. Dividends
and distributions are automatically reinvested in additional shares of the
Fund paying the dividend on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on
the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more than
the dividends payable on Class A or Class B Shares because of the
distribution expenses charged to Class A and Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family at net asset value. Exchanges of shares among the FAIF Funds
must meet any applicable minimum investment of the fund for which shares are
being exchanged.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution. Neither the Transfer Agent nor any
Fund will be responsible for the authenticity of exchange instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Funds and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine, and they may
be liable for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures. These procedures may
include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate
may be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in
which Class C Shares of a Fund held by a financial institution in a trust or
agency capacity for one or more individual beneficiaries are exchanged for
Class A Shares of that Fund and distributed to the individual beneficiaries.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of federal
income taxes on amounts of taxable income it distributes to shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested in
additional shares. Dividends paid by the Funds will not be eligible for the
70% deduction for dividends received by corporations. Dividends paid from the
net capital gains of each Fund and designated as capital gain dividends will
be taxable to shareholders as long-term capital gains, regardless of the
length of time for which they have held their shares in the Fund.
Gain or loss realized upon the sale of shares in the Funds will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or
loss if the shares were held for more than one year.
This is a general summary of the federal tax laws applicable to the Funds and
their shareholders as of the date of this Prospectus. See the Statement of
Additional Information for further details.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Funds have
no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are
required by the 1940 Act, or (ii) are requested in writing by the holders of
25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution rate,"
is standardized in accordance with Securities and Exchange Commission ("SEC")
regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if performance
had been constant over the entire period. Because average annual returns tend
to smooth out variations in a Fund's performance, they are not the same as
actual year-by-year results. As a supplement to total return computations, a
Fund may also publish "total investment return" computations which do not
assume deduction of the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures of
the level of income dividends distributed during a specified period. Thus,
these rates differ from yield (which measures income actually earned by a
Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class C Shares of a Fund will normally be higher than
for the Class A and Class B Shares because Class C Shares are not subject to
the sales charges and distribution expenses applicable to Class A and Class B
Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities. Also,
the performance of each Fund may be compared to that of other funds of
similar size and objectives as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent mutual fund rating services,
and each Fund may include in such reports, communications and advertising
material evaluations published by nationally recognized independent ranking
services and publications. For further information regarding the Funds'
performance, see "Fund Performance" in the Statement of Additional
Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information concerning
these matters is contained in the Statement of Additional Information.
BANK INSTRUMENTS
The bank instruments in which Limited Term Income Fund, Intermediate Term
Income Fund and Fixed Income Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or
foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" below. In each instance, the Funds may only invest in bank
instruments issued by an institution which has capital, surplus and undivided
profits of more than $100 million or the deposits of which are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund.
ASSET-BACKED SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest in asset-backed securities. Asset-backed securities
generally constitute interests in, or obligations secured by, a pool of
receivables other than mortgage loans, such as automobile loans and leases,
credit card receivables, home equity loans and trade receivables. Like
collateralized mortgage obligations, asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and
creditworthiness typically depend on the legal insulation of the issuer and
transaction from the consequences of a sponsoring entity's bankruptcy, as
well as on the credit quality of the underlying receivables and the amount
and credit quality of any third-party credit enhancement supporting the
underlying receivables or the asset-backed securities. Asset-backed
securities and their underlying receivables generally are not issued or
guaranteed by any governmental entity.
FOREIGN SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars. These securities may include securities
issued or guaranteed by (i) the Government of Canada, any Canadian Province,
or any instrumentality or political subdivision thereof; (ii) any other
foreign government, agency or instrumentality; (iii) foreign subsidiaries of
United States corporations; and (iv) foreign banks having total capital and
surplus at the time of investment of at least $1 billion. Such foreign bank
or corporate securities must be rated by at least one major United States
rating agency as having a quality not less than that which would be required
for comparable domestic securities. In addition, Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund also may invest in
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit as described under "-- Bank Instruments" above.
Although investments of these kinds are not subject to currency risk because
they are denominated in United States dollars, they are subject to certain
other risks associated with foreign investments. Risks which may affect
foreign issuers include political, social or economic instability in the
country of the issuer, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets, and
nationalization of assets. Foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic United States issuers. In addition, foreign branches
of United States banks and foreign banks may be subject to less stringent
regulatory requirements than United States banks.
MORTGAGE-BACKED SECURITIES
Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund
may invest in mortgage-backed securities. Each of these Funds will invest
only in mortgage-backed securities which are Agency Pass-Through Certificates
or collateralized mortgage obligations ("CMOs"), as described below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by GNMA,
FNMA or FHLMC. The obligation of GNMA with respect to such certificates is
backed by the full faith and credit of the United States, while the
obligations of FNMA and FHLMC with respect to such certificates rely solely
on the assets and credit of those entities. The mortgage loans underlying
GNMA certificates are partially or fully guaranteed by the Federal Housing
Administration or the Veterans Administration, while the mortgage loans
underlying FNMA certificates and FHLMC certificates are conventional mortgage
loans which are, in some cases, insured by private mortgage insurance
companies.
Agency Pass-Through Certificates may be issued in a single class with respect
to a given pool of mortgage loans or in multiple classes. Holders of
single-class pass-through certificates are entitled to receive their
proportionate share of all principal payments and prepayments on the
underlying mortgage loans together with interest on the unpaid principal at a
stated pass-through rate. Holders of each class in an issue of multiple-class
pass-through certificates are entitled to receive a specified portion of all
principal payments and prepayments and/or interest at a stated pass-through
rate on the underlying mortgage loans. A class of pass-through certificates
which entitles the holder to receive all of the interest and none of the
principal on the underlying mortgage loans is referred to as an
"interest-only" class, while a class which entitles the holder to receive all
of the principal payments and prepayments and none of the interest on the
underlying mortgage loans is referred to as a "principal-only" class. Agency
Pass-Through Certificates may be based on a pool of fixed-rate mortgage loans
or on a pool of adjustable-rate mortgage loans, the interest rates on which
change periodically based on changes in a specified index rate. In the latter
case, the pass-through rate of interest on the Agency Pass-Through
Certificates changes with changes in the rates borne by the underlying
mortgage loans.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. The Funds will invest only in CMOs which
are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization or which are of comparable quality
in the judgment of the Adviser. Because CMOs are debt obligations of private
entities, payments on CMOs generally are not obligations of or guaranteed by
any governmental entity, and their ratings and creditworthiness typically
depend on, among other factors, the legal insulation of the issuer and
transaction from the consequences of a sponsoring entity's bankruptcy.
CMOs generally are issued in multiple classes, with holders of each class
entitled to receive specified portions of the principal payments and
prepayments and/or of the interest payments on the underlying mortgage loans.
These entitlements can be specified in a wide variety of ways, so that the
payment characteristics of various classes may differ greatly from one
another. Examples of the more common classes are provided in the Statement of
Additional Information. The CMOs in which the Funds may invest include
classes which are subordinated in right of payment to other classes, as long
as they have the required rating referred to above.
Residential mortgage loans generally can be prepaid in whole or in part by
the borrowers at any time without any prepayment penalty. As a result, the
rate at which mortgage loans in a given pool are prepaid (the "prepayment
speed") is likely to increase if interest rates decline (due in part to
prepayments associated with refinancings at lower rates) and to decrease if
interest rates increase, particularly in the case of a pool of fixed-rate
mortgage loans. Thus, the holder of an interest in a mortgage pool is likely
to have to reinvest greater amounts of principal during periods of declining
interest rates than during periods of increasing rates. However, the
relationship between changes in interest rates and changes in prepayment
speeds is not predictable with precision, nor is the likelihood of changes in
interest rates which might lead to changes in prepayment speeds. In addition,
changes in interest rates and prepayment speeds have differing effects on the
return on different kinds of CMO classes. For these reasons, it is more
difficult to predict the effect of changes in market interest rates on the
return on mortgaged-backed securities than to predict the effect of such
changes on the return of a conventional fixed-rate debt instrument, and the
magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely
to decline more sharply in periods of increasing interest rates than that of
a fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. The limitations
on each Fund's investments in interest-only, principal-only and inverse
floating rate mortgage-backed securities are set forth above under
"Investment Objectives and Policies."
REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase by a Fund of securities with the
agreement that after a stated period of time, the original seller will buy
back the same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. If the original seller defaults on its obligation
to repurchase as a result of its bankruptcy or otherwise, the purchasing Fund
will seek to sell the collateral, which could involve costs or delays.
Although collateral (which may consist of any fixed income security which is
an eligible investment for the Fund entering into the repurchase agreement)
will at all times be maintained in an amount equal to the repurchase price
under the agreement (including accrued interest), a Fund would suffer a loss
if the proceeds from the sale of the collateral were less than the
agreed-upon repurchase price. The Adviser will monitor the creditworthiness
of the firms with which the Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will not
accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes
a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to a
Fund could prevent the Fund from realizing a price or yield considered to be
advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As with
other extensions of credit, there may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded put
and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates, a
Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make delivery
of a specific financial instrument at a specified price, an option on an
interest rate index gives the holder the right to receive, upon exercise of
the option, a defined amount of cash if the closing value of the interest
rate index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option.
Put and call options on interest rate indices thus may be used in a fashion
similar to that of options on interest rate futures contracts to hedge the
value of a portfolio of debt securities against anticipated changes in
interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its
share price may be subject to greater fluctuation, and the interest
expense associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper may be determined to be "liquid" under
guidelines adopted by the Board of Directors. Rule 144A securities may in the
future be determined to be "liquid" under guidelines adopted by the Board of
Directors if the current position of certain state securities regulators
regarding such securities is modified. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in a Fund to the
extent that qualified institutional buyers become, for a time, uninterested
in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1501 (1/96)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
TAX FREE INCOME FUNDS
RETAIL CLASSES
INTERMEDIATE TAX COLORADO INTERMEDIATE
FREE FUND TAX FREE FUND
MINNESOTA INSURED
INTERMEDIATE TAX FREE FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 8
Class A Share Fees and Expenses 8
Class B Share Fees and Expenses 10
Information Concerning Fees and
Expenses 12
FINANCIAL HIGHLIGHTS 14
THE FUNDS 16
INVESTMENT OBJECTIVES AND POLICIES 16
Intermediate Tax Free Fund 17
Minnesota Insured Intermediate
Tax Free Fund and Colorado
Intermediate Tax Free Fund 18
Risks to Consider 20
MANAGEMENT 23
Investment Adviser 23
Portfolio Managers 24
Custodian 24
Administrator 25
Transfer Agent 25
DISTRIBUTOR 25
INVESTING IN THE FUNDS 27
Share Purchases 27
Minimum Investment Required 28
Alternative Sales Charge Options 28
Systematic Exchange Program 32
Systematic Investment Program 33
Exchanging Securities for Fund
Shares 33
Certificates and Confirmations 33
Dividends and Distributions 33
Exchange Privilege 34
REDEEMING SHARES 36
By Telephone 36
By Mail 36
By Systematic Withdrawal Program 37
Redemption Before Purchase
Instruments Clear 38
Accounts with Low Balances 38
DETERMINING THE PRICE OF SHARES 38
Determining Net Asset Value 38
INCOME TAXES 39
Federal Income Taxation 39
Minnesota Income Taxation 41
Colorado Income Taxation 42
Other State and Local Taxation 43
TAX-EXEMPT VS. TAXABLE INCOME 43
FUND SHARES 44
CALCULATION OF PERFORMANCE DATA 44
SPECIAL INVESTMENT METHODS 46
Municipal Bonds and Other
Municipal Obligations 46
Insurance for Minnesota Insured
Intermediate Tax Free Fund 48
Temporary Taxable Investments 50
Repurchase Agreements 50
Inverse Floating Rate
Obligations 50
When-Issued and Delayed-Delivery
Transactions 51
Lending of Portfolio Securities 51
Options Transactions 52
Portfolio Transactions 53
Portfolio Turnover 53
Investment Restrictions 53
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class A
and Class B Shares of the following funds (the "Funds"):
* INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND
* MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE
TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A and Class B
Shares of the following funds (the "Funds"):
INTERMEDIATE TAX FREE FUND has an objective of providing current income that is
exempt from federal income tax to the extent consistent with preservation of
capital. Under normal market conditions, this Fund invests at least 80% of its
net assets in municipal obligations, the interest on which is exempt from
federal income tax. No more than 20% of the securities owned by this Fund will
generate income that is subject to the federal alternative minimum tax. Under
normal market conditions, the weighted average maturity of the securities held
by this Fund will range from 3 to 10 years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing
current income which is exempt from both federal income tax and Minnesota state
income tax to the extent consistent with preservation of capital. Under normal
market conditions, this Fund invests at least 80% of its net assets in municipal
obligations, the interest on which is exempt from federal and Minnesota income
tax. No more than 20% of the securities owned by this Fund will generate income
that is subject to the federal or the Minnesota alternative minimum tax. At
least 65% of the tax-exempt obligations held by this Fund will consist of
insured bonds, escrow secured bonds and defeased bonds. Under normal market
conditions, the weighted average maturity of the securities held by this Fund
will range from 3 to 10 years.
COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current income
which is exempt from both federal income tax and Colorado state income tax to
the extent consistent with preservation of capital. Under normal market
conditions, this Fund invests at least 80% of its net assets in municipal
obligations, the interest on which is exempt from federal and Colorado income
tax. No more than 20% of the securities owned by this Fund will generate income
that is subject to the federal alternative minimum tax. Under normal market
conditions, the weighted average maturity of the securities held by this Fund
will range from 3 to 10 years.
At the present time, Class B Shares of the Funds are not being offered.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus a
maximum sales charge of 3.00%. These sales charges are reduced on purchases of
$50,000 or more. Class A Shares of the Funds are redeemed at net asset value
without any additional charge. Class A Shares of each Fund are subject to a Rule
12b-1 distribution and service fee computed at an annual rate of 0.25% of the
average daily net assets of that class. See "Investing in the Funds --
Alternative Sales Charge Options."
Class B Shares of the Funds are sold at net asset value without an initial
sales charge. Class B Shares of each Fund are subject to Rule 12b-1
distribution and service fees computed at an annual rate totaling 1.00% of
the average daily net assets of that class. If Class B Shares are redeemed
within six years after purchase, they are subject to a contingent deferred
sales charge declining from 5.00% in the first year to zero after six years.
Class B Shares automatically convert into Class A Shares approximately eight
years after purchase. See "Investing in the Funds -- Alternative Sales Charge
Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are possible.
See "Investing in the Funds -- Minimum Investment Required" and "-- Systematic
Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Investing in the Funds -- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, less any applicable contingent deferred sales charge. Each Fund
may, upon 60 days written notice, redeem an account if the account's net asset
value falls below $500. See "Investing in the Funds" and "Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk (the
risk that increases in market interest rates will cause declines in the value of
debt securities held by a Fund); (ii) credit risk (the risk that the issuers of
debt securities held by a Fund default in making required payments); and (iii)
call or prepayment risk (the risk that a borrower may exercise the right to
prepay a debt obligation before its stated maturity, requiring a Fund to
reinvest the prepayment at a lower interest rate).
In addition, the value of municipal obligations held by the Funds may be
adversely affected by local political and economic conditions and
developments in the states and political subdivisions which issue the
obligations. Investors should note in this regard that Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in
municipal obligations of issuers located only in Minnesota and Colorado,
respectively. The Funds also may, in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices. See "Investment Objectives and Policies --
Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
MINNESOTA
INSURED
INTERMEDIATE INTERMEDIATE COLORADO
TAX FREE TAX FREE INTERMEDIATE
FUND FUND TAX FREE FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of offering
price)(1) 3.00% 3.00% 3.00%
Maximum sales load imposed on
reinvested dividends None None None
Deferred sales load None None None
Redemption fees None None None
Exchange fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(2) 0.32% 0.42% 0.39%
Rule 12b-1 fees (after voluntary fee
waivers)(2) 0% 0% 0%
Other expenses (after voluntary fee
waivers and reimbursements)(2) 0.38% 0.28% 0.31%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(2) 0.70% 0.70% 0.70%
EXAMPLE(3)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year $ 37 $ 37 $ 37
3 years $ 52 $ 52 $ 52
5 years $ 68 $ 68 $ 68
10 years $ 114 $ 114 $ 114
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the
maximum sales charge be reflected in the above table. However, certain
investors may qualify for reduced sales charges. See "Investing in the
Funds -- Alternative Sales Charge Options."
(2) The Adviser, the Distributor and the Administrator intend to waive a
portion of their fees and/or reimburse expenses on a voluntary basis,
and the amounts shown reflect these waivers and reimbursements as of
the date of this Prospectus. Each of these persons intends to maintain
such waivers and reimbursements in effect for the current fiscal year
but reserves the right to discontinue such waivers and reimbursements
at any time in its sole discretion. Absent any fee waivers, investment
advisory fees for each Fund as an annualized percentage of average
daily net assets would be 0.70%; Rule 12b-1 fees calculated on such
basis would be 0.25%; and total fund operating expenses calculated on
such basis would be 1.30% for Intermediate Tax Free Fund, 1.25% for
Minnesota Insured Intermediate Tax Free and 1.27% for Colorado
Intermediate Tax Free Fund. Other expenses includes an administration
fee.
(3) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $43, $70, $99 and $182; Minnesota Insured
Intermediate Tax Free Fund, $42, $68, $97 and $177; and Colorado
Intermediate Tax Free Fund, $43, $69, $98 and $179.
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
MINNESOTA
INSURED
INTERMEDIATE INTERMEDIATE COLORADO
TAX FREE TAX FREE INTERMEDIATE
FUND FUND TAX FREE FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of offering
price) None None None
Maximum sales load imposed on
reinvested dividends None None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price or redemption proceeds,
as applicable) 5.00% 5.00% 5.00%
Redemption fees None None None
Exchange fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(1) 0.32% 0.42% 0.39%
Rule 12b-1 fees 1.00% 1.00% 1.00%
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.38% 0.28% 0.31%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(1) 1.70% 1.70% 1.70%
EXAMPLE:
ASSUMING REDEMPTION(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion at the end of year 8:
1 year $ 67 $ 67 $ 67
3 years $ 94 $ 94 $ 94
5 years $ 112 $ 112 $ 112
10 years $ 174 $ 174 $ 174
ASSUMING NO REDEMPTION(3)
You would pay the following expenses on the same investment, assuming no
redemption:
1 year $ 17 $ 17 $ 17
3 years $ 54 $ 54 $ 54
5 years $ 92 $ 92 $ 92
10 years $ 174 $ 174 $ 174
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees for
each Fund as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses calculated on such basis
would be 2.05% for Intermediate Tax Free Fund, 2.00% for Minnesota
Insured Intermediate Tax Free Fund and 2.02% for Colorado Intermediate
Tax Free Fund. Other expenses includes an administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $71, $104, $130 and $218; Minnesota Insured
Intermediate Tax Free Fund, $70, $103, $128 and $213; and Colorado
Intermediate Tax Free Fund, $71, $103, $129 and $215.
(3) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $21, $64, $110 and $218; Minnesota Insured
Intermediate Tax Free Fund, $20, $63, $108 and $213; and Colorado
Intermediate Tax Free Fund, $21, $63, $109 and $215.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class A and Class B Shares
of the Funds. The Funds also offer Class C Shares which are subject to the
same expenses except that they bear no sales loads and distribution fees.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the
Adviser, the Distributor and the Administrator. Although these persons intend
to maintain such waivers in effect for the current fiscal year, any such
waivers are voluntary and may be discontinued at any time. Prior to fee
waivers, investment advisory fees accrue at the annual rate as a percentage
of average daily net assets of 0.70% for each of the Funds.
The Class A Shares of each Fund may pay distribution and service fees to the
Distributor in an amount equaling 0.25% per year of each such class's average
daily net assets, and the Class B Shares of each Fund bear distribution and
servicing fees totaling 1.00% per year of each such class's average daily net
assets. The Distributor also receives the sales charge for distributing the
Funds' Class A Shares. Due to the distribution fees paid by these classes of
shares, long-term shareholders may pay more than the equivalent of the
maximum front-end sales charges otherwise permitted by NASD rules. For
additional information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in the
Statement of Additional Information. Further information about the Funds'
performance is contained in FAIF's annual report to shareholders, which may
be obtained without charge by calling (800) 637-2548 or by writing SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087.
For the periods ended September 30,
For a share outstanding throughout the period
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
INTERMEDIATE TAX FREE FUND
Class A
1995 $10.28 $0.49 $ 0.43 $(0.48)
1994 10.92 0.44 (0.57) (0.44)
1993 10.56 0.47 0.42 (0.47)
1992 10.34 0.53 0.22 (0.53)
1991(1) 10.04 0.50 0.31 (0.50)
1990(2) 10.08 0.56 (0.04) (0.56)
1989(2) 10.19 0.56 (0.11) (0.56)
1988(2)(3) 10.03 0.47 0.16 (0.47)
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A
1995 $ 9.58 $0.46 $ 0.33 $(0.45)
1994(4) 10.00 0.25 (0.42) (0.25)
COLORADO INTERMEDIATE TAX FREE FUND
Class A
1995 $10.15 $0.49 $ 0.36 $(0.49)
1994(5) 10.00 0.21 0.16 (0.22)
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(2) For the period ended October 31.
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $10.72 9.15% $ 983 0.67% 4.71% 1.30% 68%
(0.07) 10.28 (1.25%) 1,128 0.59 4.13 2.78 52
(0.06) 10.92 8.66% 2,969 0.71 4.31 5.09 27
-- 10.56 7.23% 725 0.99 4.83 16.09 23
(0.01) 10.34 8.15%+ 637 0.99 5.35 15.48 15
-- 10.04 5.31% 537 1.08 5.58 13.85 4
-- 10.08 4.57% 491 1.09 5.57 19.55 4
-- 10.19 6.73%+ 425 0.84 5.87 13.60 0
$ -- $ 9.92 8.46% $2,219 0.70% 4.74% 1.25% 38%
-- 9.58 (1.68%)+ 1,508 0.67 4.57 1.84 22
$ -- $10.51 8.57% $2,189 0.70% 4.83% 1.27% 19%
-- 10.15 3.66%+ 693 0.69 4.51 4.96 4
</TABLE>
(3) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
(4) Commenced operations on February 28, 1994. All ratios for the period
have been annualized.
(5) Commenced operations on April 4, 1994. All ratios for the period have
been annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class A and Class B Shares of the Funds
named on the cover hereof. Information regarding the Class C Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of
FAIF may authorize additional series or classes of common stock in the
future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be changed
without a vote of shareholders. Such changes could result in a Fund having
investment objectives different from those which shareholders considered
appropriate at the time of their investment in a Fund. Shareholders will
receive written notification at least 30 days prior to any change in a Fund's
investment objectives. Intermediate Tax Free Fund is a diversified investment
company, as defined in the Investment Company Act of 1940 (the "1940 Act").
Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax
Free Fund are nondiversified investment companies under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes
in asset values will not be deemed to violate the limitation except in the
case of the limitation on illiquid investments. A Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Fund may consider doing so. However, in no event will more than 5% of any
Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
INTERMEDIATE TAX FREE FUND
OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current
income which is exempt from federal income tax to the extent consistent with
preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free Fund
invests at least 80% of its net assets in municipal bonds and other municipal
obligations, the interest on which is, in the opinion of bond counsel to the
issuer, exempt from federal income tax. No more than 20% of the securities owned
by the Fund will generate income that is an item of tax preference for the
purpose of the federal alternative minimum tax. Municipal obligations generating
income subject to taxation under the federal alternative minimum tax rules will
not be counted as tax exempt obligations for purposes of the 80% test. See
"Income Taxes." The types of municipal bonds and other municipal obligations in
which the Fund may invest are described under "Special Investment Methods --
Municipal Bonds and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by Intermediate Tax Free Fund will range from 3 to 10 years.
Intermediate Tax Free Fund may purchase obligations which are rated no lower
than BBB by Standard & Poor's or Baa by Moody's, or which have been assigned
an equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. The Fund also may purchase municipal notes which are rated no lower
than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of the Fund.
While the assets of Intermediate Tax Free Fund ordinarily will be invested in
municipal obligations, on occasion the Fund may temporarily hold short-term
securities, other than municipal obligations, the income from which is
taxable. Temporary taxable investments would be held solely for the purpose
of managing exceptional in-flows and out-flows of cash or for temporary
defensive purposes to preserve existing portfolio values. Under normal
circumstances, the Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, the Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
- -- Temporary Taxable Investments."
The Fund also may temporarily invest in shares of investment companies which
invest primarily in short-term municipal obligations with maturities not
exceeding 13 months. Investments of these types are also subject to the
advisory fee. Income from these investments is normally exempt from federal
income tax.
The Fund also may (i) in order to attempt to reduce risk, invest in exchange
traded put and call options on interest rate futures contracts and on
interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; and (iii) engage in the lending of portfolio
securities. In addition, the Fund may invest up to 5% of its net assets in
inverse floating rate municipal obligations. For information about these
investment methods, restrictions on their use, and certain associated risks,
see the related headings under "Special Investment Methods."
The requirement, described above, that Intermediate Tax Free Fund invest at
least 80% of its net assets in tax free obligations under normal market
conditions is a fundamental policy, which cannot be changed without
shareholder vote. Under normal market conditions, the Fund will invest at
least 65% of its total assets in municipal obligations which are municipal
bonds. See "Special Investment Methods -- Municipal Bonds and Other Municipal
Obligations."
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of
providing current income which is exempt from both federal income tax and
Minnesota state income tax to the extent consistent with preservation of
capital. Colorado Intermediate Tax Free Fund has an objective of providing
current income which is exempt from both federal income tax and Colorado state
income tax to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, each of these Funds invests
at least 80% of its net assets in municipal bonds and other municipal
obligations of the state referred to in its title, the interest on which is, in
the opinion of bond counsel to the issuer, exempt from federal income tax and
that state's income tax. No more than 20% of the securities owned by either of
these Funds will generate income that is an item of tax preference for the
purpose of the federal alternative minimum tax and, in the case of Minnesota
Insured Intermediate Tax Free Fund, for the purpose of the Minnesota alternative
minimum tax. Municipal obligations generating income subject to taxation under
the federal alternative minimum tax rules or, in the case of Minnesota Insured
Intermediate Tax Free Fund, under the Minnesota alternative minimum tax rules,
will not be counted as tax exempt obligations for purposes of the 80% test. See
"Income Taxes." The types of municipal bonds and other municipal obligations in
which these Funds may invest are described under "Special Investment Methods --
Municipal Bonds and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by each of these Funds will range from 3 to 10 years.
Each of these Funds may purchase obligations which are rated (without regard
to insurance) no lower than BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Each of these Funds also may purchase
municipal notes which are rated no lower than SP-1 by Standard & Poor's or
MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization. Unrated
securities will not exceed 10% in the aggregate of the value of the total
assets of either of these Funds.
While the assets of each of these Funds ordinarily will be invested in
municipal obligations, on occasion either Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, a Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, a Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
- -- Temporary Taxable Investments."
Each of these Funds also may temporarily invest in shares of investment
companies which invest primarily in short-term municipal obligations with
maturities not exceeding 13 months. Investments of these types are also
subject to the advisory fee. Income from these investments is normally exempt
from federal income tax but may not be exempt from the applicable state tax.
Each of these Funds also may (i) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; (iii) engage in the lending of portfolio securities;
and (iv) invest up to 5% of its net assets in inverse floating rate municipal
obligations. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
As a nonfundamental policy, at least 65% of the tax-exempt obligations in the
investment portfolio of Minnesota Insured Intermediate Tax Free Fund will
consist of: (i) obligations that at all times are fully insured as to the
scheduled payment of all installments of interest and principal; and (ii)
obligations which have an AAA rating by Standard & Poor's or an Aaa rating by
Moody's or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, where the payment of
interest and principal is guaranteed by the United States Government or an
agency or instrumentality of the United States Government, or where the
payment of interest and principal is secured by an escrow account consisting
of obligations guaranteed by the United States Government or its agencies or
instrumentalities ("escrow secured bonds" or "defeased bonds"), without
having to purchase additional insurance therefor. This policy may not be
eliminated except upon 30 days advance notice to shareholders of Minnesota
Insured Intermediate Tax Free Fund. In addition, pending the investment or
reinvestment of its assets in longer-term tax-exempt obligations, this Fund
may invest in short-term tax-exempt obligations, without obtaining insurance,
provided such instruments carry an AAA or A-1 rating by Standard & Poor's or
an Aaa or SP-1 rating by Moody's or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization. Bond
insurance does not guarantee the market value of the securities held in this
Fund's portfolio. For further information concerning the insurance applicable
to this Fund's investments, see "Special Investment Methods -- Insurance for
Minnesota Insured Intermediate Tax Free Fund."
The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need
not be insured.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Funds invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Funds bear the risk that increases in market interest rates will cause the
value of their Fund's portfolio investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund which
invests in securities with longer weighted average maturities should be
expected to have greater volatility in periods of changing market interest
rates than that of a Fund which invests in securities with shorter weighted
average maturities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in debt
securities, they are subject to credit risk.
As described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations," the revenue bonds and municipal lease obligations in
which the Funds invest may entail greater credit risk than the general
obligation bonds in which they invest. This is the case because revenue bonds
and municipal lease obligations generally are not backed by the faith, credit
or general taxing power of the issuing governmental entity. In addition, as
described under that section, municipal lease obligations also are subject to
nonappropriation risk, which is a type of nonpayment risk. Investors also
should note that even general obligation bonds of the states and their
political subdivisions are not free from the risk of default.
The ratings and certain other requirements which apply to the Funds'
permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that the Funds can invest in municipal obligations
rated as low as BBB by Standard & Poor's or Baa by Moody's, or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Adviser. Although these rating categories are investment
grade, obligations with these ratings are viewed as having speculative
characteristics and carry a somewhat higher risk of default than obligations
rated in the higher investment grade categories.
Although the bond insurance carried by Minnesota Insured Intermediate Tax
Free Fund is intended to mitigate credit risk, its effectiveness depends on
the creditworthiness of the bond insurers. See "Special Investment Methods --
Insurance for Minnesota Insured Intermediate Tax Free Fund."
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for an issuer to call its bonds if they can be refinanced
through the issuance of new bonds which bear a lower interest rate than that of
the called bonds. Call risk is the risk that bonds will be called during a
period of declining market interest rates so that such refinancings may take
place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it at
a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Fund's income. To the extent that the Funds invest in
callable bonds, Fund shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political and
economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services).
Intermediate Tax Free Fund cannot invest 25% or more of its total assets in
obligations of issuers located in the same state (for this purpose, the
location of an "issuer" shall be deemed to be the location of the entity the
revenues of which are the primary source of payment or the location of the
project or facility which may be the subject of the obligation). See "Special
Investment Methods -- Investment Restrictions." Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will
invest primarily in municipal obligations issued by the state and its
political subdivisions named in its title. For this reason, the municipal
obligations held by these two Funds will be particularly affected by local
conditions in those states. A more detailed description of the factors
affecting Minnesota and Colorado issuers of municipal obligations is set
forth in the Statement of Additional Information.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds. In addition, investors in Minnesota Insured Intermediate
Tax Free Fund should note that the 1995 Minnesota Legislature enacted a
statement of intent specifying certain circumstances under which interest on the
Minnesota municipal obligations held by the Fund might become taxable for
Minnesota state income tax purposes. See "Income Taxes -- Minnesota Income
Taxation."
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser acts
as investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to First
American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was
managing accounts with an aggregate value of approximately $29 billion,
including mutual fund assets in excess of $7 billion. First Bank System,
Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding
company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on an
annual basis equal to 0.70% of its average daily net assets. The Adviser may,
at its option, waive any or all of its fees, or reimburse expenses, with
respect to any Fund from time to time. Any such waiver or reimbursement is
voluntary and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior to
the end of the fiscal year. This practice would have the effect of lowering a
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case
may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve, however,
as investment advisers to registered investment companies, subject to a
number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above, and that FBS Investment
Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from serving as a Participating Institution as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their bank
and nonbank subsidiaries, the Adviser and ISI might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.
PORTFOLIO MANAGERS
RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick
entered the investment business via investment sales with Smith Barney & Co.
in 1958. He then moved to Heritage Investment Advisers as head of fixed
income investment in 1973. He joined the Adviser in early 1986 as Vice
President and Manager of Fixed Income/Personal Trust. Dick received his
master's in business administration degree from Cornell University in 1958
and received his Chartered Financial Analyst certification in 1977.
CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund
and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed
income department of the Adviser in 1985, having previously served in its
securities lending and corporate trust areas. He received his master's degree
in business administration from the University of Minnesota and is a
Chartered Financial Analyst.
TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free
Fund. Terry joined the Adviser in 1994 after 20 years of investment
experience with Colorado Capital Advisors (which was combined into the
Adviser) and Great West Life Insurance Company. He received his bachelor's
degree from Miami University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the
Funds with certain administrative services necessary to operate the Funds.
These services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at
an annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. From time to time, the Administrator may voluntarily waive its fees
or reimburse expenses with respect to any of the Funds. Any such waivers or
reimbursements may be made at the Administrator's discretion and may be
terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Corporation
and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Distributor is not affiliated with the Adviser, First Bank System, Inc., the
Custodian or their respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Alternative Sales
Charge Options." Under the Class A Distribution Plan, each Fund also pays the
Distributor a distribution fee monthly at an annual rate of 0.25% of the
Fund's Class A Shares' average daily net assets, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to Class A Shares of the Funds. From time to time,
the Distributor may voluntarily waive its distribution fees with respect to
the Class A Shares of any of the Funds. Any such waivers may be made at the
Distributor's discretion and may be terminated at any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Funds may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the
average daily net assets of the Class B Shares of the Funds, which fee may be
used by the Distributor to provide compensation for sales support and
distribution activities with respect to Class B Shares of the Funds. This fee
is calculated and paid each month based on the average daily net assets for
that month. In addition to this fee, the Distributor may be paid a
shareholder servicing fee of 0.25% of the average daily net assets of the
Class B Shares pursuant to a service plan (the "Class B Service Plan"), which
fee may be used by the Distributor to provide compensation for personal,
ongoing servicing and/or maintenance of shareholder accounts with respect to
Class B Shares of the Funds. Although Class B Shares are sold without an
initial sales charge, the Distributor pays a total of 4.25% of the amount
invested (including a prepaid service fee of 0.25% of the amount invested) to
dealers who sell Class B Shares (excluding exchanges from other Class B
Shares in the First American family). The service fee payable under the Class
B Service Plan is prepaid for the first year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may be
commenced or discontinued by any of these persons at any time. In addition,
while there is no sales charge on purchases of Class A Shares of $1 million
and more, the Adviser may pay amounts to broker-dealers from its own assets
with respect to such sales. ISI, a subsidiary of the Adviser, is a
Participating Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after
an order is received, plus any applicable sales charge, on days on which the
New York Stock Exchange is open for business. Shares may be purchased as
described below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor may
call his or her financial institution to place an order. Purchase orders must be
received by the financial institution by the time specified by the institution
to be assured same day processing, and purchase orders must be transmitted to
and received by the Funds by 3:00 p.m. Central time in order for shares to be
purchased at that day's price. It is the financial institution's responsibility
to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. In order to purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before 3:00
p.m. Central time. All information needed will be taken over the telephone, and
the order will be considered placed when the Custodian receives payment by wire.
If the Custodian does not receive the wire by 3:00 p.m. Central time, the order
will be executed the next business day. Federal funds should be wired as
follows: First Bank National Association, Minneapolis, Minnesota, ABA Number
091000022; For Credit to: DST Systems, Account Number 6023458026; For Further
Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc. and
their respective affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund at a
price equal to its net asset value per share plus a sales charge which, at the
investor's election, may be imposed either (i) at the time of the purchase (the
Class A "initial sales charge alternative"), or (ii) on a contingent deferred
basis (the Class B "deferred sales charge alternative"). Each of Class A and
Class B represents a Fund's interest in its portfolio of investments. The
classes have the same rights and are identical in all respects except that (i)
Class B Shares bear the expenses of the contingent deferred sales charge
arrangement and distribution and service fees resulting from such sales
arrangement; (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A Shares as long as Class B Shares convert into Class A Shares); (iii)
only Class B Shares carry a conversion feature; and (iv) each class has
different exchange privileges. Sales personnel of financial institutions
distributing the Funds' shares, and other persons entitled to receive
compensation for selling shares, may receive differing compensation for selling
Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial to that investor. The
amount of a purchase, the length of time an investor expects to hold the
shares, and whether the investor wishes to receive dividends in cash or in
additional shares, will all be factors in determining which sales charge
option is best for a particular investor. An investor should consider
whether, over the time he or she expects to maintain the investment, the
accumulated sales charges on Class B Shares prior to conversion would be less
than the initial sales charge on Class A Shares, and to what extent the
differential may be offset by the expected higher yield of Class A Shares.
Class A Shares will normally be more beneficial to an investor if he or she
qualifies for reduced sales charges as described below. Accordingly, orders
for Class B Shares for $250,000 or more ordinarily will be treated as orders
for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
CLASS A SHARES.
What Class A Shares Cost. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.00% 3.09% 2.70%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.80%
$250,000 but less than $500,000 1.50% 1.52% 1.35%
$500,000 but less than $1,000,000 1.00% 1.01% 0.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
Net asset value is determined at 3:00 p.m. Central time Monday through Friday
except on (i) days on which there are not sufficient changes in the value of
a Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) on the following federal
holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. In addition, net asset value
will not be calculated on Good Friday.
Dealer Concession. A dealer will normally receive up to 90% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. In addition, the Distributor may, from time to
time in its sole discretion, institute one or more promotional incentive
programs which will be paid by the Distributor from the sales charge it receives
or from any other source available to it. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation including merchandise, airline vouchers, trips and vacation
packages, to all dealers selling shares of the Funds. Promotional incentives of
these kinds will be offered uniformly to all dealers and predicated upon the
amount of shares of the Funds sold by the dealer. Whenever 90% or more of a
sales charge is paid to a dealer, that dealer may be deemed to be an underwriter
as defined in the Securities Act of 1933.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the Distributor. The Distributor may pay fees to
financial institutions out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the institution's customers in
connection with the initiation of customer accounts and purchases of Fund
shares.
Reducing The Class A Sales Charge. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* Quantity Discounts and Accumulated Purchases: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by
an investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent
purchases of Class A Shares of any FAIF Fund will be considered in
determining the sales charge reduction. In order for an investor to
receive the sales charge reduction on Class A Shares, the Transfer
Agent must be notified by the investor in writing or by his or her
financial institution at the time the purchase is made that Fund shares
are already owned or that purchases are being combined.
* Letter of Intent: If an investor intends to purchase at least $50,000
of Class A Shares in a Fund and other FAIF Funds over the next 13
months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all
FAIF Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
Sales Of Class A Shares at Net Asset Value. Purchases of a Fund's Class A Shares
by the Adviser, the Sub-Adviser or any of their affiliates, or any of their or
FAIF's officers, directors, employees, retirees, sales representatives and
partners, registered representatives of any broker/dealer authorized to sell
Fund shares, and full-time employees of FAIF's general counsel, and members of
their immediate families (i.e., parent, child, spouse, sibling, step or adopted
relationships, and UTMA accounts naming qualifying persons), may be made at net
asset value without a sales charge. A Fund's Class A Shares also may be
purchased at net asset value without a sales charge by fee-based registered
investment advisers, financial planners and registered broker/dealers who are
purchasing shares on behalf of their customers.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in Class
A Shares of any FAIF fund at the next-determined net asset value without any
sales charge. The Transfer Agent must be notified by the shareholder in
writing or by his or her financial institution of the reinvestment in order
to eliminate a sales charge. If the shareholder redeems his or her shares of
a Fund, there may be tax consequences.
In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of Fund
shares) of shares of any unrelated open-end investment company that charges a
sales load and rollovers from retirement plans that utilize the Funds as
investment options may be made at net asset value. To make such a purchase at
net asset value, an investor or the investor's broker must, at the time of
purchase, submit a written request to the Transfer Agent that the purchase be
processed at net asset value pursuant to this privilege, accompanied by a
photocopy of the confirmation (or similar evidence) showing the redemption
from the unrelated fund. The redemption of the shares of the non-related fund
is, for federal income tax purposes, a sale upon which a gain or loss may be
realized.
CLASS B SHARES.
Contingent Deferred Sales Charge. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares within
eight years of purchase, he or she will pay a contingent deferred sales charge
at the rates set forth below. This charge is assessed on an amount equal to the
lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price or on shares derived from reinvestment of
dividends or capital gain distributions.
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any
Class A Shares in the shareholder's Fund account; second, of any Class B
Shares held for more than eight years and Class B Shares acquired pursuant to
reinvestment of dividends or other distributions; and third, of Class B
Shares held longest during the eight-year period. This method should result
in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of Class B
Shares (i) within one year following the death or disability (as defined in
the Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2 . A shareholder or his or her representative must notify
the Transfer Agent prior to the time of redemption if such circumstances
exist and the shareholder is eligible for this waiver.
Conversion Feature. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis of
the relative net asset values of the two classes.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime Obligations
Fund of First American Funds, Inc. Under a systematic exchange program, a
shareholder enters an agreement to purchase a specified class of shares of
one or more Funds over a specified period of time, and initially purchases
Prime Obligations Fund shares of the same class in an amount equal to the
total amount of the investment. On a monthly basis a specified dollar amount
of shares of Prime Obligations Fund is exchanged for shares of the same class
of the Funds specified. The systematic exchange program of investing a fixed
dollar amount at regular intervals over time has the effect of reducing the
average cost per share of the Funds. This effect also can be achieved through
the systematic investment program described below. Because purchases of Class
A Shares are subject to an initial sales charge, it may be beneficial for an
investor to execute a Letter of Intent in connection with the systematic
exchange program. A shareholder may apply for participation in this program
through his or her financial institution or by calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may
be automatically withdrawn periodically from the shareholder's checking
account and invested in Fund shares at the net asset value next determined
after an order is received, plus any applicable sales charge. A shareholder
may apply for participation in this program through his or her financial
institution or call (800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon the
net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. Dividends
and distributions are automatically reinvested in additional shares of the
Fund paying the dividend on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on
the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will
be less than the dividends payable on Class C Shares because of the
distribution expenses charged to Class A and Class B Shares. The amount of
dividends payable on Class A Shares generally will be more than the dividends
payable on the Class B Shares because of the distribution and service fees
paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of a Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds or
of other funds in the First American family. Class A Shares of the Funds,
whether acquired by direct purchase, reinvestment of dividends on such
shares, or otherwise, may be exchanged for Class A Shares of other funds
without the payment of any sales charge (i.e., at net asset value). Exchanges
of shares among the FAIF Funds must meet any applicable minimum investment of
the fund for which shares are being exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period
or contingent deferred sales charges payable upon redemption, the holding
period of Class B Shares of the "old" fund and the holding period of Class B
Shares of the "new" fund are aggregated.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- Directly From the Funds -- Signatures." Neither the Funds, the
Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent, or financial institution.
Shares may be exchanged between two FAIF Funds by telephone only if both FAIF
Funds have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for
shares to be exchanged the same day. Neither the Transfer Agent nor any Fund
will be responsible for the authenticity of exchange instructions received by
telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if
they do not employ these procedures.
Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange
Class A Shares for Class C Shares. An example of such an exchange would be a
situation in which an individual holder of Class A Shares subsequently opens
a custody or agency account with a financial institution which invests in
Class C Shares.
The terms of any exchange privilege may be modified or terminated by the
Funds at any time. There are currently no additional fees or charges for the
exchange service. The Funds do not contemplate establishing such fees or
charges, but they reserve the right to do so. Shareholders will be notified
of any modification or termination of the exchange privilege and of the
imposition of any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by the time specified by the institution in order for
shares to be redeemed at that day's net asset value, and redemption requests
must be transmitted to and received by the Funds by 3:00 p.m. Central time in
order for shares to be redeemed at that day's net asset value. Pursuant to
instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System, normally within one business day, but in no event more than seven
days after the request. The minimum amount for a wire transfer is $1,000. If
at any time the Funds determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should occur,
another method of redemption should be considered. Neither the Transfer Agent
nor any Fund will be responsible for the authenticity of redemption
instructions received by telephone if it reasonably believes those
instructions to be genuine. The Funds and the Transfer Agent will each employ
reasonable procedures to confirm that telephone instructions are genuine, and
they may be liable for losses resulting from unauthorized or fraudulent
telephone instructions if they do not employ these procedures. These
procedures may include taping of telephone conversations.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should
call the Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which
are insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate
in the Systematic Withdrawal Program. Under this program, Fund shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional shares
if a sales charge must be paid in connection with such purchases. Because
automatic withdrawals with respect to Class B Shares are subject to the
contingent deferred sales charge, it may not be in the best interest of a
Class B shareholder to participate in the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the
purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below $500
because of changes in a Fund's net asset value. Before shares are redeemed to
close an account, the shareholder will be notified in writing and allowed 60
days to purchase additional shares to meet the minimum account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Funds -- Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption and
no order for that Fund's shares is received and on days on which changes in
the value of portfolio securities will not materially affect the current net
asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives the
purchase order or redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by dividing
the value of the securities owned by the Fund plus any cash and other assets
(including interest accrued and dividends declared but not collected), less all
liabilities, by the number of Fund shares outstanding. For the purpose of
determining the aggregate net assets of the Funds, cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued and dividends
will be recorded on the ex-dividend date. Debt obligations exceeding 60 days to
maturity which are actively traded are valued by an independent pricing service
at the most recently quoted bid price. Debt obligations with 60 days or less
remaining until maturity may be valued at their amortized cost. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith by procedures established and approved by the Board of
Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution expenses charged to Class A and Class B Shares.
INCOME TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a different entity for federal income tax purposes.
Each of the Funds qualified during its last fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and all of the Funds intend to so qualify in the future. If so
qualified and provided certain distribution requirements are met, a Fund will
not be liable for federal income taxes to the extent it distributes its
income to its shareholders.
Distributions of net interest income from tax-exempt obligations that are
designated by each Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. A portion of such dividends may,
however, be subject to the alternative minimum tax, as discussed below.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Funds'
income will consist of dividends from domestic corporations, the
dividends-received deduction for corporations will not be applicable to
taxable distributions by the Funds. Distributions paid from long-term capital
gains (and designated as such) will be taxable as long-term capital gains for
federal income tax purposes, whether received in cash or shares, regardless
of how long a shareholder has held the shares in a Fund. Long-term capital
gains of individuals are currently taxed at a maximum rate of 28%.
Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case) the
shares represented a capital asset in the hands of the shareholder. Such gain
or loss will be long-term gain or loss if the shares were held for more than
one year.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a
taxpayer's regular income tax liability (with certain adjustments). Liability
for AMT will depend on each shareholder's tax situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on
corporations. Each Fund may invest up to 20% of its total assets in
obligations the interest on which is treated as an item of tax preference for
federal income tax purposes. Also, a portion of all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for
purposes of determining the federal corporate alternative minimum tax, the
environmental tax imposed on corporations under Section 59A of the Code, and
the branch profits tax imposed on foreign corporations under Section 884 of
the Code. Each shareholder is advised to consult his or her tax adviser with
respect to the possible effects of such tax preference items.
The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt
bonds which, if not satisfied, could result in loss of tax exemption for
interest on such bonds, even retroactively to the date of issuance of the
bonds. Proposals may be introduced before Congress in the future, the purpose
of which will be to further restrict or eliminate the federal income tax
exemption for tax-exempt bonds held by the Funds. The Funds will avoid
investment in bonds which, in the opinion of the Adviser, pose a material
risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio
lost its exempt status, the Fund would make every effort to dispose of that
investment on terms that are not detrimental to the Fund.
In certain instances, the portion of Social Security benefits received by a
shareholder that is subject to federal income tax may be affected by the
amount of exempt-interest dividends received by the shareholder from the
Funds.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Funds will not be deductible for federal income purposes.
A Fund may be required to "back-up" withhold 31% of any dividend,
distribution, or redemption payment made to a shareholder who fails to
furnish the Fund with the shareholder's Social Security number or other
taxpayer identification number or to certify that he or she is not subject to
back-up withholding.
Information concerning distributions will be mailed to shareholders annually.
Shareholders are required for information purposes to report exempt-interest
dividends and other tax-exempt interest on their tax returns.
MINNESOTA INCOME TAXATION
Minnesota taxable net income is based generally on federal taxable income.
The portion of exempt-interest dividends paid by Minnesota Insured
Intermediate Tax Free Fund that is derived from interest on tax-exempt
obligations issued by the state of Minnesota, its political subdivisions and
instrumentalities, is excluded from the Minnesota taxable net income of
individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends
paid by the respective Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Minnesota taxable net income of individuals, estates and
trusts, except for dividends directly attributable to interest on obligations
of the United States Government, its territories and possessions.
Exempt-interest dividends are not excluded from the Minnesota taxable income
of corporations and financial institutions. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. Minnesota has repealed the favorable
treatment of long-term capital gains, while retaining restrictions on the
deductibility of capital losses. As under federal law, the portion of Social
Security benefits subject to Minnesota income tax may be affected by the
amount of exempt-interest dividends received by the shareholders.
Exempt-interest dividends attributable to interest on certain private
activity bonds issued after August 7, 1986 will be included in Minnesota
alternative minimum taxable income of individuals, estates and trusts for
purposes of computing Minnesota's alternative minimum tax. Dividends
generally will not qualify for the dividends-received deduction for
corporations and financial institutions.
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota
income tax purposes if a court determines that Minnesota's exemption of such
interest unlawfully discriminates against interstate commerce because
interest on obligations of governmental issuers located in other states is so
included. This provision applies to taxable years that begin during or after
the calendar year in which any such court decision becomes final,
irrespective of the date on which the obligations were issued. Minnesota
Insured Intermediate Tax Free Fund is not aware of any decision in which a
court has held that a state's exemption of interest on its own bonds or those
of its political subdivisions or Indian tribes, but not of interest on the
bonds of other states or their political subdivisions or Indian tribes,
unlawfully discriminates against interstate commerce or otherwise contravenes
the United States Constitution. Nevertheless, the Fund cannot predict the
likelihood that interest on the Minnesota bonds held by the Fund would become
taxable under this Minnesota statutory provision.
COLORADO INCOME TAXATION
To the extent that dividends paid by Colorado Intermediate Tax Free Fund are
derived from interest on tax-exempt obligations issued by the state of
Colorado, its political subdivisions and instrumentalities, such dividends
will also be exempt from Colorado income taxes for individuals, trusts,
estates, and corporations. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Colorado taxable income of individuals, trusts, estates,
and corporations, except for dividends directly attributable to interest on
obligations of the United States Government. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law. However, Colorado
has repealed the favorable treatment of long-term capital gains, while
retaining restrictions on the deductibility of capital losses.
Dividends paid by Colorado Intermediate Tax Free Fund that are derived from
interest on tax-exempt obligations issued by the state of Colorado, its
political subdivisions and instrumentalities (including tax-exempt
obligations treated for federal purposes as private activity bonds) will not
be treated as items of tax preference for purposes of the alternative minimum
tax that Colorado imposes on individuals, trusts and estates.
As under federal law, the portion of Social Security benefits subject to
Colorado income tax may be affected by the amount of exempt-interest
dividends received by the shareholders.
OTHER STATE AND LOCAL TAXATION
Except to the extent described above under "-- Minnesota Income Taxation" and
"-- Colorado Income Taxation," distributions by all the Funds may be subject
to state and local taxation even if they are exempt from federal income
taxes. Shareholders are urged to consult their own tax advisers regarding
state and local taxation.
TAX-EXEMPT VS. TAXABLE INCOME
The tables below show the approximate yields that taxable securities must
earn to equal yields that are (i) exempt from federal income taxes; (ii)
exempt from both federal and Minnesota income taxes; and (iii) exempt from
both federal and Colorado income taxes, under selected income tax brackets
scheduled to be in effect in 1995. The effective combined rates reflect the
deduction of state income taxes from federal income. The 34.1%, 36.9%, 41.4%,
and 44.7% combined federal/Minnesota rates assume that the investor is
subject to an 8.5% marginal Minnesota income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%, 34.5%,
39.2% and 42.6% combined federal/Colorado rates assume that the investor is
subject to a 5% Colorado income tax rate and a marginal federal income tax
rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates do not
reflect federal rules concerning the phase-out of personal exemptions and
limitations on the allowance of itemized deductions for certain high-income
taxpayers. The tables are based upon yields that are derived solely from
tax-exempt income. To the extent that a Fund's yield is derived from taxable
income, the Fund's tax equivalent yield will be less than set forth in the
tables. The tax-free yields used in these tables should not be considered as
representations of any particular rates of return and are for purposes of
illustration only.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND COMBINED FEDERAL AND
FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS
TAX-FREE
YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6%
3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23%
3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10%
4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97%
4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84%
5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71%
5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59%
6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46%
6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
</TABLE>
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Funds have
no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are
required by the 1940 Act, or (ii) are requested in writing by the holders of
25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "tax equivalent yield,"
its "cumulative total return," its "average annual total return," its
"distribution rate" and its "tax equivalent distribution rate." Distribution
rates and tax equivalent distribution rates may only be used in connection
with sales literature and shareholder communications preceded or accompanied
by a Prospectus. Each of these performance figures is based upon historical
results and is not intended to indicate future performance, and, except for
"distribution rate" and "tax equivalent distribution rate," is standardized
in accordance with Securities and Exchange Commission ("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Tax equivalent yield" is that yield which a taxable investment must generate
in order to equal a Fund's yield for an investor in a stated federal or
combined federal/state income tax bracket (normally assumed to be the maximum
tax rate or combined rate). Tax equivalent yield is computed by dividing that
portion of the yield which is tax-exempt by one minus the stated income tax
rate, and adding the resulting amount to that portion, if any, of the yield
which is not tax-exempt.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if performance
had been constant over the entire period. Because average annual returns tend
to smooth out variations in a Fund's performance, they are not the same as
actual year-by-year results. As a supplement to total return computations, a
Fund may also publish "total investment return" computations which do not
assume deduction of the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. "Tax equivalent distribution rate" is computed by dividing the
portion of the distribution rate (determined as described above) which is
tax-exempt by one minus the stated federal or combined federal/state income
tax rate, and adding to the resulting amount that portion, if any, of the
distribution rate which is not tax-exempt. All distribution rates published
for the Funds are measures of the level of income dividends distributed
during a specified period. Thus, these rates differ from yield (which
measures income actually earned by a Fund) and total return (which measures
actual income, plus realized and unrealized gains or losses of a Fund's
investments). Consequently, distribution rates alone should not be considered
complete measures of performance.
The performance of the Class A and Class B Shares of a Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to
the sales charges and distribution expenses applicable to Class A and Class B
Shares. In addition, the performance of Class A and Class B Shares of a Fund
will differ because of the different sales charge structures of the classes
and because of the higher distribution and service fees charged to Class B
Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities. Also,
the performance of each Fund may be compared to that of other funds of
similar size and objectives as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent mutual fund rating services,
and each Fund may include in such reports, communications and advertising
material evaluations published by nationally recognized independent ranking
services and publications. For further information regarding the Funds'
performance, see "Fund Performance" in the Statement of Additional
Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information concerning
these matters is contained in the Statement of Additional Information.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," each of the Funds
invests principally in municipal bonds and other municipal obligations. These
bonds and other obligations are issued by the states and by their local and
special-purpose political subdivisions. The term "municipal bond" as used in
this Prospectus includes short-term municipal notes issued by the states and
their political subdivisions.
MUNICIPAL BONDS. The two general classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured by
the governmental issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. They are usually paid from general revenues
of the issuing governmental entity. Revenue bonds, on the other hand, are
usually payable only out of a specific revenue source rather than from general
revenues. Revenue bonds ordinarily are not backed by the faith, credit or
general taxing power of the issuing governmental entity.
The principal and interest on revenue bonds for private facilities are
typically paid out of rents or other specified payments made to the issuing
governmental entity by a private company which uses or operates the
facilities. Examples of these types of obligations are industrial revenue
bonds and pollution control revenue bonds. Industrial revenue bonds are
issued by governmental entities to provide financing aid to community
facilities such as hospitals, hotels, business or residential complexes,
convention halls and sport complexes. Pollution control revenue bonds are
issued to finance air, water and solids pollution control systems for
privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of the
credit, general revenues or taxing powers of the issuing governmental entity.
Instead, the private company operating the facility is the sole source of
payment of the obligation. Sometimes, the funds for payment of revenue bonds
come solely from revenue generated by operation of the facility. Revenue
bonds which are not backed by the credit of the issuing governmental entity
frequently provide a higher rate of return than other municipal obligations,
but they entail greater risk than obligations which are guaranteed by a
governmental unit with taxing power. Federal income tax laws place
substantial limitations on industrial revenue bonds, and particularly certain
specified private activity bonds issued after August 7, 1986. In the future,
legislation could be introduced in Congress which could further restrict or
eliminate the income tax exemption for interest on debt obligations in which
the Funds may invest.
MUNICIPAL LEASES. Each Fund also may purchase participation interests in
municipal leases. Participation interests in municipal leases are undivided
interests in a lease, installment purchase contract or conditional sale contract
entered into by a state or local governmental unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds.
Municipal leases and installment purchase or conditional sale contracts
(which usually provide for title to the leased asset to pass to the
governmental issuer upon payment of all amounts due under the contract) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the
issuance of municipal debt. The debt-issuance limitations are deemed to be
inapplicable because of the inclusion in many leases and contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money
is appropriated for this purpose by the appropriate legislative body on a
yearly or other periodic basis. Although these kinds of obligations are
secured by the leased equipment or facilities, the disposition of the pledged
property in the event of non-appropriation or foreclosure might, in some
cases, prove difficult and time-consuming. In addition, disposition upon
non-appropriation or foreclosure might not result in recovery by a Fund of
the full principal amount represented by an obligation.
In light of these concerns, each Fund has adopted and follows procedures for
determining whether municipal lease obligations purchased by the Fund are
liquid and for monitoring the liquidity of municipal lease securities held in
the Fund's portfolio. These procedures require that a number of factors be
used in evaluating the liquidity of a municipal lease security, including the
frequency of trades and quotes for the security, the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, the willingness of dealers to undertake to make a market in the
security, the nature of the marketplace in which the security trades, and
other factors which the Adviser may deem relevant. As described below under
"-- Investment Restrictions," each Fund is subject to limitations on the
percentage of illiquid securities it can hold.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
At least 65% of the tax-exempt obligations in the investment portfolio of
Minnesota Insured Intermediate Tax Free Fund will consist of insured
securities, escrow secured bonds or defeased bonds. The "insured securities"
in this Fund's investment portfolio are insured as to the scheduled payment
of all installments of principal and interest as they fall due. The purpose
of this insurance is to minimize credit risk to this Fund and its
shareholders associated with defaults in tax-exempt obligations owned by the
Fund. However, insurance does not guarantee the market value of the
securities in this Fund's investment portfolio, which will continue to
fluctuate in response to changes in market interest rates. See "Investment
Objectives and Policies -- Risks to Consider -- Interest Rate Risk."
Therefore, the amount received upon redemption of shares of this Fund may be
more or less than the original cost of the shares less any applicable sales
charge paid in connection with the acquisition of such shares.
Generally, except as noted above, each insured municipal obligation held by
Minnesota Insured Intermediate Tax Free Fund will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance. "Original
Issuance Insurance" is purchased by the issuer of a municipal obligation or
by a third party at the time of original issuance of the obligation, while
"Secondary Market Insurance" may be purchased by a third party (including
Minnesota Insured Intermediate Tax Free Fund) subsequent to the original
issuance of a municipal obligation. "Portfolio Insurance" is insurance
purchased by Minnesota Insured Intermediate Tax Free Fund to cover municipal
obligations while they are held in the Fund's portfolio. Premiums for
Portfolio Insurance will be paid from the Fund's assets and will reduce the
current yield on its investment portfolio by the amount of the premiums. The
Fund's investment manager estimates that annual premiums for Portfolio
Insurance would be less than .01% of the Fund's average daily net assets.
Because Portfolio Insurance coverage would terminate upon the sale of an
insured security by Minnesota Insured Intermediate Tax Free Fund, this kind
of insurance would not have an effect on the resale value of the security.
Therefore, the Fund generally will retain any such securities covered only by
Portfolio Insurance which are in default or in significant risk of default
and will place a value on the insurance equal to the difference between the
market value of the defaulted security and the market value of similar
securities which are not in default. Both Original Issue Insurance and
Secondary Market Insurance are non-cancelable and continue in force as long
as the insured security is outstanding and the applicable insurer remains in
business.
Minnesota Insured Intermediate Tax Free Fund may acquire securities that are
already covered by Original Issue Insurance or Secondary Market Insurance
without having to acquire additional insurance thereon, provided that the
claims paying ability of the insurer is rated AAA or SP-1 by Standard &
Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating
by another nationally recognized statistical rating organization. One of the
purposes of these kinds of insurance is to enable the securities covered
thereby to be sold as AAA or Aaa rated insured securities at a market price
higher than might be obtained if the securities were not insured. Therefore,
these kinds of insurance may be considered to represent an element of the
market value of the securities insured. However, the exact effect, if any, on
market value cannot be estimated.
Secondary Market Insurance may be purchased by Minnesota Insured Intermediate
Tax Free Fund if, in the opinion of the Fund's investment manager, the market
value or net proceeds of a sale of the covered security by the Fund would
exceed the current value of the security without insurance, plus the cost of
the insurance. When the Fund purchases Secondary Market Insurance, the single
premium is added to the cost basis of the security and is not considered an
item of expense of the Fund. Any excess of a security's market value as an
AAA or Aaa rated security over its market value without the insurance,
including the single premium cost thereof, would inure to the Fund in
determining the net capital gain or loss realized by the Fund upon the sale
of the security.
The investment policy of this Fund requiring insurance on investments applies
only to tax-exempt obligations held by the Fund and will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as described
elsewhere herein, or its ability to invest in uninsured taxable obligations
for temporary or liquidity purposes or on a defensive basis in accordance
with the investment policies and restrictions of the Fund.
Minnesota Insured Intermediate Tax Free Fund is authorized to obtain
Portfolio Insurance from insurers that have obtained a claims-paying ability
rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or
an equivalent rating from another nationally recognized statistical rating
organization. Such insurers may include AMBAC Indemnity Corporation
("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc.
("FSA"), or other companies meeting these criteria. For more information
concerning Portfolio Insurance, see the Statement of Additional Information.
TEMPORARY TAXABLE INVESTMENTS
Each of the Funds may make temporary taxable investments as described under
"Investment Objectives and Policies." Temporary taxable investments will
include only the following types of obligations maturing within 13 months
from the date of purchase: (i) obligations of the United States Government,
its agencies and instrumentalities; (ii) commercial paper rated not less than
A-1 by Standard & Poor's or P-1 by Moody's or which has been assigned an
equivalent rating by another nationally recognized statistical rating
organization; (iii) other short-term debt securities issued or guaranteed by
corporations having outstanding debt rated not less than BBB by Standard &
Poor's or Baa by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization; (iv)
certificates of deposit of domestic commercial banks subject to regulation by
the United States Government or any of its agencies or instrumentalities,
with assets of $500 million or more based on the most recent published
reports; and (v) repurchase agreements with domestic banks or securities
dealers involving any of the securities which the Fund is permitted to hold.
See "-- Repurchase Agreements" below.
REPURCHASE AGREEMENTS
The temporary taxable investments which each Fund may make include repurchase
agreements. A repurchase agreement involves the purchase by a Fund of
securities with the agreement that after a stated period of time, the
original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks not
associated with direct investments in securities. If the original seller
defaults on its obligation to repurchase as a result of its bankruptcy or
otherwise, the purchasing Fund will seek to sell the collateral, which could
involve costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount equal
to the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral were
less than the agreed-upon repurchase price. The Adviser will monitor the
creditworthiness of the firms with which the Funds enter into repurchase
agreements.
INVERSE FLOATING RATE OBLIGATIONS
Each of the Funds may invest up to 5% of its net assets in inverse floating
rate municipal obligations. An inverse floating rate obligation entitles the
holder to receive interest at a rate which changes in the opposite direction
from, and in the same magnitude as or in a multiple of, changes in a
specified index rate. Although an inverse floating rate municipal obligation
would tend to increase portfolio income during a period of generally
decreasing market interest rates, its income and value would tend to decline
during a period of generally increasing market interest rates. In addition,
its decline in value may be greater than for a fixed-rate municipal
obligation, particularly if the interest rate borne by the floating rate
municipal obligation is adjusted by a multiple of changes in the specified
index rate. For these reasons, inverse floating rate municipal obligations
have more risk than more conventional fixed-rate and floating rate municipal
obligations.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will not
accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes
a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to a
Fund could prevent the Fund from realizing a price or yield considered to be
advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As with
other extensions of credit, there may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded put
and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates, a
Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make delivery
of a specific financial instrument at a specified price, an option on an
interest rate index gives the holder the right to receive, upon exercise of
the option, a defined amount of cash if the closing value of the interest
rate index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option.
Put and call options on interest rate indices thus may be used in a fashion
similar to that of options on interest rate futures contracts to hedge the
value of a portfolio of debt securities against anticipated changes in
interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its
share price may be subject to greater fluctuation, and the interest
expense associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
* Intermediate Tax Free Fund will not invest 25% or more of the value of
its total assets in obligations of issuers located in the same state
(for this purpose, the location of an "issuer" shall be deemed to be
the location of the entity the revenues of which are the primary source
of payment or the location of the project or facility which may be the
subject of the obligation). None of the Funds will invest 25% or more
of the value of its total assets in revenue bonds or notes, payment for
which comes from revenues from any one type of activity (for this
purpose, the term "type of activity" shall include without limitation
(i) sewage treatment and disposal; (ii) gas provision; (iii) electric
power provision; (iv) water provision; (v) mass transportation systems;
(vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street
development and repair; (x) toll roads; (xi) airport facilities; and
(xii) educational facilities), except that, in circumstances in which
other appropriate available investments may be in limited supply, such
Funds may invest without limitation in gas provision, electric power
provision, water provision, housing and hospital obligations. This
restriction does not apply to general obligation bonds or notes or, in
the case of Intermediate Tax Free Fund, to pollution control revenue
bonds. However, in the case of the latter Fund, it is anticipated that
normally (unless there are unusually favorable interest and market
factors) less than 25% of such Fund's total assets will be invested in
pollution control bonds. This restriction does not apply to securities
of the United States Government or its agencies and instrumentalities
or repurchase agreements relating thereto.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper may be determined to be "liquid" under
guidelines adopted by the Board of Directors. Rule 144A securities may in the
future be determined to be "liquid" under guidelines adopted by the Board of
Directors if the current position of certain state securities regulators
regarding such securities is modified. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in a Fund to the
extent that qualified institutional buyers become, for a time, uninterested
in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1002 (1/96)R
FIRST AMERICAN INVESTMENT FUNDS, INC.
TAX FREE INCOME FUNDS
INSTITUTIONAL CLASS
INTERMEDIATE TAX COLORADO INTERMEDIATE
FREE FUND TAX FREE FUND
MINNESOTA INSURED INTERMEDIATE
TAX FREE FUND
PROSPECTUS
JANUARY 31, 1996
[LOGO]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class C Share Fees and Expenses 6
Information Concerning Fees and
Expenses 7
FINANCIAL HIGHLIGHTS 8
THE FUNDS 10
INVESTMENT OBJECTIVES AND POLICIES 10
Intermediate Tax Free Fund 11
Minnesota Insured Intermediate Tax
Free Fund and Colorado Intermediate
Tax Free Fund 12
Risks to Consider 14
MANAGEMENT 17
Investment Adviser 17
Portfolio Managers 18
Custodian 18
Administrator 19
Transfer Agent 19
DISTRIBUTOR 19
PURCHASES AND REDEMPTIONS OF SHARES 20
Share Purchases and Redemptions 20
What Shares Cost 20
Exchanging Securities for Fund Shares 21
Certificates and Confirmations 21
Dividends and Distributions 22
Exchange Privilege 22
INCOME TAXES 23
TAX-EXEMPT VS. TAXABLE INCOME 26
FUND SHARES 27
CALCULATION OF PERFORMANCE DATA 27
SPECIAL INVESTMENT METHODS 29
Municipal Bonds and Other Municipal
Obligations 29
Insurance for Minnesota Insured
Intermediate Tax Free Fund 31
Temporary Taxable Investments 33
Repurchase Agreements 33
Inverse Floating Rate Obligations 34
When-Issued and Delayed-Delivery
Transactions 34
Lending of Portfolio Securities 35
Options Transactions 35
Portfolio Transactions 36
Portfolio Turnover 36
Investment Restrictions 37
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class C
Shares of the following funds (the "Funds"):
* INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND
* MINNESOTA INSURED INTERMEDIATE
TAX FREE FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE
TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1996 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087.
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.
The date of this Prospectus is January 31, 1996.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class C Shares of the
following funds (the "Funds"):
INTERMEDIATE TAX FREE FUND has an objective of providing current income that is
exempt from federal income tax to the extent consistent with preservation of
capital. Under normal market conditions, this Fund invests at least 80% of its
net assets in municipal obligations, the interest on which is exempt from
federal income tax. No more than 20% of the securities owned by this Fund will
generate income that is subject to the federal alternative minimum tax. Under
normal market conditions, the weighted average maturity of the securities held
by this Fund will range from 3 to 10 years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing
current income which is exempt from both federal income tax and Minnesota state
income tax to the extent consistent with preservation of capital. Under normal
market conditions, this Fund invests at least 80% of its net assets in municipal
obligations, the interest on which is exempt from federal and Minnesota income
tax. No more than 20% of the securities owned by this Fund will generate income
that is subject to the federal or the Minnesota alternative minimum tax. At
least 65% of the tax-exempt obligations held by this Fund will consist of
insured bonds, escrow secured bonds and defeased bonds. Under normal market
conditions, the weighted average maturity of the securities held by this Fund
will range from 3 to 10 years.
COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current income
which is exempt from both federal income tax and Colorado state income tax to
the extent consistent with preservation of capital. Under normal market
conditions, this Fund invests at least 80% of its net assets in municipal
obligations, the interest on which is exempt from federal and Colorado income
tax. No more than 20% of the securities owned by this Fund will generate income
that is subject to the federal alternative minimum tax. Under normal market
conditions, the weighted average maturity of the securities held by this Fund
will range from 3 to 10 years.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and
certain other institutions for the investment of their own funds and funds for
which they act in a fiduciary, agency or custodial capacity. Class C Shares are
sold at net asset value without any front-end or deferred sales charges. See
"Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Purchases and Redemptions of Shares -- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, with no additional charge. See "Purchases and Redemptions of
Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk (the
risk that increases in market interest rates will cause declines in the value of
debt securities held by a Fund); (ii) credit risk (the risk that the issuers of
debt securities held by a Fund default in making required payments); and (iii)
call or prepayment risk (the risk that a borrower may exercise the right to
prepay a debt obligation before its stated maturity, requiring a Fund to
reinvest the prepayment at a lower interest rate).
In addition, the value of municipal obligations held by the Funds may be
adversely affected by local political and economic conditions and
developments in the states and political subdivisions which issue the
obligations. Investors should note in this regard that Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in
municipal obligations of issuers located only in Minnesota and Colorado,
respectively. The Funds also may, in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices. See "Investment Objectives and Policies --
Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
MINNESOTA
INSURED COLORADO
INTERMEDIATE INTERMEDIATE INTERMEDIATE
TAX FREE FUND TAX FREE FUND TAX FREE FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases None None None
Maximum sales load imposed on
reinvested dividends None None None
Deferred sales load None None None
Redemption fees None None None
Exchange fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(1) 0.32% 0.42% 0.39%
Rule 12b-1 fees None None None
Other expenses (after voluntary
fee waivers)(1) 0.38% 0.28% 0.31%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(1) 0.70% 0.70% 0.70%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 7 $ 7 $ 7
3 years $ 22 $ 22 $ 22
5 years $ 39 $ 39 $ 39
10 years $ 87 $ 87 $ 87
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their
fees and/or reimburse expenses on a voluntary basis, and the amounts
shown reflect these waivers and reimbursements as of the date of this
Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the
right to discontinue such waivers and reimbursements at any time in its
sole discretion. Absent any fee waivers, investment advisory fees for
each Fund as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses calculated on such basis
would be 1.05% for Intermediate Tax Free Fund, 1.00% for Minnesota
Insured Intermediate Tax Free and 1.02% for Colorado Intermediate Tax
Free Fund. Other expenses includes an administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $11, $33, $58 and $128; Minnesota Insured
Intermediate Tax Free Fund, $10, $32, $55 and $122; and Colorado
Intermediate Tax Free Fund, $10, $32, $56 and $125.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class C Shares of the
Funds. The Funds also offer Class A and Class B Shares which are subject to
the same expenses and, in addition, to a front-end or contingent deferred
sales load and certain distribution expenses.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the
Adviser and the Administrator. Although these persons intend to maintain such
waivers in effect for the current fiscal year, any such waivers are voluntary
and may be discontinued at any time. Prior to fee waivers, investment
advisory fees accrue at the annual rate as a percentage of average daily net
assets of 0.70% for each of the Funds.
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in the
Statement of Additional Information. Further information about the Funds'
performance is contained in FAIF's annual report to shareholders, which may
be obtained without charge by calling (800) 637-2548 or by writing SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087. The Financial Highlights for the Class A shares of the Funds have been
provided below along with the Financial Highlights for Class C shares. Class
A shares are subject to sales charges and fees that may differ from those
applicable to Class C shares.
For the periods ended September 30,
For a share outstanding throughout this period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
INTERMEDIATE TAX FREE FUND
Class C
1995 $10.28 $0.49 $ 0.43 $(0.48)
1994(1) 10.89 0.29 (0.61) (0.29)
Class A
1995 $10.28 $0.49 $ 0.43 $(0.48)
1994 10.92 0.44 (0.57) (0.44)
1993 10.56 0.47 0.42 (0.47)
1992 10.34 0.53 0.22 (0.53)
1991(2) 10.04 0.50 0.31 (0.50)
1990(3) 10.08 0.56 (0.04) (0.56)
1989(3) 10.19 0.56 (0.11) (0.56)
1988(3)(4) 10.03 0.47 0.16 (0.47)
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class C
1995 $ 9.59 $0.45 $ 0.33 $(0.45)
1994(5) 10.00 0.25 (0.41) (0.25)
COLORADO INTERMEDIATE TAX FREE FUND
Class C
1995 $10.16 $0.48 $ 0.36 $(0.49)
1994(6) 10.00 0.22 0.16 (0.22)
</TABLE>
+ Returns, excluding sales charges, are for the period indicated and have
not been annualized.
(1) Institutional Class shares have been offered since February 4, 1994.
All ratios for the period have been annualized.
(2) On September 3, 1991, the Board of Directors of FAIF approved a change
in FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS PORTFOLIO
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING TURNOVER
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $10.72 9.15% $46,025 0.67% 4.73% 1.05% 68%
-- 10.28 (2.91%)+ 6,168 0.45 4.48 2.20 52
$ -- $10.72 9.15% $ 983 0.67% 4.71% 1.30% 68%
(0.07) 10.28 (1.25%) 1,128 0.59 4.13 2.78 52
(0.06) 10.92 8.66% 2,969 0.71 4.31 5.09 27
-- 10.56 7.23% 725 0.99 4.83 16.09 23
(0.01) 10.34 8.15%+ 637 0.99 5.35 15.48 15
-- 10.04 5.31% 537 1.08 5.58 13.85 4
-- 10.08 4.57% 491 1.09 5.57 19.55 4
-- 10.19 6.73%+ 425 0.84 5.87 13.60 0
$ -- $ 9.92 8.34% $61,693 0.70% 4.76% 1.00% 38%
-- 9.59 (1.58%)+ 20,272 0.67 4.57 1.59 22
$ -- $10.51 8.47% $50,071 0.70% 4.84% 1.02% 19%
-- 10.16 3.76%+ 7,281 0.69 4.51 4.71 4
</TABLE>
(3) For the period ended October 31.
(4) Commenced operations on December 22, 1987. All ratios for the period
have been annualized.
(5) Commenced operations on February 28, 1994. All ratios for the period
have been annualized.
(6) Commenced operations on April 4, 1994. All ratios for the period have
been annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A and Class B Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other FAIF
Funds is contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of
FAIF may authorize additional series or classes of common stock in the
future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be changed
without a vote of shareholders. Such changes could result in a Fund having
investment objectives different from those which shareholders considered
appropriate at the time of their investment in a Fund. Shareholders will
receive written notification at least 30 days prior to any change in a Fund's
investment objectives. Intermediate Tax Free Fund is a diversified investment
company, as defined in the Investment Company Act of 1940 (the "1940 Act").
Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax
Free Fund are nondiversified investment companies under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes
in asset values will not be deemed to violate the limitation except in the
case of the limitation on illiquid investments. A Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Fund may consider doing so. However, in no event will more than 5% of any
Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
INTERMEDIATE TAX FREE FUND
OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current
income which is exempt from federal income tax to the extent consistent with
preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free Fund
invests at least 80% of its net assets in municipal bonds and other municipal
obligations, the interest on which is, in the opinion of bond counsel to the
issuer, exempt from federal income tax. No more than 20% of the securities owned
by the Fund will generate income that is an item of tax preference for the
purpose of the federal alternative minimum tax. Municipal obligations generating
income subject to taxation under the federal alternative minimum tax rules will
not be counted as tax exempt obligations for purposes of the 80% test. See
"Income Taxes." The types of municipal bonds and other municipal obligations in
which the Fund may invest are described under "Special Investment Methods --
Municipal Bonds and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by Intermediate Tax Free Fund will range from 3 to 10 years.
Intermediate Tax Free Fund may purchase obligations which are rated no lower
than BBB by Standard & Poor's or Baa by Moody's, or which have been assigned
an equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. The Fund also may purchase municipal notes which are rated no lower
than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of either of the Fund.
While the assets of Intermediate Tax Free Fund ordinarily will be invested in
municipal obligations, on occasion the Fund may temporarily hold short-term
securities, other than municipal obligations, the income from which is
taxable. Temporary taxable investments would be held solely for the purpose
of managing exceptional in-flows and out-flows of cash or for temporary
defensive purposes to preserve existing portfolio values. Under normal
circumstances, the Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, the Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
- -- Temporary Taxable Investments."
The Fund also may temporarily invest in shares of investment companies which
invest primarily in short-term municipal obligations with maturities not
exceeding 13 months. Investments of these types are also subject to the
advisory fee. Income from these investments is normally exempt from federal
income tax.
The Fund also may (i) in order to attempt to reduce risk, invest in exchange
traded put and call options on interest rate futures contracts and on
interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; and (iii) engage in the lending of portfolio
securities. In addition, the Fund may invest up to 5% of its net assets in
inverse floating rate municipal obligations. For information about these
investment methods, restrictions on their use, and certain associated risks,
see the related headings under "Special Investment Methods."
The requirement, described above, that Intermediate Tax Free Fund invest at
least 80% of its net assets in tax free obligations under normal market
conditions is a fundamental policy, which cannot be changed without
shareholder vote. Under normal market conditions, that Fund will invest at
least 65% of its total assets in municipal obligations which are municipal
bonds. See "Special Investment Methods -- Municipal Bonds and Other Municipal
Obligations."
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of
providing current income which is exempt from both federal income tax and
Minnesota state income tax to the extent consistent with preservation of
capital. Colorado Intermediate Tax Free Fund has an objective of providing
current income which is exempt from both federal income tax and Colorado state
income tax to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, each of these Funds invests
at least 80% of its net assets in municipal bonds and other municipal
obligations of the state referred to in its title, the interest on which is, in
the opinion of bond counsel to the issuer, exempt from federal income tax and
that state's income tax. No more than 20% of the securities owned by either of
these Funds will generate income that is an item of tax preference for the
purpose of the federal alternative minimum tax and, in the case of Minnesota
Insured Intermediate Tax Free Fund, for the purpose of the Minnesota alternative
minimum tax. Municipal obligations generating income subject to taxation under
the federal alternative minimum tax rules or, in the case of Minnesota Insured
Intermediate Tax Free Fund, under the Minnesota alternative minimum tax rules,
will not be counted as tax exempt obligations for purposes of the 80% test. See
"Income Taxes." The types of municipal bonds and other municipal obligations in
which these Funds may invest are described under "Special Investment Methods --
Municipal Bonds and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by each of these Funds will range from 3 to 10 years.
Each of these Funds may purchase obligations which are rated (without regard
to insurance) no lower than BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Each of these Funds also may purchase
municipal notes which are rated no lower than SP-1 by Standard & Poor's or
MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization. Unrated
securities will not exceed 10% in the aggregate of the value of the total
assets of either of these Funds.
While the assets of each of these Funds ordinarily will be invested in
municipal obligations, on occasion either Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, a Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, a Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
- -- Temporary Taxable Investments."
Each of these Funds also may temporarily invest in shares of investment
companies which invest primarily in short-term municipal obligations with
maturities not exceeding 13 months. Investments of these types are also
subject to the advisory fee. Income from these investments is normally exempt
from federal income tax but may not be exempt from the applicable state tax.
Each of these Funds also may (i) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; (iii) engage in the lending of portfolio securities;
and (iv) invest up to 5% of its net assets in inverse floating rate municipal
obligations. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
As a nonfundamental policy, at least 65% of the tax-exempt obligations in the
investment portfolio of Minnesota Insured Intermediate Tax Free Fund will
consist of: (i) obligations that at all times are fully insured as to the
scheduled payment of all installments of interest and principal; and (ii)
obligations which have an AAA rating by Standard & Poor's or an Aaa rating by
Moody's or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, where the payment of
interest and principal is guaranteed by the United States Government or an
agency or instrumentality of the United States Government, or where the
payment of interest and principal is secured by an escrow account consisting
of obligations guaranteed by the United States Government or its agencies or
instrumentalities ("escrow secured bonds" or "defeased bonds"), without
having to purchase additional insurance therefor. This policy may not be
eliminated except upon 30 days advance notice to shareholders of Minnesota
Insured Intermediate Tax Free Fund. In addition, pending the investment or
reinvestment of its assets in longer-term tax-exempt obligations, this Fund
may invest in short-term tax-exempt obligations, without obtaining insurance,
provided such instruments carry an AAA or A-1 rating by Standard & Poor's or
an Aaa or SP-1 rating by Moody's or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization. Bond
insurance does not guarantee the market value of the securities held in this
Fund's portfolio. For further information concerning the insurance applicable
to this Fund's investments, see "Special Investment Methods -- Insurance for
Minnesota Insured Intermediate Tax Free Fund."
The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need
not be insured.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Funds invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Funds bear the risk that increases in market interest rates will cause the
value of their Fund's portfolio investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund which
invests in securities with longer weighted average maturities should be
expected to have greater volatility in periods of changing market interest
rates than that of a Fund which invests in securities with shorter weighted
average maturities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in debt
securities, they are subject to credit risk.
As described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations," the revenue bonds and municipal lease obligations in
which the Funds invest may entail greater credit risk than the general
obligation bonds in which they invest. This is the case because revenue bonds
and municipal lease obligations generally are not backed by the faith, credit
or general taxing power of the issuing governmental entity. In addition, as
described under that section, municipal lease obligations also are subject to
nonappropriation risk, which is a type of nonpayment risk. Investors also
should note that even general obligation bonds of the states and their
political subdivisions are not free from the risk of default.
The ratings and certain other requirements which apply to the Funds'
permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that the Funds can invest in municipal obligations
rated as low as BBB by Standard & Poor's or Baa by Moody's, or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Adviser. Although these rating categories are investment
grade, obligations with these ratings are viewed as having speculative
characteristics and carry a somewhat higher risk of default than obligations
rated in the higher investment grade categories.
Although the bond insurance carried by Minnesota Insured Intermediate Tax
Free Fund is intended to mitigate credit risk, its effectiveness depends on
the creditworthiness of the bond insurers. See "Special Investment Methods --
Insurance for Minnesota Insured Intermediate Tax Free Fund."
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for an issuer to call its bonds if they can be refinanced
through the issuance of new bonds which bear a lower interest rate than that of
the called bonds. Call risk is the risk that bonds will be called during a
period of declining market interest rates so that such refinancings may take
place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it at
a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Fund's income. To the extent that the Funds invest in
callable bonds, Fund shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political and
economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services).
Intermediate Tax Free Fund cannot invest 25% or more of its total assets in
obligations of issuers located in the same state (for this purpose, the
location of an "issuer" shall be deemed to be the location of the entity the
revenues of which are the primary source of payment or the location of the
project or facility which may be the subject of the obligation). See "Special
Investment Methods -- Investment Restrictions." Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will
invest primarily in municipal obligations issued by the state and its
political subdivisions named in its title. For this reason, the municipal
obligations held by these two Funds will be particularly affected by local
conditions in those states. A more detailed description of the factors
affecting Minnesota and Colorado issuers of municipal obligations is set
forth in the Statement of Additional Information.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Funds. In addition, investors in Minnesota Insured Intermediate
Tax Free Fund should note that the 1995 Minnesota Legislature enacted a
statement of intent specifying certain circumstances under which interest on the
Minnesota municipal obligations held by the Fund might become taxable for
Minnesota state income tax purposes. See "Income Taxes - Minnesota Income
Taxation."
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser acts
as investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to First
American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was
managing accounts with an aggregate value of approximately $29 billion,
including mutual fund assets in excess of $7 billion. First Bank System,
Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding
company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on an
annual basis equal to 0.70% of its average daily net assets. The Adviser may,
at its option, waive any or all of its fees, or reimburse expenses, with
respect to any Fund from time to time. Any such waiver or reimbursement is
voluntary and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior to
the end of the fiscal year. This practice would have the effect of lowering a
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case
may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve, however,
as investment advisers to registered investment companies, subject to a
number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser might
be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGERS
RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick
entered the investment business via investment sales with Smith Barney & Co.
in 1958. He then moved to Heritage Investment Advisers as head of fixed
income investment in 1973. He joined the Adviser in early 1986 as Vice
President and Manager of Fixed Income/Personal Trust. Dick received his
master's in business administration degree from Cornell University in 1958
and received his Chartered Financial Analyst certification in 1977.
CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund
and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed
income department of the Adviser in 1985, having previously served in its
securities lending and corporate trust areas. He received his master's degree
in business administration from the University of Minnesota and is a
Chartered Financial Analyst.
TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free
Fund. Terry joined the Adviser in 1994 after 20 years of investment
experience with Colorado Capital Advisors (which was combined into the
Adviser) and Great West Life Insurance Company. He received his bachelor's
degree from Miami University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the
Funds with certain administrative services necessary to operate the Funds.
These services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at
an annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. From time to time, the Administrator may voluntarily waive its fees
or reimburse expenses with respect to any of the Funds. Any such waivers or
reimbursements may be made at the Administrator's discretion and may be
terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Corporation
and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Distributor is not affiliated with the Adviser, First Bank System, Inc., the
Custodian or their respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York Stock
Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to First Bank National
Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST
Systems: Account Number 6023458026; For Further Credit To: (Investor Name and
Fund Name). Shares cannot be purchased by Federal Reserve wire on days on
which the New York Stock Exchange is closed and on Federal holidays upon
which wire transfers are restricted. Purchase orders will be effective and
eligible to receive dividends declared the same day if the Transfer Agent
receives an order before 3:00 p.m. Central time and the Custodian receives
Federal funds before the close of business that day. Otherwise, the purchase
order will be effective the next Business Day. The net asset value per share
is calculated as of 3:00 p.m. Central time each Business Day. The Funds
reserve the right to reject a purchase order.
The Funds are required to redeem for cash all full and fractional shares of
the Funds. Redemption orders may be made any time before 3:00 p.m. Central
time in order to receive that day's redemption price. For redemption orders
received before 3:00 p.m. Central time, payment will ordinarily be made the
same day by transfer of Federal funds, but payment may be made up to 7 days
later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The net
asset value per share is determined as of the earlier of the close of the New
York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock
Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no
order for that Fund's shares is received and on days on which changes in the
value of portfolio securities will not materially affect the current net
asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives the
purchase order or redemption request. In the case of redemptions and
repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent may require additional documents to evidence appropriate authority in
order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the Funds
is determined by dividing the value of the securities owned by the Fund plus any
cash and other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding. For
the purpose of determining the aggregate net assets of the Funds, cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued and dividends will be recorded on the ex-dividend date. Debt obligations
exceeding 60 days to maturity which are actively traded are valued by an
independent pricing service at the most recently quoted bid price. Debt
obligations with 60 days or less remaining until maturity may be valued at their
amortized cost. When market quotations are not readily available, securities are
valued at fair value as determined in good faith by procedures established and
approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution expenses charged to Class A and Class B Shares.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon the
net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. Dividends
and distributions are automatically reinvested in additional shares of the
Fund paying the dividend on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on
the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more than
the dividends payable on Class A or Class B Shares because of the
distribution expenses charged to Class A and Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family at net asset value. Exchanges of shares among the FAIF Funds
must meet any applicable minimum investment of the fund for which shares are
being exchanged.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution. Neither the Transfer Agent nor any
Fund will be responsible for the authenticity of exchange instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Funds and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine, and they may
be liable for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures. These procedures may
include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate
may be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in
which Class C Shares of a Fund held by a financial institution in a trust or
agency capacity for one or more individual beneficiaries are exchanged for
Class A Shares of that Fund and distributed to the individual beneficiaries.
INCOME TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a different entity for federal income tax purposes.
Each of the Funds qualified during its last fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and all of the Funds intend to so qualify in the future. If so
qualified and provided certain distribution requirements are met, a Fund will
not be liable for federal income taxes to the extent it distributes its
income to its shareholders.
Distributions of net interest income from tax-exempt obligations that are
designated by each Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. A portion of such dividends may,
however, be subject to the alternative minimum tax, as discussed below.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Funds'
income will consist of dividends from domestic corporations, the
dividends-received deduction for corporations will not be applicable to
taxable distributions by the Funds. Distributions paid from long-term capital
gains (and designated as such) will be taxable as long-term capital gains for
federal income tax purposes, whether received in cash or shares, regardless
of how long a shareholder has held the shares in a Fund. Shareholders not
subject to federal income taxation will not be taxed on distributions by a
Fund.
Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case) the
shares represented a capital asset in the hands of the shareholder. Such gain
or loss will be long-term gain or loss if the shares were held for more than
one year.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a
taxpayer's regular income tax liability (with certain adjustments). Liability
for AMT will depend on each shareholder's tax situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on
corporations. Each Fund may invest up to 20% of its total assets in
obligations the interest on which is treated as an item of tax preference for
federal income tax purposes. Also, a portion of all other tax-exempt interest
received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for
purposes of determining the federal corporate alternative minimum tax, the
environmental tax imposed on corporations under Section 59A of the Code, and
the branch profits tax imposed on foreign corporations under Section 884 of
the Code.
The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt
bonds which, if not satisfied, could result in loss of tax exemption for
interest on such bonds, even retroactively to the date of issuance of the
bonds. Proposals may be introduced before Congress in the future, the purpose
of which will be to further restrict or eliminate the federal income tax
exemption for tax-exempt bonds held by the Funds. The Funds will avoid
investment in bonds which, in the opinion of the Adviser, pose a material
risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio
lost its exempt status, the Fund would make every effort to dispose of that
investment on terms that are not detrimental to the Fund.
In certain instances, the portion of Social Security benefits received by a
shareholder that is subject to federal income tax may be affected by the
amount of exempt-interest dividends received by the shareholder from the
Funds.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Funds will not be deductible for federal income purposes.
Information concerning distributions will be mailed to shareholders annually.
Shareholders who are subject to federal income tax are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
MINNESOTA INCOME TAXATION
Minnesota taxable net income is based generally on federal taxable income.
The portion of exempt-interest dividends paid by Minnesota Insured
Intermediate Tax Free Fund that is derived from interest on tax-exempt
obligations issued by the state of Minnesota, its political subdivisions and
instrumentalities, is excluded from the Minnesota taxable net income of
individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends
paid by the respective Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Minnesota taxable net income of individuals, estates and
trusts, except for dividends directly attributable to interest on obligations
of the United States Government, its territories and possessions.
Exempt-interest dividends are not excluded from the Minnesota taxable income
of corporations and financial institutions. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains. Minnesota has repealed the favorable
treatment of long-term capital gains, while retaining restrictions on the
deductibility of capital losses. As under federal law, the portion of Social
Security benefits subject to Minnesota income tax may be affected by the
amount of exempt-interest dividends received by the shareholders.
Exempt-interest dividends attributable to interest on certain private
activity bonds issued after August 7, 1986 will be included in Minnesota
alternative minimum taxable income of individuals, estates and trusts for
purposes of computing Minnesota's alternative minimum tax. Dividends
generally will not qualify for the dividends-received deduction for
corporations and financial institutions.
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota
income tax purposes if a court determines that Minnesota's exemption of such
interest unlawfully discriminates against interstate commerce because
interest on obligations of governmental issuers located in other states is so
included. This provision applies to taxable years that begin during or after
the calendar year in which any such court decision becomes final,
irrespective of the date on which the obligations were issued. Minnesota
Insured Intermediate Tax Free Fund is not aware of any decision in which a
court has held that a state's exemption of interest on its own bonds or those
of its political subdivisions or Indian tribes, but not of interest on the
bonds of other states or their political subdivisions or Indian tribes,
unlawfully discriminates against interstate commerce or otherwise contravenes
the United States Constitution. Nevertheless, the Fund cannot predict the
likelihood that interest on the Minnesota bonds held by the Fund would become
taxable under this Minnesota statutory provision.
COLORADO INCOME TAXATION
To the extent that dividends paid by Colorado Intermediate Tax Free Fund are
derived from interest on tax-exempt obligations issued by the state of
Colorado, its political subdivisions and instrumentalities, such dividends
will also be exempt from Colorado income taxes for individuals, trusts,
estates, and corporations. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Colorado taxable income of individuals, trusts, estates,
and corporations, except for dividends directly attributable to interest on
obligations of the United States Government. Dividends qualifying for federal
income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law. However, Colorado
has repealed the favorable treatment of long-term capital gains, while
retaining restrictions on the deductibility of capital losses.
Dividends paid by Colorado Intermediate Tax Free Fund that are derived from
interest on tax-exempt obligations issued by the state of Colorado, its
political subdivisions and instrumentalities (including tax-exempt
obligations treated for federal purposes as private activity bonds) will not
be treated as items of tax preference for purposes of the alternative minimum
tax that Colorado imposes on individuals, trusts and estates.
As under federal law, the portion of Social Security benefits subject to
Colorado income tax may be affected by the amount of exempt-interest
dividends received by the shareholders.
OTHER STATE AND LOCAL TAXATION
Except to the extent described above under "-- Minnesota Income Taxation" and
"-- Colorado Income Taxation," distributions by all the Funds may be subject
to state and local taxation even if they are exempt from federal income
taxes. Shareholders are urged to consult their own tax advisers regarding
state and local taxation.
TAX-EXEMPT VS. TAXABLE INCOME
The tables below show the approximate yields that taxable securities must
earn to equal yields that are (i) exempt from federal income taxes; (ii)
exempt from both federal and Minnesota income taxes; and (iii) exempt from
both federal and Colorado income taxes, under selected income tax brackets
scheduled to be in effect in 1995. The effective combined rates reflect the
deduction of state income taxes from federal income. The 34.1%, 36.9%, 41.4%,
and 44.7% combined federal/Minnesota rates assume that the investor is
subject to an 8.5% marginal Minnesota income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%, 34.5%,
39.2% and 42.6% combined federal/Colorado rates assume that the investor is
subject to a 5% Colorado income tax rate and a marginal federal income tax
rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates do not
reflect federal rules concerning the phase-out of personal exemptions and
limitations on the allowance of itemized deductions for certain high-income
taxpayers. The tables are based upon yields that are derived solely from
tax-exempt income. To the extent that a Fund's yield is derived from taxable
income, the Fund's tax equivalent yield will be less than set forth in the
tables. The tax-free yields used in these tables should not be considered as
representations of any particular rates of return and are for purposes of
illustration only.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND COMBINED FEDERAL AND
FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS
TAX-FREE
YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6%
3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23%
3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10%
4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97%
4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84%
5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71%
5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59%
6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46%
6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
</TABLE>
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Funds have
no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of Incorporation,
FAIF is not required to hold shareholder meetings unless they (i) are
required by the 1940 Act, or (ii) are requested in writing by the holders of
25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "tax equivalent yield,"
its "cumulative total return," its "average annual total return," its
"distribution rate" and its "tax equivalent distribution rate." Distribution
rates and tax equivalent distribution rates may only be used in connection
with sales literature and shareholder communications preceded or accompanied
by a Prospectus. Each of these performance figures is based upon historical
results and is not intended to indicate future performance, and, except for
"distribution rate" and "tax equivalent distribution rate," is standardized
in accordance with Securities and Exchange Commission ("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Tax equivalent yield" is that yield which a taxable investment must generate
in order to equal a Fund's yield for an investor in a stated federal or
combined federal/state income tax bracket (normally assumed to be the maximum
tax rate or combined rate). Tax equivalent yield is computed by dividing that
portion of the yield which is tax-exempt by one minus the stated income tax
rate, and adding the resulting amount to that portion, if any, of the yield
which is not tax-exempt.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if performance
had been constant over the entire period. Because average annual returns tend
to smooth out variations in a Fund's performance, they are not the same as
actual year-by-year results. As a supplement to total return computations, a
Fund may also publish "total investment return" computations which do not
assume deduction of the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. "Tax equivalent distribution rate" is computed by dividing the
portion of the distribution rate (determined as described above) which is
tax-exempt by one minus the stated federal or combined federal/state income
tax rate, and adding to the resulting amount that portion, if any, of the
distribution rate which is not tax-exempt. All distribution rates published
for the Funds are measures of the level of income dividends distributed
during a specified period. Thus, these rates differ from yield (which
measures income actually earned by a Fund) and total return (which measures
actual income, plus realized and unrealized gains or losses of a Fund's
investments). Consequently, distribution rates alone should not be considered
complete measures of performance.
The performance of the Class C Shares of a Fund will normally be higher than
for the Class A and Class B Shares because Class C Shares are not subject to
the sales charges and distribution expenses applicable to Class A and Class B
Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities. Also,
the performance of each Fund may be compared to that of other funds of
similar size and objectives as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent mutual fund rating services,
and each Fund may include in such reports, communications and advertising
material evaluations published by nationally recognized independent ranking
services and publications. For further information regarding the Funds'
performance, see "Fund Performance" in the Statement of Additional
Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information concerning
these matters is contained in the Statement of Additional Information.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," each of the Funds
invests principally in municipal bonds and other municipal obligations. These
bonds and other obligations are issued by the states and by their local and
special-purpose political subdivisions. The term "municipal bond" as used in
this Prospectus includes short-term municipal notes issued by the states and
their political subdivisions.
MUNICIPAL BONDS. The two general classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured by
the governmental issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. They are usually paid from general revenues
of the issuing governmental entity. Revenue bonds, on the other hand, are
usually payable only out of a specific revenue source rather than from general
revenues. Revenue bonds ordinarily are not backed by the faith, credit or
general taxing power of the issuing governmental entity. The principal and
interest on revenue bonds for private facilities are typically paid out of rents
or other specified payments made to the issuing governmental entity by a private
company which uses or operates the facilities. Examples of these types of
obligations are industrial revenue bonds and pollution control revenue bonds.
Industrial revenue bonds are issued by governmental entities to provide
financing aid to community facilities such as hospitals, hotels, business or
residential complexes, convention halls and sport complexes. Pollution control
revenue bonds are issued to finance air, water and solids pollution control
systems for privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of the
credit, general revenues or taxing powers of the issuing governmental entity.
Instead, the private company operating the facility is the sole source of
payment of the obligation. Sometimes, the funds for payment of revenue bonds
come solely from revenue generated by operation of the facility. Revenue
bonds which are not backed by the credit of the issuing governmental entity
frequently provide a higher rate of return than other municipal obligations,
but they entail greater risk than obligations which are guaranteed by a
governmental unit with taxing power. Federal income tax laws place
substantial limitations on industrial revenue bonds, and particularly certain
specified private activity bonds issued after August 7, 1986. In the future,
legislation could be introduced in Congress which could further restrict or
eliminate the income tax exemption for interest on debt obligations in which
the Funds may invest.
MUNICIPAL LEASES. Each Fund also may purchase participation interests in
municipal leases. Participation interests in municipal leases are undivided
interests in a lease, installment purchase contract or conditional sale contract
entered into by a state or local governmental unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds.
Municipal leases and installment purchase or conditional sale contracts
(which usually provide for title to the leased asset to pass to the
governmental issuer upon payment of all amounts due under the contract) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the
issuance of municipal debt. The debt-issuance limitations are deemed to be
inapplicable because of the inclusion in many leases and contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money
is appropriated for this purpose by the appropriate legislative body on a
yearly or other periodic basis. Although these kinds of obligations are
secured by the leased equipment or facilities, the disposition of the pledged
property in the event of non-appropriation or foreclosure might, in some
cases, prove difficult and time-consuming. In addition, disposition upon
non-appropriation or foreclosure might not result in recovery by a Fund of
the full principal amount represented by an obligation.
In light of these concerns, each Fund has adopted and follows procedures for
determining whether municipal lease obligations purchased by the Fund are
liquid and for monitoring the liquidity of municipal lease securities held in
the Fund's portfolio. These procedures require that a number of factors be
used in evaluating the liquidity of a municipal lease security, including the
frequency of trades and quotes for the security, the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, the willingness of dealers to undertake to make a market in the
security, the nature of the marketplace in which the security trades, and
other factors which the Adviser may deem relevant. As described below under
"-- Investment Restrictions," each Fund is subject to limitations on the
percentage of illiquid securities it can hold.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
At least 65% of the tax-exempt obligations in the investment portfolio of
Minnesota Insured Intermediate Tax Free Fund will consist of insured
securities, escrow secured bonds or defeased bonds. The "insured securities"
in this Fund's investment portfolio are insured as to the scheduled payment
of all installments of principal and interest as they fall due. The purpose
of this insurance is to minimize credit risk to this Fund and its
shareholders associated with defaults in tax-exempt obligations owned by the
Fund. However, insurance does not guarantee the market value of the
securities in this Fund's investment portfolio, which will continue to
fluctuate in response to changes in market interest rates. See "Investment
Objectives and Policies -- Risks to Consider -- Interest Rate Risk."
Therefore, the amount received upon redemption of shares of this Fund may be
more or less than the original cost of the shares less any applicable sales
charge paid in connection with the acquisition of such shares.
Generally, except as noted above, each insured municipal obligation held by
Minnesota Insured Intermediate Tax Free Fund will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance. "Original
Issuance Insurance" is purchased by the issuer of a municipal obligation or
by a third party at the time of original issuance of the obligation, while
"Secondary Market Insurance" may be purchased by a third party (including
Minnesota Insured Intermediate Tax Free Fund) subsequent to the original
issuance of a municipal obligation. "Portfolio Insurance" is insurance
purchased by Minnesota Insured Intermediate Tax Free Fund to cover municipal
obligations while they are held in the Fund's portfolio. Premiums for
Portfolio Insurance will be paid from the Fund's assets and will reduce the
current yield on its investment portfolio by the amount of the premiums. The
Fund's investment manager estimates that annual premiums for Portfolio
Insurance would be less than .01% of the Fund's average daily net assets.
Because Portfolio Insurance coverage would terminate upon the sale of an
insured security by Minnesota Insured Intermediate Tax Free Fund, this kind
of insurance would not have an effect on the resale value of the security.
Therefore, the Fund generally will retain any such securities covered only by
Portfolio Insurance which are in default or in significant risk of default
and will place a value on the insurance equal to the difference between the
market value of the defaulted security and the market value of similar
securities which are not in default. Both Original Issue Insurance and
Secondary Market Insurance are non-cancelable and continue in force as long
as the insured security is outstanding and the applicable insurer remains in
business.
Minnesota Insured Intermediate Tax Free Fund may acquire securities that are
already covered by Original Issue Insurance or Secondary Market Insurance
without having to acquire additional insurance thereon, provided that the
claims paying ability of the insurer is rated AAA or SP-1 by Standard &
Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating
by another nationally recognized statistical rating organization. One of the
purposes of these kinds of insurance is to enable the securities covered
thereby to be sold as AAA or Aaa rated insured securities at a market price
higher than might be obtained if the securities were not insured. Therefore,
these kinds of insurance may be considered to represent an element of the
market value of the securities insured. However, the exact effect, if any, on
market value cannot be estimated.
Secondary Market Insurance may be purchased by Minnesota Insured Intermediate
Tax Free Fund if, in the opinion of the Fund's investment manager, the market
value or net proceeds of a sale of the covered security by the Fund would
exceed the current value of the security without insurance, plus the cost of
the insurance. When the Fund purchases Secondary Market Insurance, the single
premium is added to the cost basis of the security and is not considered an
item of expense of the Fund. Any excess of a security's market value as an
AAA or Aaa rated security over its market value without the insurance,
including the single premium cost thereof, would inure to the Fund in
determining the net capital gain or loss realized by the Fund upon the sale
of the security.
The investment policy of this Fund requiring insurance on investments applies
only to tax-exempt obligations held by the Fund and will not affect the
Fund's ability to hold its assets in cash or to invest in escrow secured and
defeased bonds or in certain short-term tax-exempt obligations as described
elsewhere herein, or its ability to invest in uninsured taxable obligations
for temporary or liquidity purposes or on a defensive basis in accordance
with the investment policies and restrictions of the Fund.
Minnesota Insured Intermediate Tax Free Fund is authorized to obtain
Portfolio Insurance from insurers that have obtained a claims-paying ability
rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or
an equivalent rating from another nationally recognized statistical rating
organization. Such insurers may include AMBAC Indemnity Corporation
("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc.
("FSA"), or other companies meeting these criteria. For more information
concerning Portfolio Insurance, see the Statement of Additional Information.
TEMPORARY TAXABLE INVESTMENTS
Each of the Funds may make temporary taxable investments as described under
"Investment Objectives and Policies." Temporary taxable investments will
include only the following types of obligations maturing within 13 months
from the date of purchase: (i) obligations of the United States Government,
its agencies and instrumentalities; (ii) commercial paper rated not less than
A-1 by Standard & Poor's or P-1 by Moody's or which has been assigned an
equivalent rating by another nationally recognized statistical rating
organization; (iii) other short-term debt securities issued or guaranteed by
corporations having outstanding debt rated not less than BBB by Standard &
Poor's or Baa by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization; (iv)
certificates of deposit of domestic commercial banks subject to regulation by
the United States Government or any of its agencies or instrumentalities,
with assets of $500 million or more based on the most recent published
reports; and (v) repurchase agreements with domestic banks or securities
dealers involving any of the securities which the Fund is permitted to hold.
See "-- Repurchase Agreements" below.
REPURCHASE AGREEMENTS
The temporary taxable investments which each Fund may make include repurchase
agreements. A repurchase agreement involves the purchase by a Fund of
securities with the agreement that after a stated period of time, the
original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks not
associated with direct investments in securities. If the original seller
defaults on its obligation to repurchase as a result of its bankruptcy or
otherwise, the purchasing Fund will seek to sell the collateral, which could
involve costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount equal
to the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral were
less than the agreed-upon repurchase price. The Adviser will monitor the
creditworthiness of the firms with which the Funds enter into repurchase
agreements.
INVERSE FLOATING RATE OBLIGATIONS
Each of the Funds may invest up to 5% of its net assets in inverse floating
rate municipal obligations. An inverse floating rate obligation entitles the
holder to receive interest at a rate which changes in the opposite direction
from, and in the same magnitude as or in a multiple of, changes in a
specified index rate. Although an inverse floating rate municipal obligation
would tend to increase portfolio income during a period of generally
decreasing market interest rates, its income and value would tend to decline
during a period of generally increasing market interest rates. In addition,
its decline in value may be greater than for a fixed-rate municipal
obligation, particularly if the interest rate borne by the floating rate
municipal obligation is adjusted by a multiple of changes in the specified
index rate. For these reasons, inverse floating rate municipal obligations
have more risk than more conventional fixed-rate and floating rate municipal
obligations.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will not
accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes
a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to a
Fund could prevent the Fund from realizing a price or yield considered to be
advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As with
other extensions of credit, there may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded put
and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates, a
Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make delivery
of a specific financial instrument at a specified price, an option on an
interest rate index gives the holder the right to receive, upon exercise of
the option, a defined amount of cash if the closing value of the interest
rate index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option.
Put and call options on interest rate indices thus may be used in a fashion
similar to that of options on interest rate futures contracts to hedge the
value of a portfolio of debt securities against anticipated changes in
interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its
share price may be subject to greater fluctuation, and the interest
expense associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
* Intermediate Tax Free Fund will not invest 25% or more of the value of
its total assets in obligations of issuers located in the same state
(for this purpose, the location of an "issuer" shall be deemed to be
the location of the entity the revenues of which are the primary source
of payment or the location of the project or facility which may be the
subject of the obligation). None of the Funds will invest 25% or more
of the value of its total assets in revenue bonds or notes, payment for
which comes from revenues from any one type of activity (for this
purpose, the term "type of activity" shall include without limitation
(i) sewage treatment and disposal; (ii) gas provision; (iii) electric
power provision; (iv) water provision; (v) mass transportation systems;
(vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street
development and repair; (x) toll roads; (xi) airport facilities; and
(xii) educational facilities), except that, in circumstances in which
other appropriate available investments may be in limited supply, such
Funds may invest without limitation in gas provision, electric power
provision, water provision, housing and hospital obligations. This
restriction does not apply to general obligation bonds or notes or, in
the case of Intermediate Tax Free Fund, to pollution control revenue
bonds. However, in the case of the latter Fund, it is anticipated that
normally (unless there are unusually favorable interest and market
factors) less than 25% of such Fund's total assets will be invested in
pollution control bonds. This restriction does not apply to securities
of the United States Government or its agencies and instrumentalities
or repurchase agreements relating thereto.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper may be determined to be "liquid" under
guidelines adopted by the Board of Directors. Rule 144A securities may in the
future be determined to be "liquid" under guidelines adopted by the Board of
Directors if the current position of certain state securities regulators
regarding such securities is modified. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in a Fund to the
extent that qualified institutional buyers become, for a time, uninterested
in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1502 (1/96)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 31, 1996
STOCK FUND HEALTH SCIENCES FUND
EQUITY INDEX FUND REAL ESTATE SECURITIES FUND
BALANCED FUND INTERNATIONAL FUND
ASSET ALLOCATION FUND LIMITED TERM INCOME FUND
EQUITY INCOME FUND INTERMEDIATE TERM INCOME FUND
DIVERSIFIED GROWTH FUND FIXED INCOME FUND
EMERGING GROWTH FUND INTERMEDIATE GOVERNMENT BOND FUND
REGIONAL EQUITY FUND INTERMEDIATE TAX FREE FUND
SPECIAL EQUITY FUND MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
TECHNOLOGY FUND COLORADO INTERMEDIATE TAX FREE FUND
This Statement of Additional Information relates to the Class A, Class B and
Class C Shares of the funds named above (the "Funds"), each of which is a series
of First American Investment Funds, Inc. ("FAIF"). This Statement of Additional
Information is not a prospectus, but should be read in conjunction with the
Funds' current Prospectuses dated January 31, 1996. This Statement of Additional
Information is incorporated into the Funds' Prospectuses by reference. To obtain
copies of a Prospectus, write or call the Funds' distributor SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087,
telephone: (800) 637-2548. Please retain this Statement of Additional
Information for future reference.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION........................... 2
ADDITIONAL INFORMATION CONCERNING
FUND INVESTMENTS............................. 3
Short-Term Investments..................... 3
Repurchase Agreements...................... 3
When-Issued and Delayed-Delivery
Transactions............................ 3
Lending of Portfolio Securities............ 4
Options Transactions....................... 4
Futures and Options on Futures............. 5
Foreign Securities......................... 5
Foreign Currency Transactions.............. 6
Mortgage-Backed Securities................. 7
Debt Obligations Rated Less Than
Investment Grade........................ 8
Special Factors Affecting Minnesota
Insured Intermediate Tax Free
Fund.................................... 9
Special Factors Affecting Colorado
Intermediate Tax Free Fund.............. 10
Insurance for Minnesota Insured
Intermediate Tax Free Fund.............. 13
CFTC Information........................... 14
INVESTMENT RESTRICTIONS....................... 15
DIRECTORS AND EXECUTIVE OFFICERS.............. 18
Directors.................................. 18
Executive Officers......................... 18
Compensation............................... 19
INVESTMENT ADVISORY AND OTHER
SERVICES.................................... 20
Investment Advisory Agreement.............. 20
Sub-Advisory Agreement for
International Fund...................... 21
Administration Agreement................... 22
Distributor and Distribution Plans......... 22
Custodian; Transfer Agent; Counsel;
Accountants............................. 24
PORTFOLIO TRANSACTIONS AND ALLOCATION
OF BROKERAGE............................... 25
CAPITAL STOCK................................. 28
NET ASSET VALUE AND PUBLIC OFFERING
PRICE...................................... 33
FUND PERFORMANCE.............................. 36
SEC Standardized Performance Figures....... 36
Non-Standard Distribution Rates............ 39
Certain Performance Comparisons............ 41
TAXATION...................................... 43
RATINGS....................................... 45
FINANCIAL STATEMENTS.......................... F-1
GENERAL INFORMATION
First American Investment Funds, Inc. ("FAIF") was incorporated in the State of
Maryland on August 20, 1987 under the name "SECURAL Mutual Funds, Inc." The
Board of Directors and shareholders, at meetings held January 10, 1991, and
April 2, 1991, respectively, approved amendments to the Articles of
Incorporation providing that the name "SECURAL Mutual Funds, Inc." be changed to
"First American Investment Funds, Inc."
FAIF is organized as a series fund and currently issues its shares in 20 series.
Each series of shares represents a separate investment portfolio with its own
investment objective and policies (in essence, a separate mutual fund). The
series of FAIF to which this Statement of Additional Information relates are
named on the cover hereof. These series are referred to in this Statement of
Additional Information as the "Funds."
Shareholders may purchase shares of each Fund through three separate classes,
Class A, Class B and Class C, which provide for variations in distribution
costs, voting rights and dividends. To the extent permitted by the Investment
Company Act of 1940, the Funds may also provide for variations in other costs
among the classes although they have no present intention to do so. In addition,
a sales load is imposed on the sale of Class A and Class B Shares of the Funds.
Except for differences among the classes pertaining to distribution costs, each
share of each Fund represents an equal proportionate interest in that Fund.
Class A and Class B Shares sometimes are referred to together as the "Retail
Class Shares," and Class C Shares sometimes are referred to as the
"Institutional Class Shares."
FAIF has prepared and will provide Prospectuses relating to the Retail Class
Shares and Prospectuses relating to the Institutional Class Shares of the Funds.
These Prospectuses can be obtained by calling or writing SEI Financial Services
Company at the address and telephone number set forth on the cover of this
Statement of Additional Information. This Statement of Additional Information
relates both to the Retail Class Prospectuses and to the Institutional Class
Prospectuses for the Funds. It should be read in conjunction with the applicable
Prospectus.
Equity Income Fund and Diversified Growth Fund formerly were series of First
American Mutual Funds (previously known as The Boulevard Funds). They became
series of FAIF effective January 31, 1995, by means of an asset acquisition
transaction. In addition, effective January 31, 1995, Limited Term Income Fund
acquired the assets of Managed Income Fund in return for shares of Limited Term
Income Fund. Prior to such transaction, Managed Income Fund also was a series of
First American Mutual Funds.
The Articles of Incorporation and Bylaws of FAIF provide that meetings of
shareholders be held as determined by the Board of Directors and as required by
the 1940 Act. Maryland corporation law requires a meeting of shareholders to be
held upon the written request of shareholders holding 10% or more of the voting
shares of FAIF, with the cost of preparing and mailing the notice of such
meeting payable by the requesting shareholders. The 1940 Act requires a
shareholder vote for all amendments to fundamental investment policies and
restrictions, for approval of all investment advisory contracts and amendments
thereto, and for all amendments to Rule 12b-1 distribution plans.
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The investment objectives, policies and restrictions of the Funds are set forth
in their respective Prospectuses. Additional information concerning the
investments which may be made by the Funds is set forth under this caption.
Additional information concerning the Funds' investment restrictions is set
forth below under the caption "Investment Restrictions."
SHORT-TERM INVESTMENTS
Most of the Funds can invest in a variety of short-term instruments which are
specified in the respective Prospectuses. A brief description of certain kinds
of short-term instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper normally have maturities of less
than nine months and fixed rates of return. Subject to the limitations described
in the Prospectuses, the Funds may purchase commercial paper consisting of
issues rated at the time of purchase within the two highest rating categories by
Standard & Poor's Corporation ("Standard & Poor's") or Moody's Investors
Service, Inc. ("Moody's"), or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization. The Funds also
may invest in commercial paper that is not rated but that is determined by the
Adviser to be of comparable quality to instruments that are so rated. For a
description of the rating categories of Standard & Poor's and Moody's, see
"Ratings" herein.
BANKERS ACCEPTANCES. 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 full amount
of the instrument upon maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The Adviser
or Sub-Adviser will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements to the extent specified in their
respective Prospectuses. The Funds' custodian will hold the securities
underlying any repurchase agreement, or the securities will be part of the
Federal Reserve/Treasury Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
under the repurchase agreement (including any accrued interest), the appropriate
Fund will promptly receive additional collateral (so the total collateral is an
amount at least equal to the repurchase price plus accrued interest).
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
When a Fund agrees to purchase securities on a when-issued or delayed-delivery
basis, the Custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside securities to satisfy the purchase commitment, and in that case, a Fund
may be required subsequently to place additional assets in the separate account
in order to assure that the value of the account remains equal to the amount of
the Fund's commitments. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside securities to cover such
purchase commitments than when it sets aside cash. In addition, because a Fund
will set aside cash or liquid securities to satisfy its purchase commitments in
the manner described above, its liquidity and the ability of the Adviser to
manage it might be affected in the event its commitments to purchase when-issued
or delayed-delivery securities ever exceeded 25% of the value of its assets.
Under normal market conditions, however, a Fund's commitments to purchase
when-issued or delayed-delivery securities will not exceed 25% of the value of
its assets.
LENDING OF PORTFOLIO SECURITIES
When a Fund lends portfolio securities, it must receive 100% collateral as
described in the Prospectuses. This collateral must be valued daily by the
Adviser or Sub-Adviser and, if the market value of the loaned securities
increases, the borrower must furnish additional collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the lending
Fund any dividends or interest paid on the securities. Loans are subject to
termination by the lending Fund or the borrower at any time. While a Fund does
not have the right to vote securities on loan, it would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. To the extent specified in the Prospectuses, Funds may
purchase put and call options on securities and may write covered call options
on securities which they own or have the right to acquire. A Fund may purchase
put options to hedge against a decline in the value of its portfolio. By using
put options in this way, a Fund would reduce any profit it might otherwise have
realized in the underlying security by the amount of the premium paid for the
put option and by transaction costs. In similar fashion, Fund may purchase call
options to hedge against an increase in the price of securities that the Fund
anticipates purchasing in the future. The premium paid for the call option plus
any transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security rises
sufficiently, the option may expire unexercised.
The writer (seller) of a call option has no control over when the underlying
securities must be sold; the writer may be assigned an exercise notice at any
time prior to the termination of the option. If a call option is exercised, the
writer experiences a profit or loss from the sale of the underlying security.
The writer of a call option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option on the
same security as the option previously written. If a Fund was unable to effect a
closing purchase transaction in a secondary market, it would not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
OPTIONS ON STOCK INDICES. Options on stock indices are similar to options on
individual stocks except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
value of the stock index upon which the option is based is greater than, in the
case of a call, or lesser than, in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements for stock index options are in cash, and gain or loss
depends on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements in individual
stocks. The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the underlying stock index. A
multiplier of 100 means that a one-point difference will yield $100. Options on
different stock indices may have different multipliers.
OPTIONS ON INTEREST RATE INDICES. An option on an interest rate index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing value of the interest rate index upon which the option is based is
greater than, in the case of a call, or lesser than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The writer
of the option is obligated, for the premium received, to make delivery of this
amount. Unlike interest rate futures options contracts, settlements for interest
rate index options are always in cash. Gain or loss depends on price movements
in the interest rate movements with respect to specific financial instruments.
As with stock index options, the multiplier for interest rate index options
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current value of the underlying
interest rate index. Options on different interest rate indices may have
different multipliers.
FUTURES AND OPTIONS ON FUTURES
As discussed in the Prospectuses, certain of the Funds may enter into futures
contracts and may purchase options on futures contracts of various types. These
investment techniques are designed primarily to hedge against anticipated future
changes in market conditions or foreign exchange rates which otherwise might
adversely affect the value of securities which a Fund holds or intends to
purchase. The types of futures and options on futures which particular Funds may
utilize are described in the applicable Prospectuses.
At the same time a futures contract is purchased or sold, a Fund generally must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1-1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value. Futures transactions also involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, United States Government securities or
other liquid high grade debt obligations, to cover its performance under such
contracts.
A Fund may lose the expected benefit of futures transactions if interest rates,
securities prices or foreign exchange rates move in an unanticipated manner.
Such unanticipated changes may also result in poorer overall performance than if
the Fund had not entered into any futures transactions. In addition, the value
of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities and foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, foreign
exchange rate and/or market risk and giving rise to additional risks. Because of
the low margin requirements in the futures markets, they may be subject to
market forces, including speculative activity, which do not affect the cash
markets. There also is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
FOREIGN SECURITIES
As described in the applicable Prospectuses, under normal market conditions
International Fund invests principally in foreign securities, and certain other
Funds may invest lesser proportions of their assets in securities of foreign
issuers which are either listed on a United States securities exchange or
represented by American Depositary Receipts.
Fixed commissions on foreign securities exchanges are generally higher than
negotiated commissions on United States exchanges. Foreign markets also have
different clearance and settlement procedures, and in some markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of International Fund is uninvested. In addition, settlement problems
could cause International Fund to miss attractive investment opportunities or to
incur losses due to an inability to sell or deliver securities in a timely
fashion. In the event of a default by an issuer of foreign securities, it may be
more difficult for a Fund to obtain or to enforce a judgment against the issuer.
FOREIGN CURRENCY TRANSACTIONS
As described in the applicable Prospectuses, International Fund may engage in a
variety of foreign currency transactions in connection with its investment
activities. These include forward foreign currency exchange contracts, foreign
currency futures, and foreign currency options.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. International Fund will not enter into such forward
contracts or maintain a net exposure in such contracts where the Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's securities or other assets denominated in that currency. The Fund will
comply with applicable Securities and Exchange Commission announcements
requiring it to segregate assets to cover the Fund's commitments with respect to
such contracts. At the present time, these announcements generally require a
fund with a long position in a forward foreign currency contract to establish
with its custodian a segregated account containing cash or liquid high grade
debt securities equal to the purchase price of the contract, and require a fund
with a short position in a forward foreign currency contract to establish with
its custodian a segregated account containing cash or liquid high grade debt
securities that, when added to any margin deposit, equal the market value of the
currency underlying the forward contract. These requirements will not apply
where a forward contract is used in connection with the settlement of investment
purchases or sales or where the position has been "covered" by entering into an
offsetting position. The Fund generally will not enter into a forward contract
with a term longer than one year.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency exchange
contracts, foreign currency futures contracts and options on foreign currency
futures contracts are standardized as to amount and delivery period and may be
traded on boards of trade and commodities exchanges or directly with a dealer
which makes a market in such contracts and options. It is anticipated that such
contracts may provide greater liquidity and lower cost than forward foreign
currency exchange contracts. As part of its financial futures transactions,
International Fund may use foreign currency futures contracts and options on
such futures contracts. Through the purchase or sale of such contracts, the Fund
may be able to achieve many of the same objectives as through forward foreign
currency exchange contracts more effectively and possibly at a lower cost.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying currency
appreciates. Conversely, a foreign currency put option rises in value if the
underlying currency depreciates. While purchasing a foreign currency option may
protect International Fund against an adverse movement in the value of a foreign
currency, it would not limit the gain which might result from a favorable
movement in the value of the currency. For example, if the Fund were holding
securities denominated in an appreciating foreign currency and had purchased a
foreign currency put to hedge against a decline in the value of the currency, it
would not have to exercise its put. In such an event, however, the amount of the
Fund's gain would be offset in part by the premium paid for the option.
Similarly, if the Fund entered into a contract to purchase a security
denominated in a foreign currency and purchased a foreign currency call to hedge
against a rise in the value of the currency between the date of purchase and the
settlement date, the Fund would not need to exercise its call if the currency
instead depreciated in value. In such a case, the Fund could acquire the amount
of foreign currency needed for settlement in the spot market at a lower price
than the exercise price of the option.
MORTGAGE-BACKED SECURITIES
As described in the applicable Prospectuses, Limited Term Income Fund,
Intermediate Term Income Fund, Fixed Income Fund and Balanced Fund also invest
in mortgage-backed securities. Each of these Funds will invest only in
mortgage-backed securities which are Agency Pass-Through Certificates or
collateralized mortgage obligations ("CMOs"), as defined and described in those
Prospectuses.
Agency Pass-Through Certificates are issued or guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA is a wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The guarantee of GNMA with respect
to GNMA certificates is backed by the full faith and credit of the United
States, and GNMA is authorized to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitation as to
amount, to perform its guarantee.
FNMA is a federally chartered and privately owned corporation organized and
existing under federal law. Although the Secretary of the Treasury of the United
States has discretionary authority to lend funds to FNMA, neither the United
States nor any agency thereof is obligated to finance FNMA's operations or to
assist FBMA in any other manner.
FHLMC is a federally chartered corporation organized and existing under federal
law, the common stock of which is owned by the Federal Home Loan Banks. Neither
the United States nor any agency thereof is obligated to finance FNMA's
operations or to assist FBMA in any other manner.
The residential mortgage loans evidenced by Agency Pass-Through Certificates and
upon which CMOs are based generally are secured by first mortgages on one- to
four-family residential dwellings. Such mortgage loans generally have final
maturities ranging from 15 to 30 years and provide for monthly payments in
amounts sufficient to amortize their original principal amounts by the maturity
dates. Thus, each monthly payment on such mortgage loans generally includes both
an interest component and a principal component, so that the holder of the
mortgage loans receives both interest and a partial return of principal in each
monthly payment. In general, such mortgage loans can be prepaid by the borrowers
at any time without any prepayment penalty. In addition, many such mortgage
loans contain a "due-on-sale" clause requiring the loans to be repaid in full
upon the sale of the property securing the loans. Because residential mortgage
loans generally provide for monthly amortization and may be prepaid in full at
any time, the weighted average maturity of a pool of residential mortgage loans
is likely to be substantially shorter than its stated final maturity date. The
rate at which a pool of residential mortgage loans is prepaid may be influenced
by many factors and is not predictable with precisions.
As stated in the applicable Prospectuses, CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions of
the principal payments and prepayments and/or of the interest payments on the
underlying mortgage loans. These entitlements can be specified in a wide variety
of ways, so that the payment characteristics of various classes may differ
greatly from one another. For example:
* In a sequential-pay CMO structure, one class is entitled to
receive all principal payments and prepayments on the
underlying mortgage loans (and interest on unpaid principal)
until the principal of the class is repaid in full, while the
remaining classes receive only interest; when the first class
is repaid in full, a second class becomes entitled to receive
all principal payments and prepayments on the underlying
mortgage loans until the class is repaid in full, and so
forth.
* A planned amortization class ("PAC") of CMOs is entitled to
receive principal on a stated schedule to the extent that it
is available from the underlying mortgage loans, thus
providing a greater (but not absolute) degree of certainty as
to the schedule upon which principal will be repaid.
* An accrual class of CMOs provides for interest to accrue and
be added to principal (but not be paid currently) until
specified payments have been made on prior classes, at which
time the principal of the accrual class (including the accrued
interest which was added to principal) and interest thereon
begins to be paid from payments on the underlying mortgage
loans.
* As discussed above with respect to Agency Pass-Through
Certificates, an interest-only class of CMOs entitles the
holder to receive all of the interest and none of the
principal on the underlying mortgage loans, while a
principal-only class of CMOs entitles the holder to receive
all of the principal payments and prepayments and none of the
interest on the underlying mortgage loans.
* A floating rate class of CMOs entitles the holder to receive
interest at a rate which changes in the same direction and
magnitude as changes in a specified index rate. An inverse
floating rate class of CMOs entitles the holder to receive
interest at a rate which changes in the opposite direction
from, and in the same magnitude as or in a multiple of,
changes in a specified index rate. Floating rate and inverse
floating rate classes also may be subject to "caps" and
"floors" on adjustments to the interest rates which they bear.
* A subordinated class of CMOs is subordinated in right of
payment to one or more other classes. Such a subordinated
class provides some or all of the credit support for the
classes that are senior to it by absorbing losses on the
underlying mortgage loans before the senior classes absorb any
losses. A subordinated class which is subordinated to one or
more classes but senior to one or more other classes is
sometimes referred to as a "mezzanine" class. A subordinated
class generally carries a lower rating than the classes that
are senior to it, but may still carry an investment grade
rating.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
As described in the applicable Prospectuses, the "equity securities" in which
Equity Income Fund may invest include corporate debt obligations which are
convertible into common stock. These convertible debt obligations may include
obligations rated as low as CCC by Standard & Poor's or Caa by Moody's or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization. Debt obligations rated BB, B or CCC by Standard
& Poor's or Ba, B or Caa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." The limitations on
investments by Equity Income Fund in less than investment grade convertible debt
obligations are set forth in the applicable Prospectuses.
Purchases of less than investment grade corporate debt obligations generally
involve greater risks than purchases of higher rated obligations. Less than
investment grade debt obligations are especially subject to adverse changes in
general economic conditions and to changes in the financial condition of their
issuers. During periods of economic downturn or rising interest rates, issuers
of such obligations may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default.
Yields on less than investment grade debt obligations will fluctuate over time.
The prices of such obligations have been found to be less sensitive to interest
rate changes than higher rated obligations, but more sensitive to adverse
economic changes or individual corporate developments. Also, during an economic
downturn or period of rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to
service principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of less than investment grade debt obligations.
In addition, the secondary trading market for less than investment grade debt
obligations may be less developed than the market for investment grade
obligations. This may make it more difficult for Equity Income Fund to value and
dispose of such obligations. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and liquidity of
less than investment grade obligations, especially in a thin secondary trading
market.
Certain risks also are associated with the use of credit ratings as a method for
evaluating less than investment grade debt obligations. For example, credit
ratings evaluate the safety of principal and interest payments, not the market
value risk of such obligations. In addition, credit rating agencies may not
timely change credit ratings to reflect current events. Thus, the success of
Equity Income Fund's use of less than investment grade convertible debt
obligations may be more dependent on the Adviser's own credit analysis than is
the case with investment grade obligations.
SPECIAL FACTORS AFFECTING MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
As described in the Prospectuses relating to Minnesota Insured Intermediate Tax
Free Fund, except during temporary defensive periods, this Fund will invest most
of its total assets in Minnesota municipal obligations. In addition, Limited
Term Tax Free Fund may invest up to 50% of its total assets in obligations of
issuers located in Minnesota. These Funds therefore are susceptible to
political, economic and regulatory factors affecting issuers of Minnesota
municipal obligations. The following information provides only a brief summary
of the complex factors affecting the financial situation in Minnesota. This
information is derived from sources that are generally available to investors
and is based in part on information obtained from various state and local
agencies in Minnesota. It should be noted that the creditworthiness of
obligations issued by local Minnesota issuers may be unrelated to the
creditworthiness of obligations issued by the State of Minnesota, and that there
is no obligation on the part of Minnesota to make payment on such local
obligations in the event of default.
MINNESOTA FISCAL CONDITION. Minnesota's constitutionally prescribed fiscal
period is a biennium, and Minnesota operates on a biennial budget basis.
Legislative appropriations for each biennium are prepared and adopted during the
final legislative session of the immediately preceding biennium. Prior to each
fiscal year of a biennium, Minnesota's Department of Finance allots a portion of
the applicable biennial appropriation to each agency or other entity for which
an appropriation has been made. An agency or other entity may not expend moneys
in excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, Minnesota's Commissioner of Finance, with
the approval of the Governor, is required to reduce allotments to the extent
necessary to balance expenditures and forecasted available resources for the
then current biennium. The Governor may prefer legislative action when a large
reduction in expenditures appears necessary, and if Minnesota's legislature is
not in session the Governor is empowered to convene a special session.
Frequently in recent years, legislation has been required to eliminate projected
budget deficits by raising additional revenue, reducing expenditures, including
aids to political subdivisions and higher education, reducing the State's budget
reserve, imposing a sales tax on purchases by local governmental units, and
making other budgetary adjustments. The Minnesota Department of Finance November
1995 forecast has projected that, under current law, the State will complete its
current biennium June 30, 1997 with a $15 million surplus, plus a $350 million
cash flow account balance plus a $220 million budget reserve. Total General Fund
expenditures and transfers for the biennium are projected to be $18.7 billion.
State expenditures for education finance (K-12), post-secondary education, and
human services in the biennium ending June 30, 1997 are not anticipated to be
sufficient to maintain program levels of the previous biennium. Although it is
not possible to anticipate economic performance four years into the future,
planning estimates (extrapolations) for the biennium ending June 30, 1999 show a
General Fund deficit of $28 million, after funding a $350 million cash flow
account plus a $220 million budget reserve, if current law is not changed.
Accordingly, there may be additional revenue increases or spending cuts relative
to current law. The State is party to a variety of civil actions that could
adversely affect the State's General Fund. In addition, substantial portions of
State and local revenues are derived from federal expenditures, and reductions
in federal aid to the State and its political subdivisions and other federal
spending cuts may have substantial adverse effects on the economic and fiscal
condition of the State and its local governmental units. The November 1995
forecast states that pending federal legislation could reduce federal aid to
Minnesota's state and local governments by a total of $13.2 billion over seven
years. Risks are inherent in making revenue and expenditure forecasts. Economic
or fiscal conditions less favorable than those reflected in State budget
forecasts and planning estimates may create additional budgetary pressures.
State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota. Even with respect to
bonds that are revenue obligations of the issuer and not general obligations of
Minnesota, there can be no assurance that the fiscal problems referred to above
will not adversely affect the market value or marketability of the bonds or the
ability of the respective obligors to pay interest on and principal of the
bonds.
MINNESOTA ECONOMY. Minnesota relies heavily on a progressive individual income
tax and a retail sales tax for revenue, which results in a fiscal system
unusually sensitive to economic conditions. In 1993, the structure of
Minnesota's economy closely paralleled the structure of the United States
economy as a whole. State employment in ten major sectors was distributed in
approximately the same proportions as national employment.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national growth; total employment in Minnesota increased 17.9%
while increasing 20.1% nationally. Most of Minnesota's relatively slower growth
during this period is associated with declining agricultural employment and with
the two recessions in the United States economy occurring in the early 1980s
which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with the nation after the end of the
1981-82 recession. Employment data through 1994 indicate the recession which
began in July 1990 was less severe in Minnesota than in the national economy.
During 1993, 1994 and the first five months of 1995, the State's monthly
unemployment rate was generally less than the national unemployment rate,
averaging 5.1% in 1993 as compared to the national average of 7.4%, 4.0% in 1994
as compared to the national average of 6.1%, and 3.9% for the first five months
of 1995 as compared to the national average of 5.8%.
Since 1980, Minnesota per capita personal income has been within three
percentage points of national per capita personal income. Minnesota per capita
income has generally remained above the national average during this period in
spite of the early 1980s recessions and some difficult years in agriculture. In
1994, Minnesota per capita income was 103.0% of the national average. During
1993-1994, personal income in Minnesota grew more rapidly than the United States
average, with a growth of 8.04% in Minnesota as compared to a United States
average of 5.89%. Between 1990 and 1994, Minnesota non-agricultural employment
increased 8.5%, compared to a national average of 4.2%.
Between 1983 and 1994, increases in retail sales in Minnesota averaged 6.4% per
year, compounded.
There can be no assurance that Minnesota's economy and fiscal condition will not
materially change in the future or that future difficulties will not occur.
Economic difficulties and the resultant impact on state and local government
finances may adversely affect the market value of obligations in the portfolio
of Minnesota Insured Intermediate Tax Free Fund or the ability of respective
obligors to make timely payment of the principal and interest on such
obligations.
SPECIAL FACTORS AFFECTING COLORADO INTERMEDIATE TAX FREE FUND
As described in the Prospectuses relating to Colorado Intermediate Tax Free
Fund, except during temporary defensive periods, this Fund will invest most of
its total assets in Colorado municipal obligations. Colorado Intermediate Tax
Free Fund therefore is susceptible to political, economic and regulatory factors
affecting issuers of Colorado municipal obligations. The following information
provides only a brief summary of the complex factors affecting the financial
situation in Colorado. This information is derived from sources that are
generally available to investors and is based in part on information obtained
from various state and local agencies in Colorado. It should be noted that the
creditworthiness of obligations issued by local Colorado issuers may be
unrelated to the creditworthiness of obligations issued by the State of
Colorado, and that there is no obligation on the part of Colorado to make
payment on such local obligations in the event of default.
COLORADO FISCAL CONDITION. The Colorado Constitution allocates to the General
Assembly legislative responsibility for appropriating State moneys to pay the
expenses of State government. The fiscal year of the State is the 12-month
period commencing July 1 and ending June 30. During the fiscal year for which
appropriations have been made, the General Assembly may increase or decrease
appropriations through supplementary appropriations.
State general fund tax collections for fiscal year 1994-95 increased 6.5% over
fiscal year 1993-94 to reach $3,996.3 million. The current estimate for fiscal
year 1995-96 is $4,156.5 million, or an increase of 4.0%. State cash funds,
which consist of a variety of program revenues, totalled $1,762.9 million for
fiscal year 1994-95, and are projected to increase 3.8% for fiscal year 1995-96
to $1,829.9 million.
The State Constitution requires that expenditures for any fiscal year not exceed
revenues for such fiscal year. In addition, Article X, Section 20, of the State
Constitution (see "-- State Constitutional Amendment" below) limits increases in
expenditures of state general funds and cash revenues from year to year to the
sum of State inflation plus the percentage change in population (adjusted for
revenue changes approved by voters). Expenditures in fiscal year 1995-96 are
limited to an increase of no more than 7.0% over 1994-95 expenditures. The 7.0%
increase factor is equal to the sum of 1994 inflation of 4.4% and population
growth of 2.6%. Based upon total general fund tax collections and state cash
revenues for fiscal year 1994-95 of $5,759.2 million, expenditures for 1995-96
will be limited to $6,162.3 million.
STATE CONSTITUTIONAL AMENDMENT. Section 20, Article X of the Colorado
Constitution ("Amendment One") contains limitations on the ability of
"Districts," which are defined as Colorado State and local governments, to
increase taxes and issue debt obligations, as well as limitations on spending
and revenue generation. The amendment does not apply to "Enterprises," which are
defined as government-owned businesses that are authorized to issue their own
revenue bonds and that receive under 10% of annual revenues in grants from all
state and local governments combined.
Amendment One limits the ability of Districts to increase taxes by providing
that advance voter approval is required for "any new tax, tax rate increase,
mill levy above that for the prior year, valuation for assessment ratio increase
for a property class, or extension of an expiring tax, or a tax policy change
directly causing a net tax revenue gain to any district." An additional
limitation is placed on the maximum annual percentage increase in property tax
revenue.
Amendment One also imposes limitations on government borrowing. The amendment
provides that Districts must have advance voter approval for the "creation of
any multiple-fiscal year direct or indirect district debt or other financial
obligation whatsoever without adequate present cash reserves pledged irrevocably
and held for payments in all future fiscal years," except for refinancing
District bonded debt at a lower interest rate or adding new employees to
existing District pension plans. Prior to the adoption of Amendment One, voter
approval was generally required only for the creation of general obligation
debt.
Spending limitations applicable to the State and separately to local governments
are also included in Amendment One. The amendment provides that the maximum
annual percentage change in each local District's Fiscal Year Spending shall
equal inflation in the prior calendar year plus annual local growth, adjusted
for revenue changes approved by voters after 1991 and certain other allowed
adjustments. "Fiscal Year Spending" is defined as all District expenditures and
reserve increases except refunds made in the current or next fiscal year, gifts,
federal funds, collections for another government, pension contributions by
employees and pension fund earnings, reserve transfers or expenditures, damage
awards and property sales. If revenue from sources not excluded from Fiscal Year
Spending exceeds the spending limit for a fiscal year, Amendment One provides
that the excess must be refunded in the next fiscal year unless voters approve a
revenue change as an offset.
Elections required under Amendment One are limited to the State general election
(the first Tuesday after the first Monday in November in even numbered years),
an election held on the first Tuesday in November in odd numbered years, or the
regular biennial election of the local government.
While it is too early to determine what impacts Amendment One will ultimately
have on the financial operations of Colorado state and local governments, the
new constraints on budgetary and debt management flexibility may create credit
concerns. Furthermore, the language of Amendment One is not clear as to certain
matters, including (a) whether property tax rates can be increased without voter
approval to support outstanding or refunding general obligation bonds, (b)
whether new lease rental bonds and certificates of participation constitute
multiple-year financial obligations within the context of the amendment, and (c)
the precise definition of exempt Enterprises. A number of Colorado courts have
rendered decisions regarding various provisions of Amendment One since its
passage. However, there are still many uncertainties as to the appropriate
construction of certain provisions of Amendment One. In view of the fact that no
appellate court has ruled on Amendment One comprehensively, there can still be
no assurrance as to the appropriate construction of certain provisions of
Amendment One.
COLORADO ECONOMY. Since 1960, the Colorado economy has moved generally with the
cycles of the national economy, while experiencing greater growth than the
national economy during upturns and more gradual declines during downturns.
During this period, structural changes have transformed both the United States
and the State economies. At the national level, the number of basic industry
jobs (mining, manufacturing and construction) declined substantially as a
percentage of the total private industry work force -- 44.6% in 1960 to 20.7% in
1994, while at the State level, the number of basic industry jobs declined from
26.5% in 1960 to 17.3% in 1994. The difference in the rate of decline can be
attributed to the State's industrial mix, which excludes many industries such as
automobile, steel and textile manufacturing that experienced the steepest
national declines.
The sustained economic growth Colorado achieved during the 1960s and 1970s was
curtailed by the national recession in 1974 and 1975, reflecting the State's
general movement with the United States' economy. The recession produced marked
declines in employment and income growth in the State, although at rates lower
than the national economy.
The Colorado economy rebounded strongly in the late 1970s. As a result of energy
price increases in 1979 and 1980, job expansion in oil and mineral extraction
industries accelerated. Expansion in the oil industry resulted in growth in
related services and employment which stimulated, in part, substantial increases
in nonresidential construction in the Denver metropolitan area.
During the second half of 1985, the performance of Colorado's economy was
adversely affected primarily because three sectors of the local economy suffered
setbacks at the same time. First, the energy sector contracted during each of
the preceding five years due, in part, to price decreases of imported oil
resulting in less domestic oil production. Domestic exploration, and, in some
cases, production, had become unprofitable. This trend was reflected in cutbacks
in both oil and gas and mineral extraction industry employment. Second, a major
high technology manufacturer (Storage Technology Corporation) laid off nearly
5,000 workers during 1984 and 1985. The high-technology industry generally
declined due to overexpansion which produced keen price competition. Third,
after years of healthy growth, excess supply in both residential and
nonresidential construction sectors decreased employment in the construction
sector. In the nonresidential sector, this over-building occurred partially as a
result of the downturn in oil industry employment, which reduced demand for
office space. In the residential sector, the excess supply of housing resulted
from a sharp reduction in in-migration and over-building.
The Colorado economy began to recover and showed positive signs of growth in
1987, which became more evident in the following years. More recently, the
national recession and the restructuring of the defense industry have affected
the State economy. However, at the end of 1993, the State economy appeared
somewhat healthier than the national economy, based on a number of economic
indicators. During 1994, 79,000 new non-agricultural wage and salary jobs were
added to the state's economy, representing a state job growth rate of 4.7%,
compared to a 2.0% job growth rate nationally during this same period of time.
Colorado's job growth is projected at 3.1% during 1995. Colorado's unemployment
rate decreased from 5.2% in 1993 to 4.2% in 1994, and is expected to drop as low
as 4.0% in 1995. Colorado's 1994 unemployment rate was significantly below the
national unemployment rate of 6.1% during the same time period.
Total personal income in Colorado during 1995 is projected to reach $87.6
billion, an increase of 7.4% compared to 1994. During 1994, total United States
personal income was estimated to have increased 6.1%. Preliminary estimates for
Colorado personal income predict an annual growth rate of 6.9% for 1996.
Total population in Colorado increased by 92,300 during 1994, resulting in a
growth rate of 2.6%. The preliminary estimate for total population increase for
1995 is 73,200 or 2%.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Minnesota Insured Fund is authorized to obtain Portfolio Insurance from insurers
that have obtained a claims-paying ability of "AAA" (or a short-term rating of
"SP-1") from Standard & Poor's or "Aaa" (or a short-term rating of "MIG-1") from
Moody's or an equivalent rating from another nationally recognized statistical
rating organization. Such insurers may include AMBAC Indemnity Corporation
("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc. ("FSA"),
or other companies meeting the foregoing criteria.
Any Portfolio Insurance policy obtained by Minnesota Insured Fund would be
effective only so long as Minnesota Insured Fund is in existence, the insurer is
still in business and the municipal obligations described in the policy continue
to be held by Minnesota Insured Fund. In the event of a sale of any municipal
obligation by Minnesota Insured Fund or payment thereof prior to maturity, a
Portfolio Insurance policy would terminate as to such municipal obligation on
the settlement date of the sale or the redemption date.
Under a Portfolio Insurance policy, the insurer would unconditionally guarantee
to Minnesota Insured Fund the timely payment of principal and interest on the
municipal obligations as such payments become due but are not paid by the
issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption or acceleration
resulting from default or otherwise, other than any advancement of maturity
pursuant to a mandatory sinking fund payment, the payments guaranteed will be
made in such amounts and at such times as payments of principal would have been
due and there had not been any such acceleration. Such a policy would not insure
against loss of any prepayment premium that may at any time be payable with
respect to any municipal obligation. It also would not insure against loss
relating to: (i) optional or mandatory redemptions (other than mandatory sinking
fund redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of municipal obligations upon tender by an owner
thereof; or (iv) any preference relating to (i) through (iii) above. It also
would not insure against nonpayment of principal of or interest on the municipal
obligations resulting from the insolvency, negligence or any other act or
omission of the paying agent for the municipal obligations.
AMBAC 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, with admitted assets (unaudited) of approximately $2.230 billion
and statutory capital (unaudited) of approximately $1.260 billion as of June 30,
1995. Statutory capital consists of AMBAC's statutory contingency reserve and
policyholders' surplus. Copies of AMBAC's financial statements prepared in
accordance with statutory accounting standards are available from AMBAC. The
address of AMBAC's administrative offices is One State Street Plaza, 17th Floor,
New York, New York 10004.
MBIA is a limited liability corporation domiciled in the State of New York and
licensed to do business in all 50 states, the District of Columbia and the
Commonwealth of Puerto Rico. As of June 30, 1995, MBIA had admitted assets of
$3.6 billion (unaudited), total liabilities of $2.4 billion (unaudited) and
total capital and surplus of $1.2 billion (unaudited) determined in accordance
with statutory accounting principles prescribed or permitted by insurance
regulatory authorities. Copies of MBIA's year end financial statements are
available from MBIA. The address of MBIA is 113 King Street, Armonk, New York
10504.
FGIC is a monoline financial guaranty insurer domiciled in the State of New York
and subject to regulation by the State of New York Insurance Department. As of
June 30, 1995, the total capital and surplus of FGIC was approximately $871.8
million. FGIC prepares financial statements on the basis of both statutory
accounting principles and generally accepted accounting principles. Copies of
such financial statements may be obtained by writing to FGIC at 115 Broadway,
New York, New York 10006, Attention: Communications Department.
FSA is a monoline insurance company incorporated under the laws of the State of
New York. FSA is licensed directly or through its subsidiaries to engage in
financial guaranty insurance business in all 50 states, the District of
Columbia, Puerto Rico and the United Kingdom. As of September 30, 1995 the total
policyholders' surplus and contingency reserves and the total unearned premium
reserve, respectively, of FSA and its consolidated subsidiaries were, in
accordance with statutory accounting principles, approximately $495.0 million
(unaudited) and $250.5 million (unaudited), and the total shareholders' equity
and total unearned premium reserve, respectively, of FSA and its consolidated
subsidiaries were, in accordance with generally accepted accounting principles,
approximately $590.5 million (unaudited) and $206.0 million (unaudited). The
principal executive offices of FSA are located at 350 Park Avenue, New York, New
York 10022.
The information relating to AMBAC, MBIA, FGIC and FSA set forth above has been
obtained from publicly available sources. No representation is made as to the
accuracy or adequacy of such information.
CFTC INFORMATION
The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity pursuant to the Commodity Exchange Act, as amended.
The CFTC requires the registration of "commodity pool operators," which are
defined as any person engaged in a business which is of the nature of an
investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others funds,
securities or property for the purpose of trading in any commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which (i) will use commodity
futures or commodity options contracts solely for bona fide hedging purposes
(provided, however, that in the alternative, with respect to each long position
in a commodity future or commodity option contract, an investment company may
meet certain other tests set forth in Rule 4.5); (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information. Any investment company desiring to claim this exclusion
must file a notice of eligibility with both the CFTC and the National Futures
Association. FAIF has made such notice filings with respect to those Funds which
may invest in commodity futures or commodity options contracts.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
Prospectuses and under the caption "Additional Information Concerning Fund
Investments" above, each of the Funds is subject to the investment restrictions
set forth below. The investment restrictions set forth in paragraphs 1 through 9
below are fundamental and cannot be changed with respect to a Fund without
approval by the holders of a majority of the outstanding shares of that Fund as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
i.e., by the lesser of the vote of (a) 67% of the shares of the Fund present at
a meeting where more than 50% of the outstanding shares are present in person or
by proxy, or (b) more than 50% of the outstanding shares of the Fund.
None of the Funds will:
1. Except for Intermediate Tax Free Fund, Minnesota Insured
Intermediate Tax Free Fund, and Colorado Intermediate Tax Free
Fund (collectively, the "Tax Free Funds") and for Technology
Fund and Health Sciences Fund, invest in any securities if, as
a result, 25% or more of the value of its total assets would
be invested in the securities of issuers conducting their
principal business activities in any one industry, except that
Real Estate Securities Fund will invest without restriction in
issuers principally engaged in the real estate industry.
Intermediate Tax Free Fund will not invest 25% or more of the
value of its total assets in obligations of issuers located in
the same state (for this purpose, the location of an "issuer"
shall be deemed to be the location of the entity the revenues
of which are the primary source of payment of the location of
the project or facility which may be the subject of the
obligation). None of the Tax Free Funds will invest 25% or
more of the value of its total assets in revenue bonds or
notes, payment for which comes from revenues from any one type
of activity (for this purpose, the term "type of activity"
shall include without limitation (i) sewage treatment and
disposal; (ii) gas provision; (iii) electric power provision;
(iv) water provision; (v) mass transportation systems; (vi)
housing; (vii) hospitals; (viii) nursing homes; (ix) street
development and repair; (x) toll roads; (xi) airport
facilities; and (xii) educational facilities), except that, in
circumstances in which other appropriate available investments
may be in limited supply, such Funds may invest without
limitation in gas provision, electric power provision, water
provision, housing and hospital obligations. This restriction
does not apply to general obligation bonds or notes or, in the
case of Intermediate Tax Free Fund, to pollution control
revenue bonds. However, in the case of the latter Fund, it it
anticipated that normally (unless there are unusually
favorable interest and market factors) less than 25% of such
Fund's total assets will be invested in pollution control
bonds. This restriction does not apply to securities of the
United States Government or its agencies and instrumentalities
or repurchase agreements relating thereto.
2. Issue any senior securities (as defined in the 1940 Act),
other than as set forth in restriction number 3 below and
except to the extent that using options or purchasing
securities on a whenissued basis may be deemed to constitute
issuing a senior security.
3. Borrow money, except from banks for temporary or emergency
purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets, except for Asset Allocation
Fund, which may borrow in amounts not to exceed 33-1/3% of its
total assets. None of the Funds will borrow money for leverage
purposes. For the purpose of this investment restriction, the
use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall
not be deemed the borrowing of money. (As a non-fundamental
policy, no Fund will make additional investments while its
borrowings exceed 5% of total assets.)
4. Mortgage, pledge or hypothecate its assets, except in an
amount not exceeding 15% of the value of its total assets to
secure temporary or emergency borrowing.
5. Make short sales of securities.
6. Purchase any securities on margin except to obtain such
short-term credits as may be necessary for the clearance of
transactions and except, in the case of Emerging Growth Fund,
Technology Fund, and International Fund, as may be necessary
to make margin payments in connection with foreign currency
futures and other derivative transactions.
7. Purchase or sell physical commodities (including, by way of
example and not by way of limitation, grains, oilseeds,
livestock, meat, food, fiber, metals, petroleum,
petroleum-based products or natural gas) or futures or options
contracts with respect to physical commodities. This
restriction whall not restrict any Fund from purchasing or
selling any financial contracts or instruments which may be
deemed commodities (including, by way of example and not by
way of limitation, options, futures and options on futures
with respect, in each case, to interest rates, currencies,
stock indices, bond indices or interest rate indices) or any
security which is collateralized or otherwise backed by
physical commodities.
8. Purchase or sell real estate or real estate mortgage loans,
except that the Funds may invest in securities secured by real
estate or interests therein or issued by companies that invest
in or hold real estate or interests therein, and except that
Intermediate Government Bond Fund, Intermediate Tax Free Fund,
Fixed Income Fund, Intermediate Term Income Fund, Limited Term
Income Fund, Balanced Fund, Asset Allocation Fund, Minnesota
Insured Intermediate Tax Free Fund, Colorado Intermediate Tax
Free Fund, Emerging Growth Fund, Technology Fund, Health
Sciences Fund, Real Estate Securities Fund, and International
Fund may invest in mortgage-backed securities.
9. Act as an underwriter of securities of other issuers, except
to the extent a Fund may be deemed to be an underwriter, under
Federal securities laws, in connection with the disposition of
portfolio securities.
10. Lend any of their assets, except portfolio securities
representing up to one-third of the value of their total
assets.
The following restrictions are non-fundamental and may be changed by FAIF's
Board of Directors without shareholder vote. None of the Funds will:
11. Invest more than 15% of its net assets in all forms of
illiquid investments, as determined pursuant to applicable
Securities and Exchange Commission rules and interpretations.
12. Invest in any securities, if as a result more than 5% of the
value of its total assets is invested in the securities of any
issuers (other than, in the case of Real Estate Securities
Fund, publicly traded real estate investment trusts) which,
with their predecessors, have a record of less than three
years continuous operation. (Securities of any of such issuers
will not be deemed to fall within this limitation if they are
guraranteed by an entity which has been in continuous
operation for more than three years.)
13. Invest for the purpose of exercising control or management.
14. Purchase or sell real estate limited partnership interests
(other than, in the case of Real Estate Securities Fund,
publicly traded real estate limited partnership interests), or
oil, gas or other mineral leases, rights or royalty contracts,
except that the Funds may purchase or sell securities of
companies which invest in or hold the foregoing.
15. Purchase securities of any other registered investment company
(as defined in the 1940 Act), except, subject to 1940 Act
limitations, (a) the Tax Free Funds may purchase shares of
open-end investment companies investing primarily in municipal
obligations with remaining maturities of 13 months or less;
(b) International Fund may purchase shares of open-end
investment companies which invest in permitted investments for
such Fund; (c) each of Stock Fund, Equity Index Fund, Balanced
Fund, Asset Allocation Fund, Equity Income Fund, Diversified
Growth Fund, Emerging Growth Fund, Regional Equity Fund,
Special Equity Fund, Technology Fund, Health Sciences Fund,
Real Estate Securities Fund, and International Fund may, as
part of its investment in cash items, invest in securities of
other mutual funds which invest primarily in debt obligations
with remaining maturities of 13 months or less; and (d) all
Funds may purchase securities as part of a merger,
consolidation, reorganization or acquisition of assets.
Further, so long as its shares are registered for sale in the
state of California, Intermediate Tax Free Fund will invest in
securities of other open-end investment companies primarily
for the purpose of investing short-term cash on a temporary
basis; in addition, the Fund will waive its advisory fee on
any portion of its assets invested in other open-end
investment companies.
16. Invest in foreign securities, except that (a) Limited Term
Income Fund, Intermediate Term Income Fund, and Fixed Income
Fund each may invest up to 15% of its total assets in foreign
securities payable in United States Dollars; (b) Stock Fund,
Balanced Fund, Equity Income Fund, Diversified Growth Fund,
Emerging Growth Fund, Special Equity Fund, Technology Fund,
and Health Sciences Fund each may invest may invest up to 25%
of its total assets in securities of foreign issuers which are
either listed on a United States stock exchange or represented
by American Depositary Receipts; and (c) International Fund
may invest in foreign securities without limitation.
17. Except for International Fund, invest in warrants; provided,
that the other Funds except for the Tax Free Funds may invest
in warrants in an amount not exceeding 5% of a Fund's net
assets. No more than 2% of this 5% may be warrants which are
not listed on the New York Stock Exchange.
For determining compliance with its investment restriction relating to industry
concentration, each Fund classifies asset-backed securities in its portfolio in
separate industries based upon a combination of the industry of the issuer or
sponsor and the type of collateral. The industry of the issuer or sponsor and
the type of collateral will be determined by the Adviser. For example, an
asset-backed security known as "Money Store 94D A2" would be classified as
follows: the issuer or sponsor of the security is The Money Store, a personal
finance company, and the collateral underlying the security is automobile
receivables. Therefore, the industry classification would be Personal Finance
Companies-Automobile. Similarly, an asset-backed security known as "Midlantic
Automobile Grantor Trust 1992-1 B" would be classified as follows: the issuer or
sponsor of the security is Midlantic National Bank, a banking organization, and
the collateral underlying the security is automobile receivables. Therefore, the
industry classification would be Banks -- Automobile. Thus, an issuer or sponsor
may be included in more than one "industry" classification, as may a particular
type of collateral.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIF are listed below, together with
their business addresses and their principal occupations during the past five
years. Directors who are "interested persons" (as that term is defined in the
1940 Act) of FAIF are identified with an asterisk.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402: Director of
FAIF since September 1994 and of First American Funds, Inc. ("FAF") since
December 1994; Chairman (1989-1993) and Chief Executive Officer (1993-present),
Okabena Company (private family investment office). Age: 53.
* Welles B. Eastman, 998 Shady Lane, Wayzata, Minnesota 55391: Director of FAF
since January 1990 and of FAIF since April 1991; Chairman of the Board of
Directors of Annandale State Bank, Annandale, Minnesota; Vice President of the
Adviser from 1968 and Vice President of the Institutional Trust Group of First
Trust National Association from 1986 until his retirement in December 1988 from
such positions. Age: 68.
Irving D. Fish, 901 Marquette, Suite 3200, Minneapolis, Minnesota 55402:
Director of FAF since 1984 and of FAIF since April 1991; Partner and Chief
Financial Officer of Fallon McElligott, Inc., a Minneapolis-based advertising
agency. Age: 46.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110: Director of
FAIF and FAF since November 1993; Vice President, Chief Financial Officer,
Treasurer, Secretary and Director of Anderson Corporation, a large
privately-held manufacturer of wood windows, from 1983 to October 1992. Age: 53.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park, Minnesota
55443: Director of FAF since 1984 and of FAIF since April 1991; Chairman of
FAF's and FAIF's Boards since 1992; President of FAF and FAIF from June 1989 to
November 1989; Owner and President, Strauss Management Company, since 1993;
Owner and President, Community Resource Partnerships, Inc., a community business
retention survey company, since 1992; attorney-at-law. Age: 54.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105: Director of
FAIF since August 1987 and of FAF since April 1991; Owner and President,
Strategic Management Resources, Inc. since 1993; formerly President and Director
of The Inventure Group, a management consulting and training company, President
of Scott's, Inc., a transportation company, and Vice President of Human
Resources of The Pillsbury Company. Age: 49.
Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FAIF and FAF
since December 7, 1993; owner and CEO of Shingobee Builders, Inc., a general
contractor. Age: 52.
EXECUTIVE OFFICERS
David Lee, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087:
President of FAIF and FAF since April 1994; Senior Vice President and Assistant
Secretary of FAF and FAIF beginning June 1, 1993; Senior Vice President of SEI
Financial Services Company (the "Distributor") since 1991; President, GW Sierra
Trust Funds prior to 1991. Age: 42.
Carmen V. Romeo, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087: Treasurer and Assistant Secretary of FAIF and FAF beginning November
1992; Director, Executive Vice President, Chief Financial Officer and Treasurer
of SEI Corporation ("SEI"), SEI Financial Management Corporation (the
"Administrator") and the Distributor since 1981. Age: 50.
Kevin P. Robins, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087: Vice President and Assistant Secretary of FAIF and FAF since April 1994;
Vice President, Assistant Secretary and General Counsel of the Administrator and
the Distributor. Age: 34.
Kathryn Stanton, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087: Vice President and Assistant Secretary of FAIF and FAF since April 1994;
Vice President and Assistant Secretary of the Administrator and the Distributor
since April 1994; Associate, Morgan, Lewis & Bockius, from 1989 to 1994. Age:
35.
Sandra K. Orlow, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087: Vice President and Assistant Secretary of FAIF and FAF since 1992; Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1983. Age: 40.
Robert B. Carroll, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since
September 1994; Vice President and Assistant Secretary of SEI, the Administrator
and the Distributor since 1994; Division of Investment Management, United States
Securities and Exchange Commission, from 1990 to 1994; Associate, McGuire,
Woods, Brattle & Boothe, before 1990. Age: 35.
Stephen G. Meyer, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087: Controller of FAIF and FAF since March 1995; Director of Internal Audit
and Risk Management of SEI from 1992 to 1995; Senior Associate, Coopers &
Lybrand, from 1990 to 1992. Age: 29.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota 55402:
Secretary of FAIF since April 1991 and of FAF since 1981; Partner, Dorsey &
Whitney P.L.L.P., a Minneapolis-based law firm and general counsel of FAIF and
FAF. Age: 49.
COMPENSATION
The First American Family of Funds, which includes FAIF and FAF, currently pays
only to directors of the funds who are not paid employees or affiliates of the
funds a fee of $15,000 per year ($22,500 in the case of the Chair) plus $2,500
($3,750 in the case of the Chair) per meeting of the Board attended and $800 per
committee meeting attended ($1,600 in the case of a committee chair) and
reimburses travel expenses of directors and officers to attend Board meetings.
Legal fees and expenses are also paid to Dorsey & Whitney P.L.L.P., the law firm
of which Michael J. Radmer, secretary of FAIF and FAF, is a partner. The
following table sets forth information concerning aggregate compensation paid to
each director of FAIF (i) by FAIF (column 2), and (ii) by FAIF and FAF
collectively (column 5) during the fiscal year ended September 30, 1995. No
executive officer or affiliated person of FAIF had aggregate compensation from
FAIF in excess of $60,000 during such fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compensation
Aggregate Pension or Retirement Estimated From Registrant and
Name of Compensation Benefits Accrued as Annual Benefits Fund Complex
Person, Position From Registrant Part of Fund Expenses Upon Retirement Paid to Directors
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $4,784 - 0 - - 0 - $14,800
Welles B. Eastman, Director $5,371 - 0 - - 0 - $17,000
Irving D. Fish, Director $4,976 - 0 - - 0 - $15,800
Leonard W. Kedrowski, Director $5,371 - 0 - - 0 - $17,000
Joseph D. Strauss, Director $11,615 - 0 - - 0 - $35,600
Virginia L. Stringer, Director $5,501 - 0 - - 0 - $17,400
Gae B. Veit, Director $5,106 - 0 - - 0 - $16,200
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
First Bank National Association (the "Adviser"), 601 Second Avenue South,
Minneapolis, Minnesota 55480, serves as the investment adviser and manager of
the Funds through its First Asset Management group. The Adviser is a national
banking association that has professionally managed accounts for individuals,
insurance companies, foundations, commingled accounts, trust funds, and others
for over 75 years. The Adviser is a subsidiary of First Bank System, Inc.
("FBS"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is a
regional bank holding company headquartered in Minneapolis, Minnesota. FBS is
comprised of 9 banks and several trust and nonbank subsidiaries, with 220
offices primarily in Minnesota, Colorado, Illinois, Montana, North Dakota, South
Dakota and Wisconsin. Through its subsidiaries, FBS provides commercial and
agricultural finance, consumer banking, trust, capital markets, cash management,
investment management, data processing, leasing, mortgage banking and brokerage
services.
Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the "Advisory
Agreement"), the Funds engage the Adviser to act as investment adviser for and
to manage the investment of the assets of the Funds. Each Fund other than
International Fund pays the Adviser monthly fees calculated on an annual basis
equal to 0.70% of of its average daily net assets. International Fund pays the
Adviser monthly fees calculated on an annual basis equal to 1.25% of of its
average daily net assets.
Prior to August 1994, the Advisory Agreement provided for Intermediate
Government Bond Fund, Intermediate Tax Free Fund and Fixed Income Fund to pay an
advisory fee calculated on an annual basis as a percentage of average daily net
assets of 0.50% on the first $100 million of net assets, 0.40% on the next $150
million of net assets and 0.30% on net assets of over $250 million, and for
Stock Fund and Special Equity Fund to pay an advisory fee calculated on such
basis of 0.70% on the first $100 of net assets, 0.60% on the next $150 million
of net assets, 0.50% on the next $250 million of net assets and 0.40% on net
assets of over $500 million. Prior to March 28, 1994, Diversified Growth Fund
and Equity Income Fund were advised by Boulevard Bank National Association
pursuant to an investment advisory agreement which provided for such Funds to
pay annual advisory fees equal to 0.75% of their respective average daily net
assets.
The Advisory Agreement requires the Adviser to provide FAIF with all necessary
office space, personnel and facilities necessary and incident to the Adviser's
performance of its services thereunder. The Adviser is responsible for the
payment of all compensation to personnel of FAIF and the officers and directors
of FAIF, if any, who are affiliated with the Adviser or any of its affiliates.
The Advisory Agreement provides that each Fund will be reimbursed by the
Adviser, in an amount not in excess of the advisory fees payable by such Fund,
for excess fund expenses as may be required by the laws of certain states in
which the Fund's shares may be offered for sale. As of the date of this
Statement of Additional Information, the most restrictive state limitation in
effect requires that "aggregate annual expenses" (which include the investment
advisory fee and other operating expenses but exclude interest, taxes, brokerage
commissions, Rule 12b-1 fees and certain other expenses) shall not exceed 2-1/2%
of the first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1-1/2% of the remaining average net assets of a Fund for
any fiscal year.
In addition to the investment advisory fee, each Fund pays all its expenses that
are not expressly assumed by the Adviser or any other organization with which
the Fund may enter into an agreement for the performance of services. Each Fund
is liable for such nonrecurring expenses as may arise, including litigation to
which the Fund may be a party, and it may have an obligation to indemnify its
directors and officers with respect to such litigation.
The following table sets forth total advisory fees before waivers and after
waivers for each of the Funds for the fiscal years ended September 30, 1993 (for
all Funds other than Equity Income Fund and Diversified Growth Fund, whose first
fiscal year ended November 30, 1993, and subsequently changed to September 30),
September 30, 1994, and September 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995
----------------------------- ---------------------------- ------------------------------
ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE
BEFORE WAIVERS AFTER WAIVERS BEFORE WAIVERS AFTER WAIVERS BEFORE WAIVERS AFTER WAIVERS
--------------- ------------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stock Fund.............. $616,128 $378,696 $925,957 $629,919 $1,704,596 $1,377,513
Equity Index Fund....... 670,126 35,467 1,076,404 108,274 1,276,975 223,149
Balanced Fund........... 470,319 285,727 888,066 559,105 1,174,571 959,016
Asset Allocation Fund... 304,187 185,599 374,173 214,891 299,411 210,895
Equity Income Fund...... 180,729 60,243 141,151 44,517 289,812 165,042
Diversified Growth Fund 205,299 100,976 169,473 72,518 574,300 367,357
Emerging Growth Fund * * 13,599 4,028 153,171 76,396
Regional Equity Fund.... 250,580 165,919 579,368 398,939 994,725 870,505
Special Equity Fund..... 380,240 247,718 737,795 515,305 1,240,586 1,158,848
Technology Fund......... * * 11,299 4,118 121,419 51,186
Health Sciences Fund.... * * * * * *
Real Estate Securities Fund * * * * 8,078 0
International Fund...... * * 187,599 147,778 868,706 824,596
Limited Term Income Fund 697,257 292,743 673,117 303,024 748,504 379,177
Intermediate Term Income
Fund............... 321,613 170,703 444,603 193,338 572,967 393,264
Fixed Income Fund....... 188,427 123,243 338,471 201,828 1,394,513 945,687
Intermediate Government
Bond Fund.......... 9,422 (8,730) 36,960 (3,017) 565,522 367,513
Intermediate Tax Free Fund 8,249 (10,393) 19,253 (5,438) 205,854 93,837
Minnesota Insured Inter-
mediate Tax Free Fund * * 42,710 17,871 377,450 227,989
Colorado Intermediate Tax
Free Fund.......... * * 6,400 4,762 284,161 158,606
</TABLE>
* Fund was not in operation during this fiscal year.
SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser for International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser, a
privately-held company, was founded in 1986 by David F. Marvin and Stanley
Palmer. The Sub-Adviser is engaged in the management of global, non-United
States and emerging markets equity portfolios for institutional accounts. At
September 30, 1995, the Sub-Adviser managed a total of $3.1 billion in
investments for 55 institutional investors. Pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is responsible for the investment and reinvestment of
International Fund's assets and the placement of brokerage transactions in
connection therewith. Under the Sub-Advisory Agreement, the Sub-Adviser is
required, among other things, to report to the Adviser or the Board regularly at
such times and in such detail as the Adviser or the Board may from time to time
request in order to permit the Adviser and the Board to determine the adherence
of International Fund to its investment objectives, policies and restrictions.
The Sub-Advisory Agreement also requires the Sub-Adviser to provide all office
space, personnel and facilities necessary and incident to the Sub-Adviser's
performance of its services under the Sub-Advisory Agreement. The Sub-Adviser
also acts as sub-adviser to Evergreen Emerging Markets Growth Equity Fund and
Conestoga International Equity Fund.
For its services under the Sub-Advisory Agreement, the Sub-Adviser is paid a
monthly fee by the Adviser calculated on an annual basis equal to 0.75% of the
first $100 million of International Fund's average daily net asets, 0.70% of the
second $100 million of International Fund's average daily net assets, 0.65% of
the third $100 million of International Fund's average daily net assets, and
0.60% of International Fund's average daily net assets in excess of $300
million.
ADMINISTRATION AGREEMENT
SEI Financial Management Corporation (the "Administrator") serves as
administrator for the Funds pursuant to an Administration Agreement between it
and the Funds. The Administrator is a wholly-owned subsidiary of SEI
Corporation, which also owns the Funds' distributor. See "-Distributor and
Distribution Plans" below. Under the Administration Agreement, the Administrator
provides administrative personnel and services to the Funds for a fee as
described in the Funds' Prospectuses. These services include, among others,
regulatory reporting, fund and portfolio accounting, shareholder reporting
services, and compliance monitering services. Prior to June 10, 1994, Federated
Administrative Services served as administrator for Diversified Growth Fund and
Equity Income Fund.
The following table sets forth total administrative fees, after waivers, paid by
each of the Funds for the fiscal years ended September 30, 1993 (for all Funds
other than Equity Income Fund and Diversified Growth Fund, whose first fiscal
year ended November 30, 1993, and subsequently changed to September 30),
September 30, 1994, and September 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1993 SEPT. 30, 1994 SEPT. 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Stock Fund........................................ $178,934 $251,561 $294,658
Equity Index Fund................................. 191,465 268,851 225,545
Balanced Fund..................................... 134,377 237,891 200,402
Asset Allocation Fund............................. 86,911 96,642 55,478
Equity Income Fund................................ 20,937 9,212 55,267
Diversified Growth Fund........................... 22,788 2,204 101,760
Emerging Growth Fund.............................. * (3,515) 50,000
Regional Equity Fund.............................. 71,594 154,447 168,525
Special Equity Fund............................... 108,640 198,455 210,800
Technology Fund................................... * (5,962) 50,000
Health Sciences Fund.............................. * * *
Real Estate Securities Fund....................... * * 12,603
International Fund................................ * 26,814 89,791
Limited Term Income Fund.......................... 199,216 175,230 126,380
Intermediate Term Income Fund..................... 91,889 114,428 98,013
Fixed Income Fund................................. 75,371 110,363 233,555
Intermediate Government Bond Fund................. 3,769 11,943 100,551
Intermediate Tax Free Fund........................ 3,300 9,527 50,199
Minnesota Insured Intermediate Tax Free Fund...... * (2,482) 68,304
Colorado Intermediate Tax Free Fund............... * (11,236) 56,486
</TABLE>
* Fund was not in operation during this fiscal year.
DISTRIBUTOR AND DISTRIBUTION PLANS
SEI Financial Services Company (the "Distributor") serves as the distributor for
the Class A, Class B and Class C Shares of each Fund. The Distributor is a
wholly-owned subsidiary of SEI Corporation, which also owns the Funds'
Administrator. See "-- Administration Agreement" above.
The Distributor serves as distributor for the Class A and Class C Shares
pursuant to a Distribution Agreement dated February 10, 1994 (the "Class A/Class
C Distribution Agreement") between itself and the Funds, and as distributor for
the Class B Shares pursuant to a Distribution and Service Agreement dated August
1, 1994, as amended September 14, 1994 (the "Class B Distribution and Service
Agreement") between itself and the Funds. These agreements are referred to
collectively as the "Distribution Agreements."
Under the Distribution Agreements, the Distributor has agreed to perform all
distribution services and functions of the Funds to the extent such services and
functions are not provided to the Funds pursuant to another agreement. The
Distribution Agreements provide that shares of the Funds are distributed through
the Distributor and, with respect to Class A and Class B Shares, through
securities firms, financial institutions (including, without limitation, banks)
and other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
The Distributor receives no compensation for distribution of the Class C Shares.
With respect to the Class A Shares, the Distributor receives all of the
front-end sales charges paid upon purchase of the Funds' shares except for a
portion (as disclosed in the Prospectuses) which may be re-allowed to
Participating Institutions. The Distributor also receives any contingent
deferred sales charges paid with respect to sales of Class A Shares with respect
to which front-end sales charges were waived, as described in the Prospectuses.
The Class A Shares of each Fund also pay a distribution fee to the Distributor
monthly at the annual rate of 0.25% of each Fund's Class A average daily net
assets, which fee may be used by the Distributor to provide compensation for
sales support and distribution activities with respect to the Class A Shares.
The Class B Shares of each Fund pay to the Distributor a sales support fee at an
annual rate of 0.75% of the average daily net assets of the Class B Shares of
such Fund, which fee may be used by the Distributor to provide compensation for
sales support and distribution activities with respect to the Class B Shares.
This fee is calculated and paid each month based on average daily net assets of
Class B of each Fund for that month. In addition to this fee, the Distributor is
paid a shareholder servicing fee at an annual rate of 0.25% of the average daily
net assets of each Fund's Class B Shares pursuant to a service plan (the "Class
B Service Plan"), which fee may be used by the Distributor to provide
compensation for personal, ongoing service and/or maintenance of shareholder
accounts with respect to the Class B Shares of a Fund. Although Class B Shares
are sold without a front-end sales charge, the Distributor pays a total of 4.25%
of the amount invested (including a pre-paid service fee of 0.25% of the amount
invested) to dealers who sell Class B Shares (excluding exchanges from other
Class B Shares in the First American family). The servicing fee payable under
the Class B Service Plan is prepaid as described above.
The Distribution Agreements provide that they will continue in effect for a
period of more than one year from the date of their execution only so long as
such continuance is specifically approved at least annually by the vote of a
majority of the Board members of FAIF and by the vote of the majority of those
Board members of FAIF who are not interested persons of FAIF and who have no
direct or indirect financial interest in the operation of FAIF's Rule 12b-1
Plans of Distribution or in any agreement related to such Plans.
FAIF has adopted Plans of Distribution with respect to the Class A and Class B
Shares of the Funds, respectively, pursuant to Rule 12b-1 under the 1940 Act
(collectively, the "Plans"). Rule 12b-1 provides in substance that a mutual fund
may not engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of shares, except pursuant to a plan
adopted under the Rule. The Plans authorize the Distributor to retain the sales
charges paid upon purchase of Class A and Class B Shares. Each of the Plans is a
"compensation-type" plan under which the Distributor is entitled to receive the
distribution fee regardless of whether its actual distribution expenses are more
or less than the amount of the fee. The Class B Plan authorizes the Distributor
to retain the contingent deferred sales charge applied on redemptions of Class B
Shares, except that portion which is reallowed to Participating Institutions.
The Plans recognize that the Distributor, any Participating Institution, the
Administrator, and the Adviser, in their discretion, may from time to time use
their own assets to pay for certain additional costs of distributing Class A and
Class B Shares. Any such arrangements to pay such additional costs may be
commenced or discontinued by the Distributor, any Participating Institution, the
Administrator, or the Adviser at any time.
The following table sets forth (1) the total distribution fees, after waivers,
paid by each of the Funds for the fiscal years ended September 30, 1993 (for all
Funds other than Equity Income Fund and Diversified Growth Fund, whose first
fiscal year ended November 30, 1993, and subsequently changed to September 30),
September 30, 1994, and September 30, 1995, with respect to the Class A Shares
of the Funds, and (2) the total distribution fees, after waivers, paid by each
of the Funds for the fiscal years ended September 30, 1994, and September 30,
1995, with respect to the Class B Shares of the Funds. As noted above, no
distribution fees are paid with respect to Class C Shares of the Funds.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1993 SEPT. 30, 1994 SEPT. 30, 1995
-------------- -------------- --------------
CLASS A CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Fund............................ $0 $4,910 $204 $20,690 $24,481
Equity Index Fund..................... 0 466 13 2,789 3,291
Balanced Fund......................... 0 8,099 140 28,075 11,450
Asset Allocation Fund................. 0 470 9 1,533 2,220
Equity Income Fund.................... 0 0 1 3,108 3,382
Diversified Growth Fund............... 0 0 11 3,503 2,020
Emerging Growth Fund.................. * 0 16 331 965
Regional Equity Fund.................. 0 5,763 81 21,635 22,185
Special Equity Fund................... 0 4,077 177 18,403 23,203
Technology Fund....................... * 0 2 960 4,739
Health Sciences Fund.................. * * * * *
Real Estate Securities Fund........... * * * 0 0
International Fund.................... * 0 16 1,099 1,229
Limited Term Income Fund.............. 0 0 1 0 *
Intermediate Term Income Fund......... 0 0 * 0 *
Fixed Income Fund..................... 0 0 59 11,797 24,078
Intermediate Government Bond Fund..... 0 0 * 0 *
Intermediate Tax Free Fund............ 0 0 * 0 *
Minnesota Insured Intermediate Tax Free
Fund............................. * 0 * 0 *
Colorado Intermediate Tax Free Fund... * 0 * 0 *
</TABLE>
* Fund or class was not in operation during this fiscal year.
For the fiscal years ended September 30, 1993, September 30, 1994, and September
30, 1995, the Distributor received $135,334, $701,251, and $56,437,
respectively, in sales charges.
CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also owns
the Adviser.
The Custodian takes no part in determining the investment policies of the Funds
or in deciding which securities are purchased or sold by the Funds. All of the
instruments representing the investments of the Funds and all cash is held by
the Custodian or, as described in the Prospectuses for International Fund, by a
sub-custodian with respect to such Fund. The Custodian or such sub-custodian
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits Fund assets in payment of Fund
expenses, pursuant to instructions of FAIF's officers or resolutions of the
Board of Directors.
As compensation for its services to Stock Fund, Equity Index Fund, Balanced
Fund, Asset Allocation Fund, Regional Equity Fund, Special Equity Fund, Limited
Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate
Government Bond Fund and Mortgage Securities Fund, the Custodian is paid the
following fees: (a) an annual administration fee of $750 per Fund; (b) an issue
held fee, computed as of the end of each month, at the annual rate of $30 per
securities issue held by each Fund; (c) transaction fees, consisting of (i) a
securities buy/sell/maturity fee of $15 per each such transaction, and (ii) a
payment received fee of $12 for each principal pay down payment received on
collateralized mortgage pass-through instruments; (d) a wire transfer fee of $10
per transaction; (e) a cash management fee, for "sweeping" cash into overnight
investments, at an annual rate of 0.25% of the amounts so invested; and (f) a
remittance fee, for payment of each Fund's expenses, of $3.50 per each check
drawn for such remittances. With respect to the remaining Funds, the Custodian
is paid a monthly fee calculated on an annual basis equal to 0.03% (0.25% in the
case of International Fund) of such Fund's average daily net assets.
Sub-custodian fees with respect to International Fund are paid by the Custodian
out of its fees from such Fund. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds. The
Custodian continues to serve so long as its appointment is approved at least
annually by the Board of Directors including a majority of the directors who are
not interested persons (as defined under the 1940 Act) of FAIF.
DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105, is
transfer agent and dividend disbursing agent for the shares of the Funds.
Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402,
is independent General Counsel for the Funds.
KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402,
acts as the Funds' independent auditors, providing audit services including
audits of the annual financial statements and assistance and consultation in
connection with SEC filings.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Funds' portfolio transactions are
made by the Adviser or, in the case of International Fund, the Sub-Adviser. The
Funds' policy is to seek to place portfolio transactions with brokers or dealers
who will execute transactions as efficiently as possible and at the most
favorable price. The Adviser or Sub-Adviser may, however, select a broker or
dealer to effect a particular transaction without communicating with all brokers
or dealers who might be able to effect such transaction because of the
volatility of the market and the desire of the Adviser or SubAdviser to accept a
particular price for a security because the price offered by the broker or
dealer meets guidelines for profit, yield or both. Many of the portfolio
transactions involve payment of a brokerage commission by the appropriate Fund.
In some cases, transactions are with dealers or issuers who act as principal for
their own accounts and not as brokers. Transactions effected on a principal
basis are made without the payment of brokerage commissions but at net prices,
which usually include a spread or markup. In effecting transactions in
over-the-counter securities, the Funds deal with market makers unless it appears
that better price and execution are available elsewhere.
While the Adviser does not deem it practicable and in the Funds' best interest
to solicit competitive bids for commission rates on each transaction,
consideration will regularly be given by the Adviser to posted commission rates
as well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers. The following table sets
forth the aggregate brokerage commissions paid by each of the Funds during the
fiscal years ended September 30, 1993 (for all Funds other than Equity Income
Fund and Diversified Growth Fund, whose first fiscal year ended November 30,
1993, and subsequently changed to September 30), September 30, 1994, and
September 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1993 SEPT. 30, 1994 SEPT, 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Stock Fund..................................... $161,188 $261,742 $549,774
Equity Index Fund.............................. 55,884 69,675 48,310
Balanced Fund.................................. 71,478 118,715 187,224
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1993 SEPT. 30, 1994 SEPT, 30, 1995
-------------- -------------- --------------
Asset Allocation Fund.......................... 26,046 27,388 26,353
Equity Income Fund............................. 34,709 24,246
Diversified Growth Fund........................ 67,325 82,987
Emerging Growth Fund........................... * 3,563 20,076
Regional Equity Fund........................... 18,744 69,403 102,861
Special Equity Fund............................ 267,314 438,181 545,209
Technology Fund................................ * 5,791 21,126
Health Sciences Fund........................... * * *
Real Estate Securities Fund.................... * * 16,261
International Fund............................. * 190,085 405,632
Limited Term Income Fund....................... 0 0 0
Intermediate Term Income Fund.................. 0 0 0
Fixed Income Fund.............................. 0 0 0
Intermediate Government Bond Fund.............. 0 0 0
Intermediate Tax Free Fund..................... 100 0 0
Minnesota Insured Intermediate Tax
Free Fund................................ * 0 0
Colorado Intermediate Tax Free Fund............ * 0 0
</TABLE>
* Fund was not in operation during this fiscal year.
It is expected that International Fund will purchase most foreign equity
securities in the over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less governmental supervision and regulation of foreign stock
exchanges than in the United States. Foreign securities settlements may in some
instances be subject to delays and related administrative uncertainties.
Foreign equity securities may be held in the form of American Depotitary
Receipts, or ADRs, European Depositary Receipts, or EDRs, or securities
convertible into foreign equity securities. ADRs and EDRs may be listed on stock
exchanges or traded in the over-the-counter markets in the United States or
overseas. The foreign and domestic debt securities and money market instruments
in which the Funds may invest are generaly traded in the over-the-counter
markets.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other than
the Distributor and determining commissions paid to them, the Adviser and, in
the case of International Fund, the Sub-Adviser may consider ability to provide
supplemental performance, statistical and other research information as well as
computer hardware and software for research purpose for consideration, analysis
and evaluation by the staff of the Adviser or Sub-Adviser. In accordance with
this policy, the Funds do not execute brokerage transactions solely on the basis
of the lowest commission rateavailable for a particular transaction. Subject to
the requirements of favorable price and efficient execution, placement of orders
by securities firms for the purchase of shares of the Funds may be taken into
account as a factor in the allocation of portfolio transactions.
Research services that may be received by the Adviser or Sub-Adviser would
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. The
research services may allow the Adviser or Sub-Adviser to supplement its own
investment research activities and enable the Adviser or Sub-Adviser to obtain
the views and information of individuals and research staffs of many different
securities firms prior to making investment decisions for the Funds. To the
extent portfolio transactions are effected with brokers and dealers who furnish
research services, the Adviser or Sub-Adviser would receive a benefit, which is
not capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Funds from these transactions. Research services
furnished by brokers and dealers used by the Funds for portfolio transactions
may be utilized by the Adviser or Sub-Adviser in connection with investment
services for other accounts and, likewise, research services provided by brokers
and dealers used for transactions of other accounts may be utilized by the
Adviser or Sub-Adviser in performing services for the Funds. The Adviser and
Sub-Adviser determine the reasonableness of the commissions paid in relation to
their view of the value of the brokerage and research services provided,
considered in terms of the particular transactions and their overall
responsibilities with respect to all accounts as to which they exercise
investment discretion.
The Adviser and Sub-Adviser have not entered into any formal or informal
agreements with any broker or dealer, and do not maintain any "formula" that
must be followed in connection with the placement of Fund portfolio transactions
in exchange for research services provided to the Adviser or Sub-Adviser, except
as noted below. The Adviser and Sub-Adviser may, from time to time, maintain an
informal list of brokers and dealers that will be used as a general guide in the
placement of Fund business in order to encourage certain brokers and dealers to
provide the Adviser and Sub-Adviser with research services, which the Adviser or
Sub-Adviser anticipates will be useful to it. Any list, if maintained, would be
merely a general guide, which would be used only after the primary criteria for
the selection of brokers and dealers (discussed above) had been met, and,
accordingly, substantial deviations from the list could occur. The Adviser or
Sub-Adviser would authorize the Funds to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker or dealer would have charged only if the Adviser or Sub-Adviser
determined in good faith that the amount of such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Adviser or Sub-Adviser with respect to the
Funds.
The Funds do not effect any brokerage transactions in their portfolio securities
with any broker or dealer affiliated directly or indirectly with the Adviser or
the Distributor unless such transactions, including the frequency thereof, the
receipt of commissions payable in connection therewith, and the selection of the
affiliated broker or dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Funds, as determined by the Board of
Directors. Any transactions with an affiliated broker or dealer must be on terms
that are both at least as favorable to the Funds as the Funds can obtain
elsewhere and at least as favorable as such affiliated broker or dealer normally
gives to others.
When two or more clients of the Adviser or Sub-Adviser are simultaneously
engaged in the purchase or sale of the same security, the prices and amounts are
allocated in accordance with a formula considered by the Adviser or Sub-Adviser
to be equitable to each client. In some cases, this system could have a
detrimental effect on the price or volume of the security as far as each client
is concerned. In other cases, however, the ability of the clients to participate
in volume transactions may produce better executions for each client.
CAPITAL STOCK
As of October 31, 1995, the directors and officers of FAIF as a group owned less
than one percent of each class of each Fund's outstanding shares. Health
Sciences Fund was not in operation as of October 31, 1995. As of that date, the
Funds were aware that the following persons owned of record five percent or more
of the outstanding shares of each class of stock of the Funds.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
STOCK FUND
Var & Co..................................................... 72.71%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 23.78%
180 East Fifth Street
St. Paul, MN 55101
EQUITY INDEX FUND
Var & Co..................................................... 95.91%
P.O. Box 64482
St. Paul, MN 55164
Patricia R. Lund 1994 Unitrust............................... 6.54%
1450 West Lake Street
Minneapolis, MN 55408
Arlene F. Mathews............................................ 5.62%
1610 Winnie
Helena, MT 59601
Southwest Securities Inc. FBO Peter and Terry Caserta........ 13.80%
1201 Elm Street, Suite 4300
Dallas, TX 75270
Shirley A. Johnson........................................... 12.58%
1260 Deer Pond Trail
White Bear Lake, MN 55110
BALANCED FUND
None
ASSET ALLOCATION FUND
Var & Co..................................................... 87.39%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 12.01%
180 East Fifth Street
St. Paul, MN 55101
First Bank NA Custodian of William B. Harlan IRA............. 7.27%
130 Fontana Court
Lady Lake, FL 32159
First Bank NA Custodian of Peter Schifano IRA................ 7.60%
21005 George Hunt Circle, Unite 1119
Waukesha, WI 53186
EQUITY INCOME FUND
Var & Co..................................................... 99.78%
P.O. Box 64482
St. Paul, MN 55164
Kenmar B. Jauss and William C. Jauss......................... 7.81%
246 Maple Avenue
Wilmette, IL 60091
First Bank NA Custodian of Russell C. Eidal IRA.............. 7.69%
305 Cherry Hills Way
Colorado Springs, CO 80921
William F. Arndt............................................. 7.29%
1665 Oakton Place, Unit 514
Des Plaines, IL 60018
First Bank NA Custodian of Thomas O. Erghart Jr. IRA......... 5.89%
P.O. Box 457
Hovland, MN 55606
DIVERSIFIED GROWTH FUND
Var & Co..................................................... 99.53%
P.O. Box 64482
St. Paul, MN 55164
EMERGING GROWTH FUND
Var & Co..................................................... 97.99%
P.O. Box 64482
St. Paul, MN 55164
Adele S. Merck Custodian George F. Mead Merck UGTMA.......... 6.55%
244 Palmo Way
Palm Beach, FL 33480
First Bank NA Custodian of Delvin D. Myer IRA................ 9.90%
2508 E. Main Street
Mankato, MN 56001
Frojack Co. FBO Elizabeth Simonson........................... 20.72%
P.O. Box 6001
Grand Forks, ND 58206
Jerri P. Breeden............................................. 7.60%
Box 45
Cook, MN 55723
Theodore D. Antweiler........................................ 8.38%
1763 South Iola Street, Box 14
Aurora, CO 80012
Colorado National Bank Custodian of Bradford T. Mill IRA..... 10.28%
4802 South Shenandoah
Aurora, CO 80015
REGIONAL EQUITY FUND
Var & Co..................................................... 79.20%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 17.68%
180 East Fifth Street
St. Paul, MN 55101
SPECIAL EQUITY FUND
Var & Co..................................................... 85.10%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 14.85%
180 East Fifth Street
St. Paul, MN 55101
REAL ESTATE SECURITIES FUND
Var & Co..................................................... 100.00%
P.O. Box 64482
St. Paul, MN 55164
First Bank NA Custodian of Eugene W. Krekelberg IRA.......... 95.56%
3784 Woodlawn Blvd
Eveleth, MN 55734
SEI Corporation.............................................. 5.72%
680 East Swedesford Road
Wayne, PA 19087
Colorado National Bank Custodian of Patricia O'Rourke-Monagh IRA 24.51%
400 South Lafayette
Denver, CO 80209
Colorado National Bank Custodian of Milton E. Anderson IRA 69.75%
373 South Franklin Street
Denver, CO 80209
TECHNOLOGY FUND
Var & Co..................................................... 90.57%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 9.10%
180 East Fifth Street
St. Paul, MN 55101
The LSI Corp. of America..................................... 8.92%
2100 Xenium Lane
Plymouth, MN 55441
Clyde Martz and Ann Martz.................................... 6.64%
755 6th Street
Boulder, CO 80302
INTERNATIONAL FUND
Var & Co..................................................... 94.40%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 5.18%
180 East Fifth Street
St. Paul, MN 55101
Kent C. Larson............................................... 5.00%
First Bank Place, 601 Second Avenue South
Minneapolis, MN 55402
Mankato State University Foundation Inc...................... 33.36%
P.O. Box 8400, MSU 60
Mankato, MN 56002-8400
Michael J. Gerbich and Frances M. Gerbich.................... 5.41%
One General Street
Akron, OH 44329
Lester B. Boelter and Viola G. Boelter....................... 5.50%
210 Lawrence Blvd East, P.O. Box 231
Wabasha, MN 55981
First Bank NA Custodian of Steven L. Potter IRA.............. 6.29%
3025 16th Avenue South
Minneapolis, MN 55407
LIMITED TERM INCOME FUND
Var & Co..................................................... 87.54%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 12.44%
180 East Fifth Street
St. Paul, MN 55101
Planned Parenthood of Minnesota.............................. 9.05%
1965 Ford Parkway
St. Paul, MN 55116
Fleet Wholesale Supply Co. et al. Retirement Plans........... 27.98%
P.O. Box 5055
Brainard, MN 56401
INTERMEDIATE TERM INCOME FUND
Var & Co..................................................... 92.61%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 7.38%
180 East Fifth Street
St. Paul, MN 55101
Bruce A. Mickelson and Rita M. Mickelson..................... 7.62%
1624 Blair Avenue
St. Paul, MN 55104
First Bank NA Custodian of Fred L. Brucciani Rollover........ 6.03%
6808 Wooddale Avenue
Edina, MN 55435
FIXED INCOME FUND
Var & Co..................................................... 87.82%
P.O. Box 64482
St. Paul, MN 55164
Diamond Retirement Plan...................................... 11.01%
180 East Fifth Street
St. Paul, MN 55101
Mankato State University Foundation Inc...................... 5.05%
P.O. Box 8400, MSU 60
Mankato, MN 56002-8400
INTERMEDIATE GOVERNMENT BOND FUND
Var & Co..................................................... 93.48%
P.O. Box 64482
St. Paul, MN 55164
The Janice Gardner Foundation................................ 12.38%
11580 K-Tel Drive
Minnetonka, MN 55343
Robert Hurless............................................... 5.43%
707 Saddle Drive
Helena, MT 59601
INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 95.68%
P.O. Box 64482
St. Paul, MN 55164
Ray L. Miller and Ruty Miller................................ 13.16%
7121 Road 311
New Castle, CO 81647
Richard C. Petersen and Joan M. Petersen..................... 5.07%
2504 South 32nd Street
LaCrosse, WI 54601
Maurice M. Crow and Lucille M. Crow.......................... 5.16%
MC 33 Box 3839
Silver City, SD 57702
Anderson Joint Revocable Trust............................... 6.72%
1704 Ohlson Court
LaCrosse, WI 54601
Dorothy M. Baker TDD Barbara Schultz and John A. Baker....... 11.38%
1721 East Sixth Street
Pueblo, CO 81001
Kathryn L. Vincent Trust..................................... 15.22%
880 Dickson Hill
Petaluma, CA 94952
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 96.96%
P.O. Box 64482
St. Paul, MN 55164
Gladys L. Jacobson........................................... 10.33%
700 Douglas Avenue, Apt. 803
Minneapolis, MN 55403
Alfred Pudil and Bonnie V. Dircks............................ 5.46%
4821 County Road 144 S.
Brainard, MN 56401
Christine Simonson Irrevocable Trust......................... 12.00%
2455 12th Street SE
St. Cloud, MN 56304
COLORADO INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 99.78%
P.O. Box 64482
St. Paul, MN 55164
The Harry Mitchell Trust..................................... 5.01%
44100 County Road 6E
Bennett, CO 80102
William G. Spahr............................................. 8.82%
12391 Evergreen Trail
Parker, CO 80134
</TABLE>
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the shares of a Fund is
summarized in the Retail Class Prospectuses under the captions "Investing in the
Funds" and "Determining the Price of Shares" and in the Institutional Class
Prospectuses under the caption "Purchases and Redemptions of Shares." The net
asset value of each Fund's shares is determined on each day during which the New
York Stock Exchange (the "NYSE") is open for business. The NYSE is not open for
business on the following holidays (or on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Washington's Birthday (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. Each year the NYSE may designate different dates for the
observance of these holidays as well as designate other holidays for closing in
the future. To the extent that the securities of a Fund are traded on days that
the Fund is not open for business, such Fund's net asset value per share may be
affected on days when investors may not purchase or redeem shares. This may
occur, for example, where a Fund holds securities which are traded in foreign
markets.
On September 30, 1995, the net asset values per share for each class of shares
of the Funds were calculated as follows:
<TABLE>
<CAPTION>
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) / OUTSTANDING = (IN DOLLARS)
<S> <C> <C> <C>
STOCK FUND
Class A................................... 13,075,966 / 668,325 = 19.57
Class B................................... 7,050,933 / 361,726 = 19.49
Class C................................... 312,559,211 / 15,975,824 = 19.56
EQUITY INDEX FUND
Class A................................... 2,140,054 / 160,327 = 13.35
Class B................................... 1,196,911 / 89,979 = 13.30
Class C................................... 218,932,208 / 16,409,292 = 13.34
BALANCED FUND
Class A................................... 15,287,565 / 1,261,751 = 12.12
Class B................................... 3,119,610 / 257,977 = 12.09
Class C................................... 192,145,483 / 15,845,649 = 12.13
ASSET ALLOCATION FUND
Class A................................... 992,565 / 84,645 = 11.73
Class B................................... 571,060 / 48,876 = 11.68
Class C................................... 43,210,318 / 3,685,913 = 11.72
EQUITY INCOME FUND
Class A................................... 1,995,201 / 177,562 = 11.24
Class B................................... 1,233,094 / 110,137 = 11.20
Class C................................... 52,125,215 / 4,636,094 = 11.24
DIVERSIFIED GROWTH FUND
Class A................................... 2,709,817 / 230,527 = 11.75
Class B................................... 819,739 / 69,894 = 11.73
Class C................................... 132,853,903 / 11,276,198 = 11.78
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) / OUTSTANDING = (IN DOLLARS)
EMERGING GROWTH FUND
Class A................................... 386,287 / 28,829 = 13.40
Class B................................... 267,617 / 20,143 = 13.29
Class C................................... 41,716,341 / 3,111,893 = 13.41
REGIONAL EQUITY FUND
Class A................................... 14,916,902 / 871,282 = 17.12
Class B................................... 7,630,212 / 449,114 = 16.99
Class C................................... 188,582,694 / 11,006,811 = 17.13
SPECIAL EQUITY FUND
Class A................................... 11,608,877 / 648,950 = 17.89
Class B................................... 4,847,422 / 271,858 = 17.83
Class C................................... 201,785,581 / 11,278,581 = 17.89
TECHNOLOGY FUND
Class A................................... 1,464,007 / 80,253 = 18.24
Class B................................... 2,031,085 / 112,734 = 18.02
Class C................................... 29,271,763 / 1,605,061 = 18.24
HEALTH SCIENCES FUND
Class A................................... *
Class B................................... *
Class C................................... *
REAL ESTATE SECURITIES FUND
Class A................................... 956 / 92 = 10.38
Class B................................... 1,000 / 96 = 10.38
Class C................................... 5,756,499 / 555,059 = 10.37
INTERNATIONAL FUND
Class A................................... 875,737 / 85,174 = 10.28
Class B................................... 306,430 / 30,086 = 10.20
Class C................................... 94,399,990 / 9,166,192 = 10.30
LIMITED TERM INCOME FUND
Class A................................... 9,977,339 / 1,005,426 = 9.92
Class B................................... * / =
Class C................................... 111,439,091 / 11,231,268 = 9.92
INTERMEDIATE TERM INCOME FUND
Class A................................... 2,437,372 / 245,108 = 9.94
Class B................................... * / =
Class C................................... 88,375,112 / 8,887,937 = 9.94
FIXED INCOME FUND
Class A................................... 7,853,102 / 715,075 = 10.98
Class B................................... 7,279,422 / 665,639 = 10.94
Class C................................... 289,816,245 / 26,410,097 = 10.97
INTERMEDIATE GOVERNMENT BOND FUND
Class A................................... 2,859,606 / 307,668 = 9.29
Class B................................... * / =
Class C................................... 100,167,993 / 10,785,155 = 9.29
INTERMEDIATE TAX FREE FUND
Class A................................... 983,159 / 91,683 = 10.72
Class B................................... *
Class C................................... 46,024,468 / 4,295,302 = 10.72
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A................................... 2,219,222 / 223,792 = 9.92
Class B................................... *
Class C................................... 61,692,492 / 6,219,198 = 9.92
COLORADO INTERMEDIATE TAX FREE FUND
Class A................................... 2,189,416 / 208,333 = 10.51
Class B................................... *
Class C................................... 50,071,037 / 4,763,837 = 10.51
</TABLE>
* Not in operation at September 30, 1995.
FUND PERFORMANCE
SEC STANDARDIZED PERFORMANCE FIGURES
YIELD FOR THE FUNDS. Yield for the Funds is a measure of the net investment
income per share (as defined) earned over a 30-day period expressed as a
percentage of the maximum offering price of a Fund's shares at the end of the
period. Based upon the 30-day period ended September 30, 1995, the yields for
the Class A, Class B and Class C Shares of the Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Stock Fund................................................ 1.86% 1.29% 2.21%
Equity Index Fund......................................... 1.94% 1.40% 2.28%
Balanced Fund............................................. 3.16% 2.61% 3.56%
Asset Allocation Fund..................................... 2.69% 2.07% 3.07%
Equity Income Fund........................................ 3.46% 3.00% 3.88%
Diversified Growth Fund................................... 1.26% 0.63% 1.58%
Emerging Growth Fund...................................... 0% 0% 0.11%
Regional Equity Fund...................................... 0.49% 1.40% 0.75%
Special Equity Fund....................................... 1.60% 0.95% 1.95%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... * * *
Real Estate Securities Fund............................... ** ** 6.61%
International Fund........................................ 0% 0% 0%
Limited Term Income Fund.................................. 5.75% * 5.86%
Intermediate Term Income Fund............................. 5.30% * 5.51%
Fixed Income Fund......................................... 5.34% 4.80% 5.80%
Intermediate Government Bond Fund......................... 5.17% * 5.32%
Intermediate Tax Free Fund................................ 4.13% * 4.26%
Minnesota Insured Intermediate Tax Free Fund.............. 4.27% * 4.40%
Colorado Intermediate Tax Free Fund....................... 4.29% * 4.42%
</TABLE>
* Not in operation at September 30, 1995.
** Not in operation for 30-day period ended September 30, 1995.
Such yield figures were determined by dividing the net investment income per
share earned during the specified 30-day period by the maximum offering price
per share on the last day of the period, according to the following formula:
Yield = 2 [((a - b) / cd) + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = average daily number of shares outstanding during
the period that were entitled to receive dividends
d = maximum offering price per share on the last day of
the period
TAX EQUIVALENT YIELD FOR TAX FREE FUNDS. Tax equivalent yield is the yield that
a taxable investment must generate in order to equal a Fund's yield for an
investor in a stated federal or combined federal/state income tax bracket. The
tax equivalent yield for each tax free Fund named below is computed by dividing
that portion of such Fund's yield (computed as described above) that is tax
exempt by one minus the stated federal or combined federal/state income tax
rate, and adding the resulting number to that portion, if any, of such Fund's
yield that is not tax exempt. Based upon the maximum federal income tax rate of
39.6% and the combined maximum federal/state tax rates of 44.7% for Minnesota
and 42.6% for Colorado, the tax equivalent yields for the tax free Funds named
below for the 30-day period ended September 30, 1995, computed as described
above, were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Intermediate Tax Free Fund................................ 6.84% * 7.05%
Minnesota Insured Intermediate Tax Free Fund.............. 7.72% * 7.96%
Colorado Intermediate Tax Free Fund....................... 7.47% * 7.70%
</TABLE>
* Not in operation at September 30, 1995.
TOTAL RETURN. Total return measures both the net investment income generated by,
and the effect of any realized or unrealized appreciation or depreciation of,
the underlying investments in a Fund's portfolio. The Fund" average annual and
cumulative total return figures are computed in accordance with the standardized
methods prescribed by the Securities and Exchange Commission.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are computed by
determining the average annual compounded rates of return over the periods
indicated in the advertisement, sales literature or shareholders' report, that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T)(nth power) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made at
the beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding the
cumulative compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
CTR = ((ERV - P) / P ) 10
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of, the
period of a hypothetical $1,000 payment made at
the beginning of such period;
and
P = initial payment of $1,000
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
Based on the foregoing, the average annual and aggregate total returns for each
class of the Funds from inception through September 30, 1995 were as follows.
The performance for Class A and Class B Shares will normally be lower than for
Class C Shares because Class A and Class B Shares are subject to sales and
distribution charges not charged to Class C Shares.
<TABLE>
<CAPTION>
Cumulative Average Annual
Since Inception* Since Inception* One Year Five Year
Without With Without With Without With Without With
Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK FUND
Class A........... 160.16% 148.48% 13.05% 12.38% 25.26% 19.61% 16.33% 15.27%
Class B........... 23.67% 18.67% 20.76% 16.41% 24.20% 19.20% ** **
Class C........... 27.63% 15.92% 25.50% **
EQUITY INDEX FUND
Class A........... 43.76% 37.31% 13.87% 12.01% 28.90% 23.14% ** **
Class B........... 28.49% 23.49% 24.93% 20.60% 27.87% 22.87% ** **
Class C........... 29.40% 16.88% 29.17% **
BALANCED FUND
Class A........... 37.12% 30.97% 11.96% 10.14% 20.57% 15.11% ** **
Class B........... 18.92% 13.92% 16.64% 12.27% 19.58% 14.58% ** **
Class C........... 20.12% 11.74% 20.89% **
ASSET ALLOCATION FUND
Class A........... 31.41% 25.51% 10.27% 8.47% 19.51% 14.12% ** **
Class B........... 18.74% 13.74% 16.48% 12.11% 18.51% 13.51% ** **
Class C........... 18.67% 10.92% 19.75% **
EQUITY INCOME FUND
Class A........... 28.51% 22.74% 13.62% 10.25% 18.06% 12.70% ** **
Class B........... 17.76% 12.76% 15.62% 11.25% 17.10% 12.10% ** **
Class C........... 18.77% 15.96% 18.24% **
DIVERSIFIED GROWTH FUND
Class A........... 21.83% 16.36% 19.91% 16.32% 31.21% 25.28% ** **
Class B........... 33.88% 28.88% 29.58% 25.27% 30.29% 25.29% ** **
Class C........... 34.67% 20.21% 31.57% **
EMERGING GROWTH FUND
Class A........... 36.39% 30.27% 23.15% 19.41% 28.82% 23.01% ** **
Class B........... 36.42% 31.42% 31.76% 27.46% 27.89% 22.89% ** **
Class C........... 36.50% 23.21% 29.16% **
REGIONAL EQUITY FUND
Class A........... 81.12% 72.99% 23.68% 21.67% 41.17% 34.81% ** **
Class B........... 43.80% 38.80% 38.07% 33.80% 39.98% 34.98% ** **
Class C........... 43.46% 24.42% 41.40% **
SPECIAL EQUITY FUND
Class A........... 186.34% 173.49% 14.44% 13.77% 12.63% 7.53% 17.85% 16.77%
Class B........... 17.47% 12.47% 15.37% 11.00% 11.64% 6.64% ** **
Class C........... 21.08% 12.28% 12.84% **
TECHNOLOGY FUND
Class A........... 86.00% 77.65% 51.65% 47.04% 66.22% 58.70% ** **
Class B........... 86.57% 81.57% 73.99% 69.85% 64.52% 59.52% ** **
Class C........... 86.00% 51.65% 66.22% **
HEALTH SCIENCES FUND
Class A........... ** ** ** ** ** ** ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... ** ** ** **
REAL ESTATE SECURITIES FUND
Class A........... --% --% --% --% ** ** ** **
Class B........... --% --% --% --% ** ** ** **
Class C........... 5.19% 22.23% ** **
INTERNATIONAL FUND
Class A........... 3.01% (1.63)% 2.02% (1.10)% 0.69% (3.84)% ** **
Class B........... (0.29)% (5.29)% (0.26)% (4.70)% (0.10)% (5.09)% ** **
Class C........... 3.00% 2.00% 0.78% **
LIMITED TERM INCOME FUND
Class A........... 12.86% 10.65% 4.43% 3.69% 6.57% 4.45% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 7.89% 4.71% 6.57% **
INTERMEDIATE TERM INCOME FUND
Class A........... 17.24% 12.84% 5.86% 4.42% 10.51% 6.39% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 8.87% 5.28% 10.51% **
FIXED INCOME FUND
Class A........... 90.43% 83.28% 8.61% 8.08% 12.78% 8.60% 8.82% 7.99%
Class B........... 10.77% 5.77% 9.51% 5.11% 11.75% 6.75% ** **
Class C........... 9.21% 5.48% 12.86% **
INTERMEDIATE GOVERNMENT BOND FUND
Class A........... 67.40% 62.36% 6.83% 6.41% 9.82% 6.50% 6.48% 5.83%
Class B........... ** ** ** ** ** ** ** **
Class C........... 8.00% 4.77% 9.82% **
INTERMEDIATE TAX FREE FUND
Class A........... 59.64% 54.84% 6.18% 5.77% 9.15% 5.85% 6.50% 5.85%
Class B........... ** ** ** ** ** ** ** **
Class C........... 5.98% 3.58% 9.15% **
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A........... 6.64% 3.43% 4.11% 2.14% 8.46% 5.16% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 6.63% 4.11% 8.34% **
COLORADO INTERMEDIATE TAX FREE FUND
Class A........... 12.55% 9.17% 8.26% 6.06% 8.57% 5.36% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 12.55% 8.26% 8.47% **
</TABLE>
* Inception dates are as follows: Stock Fund, Class A, December 22, 1987;
Class B, August 15, 1994; Class C, February 4, 1994; Equity Index Fund,
Class A, December 14, 1992; Class B, August 15, 1994; Class C, February
4, 1994; Balanced Fund, Class A, December 14, 1992; Class B, August 15,
1994; Class C, February 4, 1994; Asset Allocation Fund, Class A,
December 14, 1992; Class B, August 15, 1994; Class C, February 4, 1994;
Equity Income Fund, Class A, December 18, 1992; Class B, August 15,
1994; Class C, August 2, 1994; Diversified Growth Fund, Class A,
December 18, 1992; Class B, August 15, 1994; Class C, August 2, 1994;
Emerging Growth Fund, Class A, April 4, 1994; Class B, August 15, 1994;
Class C, April 4, 1994; Regional Equity Fund, Class A, December 14,
1992; Class B, August 15, 1994; Class C, February 4, 1994; Special
Equity Fund, Class A, December 22, 1987; Class B, August 15, 1994;
Class C, February 4, 1994; Technology Fund, Class A, April 4, 1994;
Class B, August 15, 1994; Class C, April 4, 1994; Health Sciences Fund,
not in operation at September 30, 1995; Real Estate Securities Fund,
Class A, September 29, 1995; Class B, September 29, 1995; Class C, June
30, 1995; International Fund, Class A, April 7, 1994; Class B, August
15, 1994; Class C, April 4, 1994; Limited Term Income Fund, Class A,
December 14, 1992; Class B, August 15, 1994 (closed January 31, 1995);
Class C, February 4, 1994; Intermediate Term Income Fund, Class A,
December 14, 1992; Class B, not in operation at September 30, 1995;
Class C, February 4, 1994; Fixed Income Fund, Class A, December 22,
1987; Class B, August 15, 1994; Class C, February 4, 1994; Intermediate
Government Bond Fund, Class A, December 22, 1987; Class B, not in
operation at September 30, 1995; Class C, February 4, 1994;
Intermediate Tax Free Fund, Class A, December 22, 1987; Class B, not in
operation at September 30, 1995; Class C, February 4, 1994; Minnesota
Insured Intermediate Tax Free Fund, Class A, February 28, 1994; Class
B, not in operation at September 30, 1995; Class C, February 28, 1994;
Colorado Intermediate Tax Free Fund, Class A, April 4, 1994; Class B,
not in operation at September 30, 1995; Class C, April 4, 1994.
** Not in operation for entire period.
NON-STANDARD DISTRIBUTION RATES
HISTORICAL DISTRIBUTION RATES. The Funds' historical annualized distribution
rates are computed by dividing the income dividends of a Fund for a stated
period by the maximum offering price on the last day of such period. For the
one-year period ended September 30, 1995, the historical distribution rates of
the Class A, Class B and Class C Shares of the Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Stock Fund................................................ 1.58% 1.13% 1.82%
Equity Index Fund......................................... 1.80% 1.35% 2.05%
Balanced Fund............................................. 2.89% 2.42% 3.20%
Asset Allocation Fund..................................... 2.85% 2.43% 3.17%
Equity Income Fund........................................ 3.32% 2.96% 3.63%
Diversified Growth Fund................................... 1.20% 0.82% 1.38%
Emerging Growth Fund...................................... 0.16% 0.02% 0.17%
Regional Equity Fund...................................... 0.36% 0.18% 0.46%
Special Equity Fund....................................... 1.84% 1.35% 2.10%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... * * *
Real Estate Securities Fund............................... 0% 0% 1.04%
International Fund........................................ 0% 0% 0%
Limited Term Income Fund.................................. 5.48% * 5.59%
Intermediate Term Income Fund............................. 5.59% * 5.80%
Fixed Income Fund......................................... 5.56% 5.15% 5.93%
Intermediate Government Bond Fund......................... 5.67% * 5.84%
Intermediate Tax Free Fund................................ 4.31% * 4.44%
Minnesota Insured Intermediate Tax Free Fund.............. 4.38% * 4.52%
Colorado Intermediate Tax Free Fund....................... 4.48% * 4.62%
</TABLE>
* Not in operation at September 30, 1995.
ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current
distribution rates are computed by dividing a Fund's income dividends for a
specified month (or three-month period, in the case of an equity Fund) by the
number of days in that month (or three-month period, in the case of an equity
Fund) and multiplying by 365, and dividing the resulting figure by the maximum
offering price on the last day of the specified period. The annualized current
distribution rates for the one or three-month period (as appropriate) ended
September 30, 1995 for Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Stock Fund................................................ 1.42% 0.81% 1.72%
Equity Index Fund......................................... 1.68% 1.15% 2.00%
Balanced Fund............................................. 2.85% 2.35% 3.23%
Asset Allocation Fund..................................... 2.61% 2.09% 2.97%
Equity Income Fund........................................ 2.19% 1.66% 2.54%
Diversified Growth Fund................................... 0% 0% 0%
Emerging Growth Fund...................................... 0% 0% 0%
Regional Equity Fund...................................... 0% 0% 0%
Special Equity Fund....................................... 0.92% 0.28% 1.23%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... * * *
Real Estate Securities Fund............................... 0% 0% 5.71%
International Fund........................................ 0% 0% 0%
Limited Term Income Fund.................................. 5.45% * 5.56%
Intermediate Term Income Fund............................. 5.23% * 5.43%
Fixed Income Fund......................................... 5.12% 4.67% 5.58%
Intermediate Government Bond Fund......................... 5.76% * 5.94%
Intermediate Tax Free Fund................................ 4.13% * 4.25%
Minnesota Insured Intermediate Tax Free Fund.............. 4.34% * 4.48%
Colorado Intermediate Tax Free Fund....................... 4.54% * 4.68%
</TABLE>
* Not in operation at September 30, 1995.
TAX EQUIVALENT DISTRIBUTION RATES. The tax equivalent distribution rate for the
tax free Funds is computed by dividing that portion of such a Fund's annualized
current distribution rate (computed as described above) which is tax-exempt by
one minus the stated federal or combined federal/state income tax rate, and
adding the resulting figure to that portion, if any, of the annualized current
distribution rate which is not tax-exempt. Based upon the maximum federal or
combined federal/state income tax rates set forth above under "-- SEC
Standardized Performance Figures -- Tax Equivalent Yield for Tax Free Funds,"
the annualized current distribution rates for the month ended September 30,
1995, for each class of the tax free Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C>
Intermediate Tax Free Fund................................ 6.84% * 7.04%
Minnesota Insured Intermediate Tax Free Fund.............. 7.85% * 8.10%
Colorado Intermediate Tax Free Fund....................... 7.91% * 8.15%
</TABLE>
* Not in operation at September 30, 1995.
CERTAIN PERFORMANCE COMPARISONS
The Funds may compare their performance to that of certain published or
otherwise widely disseminated indices or averages compiled by third parties. The
Funds, and the indices and averages to which they may compare their performance,
are as follows, among others:
STOCK FUND may compare its performance to the STANDARD & POOR'S DAILY STOCK
PRICE INDEX OF 500 COMMON STOCKS ("S&P 500"), which is a composite index of
common stocks in industrial, transportation, and financial and public utility
companies which compares total returns of funds whose portfolios are invested
primarily in common stocks. In addition, the S&P 500 index assumes reinvestment
of all dividends paid by stocks listed in its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
Standard & Poor's figures. Stock Fund also may compare its performance to the
LIPPER GROWTH & INCOME AVERAGE, which is an average of funds which combine a
growth of earnings orientation and an income requirement for level and/or rising
dividends.
EQUITY INDEX FUND may compare its performance to the S&P 500 and the LIPPER
GROWTH & INCOME AVERAGE, each of which is described above.
BALANCED FUND may compare its performance to the S&P 500, which is described
above. Balanced Fund also may compare its performance to the LEHMAN
GOVERNMENT/CORPORATE INDEX, which is a market weighted index comprised of all
public obligations of the U.S. Treasury, excluding flower bonds and
foreign-targeted issues; all publicly issued debt of U.S. Government agencies
and quasifederal corporations, and corporate debt guaranteed by the U.S.
Government; and all publicly issued, fixed rate, nonconvertible investment grade
dollar-denominated SEC-registered corporate debt. Balanced Fund also may compare
its performance to the LIPPER BALANCED AVERAGE, which is an average of funds
whose primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds.
ASSET ALLOCATION FUND may compare its performance to the S&P 500 and the LEHMAN
GOVERNMENT/CORPORATE INDEX, each of which is described above. Asset Allocation
Fund also may compare its performance to the LIPPER FLEXIBLE PORTFOLIO AVERAGE,
which is an average of funds which allocate investments across various asset
classes, including domestic common stocks, bonds and money market instruments,
with a focus on total return.
EQUITY INCOME FUND may compare its performance to the S&P 500 and the LEHMAN
GOVERNMENT/CORPORATE INDEX, each of which is described above. Equity Income Fund
also may compare its performance to the LIPPER EQUITY INCOME AVERAGE, which is
an average of funds which seek relatively high current income and growth of
income through investing 60% or more of their portfolios in equities.
DIVERSIFIED GROWTH FUND may compare its performance to the S&P 500 and the
LIPPER GROWTH & INCOME AVERAGE, each of which is described above.
EMERGING GROWTH FUND may compare its performance to the RUSSELL 2000 INDEX,
which is a broadly diversified index consisting of approximately 2,000 small
capitalization common stocks that can be used to compare to the total returns of
funds whose portfolios are invested primarily in small capitalization common
stocks. Emerging Growth Fund also may compare its performance to the LIPPER
SMALL COMPANY GROWTH AVERAGE, which is an average of funds which limits their
investments to smaller capitalization companies.
REGIONAL EQUITY FUND may compare its performance to the RUSSELL 2000 INDEX and
the LIPPER SMALL COMPANY GROWTH AVERAGE, each of which is described above.
SPECIAL EQUITY FUND may compare its performance to the S&P 500, which is
described above. Special Equity Fund also may compare its performance to the
LIPPER CAPITAL APPRECIATION AVERAGE, which is an average of funds which aim at
maximum capital appreciation, frequently by means of 100% or more portfolio
turnover, leveraging, purchasing unregistered securities, and purchasing
options.
TECHNOLOGY FUND may compare its performance to the LIPPER TECHNOLOGY AVERAGE,
which is an average of funds which invest in technology-related equities.
HEALTH SCIENCES FUND may compare its performance to that of the LIPPER
HEALTH/BIOTECHNOLOGY AVERAGE, which is an average of funds which invest at least
65% of their equity portfolio in shares of companies engaged in health care,
medicine and biotechnology.
REAL ESTATE SECURITIES FUND may compare its performance to the NAREIT EQUITY
REIT INDEX, which is a market weighted index based on the last closing price of
the month for all tax-qualified Equity REITs listed on the New York Stock
Exchange, the American Stock Exchange and the NASDAQ National Market System.
Equity REITs are defined as REITs with 75% or more of their gross invested book
assets invested directly or indirectly in the equity ownership of real estate.
Only common shares issued by an Equity REIT are included in the index. Real
Estate Securities Fund also may compare its performance to the LIPPER REAL
ESTATE AVERAGE, which is an average of real estate-oriented funds.
INTERNATIONAL FUND may compare its performance to that of the MORGAN STANLEY
CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST ("EAFE") INDEX, which is an
aggregate of 15 individual country indices that collectively represent many of
the major markets of the world, excluding the United States and Canada.
International Fund also may compare its performance to the LIPPER INTERNATIONAL
AVERAGE, which is an average of funds which primarily invest in equity
securities whose primary trading markets are outside the United States.
LIMITED TERM INCOME FUND may compare its performance to the MERRILL LYNCH
ONE-YEAR TREASURY INDEX, which is an unmanaged index of a one-year constant
maturity Treasury bill. Limited Term Income Fund also may compare its
performance to the LIPPER SHORT INVESTMENT GRADE DEBT AVERAGE, which is an
average of funds which invest at least 65% of assets in investment grade debt
issues with dollar-weighted average maturities of five years or less.
INTERMEDIATE TERM INCOME FUND may compare its performance to the LEHMAN
INTERMEDIATE GOVERNMENT/CORPORATE INDEX, which is a market weighted index
comprised of all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues; all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government; and all publicly issued, fixed rate, nonconvertible investment
grade dollar-denominated SEC-registered corporate debt, in each case with
maturities of up to ten years. Intermediate Term Income Fund also may compare
its performance to the LIPPER INTERMEDIATE INVESTMENT GRADE DEBT AVERAGE, which
is an average of funds which invest at least 65% of assets in investment grade
debt with dollar-weighted average maturities of five to ten years.
FIXED INCOME FUND may compare its performance to the LEHMAN GOVERNMENT/CORPORATE
(TOTAL) INDEX, which is described above. Fixed Income Fund also may compare its
performance to the LIPPER CORPORATE DEBT FUNDS A-RATED AVERAGE, which is an
average of funds which invest 65% or more of assets in corporate debt issues
rated "A" or better or government issues.
INTERMEDIATE GOVERNMENT BOND FUND may compare its performance to the LEHMAN
INTERMEDIATE GOVERNMENT INDEX, which is a market weighted index comprised of all
public obligations of the U.S. Treasury, excluding flower bonds and
foreign-targeted issues, and all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government, in each case with maturities of up to ten years. Intermediate
Government Bond Fund also may compare its performance to the LIPPER INTERMEDIATE
U.S. GOVERNMENT AVERAGE, which is an average of funds which invest at least 65%
of assets in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities with dollar-weighted average maturities of five to
ten years.
INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN 7-YEAR G.O.
INDEX, which is an unmanaged index comprised of state and local general
obligation issues with maturities between 6 and 8 years which were issued as
part of a transaction of at least $50 million and which have a minimum credit
rating of at least Baa. Intermediate Tax Free Fund also may compare its
performance to the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, which is an
average of funds which invest in municipal debt issues with dollar-weighted
average maturities of five to ten years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND may compare its performance to the
LEHMAN 7- YEAR G.O. INDEX and the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE,
each of which is described above.
COLORADO INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN
7-YEAR G.O. INDEX and the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, each of
which is described above.
Each of the Funds also may compare its performance to the CONSUMER PRICE INDEX,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services.
TAXATION
The tax status of the Funds and the distributions that the Funds will make to
shareholders are summarized in the Prospectuses in the sections entitled
"Federal Income Taxes" (or, in the Prospectuses for the Tax Free Funds, "Income
Taxes"). Each Fund intends to fulfill the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, each Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to its
shareholders.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (1) derive at least 90% of its
gross income from dividends, interest, and certain other types of payments
related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its
annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (4)
diversify its holdings so that, at the end of each fiscal quarter of the Fund,
(a) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. Government securities and securities of other regulated
investment companies, and other securities, with these other securities limited,
with respect to any one issuer, to an amount no greater than 5% of the Fund's
total assets and no greater than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the market value of the Fund's total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
Each Fund is subject to a nondeductible excise tax equal to 4% of the excess, if
any, of the amount required to be distributed for each calendar year over the
amount actually distributed. For this purpose, any amount on which the Fund is
subject to corporate-level income tax is considered to have been distributed. In
order to avoid the imposition of this excise tax, each Fund must declare and pay
dividends representing 98% of its net investment income for that calendar year
and 98% of its capital gains (both long-term and short-term) for the
twelve-month period ending October 31 of the calendar year.
Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.
Furthermore, if Fund shares with respect to which a long-term capital gain
distribution has been made are held for less than six months, any loss on the
sale or exchange of such shares will be treated as a long-term capital loss to
the extent of such long-term capital gain distribution. Furthermore, if a
shareholder of any of the Tax-Free Funds receives an exempt-interest dividend
from such fund and then disposes of his or her shares in such fund within six
months after acquiring them, any loss on the sale or exchange of such shares
will be disallowed to the extent of the exempt-interest dividend.
If one of the Tax-Free Funds disposes of a municipal obligation that it acquired
after April 30, 1993 at a market discount, it must recognize any gain it
realizes on the disposition as ordinary income (and not as capital gain) to the
extent of the accrued market discount.
For federal tax purposes, if a shareholder exchanges shares of a Fund for shares
of any other FAIF Fund pursuant to the exchange privilege (see "Investing in the
Funds -- Exchange Privilege" in the Prospectuses for Class A and Class B Shares,
and "Purchases and Redemptions of Shares-Exchange Privilege" in the
Prospectuses for Class C Shares), such exchange will be considered a taxable
sale of the shares being exchanged. Furthermore, if a shareholder of Retail
Class Shares carries out the exchange within 90 days of purchasing shares in a
fund on which he or she has incurred a sales charge, the sales charge cannot be
taken into account in determining the shareholder's gain or loss on the sale of
those shares to the extent that the sales charge that would have been applicable
to the purchase of the later-acquired shares in the other fund is reduced
because of the exchange privilege. However, the amount of any sales charge that
may not be taken into account in determining the shareholder's gain or loss on
the sale of the first-acquired shares may be taken into account in determining
gain or loss on the eventual sale or exchange of the later-acquired shares.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December, made payable to
shareholders of record in such a month and actually paid in January of the
following year are treated as paid and are thereby taxable to shareholders as of
December 31.
Except for the transactions the Fund has identified as hedging transactions,
each Fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency
contracts as of the end of the year as well as those actually realized during
the year. Except for transactions in forward currency contracts that are
classified as part of a "mixed straddle," gain or loss recognized with respect
to forward currency contracts is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. In the case of a transaction classified as a "mixed
straddle," the recognition of losses may be deferred to a later taxable year.
Sales of forward currency contracts that are intended to hedge against a change
in the value of securities or currencies held by a Fund may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition.
It is expected that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to avoid
realizing excessive gains on securities or currencies held less than three
months, each Fund may be required to defer the closing out of forward currency
contracts beyond the time when it would otherwise be advantageous to do so. It
is expected that unrealized gains on forward currency contracts, which have been
open for less than three months as of the end of a Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test, as
discussed above.
Any realized gain or loss on closing out a forward currency contract such as a
forward commitment for the purchase or sale of foreign currency will generally
result in a recognized capital gain or loss for tax purposes. Under Code Section
1256, forward currency contracts held by a Fund at the end of each fiscal year
will be required to be "marked to market" for federal income tax purposes, that
is, deemed to have been sold at market value. Code Section 988 may also apply to
forward currency contracts. Under Section 988, each foreign currency gain or
loss is generally computed separately and treated as ordinary income or loss. In
the case of overlap between Sections 1256 and 988, special provisions determine
the character and timing of any income, gain or loss. The Funds will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
Each Fund will distribute to shareholders annually any net long-term capital
gains that have been recognized for federal income tax purposes (including
unrealized gains at the end of the Fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions of
capital gains realized on the Fund's other investments.
Pursuant to the Code, distributions of net investment income by a Fund to a
shareholder who, as to the United States, is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or lower treaty rate). Withholding will not
apply if a dividend paid by a Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business of such shareholder, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding but, in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year. Each Fund will report
annually to its shareholders the amount of any withholding.
The foregoing relates only to federal income taxation and is a general summary
of the federal tax law in effect as of the date of this Statement of Additional
Information.
RATINGS
A rating of a rating service represents that service's opinion as to the credit
quality of the rated security. However, such ratings are general and cannot be
considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings may not
coincide, and each rating should be evaluated independently. Ratings are based
on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Funds are not required
to dispose of a security if its rating declines after it is purchased, although
they may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS
STANDARD & POOR'S CORPORATION
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Securities 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 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: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Securities which are rated Baa are considered as medium grade
obligations, being 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
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality, and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S CORPORATION. Standard & Poor's ratings for preferred stock
have the following definitions:
AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:
aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a: An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
RATINGS OF MUNICIPAL NOTES
STANDARD & POOR'S CORPORATION
SP-1: Very strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
None of the Funds will purchase SP-3 municipal notes.
MOODY'S INVESTORS SERVICE, INC. Generally, Moody's ratings for state and
municipal short-term obligations are designated Moody's Investment Grade
("MIG"); however, where an issue has a demand feature which makes the issue a
variable rate demand obligation, the applicable Moody's rating is "VMIG."
MIG 1/VMIG 1: This designation denotes the best quality. There is
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, with margins of
protection ample although not so large as available in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality, with all
security elements accounted for, but lacking the strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
None of the Funds will purchase MIG 3/VMIG 3 municipal notes.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) symbol designation. None of the Funds will
purchase commercial paper rated A-3 or lower.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are opinions as
to the ability of the issuers to timely repay promissory obligations not having
an original maturity in excess of nine months. Moody's makes no representation
that such obligations are exempt from registration under the Securities Act of
1933, and it does not represent that any specific instrument is a valid
obligation of a rated issuer or issued in conformity with any applicable law.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
None of the Funds will purchase Prime-3 commercial paper.
BEST'S RATING SYSTEM FOR INSURANCE COMPANIES
The objective of Best's Rating System is to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to the company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of the company.
The quantitative evaluation is based on an analysis of the company's financial
condition and operating performance utilizing a series of financial tests. These
tests measure a company's performance in the three critical areas of
Profitability, Leverage and Liquidity in comparison to the norms established by
the A.M. Best Company. These norms are based on an evaluation of the actual
performance of the insurance industry.
Best's review also includes a qualitative evaluation of the adequacy and
soundness of a company's reinsurance, the adequacy of its reserves and the
experience of its management. In addition, various other factors of importance
are considered such as the composition of the company's book of business and the
quality and diversification of its assets.
Upon completion of analysis, Best's Ratings are assigned to those companies that
meet the qualifications for rating. The Best's Rating classifications are A+
(Superior); A & A- (Excellent); B+ (Very Good); B & B- (Good); C+ (Fairly Good);
and C & C- (Fair). Those not qualifying for a current Best's Rating are
classified in the "Not Assigned" category that has ten classifications which
identify why a company is not eligible for a Best's Rating. Care should be
exercised in the use of Best's Ratings without further reference to additional
Best's publications.
STATEMENT OF NET ASSETS----SEPTEMBER 30, 1995
PRIME OBLIGATIONS FUND
Description Par (000) Value (000)
COMMERCIAL PAPER--44.8%
Aes Shady Point (LOC: Bank of Tokyo)
5.863%, 10/16/95 $41,000 $40,900
Asset Securitization
5.760%, 11/02/95 (B) 14,800 14,725
Banco Real S.A.
(LOC: Barclays Bank)
5.942%, 10/23/95 7,000 6,975
Blue Hawk Funding
5.812%, 10/03/95 (B) 10,045 10,042
5.813%, 10/12/95 (B) 4,240 4,233
5.777%, 10/13/95 (B) 9,334 9,316
5.799%, 10/13/95 (B) 6,202 6,190
5.810%, 10/13/95 (B) 4,741 4,732
5.780%, 10/16/95 (B) 13,207 13,175
5.810%, 10/24/95 (B) 15,573 15,515
5.807%, 10/25/95 (B) 5,151 5,131
5.808%, 10/25/95 (B) 4,884 4,865
5.816%, 10/27/95 (B) 11,066 11,020
5.812%, 10/31/95 (B) 16,806 16,725
Credit Card Securitization
5.818%, 10/19/95 (B) 9,219 9,193
5.880%, 10/20/95 (B) 15,987 15,938
Crown Leasing USA
(LOC: Bank of Tokyo)
5.899%, 10/05/95 (B) 21,800 21,786
5.848%, 10/18/95 (B) 15,000 14,959
5.929%, 10/25/95 (B) 20,000 19,921
CS First Boston
5.787%, 10/30/95 5,000 4,977
DIC Americas (LOC: Mitsubishi Bank)
5.848%, 10/11/95 18,000 17,971
5.826%, 10/12/95 11,500 11,480
5.850%, 10/23/95 7,000 6,975
Distribution Funding
5.799%, 10/02/95 (B) 12,000 11,998
5.784%, 10/20/95 (B) 5,540 5,523
5.823%, 11/03/95 (B) 15,000 14,921
5.820%, 11/08/95 (B) 7,965 7,916
5.805%, 11/09/95 (B) 5,350 5,317
5.793%, 11/10/95 (B) 15,000 14,904
5.810%, 11/15/95 (B) 9,200 9,134
5.771%, 12/13/95 (B) 10,000 9,884
Enterprise Funding
5.809%, 10/05/95 (B) 12,500 12,492
5.810%, 10/20/95 (B) 8,031 8,007
5.789%, 10/26/95 (B) 11,880 11,833
5.791%, 10/27/95 (B) 7,539 7,508
5.820%, 10/31/95 (B) 10,000 9,952
5.811%, 11/17/95 (B) 15,097 14,984
5.755%, 11/21/95 (B) 19,174 19,019
5.862%, 12/21/95 (B) 10,109 9,978
Equipment Funding
5.804%, 10/04/95 (B) 19,129 19,120
5.806%, 10/06/95 (B) 15,059 15,047
5.816%, 10/06/95 (B) 23,676 23,657
Equipment Intermediation Partnership
5.834%, 11/03/95 (B) $26,153 $26,014
5.799%, 11/06/95 (B) 5,061 5,032
5.819%, 11/07/95 (B) 7,441 7,397
Fleet Funding
5.812%, 10/12/95 (B) 25,934 25,888
5.809%, 10/19/95 (B) 10,156 10,127
Hahn Issuing (LOC: Citibank)
5.815%, 10/19/95 11,530 11,497
5.814%, 10/24/95 12,700 12,653
International Securitization
(Guarantor: FNB Chicago)
5.857%, 10/16/95 (B) 7,775 7,756
5.779%, 10/27/95 (B) 16,180 16,113
5.831%, 10/30/95 (B) 15,000 14,931
5.832%, 10/30/95 (B) 25,000 24,884
5.831%, 10/31/95 (B) 6,650 6,618
5.812%, 12/04/95 (B) 10,105 10,002
5.817%, 01/31/96 (B) 11,480 11,258
5.831%, 02/15/96 (B) 10,230 10,008
Jefferson Smurfit Financial
6.317%, 10/03/95 (B) 11,000 10,996
5.760%, 11/07/95 (B) 8,000 7,953
5.781%, 11/29/95 (B) 7,100 7,034
Konica Financial USA
(LOC: Mitsubishi Bank)
5.847%, 10/10/95 (B) 7,000 6,990
Mitchell Funding (LOC: Swiss Bank)
6.453%, 10/02/95 40,000 39,993
Orix America (LOC: Sanwa Bank)
5.930%, 10/02/95 (B) 25,000 24,996
Pemex Capital (LOC: Credit Suisse)
5.838%, 10/26/95 10,000 9,960
5.751%, 11/17/95 15,000 14,888
5.778%, 11/17/95 10,000 9,925
Pemex Capital (LOC: Swiss Bank)
5.886%, 10/05/95 10,000 9,994
Petroleo Brasileiro
(LOC: Barclays Bank)
5.856%, 12/20/95 10,000 9,872
5.862%, 12/27/95 8,000 7,889
5.866%, 01/03/96 10,000 9,850
Pooled Accounts Receivable Capital
5.827%, 10/05/95 (B) 15,370 15,360
5.797%, 10/20/95 (B) 20,000 19,939
5.846%, 10/26/95 (B) 30,000 29,879
5.805%, 11/09/95 (B) 10,235 10,171
Pooled Certificate (Guarantor: FGIC)
5.832%, 10/06/95 (B) 10,237 10,229
5.819%, 10/11/95 (B) 6,044 6,034
5.819%, 10/18/95 (B) 13,148 13,112
Premium Funding
5.751%, 12/07/95 (B) 30,378 30,057
Prospect Street Senior Portfolio
(Guarantor: FSA)
5.830%, 10/02/95 (B) $ 7,037 $ 7,036
6.044%, 10/02/95 (B) 4,267 4,266
5.820%, 10/11/95 (B) 2,041 2,038
5.813%, 10/17/95 (B) 2,023 2,018
5.848%, 10/19/95 (B) 3,226 3,217
5.808%, 10/26/95 (B) 6,783 6,756
5.808%, 10/26/95 (B) 6,783 6,756
5.806%, 11/10/95 (B) 3,990 3,965
5.815%, 12/01/95 (B) 4,121 4,081
Receivables Capital
5.814%, 10/04/95 (B) 10,000 9,995
5.818%, 10/16/95 (B) 10,000 9,976
5.763%, 10/17/95 (B) 30,000 29,924
5.829%, 10/25/95 (B) 15,000 14,942
5.790%, 10/26/95 (B) 22,771 22,680
Ryobi Financial (LOC: Mitsubishi Bank)
5.853%, 10/17/95 7,100 7,082
SRD Financial (LOC: Bank of Tokyo)
5.826%, 10/12/95 15,000 14,973
Towson Town Center
(LOC: Mitsubishi Bank)
5.826%, 10/06/95 7,556 7,550
5.832%, 10/18/95 4,500 4,488
5.829%, 10/20/95 11,462 11,427
UBS Financial
6.453%, 10/02/95 50,000 49,991
6.453%, 10/02/95 50,000 49,991
US Prime Property (LOC: Westpac Bank)
5.891%, 10/10/95 11,000 10,984
5.762%, 11/29/95 15,000 14,860
5.774%, 12/08/95 20,000 19,785
5.774%, 12/08/95 9,000 8,903
TOTAL COMMERCIAL PAPER
(Cost $1,350,921) 1,350,921
CORPORATE OBLIGATIONS--20.4%
Bear Stearns
5.925%, 10/04/95 (A) 50,000 50,000
Beta Finance
5.960%, 10/02/95 (A) 60,000 60,000
Ford Motor Credit
8.625%, 04/15/96 20,000 20,282
9.100%, 07/05/96 10,000 10,233
General Electric Capital
6.000%, 10/02/95 (A) 25,000 24,996
6.070%, 10/02/95 (A) 50,000 49,985
Goldman Sachs Group
6.437%, 10/13/95 20,000 20,000
6.562%, 12/19/95 10,000 10,000
5.750%, 02/06/96 25,000 25,000
5.750%, 04/08/96 25,000 25,000
5.875%, 06/04/96 20,000 20,000
Household Finance
10.090%, 03/21/96 5,000 5,093
Merrill Lynch
6.050%, 08/19/96 $35,000 $ 35,000
Securitized Triple A Receivables Trust
6.113%, 10/20/95 (A) (B) 12,500 12,515
Structured Enhanced Return Trust 1994
T-1
5.906%, 10/13/95 (A) (B) 50,000 49,981
Structured Enhanced Return Trust 1994
A-5
5.862%, 10/25/95 (A) (B) 47,000 46,997
Structured Enhanced Return Trust 1995
A-17
6.063%, 10/02/95 (A) (B) 50,000 50,000
Structured Enhanced Return Trust 1995
A-18
5.862%, 10/16/95 (B) 25,000 24,996
Sun Life Insurance of America
6.250%, 10/02/95 (A) 75,000 75,001
TOTAL CORPORATE OBLIGATIONS
(Cost $615,079) 615,079
LOAN PARTICIPATION CERTIFICATES--12.2%
Barclays Bank
(Cargill Financial Services)
5.810%, 10/10/95 25,000 25,000
5.810%, 10/18/95 25,000 25,000
Barclays Bank
(Cargill Incorporated)
6.500%, 10/02/95 25,000 25,000
5.780%, 10/17/95 15,000 15,000
5.780%, 10/19/95 15,000 15,000
Barclays Bank (Morgan Stanley)
6.600%, 10/02/95 50,000 50,000
Barclays Bank PLC
(National Rural Utilities)
5.810%, 10/02/95 20,000 20,000
5.800%, 10/25/95 15,000 15,000
5.800%, 10/27/95 17,000 17,000
CoreStates Bank (Aon Corporation)
5.820%, 10/04/95 13,000 13,000
CoreStates Bank (Weyerhauser Mortgage)
5.850%, 10/16/95 60,310 60,310
Toronto Dominion Bank
(Bell Atlantic Financial Services)
5.770%, 10/03/95 7,000 7,000
Toronto Dominion Bank (ITT Hartford)
5.810%, 10/16/95 10,000 10,000
Toronto Dominion Bank (Morgan Stanley)
5.900%, 10/02/95 20,000 20,000
6.600%, 10/02/95 50,000 50,000
TOTAL LOAN PARTICIPATION CERTIFICATES
(Cost $367,310) 367,310
U.S. GOVERNMENT AGENCY OBLIGATIONS--6.6%
Export-Import Bank
5.935%, 10/15/95 (A) 70,455 70,443
Export-Import Bank/KA leasing
5.895%, 10/15/95 (A) $ 36,163 $ 36,163
FHLB
6.200%, 10/05/95 (A) 25,000 25,018
6.330%, 10/02/95 (A) 25,000 25,041
FNMA
6.150%, 10/02/95 (A) 20,000 19,998
SLMA
5.640%, 10/03/95 (A) 11,150 11,140
5.640%, 10/03/95 (A) 10,000 9,995
U.S. AID
5.900%, 10/03/95 (A) 1,250 1,248
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $199,046) 199,046
ASSET BACKED SECURITIES--3.3%
CARCO Auto Loan Master Trust 1993-2 A1
5.901%, 10/16/95 (A) 63,500 63,500
Money Market Auto Loan Trust
6.005%, 10/16/95 (A) 36,050 36,060
TOTAL ASSET BACKED SECURITIES
(Cost $99,560) 99,560
CERTIFICATES OF DEPOSIT--1.6%
Mercantile Safe Deposit & Trust
5.956%, 10/09/95 (A) 30,000 30,000
5.956%, 10/09/95 (A) 20,000 20,000
TOTAL CERTIFICATES OF DEPOSIT
(Cost $50,000) 50,000
MASTER NOTES--0.6%
Associates Corporation of North America
5.708%, 10/02/95 (C) 14,617 14,617
Goldman Sachs
5.830%, 10/03/95 (C) 3,569 3,569
TOTAL MASTER NOTES
(Cost $18,186) 18,186
REPURCHASE AGREEMENTS--10.6%
Daiwa Securities 6.450%, dated
09/29/95, matures 10/02/95,
repurchase price $100,053,750
(collateralized by various U.S.
Treasury Bonds, total par value
$74,635,000, 7.250%-12.750%,
11/15/10-05/15/16: total market value
$102,825,062) 100,000 100,000
Salomon Brothers 6.450%, dated
09/29/95, matures 10/02/95,
repurchase price $220,582,698,
(collateralized by various FHLMC and
FNMA Bonds, total par value
$220,464,198, 4.950%-17.759%,
11/01/99-10/01/25: total market value
$230,959,617) 220,464 220,464
TOTAL REPURCHASE AGREEMENTS
(Cost $320,464) 320,464
TOTAL INVESTMENTS--100.1%
(Cost $3,020,566) 3,020,566
OTHER ASSETS AND LIABILITIES--(0.1%)
Other Assets and Liabilities, Net $ (3,679)
NET ASSETS:
Portfolio shares--Institutional Class ($.01 par
value--20 billion authorized) based on
2,911,050,562 outstanding shares 2,911,050
Portfolio shares--Retail Class A ($.01 par
value--20 billion authorized) based on 96,082,889
outstanding shares 96,083
Portfolio shares--Retail Class B ($.01 par
value--20 billion authorized) based on 13,694
outstanding shares 14
Portfolio shares--Corporate Trust Class
($.01 par value--20 billion authorized) based on
9,735,192 outstanding shares 9,735
Accumulated net realized gain on investments 5
TOTAL NET ASSETS:--100.0% $3,016,887
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 1.00
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 1.00
NET ASSET VALUE AND OFFERING
PRICE PER SHARE--RETAIL CLASS B (1) $ 1.00
NET ASSET VALUE AND OFFERING PRICE,
AND REDEMPTION PRICE PER SHARE--CORPORATE TRUST CLASS $ 1.00
The accompanying notes are an integral part of the financial statements.
(1) Retail Class B has a contingent deferred sales charge. For a description of
possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995. The date shown is the reset
date.
(B) Securities sold within the terms of a private placement memorandum, exempt
from registration under Section 4(2) or 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors". These securities have been determined to be liquid
under guidelines established by the Board of Directors.
(C) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate as of September 30, 1995. The date
shown is the longer of the reset or demand date.
AID--Agency for International Development
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
LOC--Letter of Credit
SLMA--Student Loan Marketing Association
GOVERNMENT OBLIGATIONS FUND
Description Par (000) Value (000)
U.S. GOVERNMENT AGENCY OBLIGATIONS--46.1%
Export-Import Bank
5.875%, 10/16/95 (A) (B) $25,000 $25,000
5.895%, 10/16/95 (A) (B) 18,199 18,199
5.935%, 10/16/95 (A) (B) 30,000 29,995
FHLB
6.040%, 10/02/95 (A) 13,000 12,957
6.250%, 10/05/95 (A) 25,000 25,076
5.753%, 12/04/95 20,000 19,969
FHLMC
6.170%, 10/05/95 (A) 15,000 15,004
FNMA
5.710%, 10/25/95 34,550 34,420
5.673%, 01/29/96 20,000 19,633
5.772%, 05/13/96 20,000 19,309
5.825%, 05/13/96 10,000 9,651
SLMA
5.480%, 10/03/95 (A) 10,000 10,000
5.480%, 10/03/95 (A) 20,000 20,000
5.550%, 10/03/95 (A) 14,000 13,905
5.640%, 10/03/95 (A) 15,000 15,000
U.S. AID
5.740%, 10/03/95 (A) 8,000 8,019
5.740%, 10/03/95 (A) 11,000 11,000
5.740%, 10/03/95 (A) 13,000 13,000
5.764%, 10/03/95 (A) 15,000 15,000
5.774%, 10/03/95 (A) 10,000 9,987
5.790%, 10/03/95 (A) 1,000 1,000
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $346,124) 346,124
OTHER U.S. GOVERNMENT OBLIGATIONS--13.8%
Downey Savings & Loan (LOC: Federal
Home Loan Bank of San Francisco)
6.273%, 10/10/95 25,000 24,963
5.657%, 01/16/96 20,000 19,673
5.682%, 04/12/96 10,000 9,706
5.733%, 05/28/96 15,000 14,450
Fidelity Federal Bank, NSB (LOC:
Federal Home Loan Bank of San
Francisco)
5.755%, 11/28/95 15,000 14,862
5.757%, 11/30/95 20,000 19,810
TOTAL OTHER U.S. GOVERNMENT OBLIGATIONS
(Cost $103,464) 103,464
U.S. TREASURY OBLIGATIONS--2.0%
U.S. Treasury Bill
5.567%, 01/18/96 $ 15,000 $ 14,754
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $14,754) 14,754
REPURCHASE AGREEMENT--38.3%
Bear Stearns 6.150%, dated 09/29/95, matures
10/02/95, repurchase price $150,076,875
(collateralized by various U.S. Treasury
STRIPS, total par value $247,512,000, 02/15/97-
05/15/09: total market value
$153,450,000) 150,000 150,000
Daiwa Securities 6.450%, dated
09/29/95, matures 10/02/95, repurchase
price $100,053,750 (collateralized by
various U.S. Treasury Notes, total par
value $89,180,000, 6.250%-8.750%,
05/15/17-08/15/23: total market value
$102,000,000) 100,000 100,000
Prudential 6.220%, dated 09/29/95,
matures 10/02/95, repurchase price
$19,933,608 (collateralized by various
FNMA obligations, total par value
$22,482,157, 5.000%-9.000%, 05/01/97-
10/01/25: total market value
$20,321,891) 19,923 19,923
Salomon Brothers 6.450%, dated
09/29/95, matures 10/02/95, repurchase
price $17,125,974 (collateralized by
various FNMA obligations, total par value
$27,714,013, 6.000%-10.500%,
05/01/02-09/01/25: total market value
$17,738,028) 17,117 17,117
TOTAL REPURCHASE AGREEMENT
(Cost $287,040) 287,040
TOTAL INVESTMENTS--100.2%
(Cost $751,382) 751,382
OTHER ASSETS AND LIABILITIES--(0.2%)
Other Assets and Liabilities, Net (1,237)
NET ASSETS:
Portfolio
shares--Institutional
Class ($.01 par
value--20 billion
authorized) based on
551,284,505 outstanding
shares $551,285
Portfolio
shares--Corporate Trust
Class ($.01 par
value--20 billion
authorized) based on
198,861,163 outstanding
shares 198,861
Accumulated net
realized loss on
investments (1)
TOTAL NET
ASSETS:--100.0% $750,145
NET ASSET VALUE,
OFFERING PRICE, AND
REDEMPTION PRICE PER
SHARE--INSTITUTIONAL
CLASS $1.00
NET ASSET VALUE,
OFFERING PRICE, AND
REDEMPTION PRICE PER
SHARE--CORPORATE TRUST
CLASS $1.00
The accompanying notes are an integral part of the financial statements.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995. The date shown is the next
reset date.
(B) Securities sold within the terms of a private placement memorandum, exempt
from registration under Section 4[2] or 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." These securities have been determined to be liquid
under guidelines established by the Board of Directors.
AID--Agency for International Development
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
LOC--Letter of Credit
SLMA--Student Loan Mortgage Association
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
TREASURY OBLIGATIONS FUND
Description Par (000) Value (000)
U.S. TREASURY OBLIGATIONS--23.4%
U.S. Treasury Bills
6.038%, 10/19/95 $ 25,000 $ 24,927
6.020%, 11/16/95 25,000 24,814
5.415%, 01/18/96 25,000 24,590
5.600%, 02/08/96 25,000 24,509
5.325%, 03/07/96 50,000 48,820
5.820%, 07/25/96 25,000 23,858
U.S. Treasury Notes
4.625%, 02/15/96 25,000 24,904
5.875%, 05/31/96 50,000 50,030
U.S. Treasury STRIPS
0.000%, 02/15/96 25,000 24,485
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $270,937) 270,937
REPURCHASE AGREEMENTS--76.9%
BA Securities 6.200%, dated 09/29/95,
matures 10/02/95, repurchase price
$52,026,867 (collateralized by various
U.S. Treasury Notes, total par value
$51,671,898, 6.500%-7.750%, 04/30/97-
11/30/99: total market value $53,040,000) 52,000 52,000
Bear Stearns 6.150%, dated 09/29/95,
matures 10/02/95, repurchase price
$225,115,313 (collateralized by
various U.S. Treasury STRIPS, total
par value $342,941,777, 11/15/97-
02/15/03: total market value
$230,175,000) 225,000 225,000
BT Securities 6.100%, dated 09/29/95,
matures 10/02/95, repurchase price
$50,025,417 (collateralized by U.S.
Treasury Note, par value $50,860,716,
6.125%, matures 05/31/97: total market
value $51,000,000) 50,000 50,000
CS First Boston 5.730%, dated 09/25/95,
matures 10/02/95, repurchase price
$45,021,488 collateralized by U.S.
Treasury Note, par value $41,316,575,
7.875%, matures 11/15/04:
total market value $45,900,0000 45,000 45,000
Daiwa Securities 6.450%, dated
09/29/95, matures 10/02/95, repurchase
price $107,057,513 (collateralized by
various U.S. Treasury Bonds, total par
value $98,248,700, 7.250%-8.125%,
05/15/96-05/15/21: total market value
$109,140,000) 107,000 107,000
Goldman Sachs 5.750%, dated 09/26/95,
matures 10/02/95, repurchase price
$45,021,563 (collateralized by U.S.
Treasury Bond, par value $28,557,191,
7.250%, matures 05/15/16, total market
value $45,900,000) $45,000 $45,000
Lehman Brothers 5.780%, dated 09/25/95,
matures 10/02/95, repurchase price
$45,021,675 (collateralized by various U.S.
Treasury Notes, total par value
$41,199,314, 6.875%-9.250%, 02/15/96-
03/31/00: total market value
$45,900,000) 45,000 45,000
Merrill Lynch 5.700%, dated 09/29/95,
matures 10/02/95, repurchase price
$50,023,750 (collateralized by U.S.
Treasury Note, par value $50,885,656,
6.125%, matures 05/31/97: total market
value $51,000,000) 50,000 50,000
Nomura Securities 5.810%, dated
9/28/95, matures 10/02/95, repurchase
price $45,021,788 (collateralized by
various U.S. Treasury Notes, total par
value $46,075,735, 5.625%-6.750%,
05/31/97-06/30/97: total market value
$45,900,000) 45,000 45,000
Prudential Securities 6.200%, dated
9/29/95, matures 10/02/95, repurchase
price $34,681,639 (collateralized by
various U.S. Treasury Notes, total par
value $34,111,546, 5.750%-7.875%,
04/30/99-08/15/03: total market value
$35,357,004) 34,664 34,664
UBS Securities 6.430%, dated 09/29/95,
matures 10/02/95, repurchase price
$190,815,050 (collateralized by
various U.S. Treasury Notes, total par
value $183,034,056, 4.000%-9.125%,
01/31/96-11/15/24: total market value
$194,527,117) 190,713 190,713
TOTAL REPURCHASE AGREEMENTS
(Cost $889,377) 889,377
TOTAL INVESTMENTS--100.3%
(Cost $1,160,314) 1,160,314
OTHER ASSETS AND LIABILITIES--(0.3%)
Other Assets and Liabilities, Net (4,325)
NET ASSETS:
Portfolio shares--Institutional Class ($.01 par
value--20 billion authorized) based on
117,169,937 outstanding shares $ 117,170
Portfolio shares--Corporate Trust Class ($.01 par
value--20 billion authorized) based on
1,038,787,512 outstanding shares 1,038,788
Accumulated net realized gain on investments 31
TOTAL NET ASSETS:--100.0% $1,155,989
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 1.00
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--CORPORATE TRUST CLASS $ 1.00
The accompanying notes are an integral part of the financial statements.
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
LIMITED TERM INCOME FUND
Description Par (000) Value (000)
ASSET BACKED SECURITIES--74.6%
ADJUSTABLE RATE MORTGAGES--3.3%
Merrill Lynch Mortgage Investors
1993-C A4
6.875%, 03/15/18 (B) $4,000 $4,000
AUTO COMPANY SUBSIDIARIES--AUTO--5.5%
Capital Auto Receivable Asset Trust 1993-1
5.850%, 02/15/98 950 948
Premier Auto Trust 1992-1 A
5.750%, 07/15/97 (A) 366 366
Premier Auto Trust 1992-5 B
4.900%, 12/15/95 1,004 993
Premier Auto Trust 1993-4 B
4.950%, 02/02/99 904 893
Premier Auto Trust 1994-2 B
6.500%, 06/02/00 (A) 3,430 3,440
6,640
BANKS -- AUTO--8.5%
Boulevard Auto Trust 1993-1 A
4.550%, 03/15/98 822 817
Midlantic Automobile Grantor Trust
1992-1 B
5.150%, 09/15/97 842 840
New South Auto Trust 1994-B A
8.475%, 01/15/02 3,057 3,139
Western Financial Grantor Trust
1993-2 A2
4.700%, 10/01/98 2,019 1,989
Western Financial Grantor Trust
1994-3 B
6.650%, 12/01/99 2,125 2,135
Zions Auto Trust 1993-1 B
5.650%, 06/15/99 1,427 1,421
10,341
BANKS -- BOATS & R.V.'S--4.3%
CFC Grantor Trust TR14
7.150%, 11/15/06 (A) 3,635 3,647
Chemical Financial Acceptance
1991-A A
6.450%, 12/15/97 1,582 1,580
5,227
BANKS--CREDIT CARD RECEIVABLES--7.9%
First USA Credit Card Master Trust
1995-1 A
5.952%, 10/15/01 (B) 4,100 4,098
MBNA Master Credit Card Trust 1994-BA
5.661%, 01/15/02 (B) 5,500 5,472
9,570
BUSINESS CREDIT - AUTO--1.4%
Olympic Automobile Receivables Trust
1993-C B
4.600%, 02/15/00 $1,708 $ 1,683
BUSINESS CREDIT - BUSINESS--4.1%
Leasing Solution Receivables 1994-1 A
5.575%, 03/15/99 661 659
Leasing Solutions Receivables 1994-2 A
8.075%, 12/15/99 1,957 1,977
Orix Credit Alliance Owner Trust
1993-A A2
4.300%, 08/17/98 1,417 1,397
Orix Credit Alliance Owner Trust
1993-C B
4.600%, 08/17/98 945 935
4,968
CONSUMER FINANCE - SECOND MORTGAGE RELATED--3.8%
HFC Home Equity Loan Trust
1992-2 B
6.850%, 11/20/12 1,657 1,632
Household Finance 1992-3 A3
6.100%, 11/20/06 (B) 1,707 1,689
Remodelers Home Improvement 1994-1 A
7.800%, 11/20/99 (A) 1,263 1,267
4,588
CONSUMER FINANCE COMPANY - AUTO--1.2%
Auto Bond Receivables Trust 1993-1 A
6.125%, 11/15/98 1,468 1,452
CONSUMER FINANCE - FIRST MORTGAGE RELATED--2.8%
Saxon Mortgage Securities
1994-4A 1A2
5.250%, 04/25/24 3,469 3,404
EQUIPMENT LEASES--4.3%
JLC Lease Receivables Trust 1994-1 A
6.208%, 12/22/99 (B) 4,241 4,242
World Omni Leasing 1993-1 B
5.000%, 05/17/99 936 928
5,170
MEDICAL LEASES--2.9%
Amerisource Receivables Master Trust
1995-1 A
6.225%, 03/15/00 (A) (B) 3,500 3,504
MORTGAGE BANKERS & LOANS - SECOND MORTGAGE
RELATED--13.0%
BCI Home Equity Loan 1991-1 A1
7.100%, 09/15/06 $ 1 $ 1
BCI Home Equity Loan 1994-1 B
6.537%, 03/29/44 (B) 2,327 2,335
Greentree Financial 1995 A-A1
7.000%, 04/15/20 1,849 1,857
The Money Store Home Equity Loan
Trust 1992-D1 A1
6.500%, 01/15/04 3,074 3,077
The Money Store Home Equity Loan
Trust 1993-B A1
5.400%, 08/15/05 3,055 2,965
The Money Store Home Equity Loan
Trust 1994-C1 A1
6.775%, 09/15/07 1,507 1,508
The Money Store Trust Series 1994-D1 A2
8.000%, 11/15/07 4,000 4,082
15,825
RETAIL MALL MORTGAGES--6.8%
Bristol Oaks, L.P. 1994-1 B
6.525%, 07/10/99 (B) 4,250 4,242
Potomac Mills Finance 1C
7.013%, 10/20/04 (B) 4,000 4,000
8,242
VACATION HOME MORTGAGES--4.9%
Patten 1995-1A
7.250%, 08/01/11 (A) (B) 4,000 3,994
RCI Vacation Ownership Mortgage
Trust 1991-B
7.500%, 08/25/98 (A) 1,957 1,955
5,949
TOTAL ASSET BACKED SECURITIES
(Cost $90,396) 90,563
CORPORATE OBLIGATIONS--4.6%
ELECTRICAL SERVICES--0.8%
Houston Lighting & Power
8.625%, 01/15/96 1,000 1,008
FINANCIAL SERVICES--1.2%
American General Finance
7.300%, 10/16/95 500 500
Heller Financial
6.500%, 11/15/95 1,000 999
1,499
FOOD, BEVERAGE & TOBACCO--0.8%
Philip Morris
8.875%, 07/01/96 $ 900 $ 917
PAPER & PAPER PRODUCTS--0.4%
International Paper
9.625%, 10/15/95 450 451
RETAIL--0.8%
Dayton Hudson
4.820%, 04/01/96 1,000 994
WHOLESALE--0.6%
Supervalue
5.875%, 11/15/95 750 750
TOTAL CORPORATE OBLIGATIONS
(Cost $5,787) 5,619
OTHER MORTGAGE BACKED OBLIGATIONS--11.8%
Capstead Securities IV 1992-3 B
8.000%, 06/25/22 3,071 3,103
General Electric Capital Mortgage
1995-1 A1
8.350%, 02/25/25 1,942 1,952
Mortgage Capital Funding
1993-C1 A1
5.250%, 05/25/15 1,866 1,845
Mortgage Capital Funding
1993-C1 A2
6.512%, 05/25/15 (B) 4,530 4,523
Mortgage Obligation Structured Trust
1993-1 A1
6.350%, 10/25/18 1,411 1,399
RTC 1992-11 A1A
7.150%, 06/25/23 564 546
RTC 1992-C7 B
7.000%, 10/25/24 989 985
TOTAL OTHER MORTGAGE BACKED OBLIGATIONS
(Cost $14,331) 14,353
U.S. GOVERNMENT AGENCY OBLIGATIONS--2.1%
FNMA
8.650%, 08/25/18 2,453 2,485
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,471) 2,485
TAXABLE MUNICIPAL BONDS--1.7%
Colorado Health Facilities
Authority (RB)
6.200%, 07/01/25 (B) $2,000 $ 2,000
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $2,000) 2,000
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS--0.8%
FHLMC 1625-B
4.750%, 01/15/01 1,000 991
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $1,001) 991
MASTER NOTES--1.2%
Goldman Sachs
5.830%, 10/03/95 (C) 1,500 1,500
TOTAL MASTER NOTES
(Cost $1,500) 1,500
REPURCHASE AGREEMENTS--5.8%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$3,316,195 (collateralized by U.S.
Treasury STRIPS, total par value
$10,375,512, 11/15/00-11/15/24: total
market value $3,380,747) 3,314 3,314
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$3,694,220 (collateralized by various
U.S. Treasury Bills, total par value
$788,853, 03/07/96-09/19/96: U.S.
Treasury Notes, total par value
$2,313,814, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$3,766,348) 3,693 3,693
TOTAL REPURCHASE AGREEMENTS
(Cost $7,007) 7,007
TOTAL INVESTMENTS--102.6%
(Cost $124,493) 124,518
OTHER ASSETS AND LIABILITIES--(2.6%)
Other Assets and Liabilities, Net (3,102)
NET ASSETS:
Portfolio shares--Institutional Class--
($.0001 par value--2 billion authorized)
based on 11,231,268 outstanding shares $114,651
Portfolio shares--Retail Class A--($.0001
par value--2 billion authorized) based on
1,005,426 outstanding shares 10,618
Undistributed net investment income 38
Accumulated net realized loss on investments (3,916)
Net unrealized appreciation of investments 25
TOTAL NET ASSETS:--100.0% $121,416
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE--INSTITUTIONAL CLASS $ 9.92
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 9.92
MAXIMUM SALES CHARGE OF 2.00%+ 0.20
OFFERING PRICE PER SHARE--RETAIL CLASS A $10.12
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 2.00%.
(A) Security sold within the terms of a private placement memorandum, exempt
from registration under section 144a of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other
"accredited Investors". These securities have been determined to be liquid
under the guidelines established by the Board of Directors.
(B) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995.
(C) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset or demand date.
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
RB--Revenue Bond
RTC--Resolution Trust Corporation
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
INTERMEDIATE TERM INCOME FUND
Description Par (000) Value (000)
U.S. TREASURY OBLIGATIONS--59.8%
U.S. Treasury Notes
5.500%, 07/31/97 $12,590 $12,517
5.125%, 02/28/98 11,115 10,926
5.125%, 11/30/98 10,615 10,368
6.750%, 04/30/00 5,230 5,377
6.250%, 02/15/03 8,915 8,966
7.250%, 08/15/04 5,770 6,166
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $53,380) 54,320
OTHER MORTGAGED BACKED OBLIGATIONS--9.9%
Drexel Burnham Lambert Trust S2
9.000%, 08/01/18 91 96
GECMS
6.000%, 04/25/09 2,925 2,822
Kidder Peabody Mortgage Assets
Trust 6F
7.950%, 07/20/18 513 516
MDC Mortgage Funding P3
8.200%, 11/20/17 22 23
Morgan Stanley Mortgage Trust W5
9.050%, 05/01/18 168 177
Prudential Home Mortgage Securities
1992-A3
7.000%, 04/25/99 1,978 2,010
Prudential Home Mortgage Securities
Remic 1994-28
6.801%, 09/25/01 2,275 2,239
Resolution Trust 1991-M6 B2
7.000%, 06/25/21 (B) 1,170 1,154
TOTAL OTHER MORTGAGED BACKED OBLIGATIONS
(Cost $8,828) 9,037
CORPORATE OBLIGATIONS--9.5%
Bear Stearns
6.500%, 06/15/00 2,800 2,779
Cigna
7.400%, 01/15/03 3,075 3,106
Farmers Group
8.250%, 07/15/96 320 325
GMAC
7.650%, 01/16/98 2,385 2,451
TOTAL CORPORATE OBLIGATIONS
(Cost $8,768) 8,661
ASSET BACKED SECURITIES--7.4%
BW Home Equity Trust 1990-1 1
9.250%, 09/15/05 25 26
Chemical Financial Acceptance 1991-A 1
6.450%, 12/15/97 577 577
Fleet Finance Home Equity 1990-1
8.900%, 01/16/06 90 92
Household Finance Home Equity 1993-2 A3
4.650%, 12/20/08 $ 2,101 $ 2,044
Olympic Auto Receivables Trust 1993-D
4.750%, 07/15/00 1,574 1,550
Olympic Auto Receivables Trust 1994-A
5.700%, 01/15/01 368 366
Zale Funding Series 94-1, Class B
7.500%, 05/15/03 (B) 2,000 2,036
TOTAL ASSET BACKED SECURITIES
(Cost $6,669) 6,691
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS--6.6%
FHLMC
6.000%, 11/15/08 3,500 3,188
7.550%, 05/15/20 93 92
8.000%, 10/15/20 2,630 2,704
FNMA
14.750%, 03/01/12 1 1
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $6,192) 5,985
MASTER NOTES--1.6%
Goldman Sachs
5.830%, 10/03/95 (A) 1,435 1,435
TOTAL MASTER NOTES
(Cost $1,435) 1,435
REPURCHASE AGREEMENTS--4.1%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$1,126,239 (collateralized by various
U.S. Treasury STRIPS, total par value
$3,523,710, 11/15/00 - 11/15/24,
total market value $1,148,162) 1,126 1,126
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$2,557,464 (collateralized by various
U.S. Treasury Bills, total par value
$546,114, 03/07/96 - 09/19/96: U.S.
Treasury Bonds, total par value
$1,601,826, 7.625% - 13.750%,
11/15/03 - 11/15/10: total market
value $2,607,398) 2,556 2,556
TOTAL REPURCHASE AGREEMENTS
(Cost $3,682) 3,682
TOTAL INVESTMENTS--98.9%
(Cost $88,954) 89,811
OTHER ASSETS AND LIABILITIES--1.1%
Other assets and liabilities, Net 1,001
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 8,887,937 outstanding shares $87,916
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on 245,108
outstanding shares 2,494
Undistributed net investment income 1
Accumulated net realized loss on investments (456)
Net unrealized appreciation of investments 857
TOTAL NET ASSETS:--100.0% $90,812
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 9.94
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE--RETAIL CLASS A $ 9.94
MAXIMUM SALES CHARGE OF 3.75%+ 0.39
OFFERING PRICE PER SHARE--RETAIL CLASS A $10.33
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.75%.
(A) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30,1995. The
date shown is the longer of the reset date or the demand date.
(B) Security sold within the terms of a private placement memorandum, exempt
from registration under section 144A of the Securities Act of 1933, as
amended, and maybe sold only to dealers in that program or other
"accredited investors." These securities have been determined to be liquid
under the guidelines established by the Board of Directors.
FHLMC--Federal Home Loan Mortgage Corportation
FNMA--Federal National Mortgage Association
GMAC--General Motors Acceptance Corporation
GECMS--General Electric Capital Marketing Service
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
FIXED INCOME FUND
Description Par (000) Value (000)
U. S. TREASURY OBLIGATIONS--53.3%
U.S. Treasury Bond
7.125%, 02/15/23 $39,865 $ 42,258
U.S. Treasury Notes
5.500%, 07/31/97 41,865 41,624
5.125%, 02/28/98 28,780 28,291
5.125%, 11/30/98 9,725 9,499
6.750%, 04/30/00 29,365 30,191
7.250%, 08/15/04 9,315 9,955
U.S. Treasury STRIPS
0.000%, 02/15/99 1,055 866
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $158,734) 162,684
OTHER MORTGAGE-BACKED OBLIGATIONS--17.7%
Collateralized Mortgage Corporation
88-13 C
8.000%, 09/20/19 126 128
Countrywide Mortgage-Backed
Securities 1994-GA3
6.500%, 04/25/24 2,380 2,331
Drexel Burnham Lambert Trust S-2
9.000%, 08/01/18 796 840
General Electric Capital Marketing
1994-12 A4
6.000%, 04/25/09 3,125 3,015
General Electric Capital Mortgage
1994-11 A1
6.500%, 03/25/24 4,295 4,271
General Electric Capital Mortgage
1994-17 A6
7.000%, 05/25/24 7,000 6,877
General Electric Capital Mortgage
1994-17 A7
7.000%, 05/25/24 5,179 4,885
Goldman Sachs Trust 1 A
6.388%, 05/01/17 (A) 6,454 6,450
J.P. Morgan Commercial Mortgage
Finance 1995-C1 B
7.618%, 07/25/10 10,329 10,444
Merrill Lynch Mortgage Investors
1993-A4
6.875%, 03/15/18 (A) 6,000 6,000
Prudential Home Mortgage Securities
1994-28
6.801%, 09/25/01 (C) 5,975 5,882
Prudential Home Mortgage Securities
1994-6 A3
7.000%, 04/25/99 848 861
Residential Funding 1992-36 A2 P11
5.700%, 11/25/07 1,097 1,079
RTC 1991-M6 B2
7.000%, 06/25/21 (C) 924 912
TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS
(Cost $52,850) 53,975
CORPORATE DEBT OBLIGATIONS--11.0%
Bear Stearns
9.125%, 04/15/98 $ 1,000 $ 1,061
8.750%, 03/15/04 1,000 1,105
Cigna
7.400%, 01/15/03 10,250 10,352
Farmers Group
8.250%, 07/15/96 1,755 1,785
General Foods
6.000%, 06/15/01 1,440 1,413
General Motors Acceptence
6.150%, 05/11/98 2,025 2,012
Morgan Stanley Group
7.320%, 01/15/97 250 253
Nationsbank
7.750%, 08/15/04 1,000 1,060
Santander Financial Issuances
6.800%, 07/15/05 9,465 9,311
Torchmark
9.625%, 05/01/98 250 268
7.875%, 05/15/23 5,000 5,038
TOTAL CORPORATE DEBT OBLIGATIONS
(Cost $33,467) 33,658
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS--6.2%
FHLMC
6.000%, 11/15/08 1,275 1,162
6.500%, 12/15/23 5,439 5,008
6.500%, 01/15/24 6,445 5,429
7.000%, 02/15/24 7,133 7,180
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $18,176) 18,779
ASSET BACKED SECURITIES--4.4%
BW Home Equity Trust 1990-1 1
9.250%, 09/15/05 81 84
CoreStates Home Equity Trust 1994-2 A2
7.000%, 10/15/09 6,500 6,501
Dillon Reed Structured Finance
1993-K1 A1
6.660%, 08/15/10 580 558
Kidder Peabody Acceptance Brandon
Development
7.870%, 01/01/16 (C) 628 569
Kidder Peabody Acceptance Lake Mary
Development
7.870%, 01/01/16 (C) 1,296 1,174
Morgan Stanley Mortgage Trust
9.050%, 05/01/18 $ 40 $ 42
Olympic Auto Receivables Trust 1994-A
5.700%, 01/15/01 473 470
Zale Funding 1994-1 B
7.500%, 05/15/03 (C) 4,100 4,174
TOTAL ASSET BACKED SECURITIES
(Cost $12,950) 13,572
TAXABLE MUNICIPAL BONDS--3.1%
Minneapolis, Minnesota, Single Family Mortgage,
Callable 10/01/05 @ 100 (RB)
6.920%, 04/01/09 8,415 8,415
San Diego County, California Pension
Obligation, Series A(RB)(AMBAC)
6.560%, 08/15/06 1,000 980
TOTAL MUNICIPAL BONDS
(Cost $9,383) 9,395
MASTER NOTE--1.0%
Goldman Sachs
5.830%, 10/3/95 (B) 2,960 2,960
TOTAL MASTER NOTE
(Cost $2,960) 2,960
REPURCHASE AGREEMENT--5.0%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$6,766,517 (collateralized by various
U.S. Treasury STRIPS, total par value
$21,170,673, 05/15/00 - 05/15/24:
total market value $6,898,232) 6,763 6,763
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$8,381,012 (collateralized by various
U.S. Treasury Bills, total par value
$1,789,657, 03/07/96 - 09/19/96: U.S.
Treasury Bonds, total par value
$5,249,310, 7.625% - 13.750%,
11/15/03 - 11/15/10: total market
value $8,544,647) 8,377 8,377
TOTAL REPURCHASE AGREEMENT
(Cost $15,140) 15,140
TOTAL INVESTMENTS--101.7%
(Cost $303,659) 310,163
OTHER ASSETS AND LIABILITIES--(1.7%)
Other Assets and Liabilities, Net (5,214)
NET ASSETS:
Portfolio Shares--Institutional Class ($.0001
par value--2 billion authorized) based on
26,410,097 outstanding shares $280,882
Portfolio Shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 715,075
outstanding shares 7,906
Portfolio Shares--Retail Class B ($.0001 par
value--2 billion authorized) based on 665,639
outstanding shares 7,159
Undistributed net investment income 134
Accumulated net realized gain on investments 2,364
Net unrealized appreciation of investments 6,504
TOTAL NET ASSETS:--100.0% $304,949
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.97
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE--RETAIL CLASS A $10.98
Maximum sales charge of 3.75%+ 0.43
OFFERING PRICE PER SHARE--RETAIL CLASS A $11.41
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $10.94
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.75%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995.
(B) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset date or the demand date.
(C) Security sold within the terms of a private placement memorandum, exempt
from registration under section 144A of the Securities Act of 1993, as
amended, and may be sold only to dealers in that program or other
"accredited investors." These securities have been determined to be liquid
under guide lines established by the Board of Directors.
AMBAC--American Municipal Bond Assurance Company
FHLMC--Federal Home Loan Mortgage Corporation
RB--Revenue Bond
RTC--Resolution Trust Corporation
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
INTERMEDIATE GOVERNMENT BOND FUND
Description Par (000) Value (000)
U.S. TREASURY OBLIGATIONS--85.3%
U.S. Treasury Notes
6.125%, 07/31/96 $ 3,000 $ 3,009
6.250%, 08/31/96 3,000 3,013
6.875%, 10/31/96 3,500 3,540
6.500%, 05/15/97 2,000 2,020
6.500%, 08/15/97 7,000 7,079
7.375%, 11/15/97 11,500 11,834
7.875%, 04/15/98 6,000 6,275
5.125%, 11/30/98 4,500 4,395
6.750%, 05/31/99 9,000 9,224
6.875%, 07/31/99 3,000 3,088
7.125%, 09/30/99 9,000 9,352
6.875%, 03/31/00 4,000 4,130
6.250%, 05/31/00 1,000 1,009
7.875%, 08/15/01 2,000 2,175
7.500%, 11/15/01 5,750 6,158
7.500%, 05/15/02 2,000 2,151
6.375%, 08/15/02 250 254
7.250%, 05/15/04 8,600 9,178
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $84,794) 87,884
U.S. GOVERNMENT AGENCY OBLIGATIONS--11.9%
FHLB
6.200%, 01/22/96 2,000 2,004
7.900%, 12/20/96 1,000 1,003
7.750%, 02/26/97 3,000 3,076
7.870%, 12/15/97 3,000 3,113
6.975%, 07/26/99 1,000 1,032
7.440%, 08/10/01 1,000 1,057
SLMA
6.490%, 05/01/96 (A) 1,000 1,005
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $12,039) 12,290
REPURCHASE AGREEMENTS--0.6%
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$625,824 (collateralized by various
U.S. Treasury Bills, total par value
$133,637, 06/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$391,975, 7.625%-12.750%,
11/15/03-11/15/10: total market value
$638,043) 626 626
TOTAL REPURCHASE AGREEMENTS
(Cost $626) 626
TOTAL INVESTMENTS--97.8%
(Cost $97,459) 100,800
OTHER ASSETS AND LIABILITIES--2.2%
Other Assets and Liabilities, Net $ 2,228
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized) based on
10,785,155 outstanding shares 96,942
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
307,668 outstanding shares 2,891
Undistributed net investment income 9
Accumulated net realized loss on investments (155)
Net unrealized appreciation of investments 3,341
TOTAL NET ASSETS:--100.0% $103,028
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE--INSTITUTIONAL CLASS $ 9.29
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 9.29
MAXIMUM SALES CHARGE OF 3.00%+ 0.29
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 9.58
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.00%.
(A) Floating Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995.
FHLB--Federal Home Loan Bank
SLMA--Student Loan Marketing Association
MORTGAGE SECURITIES FUND
Description Par (000) Value (000)
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS--76.5%
FHLMC
7.250%, 12/01/98 $ 80 $ 80
7.750%, 10/01/01 64 64
8.500%, 10/01/01 55 57
8.500%, (REMIC) Pool 118-E
05/15/05 248 249
7.400%, (REMIC) Pool 1342-F
10/15/05 1,550 1,558
6.500%, 09/01/07 214 207
8.000%, 04/01/08 268 272
8.000%, 10/01/08 135 137
6.000%, (CMO) Pool 1606-H
11/15/08 615 560
8.750%, 09/01/09 372 384
8.500%, 01/01/10 123 127
14.500%, 02/01/11 2 2
8.000%, 06/01/16 97 98
9.000%, 07/01/16 54 56
8.000%, 10/01/16 133 135
7.500%, 11/01/16 102 102
5.000%, 11/15/17 1,500 1,448
FNMA
8.000%, 08/01/96 2 2
8.670%, 06/01/97 (A) 20 19
6.000%, (REMIC) Pool 1993-212
10/25/98 1,148 1,144
5.750%, (REMIC) Pool 1993-181-DA
11/25/98 962 952
8.000%, 05/01/08 207 212
6.000%, 06/25/08 1,300 1,209
7.000%, 11/25/10 151 151
14.750%, 03/01/12 52 60
5.900%, (REMIC) Pool 1993-G93-26
07/25/15 1,500 1,464
8.250%, (REMIC) Pool G-19-D
07/25/15 730 732
8.500%, 01/01/17 167 173
7.500%, 04/01/18 99 100
7.000%, (REMIC) Pool 1992-180-H
10/25/19 1,500 1,495
6.750%, 11/25/19 1,000 986
5.000%, (REMIC) Pool 1993-97
05/25/23 1,400 1,334
GNMA
10.250%, 05/15/98 41 44
10.750%, 09/15/98 34 37
10.750%, 10/15/00 71 77
10.750%, 01/15/01 100 108
6.500%, 06/15/03 147 142
8.000%, 08/15/06 117 121
8.000%, 08/15/07 174 179
8.500%, 07/15/08 36 38
8.500%, 08/15/08 249 259
9.500%, 08/15/09 12 13
14.000%, 10/15/12 9 11
12.000%, 03/15/14 55 63
12.000%, 03/15/15 28 32
12.000%, 04/15/15 25 29
12.000%, 06/15/15 $ 47 $ 53
10.000%, 03/15/16 28 31
9.500%, 09/15/16 181 194
9.000%, 10/15/16 17 18
9.000%, 02/15/17 344 362
9.500%, 11/15/18 404 431
6.500%, 02/16/23 2,297 2,207
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $19,890) 20,018
OTHER MORTGAGE-BACKED OBLIGATIONS--15.1%
American Housing Trust 3 B
7.500%, 08/25/12 1,062 1,066
Bear Stearns Secured Investors Trust
1991-2 E
7.500%, 12/20/98 1,500 1,519
Collateralized Mortgage Obligation
Trust 63 D
9.000%, 04/20/97 897 901
Morgan Stanley Mortgage Trust W 5
9.050%, 05/01/18 427 450
TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS
(Cost $3,936) 3,936
U. S. TREASURY OBLIGATIONS--3.7%
U.S. Treasury Notes
6.750%, 04/30/00 480 493
6.250%, 02/15/03 480 483
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $962) 976
REPURCHASE AGREEMENTS--3.9%
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$1,014,251 (collateralized by various
U.S. Treasury Bills, total par value
$216,580, 03/07/96 - 09/19/96: U.S.
Treasury Bonds, total par value $635,259,
7.625% - 13.750%, 11/15/03 - 11/15/10:
total market value $1,034,053) 1,014
TOTAL REPURCHASE AGREEMENTS (Cost $1,014) 1,014
TOTAL INVESTMENTS--99.2% (Cost $25,802) 25,944
OTHER ASSETS AND LIABILITIES--0.8%
Other Assets and Liabilities, Net 214
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 2,545,986 outstanding shares $25,862
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
18,431 outstanding shares 185
Accumulated net realized loss on investments (31)
Net unrealized appreciation of investments 142
TOTAL NET ASSETS:--100.0% $26,158
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.20
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 10.20
MAXIMUM SALES CHARGE OF 3.75%+ 0.40
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.60
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.75%
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995.
CMO--Collateralized Mortgage Obligation
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
REMIC--Real Estate Mortgage Investment Conduit
LIMITED TERM TAX FREE INCOME FUND
Description Par (000)/Shares Value (000)
MUNICIPAL BONDS--88.4%
ALASKA--3.7%
North Slope Borough, Series 1994 B (GO)
(CGIC)
5.200%, 06/30/96 $250 $252
ARIZONA--6.0%
Maricopa County, Elementary School
District #17 (GO) (AMBAC)
0.000%, 07/01/98 465 413
CALIFORNIA--7.0%
Roseville, Joint Union High School
District (GO) (FGIC)
0.00%, 08/01/97 250 232
San Gorgonio, Memorial Health Care
District, Insured Health Facility,
Series 95 (RB) (CMI)
5.150%, 06/01/97 250 252
484
COLORADO--9.0%
Adams County (GO)
7.200%, 12/15/97 200 208
Denver City & County Airport, Series C,
Mandatory Put @ 100 (RB) (ST)
6.000%, 04/01/97 (B) 400 410
TOTAL COLORADO 618
ILLINOIS--3.7%
Aurora, Kane, & Dupage Counties, Single
Family Mortgage, Series 95 A (RB)
(GNMA) (AMT)
6.100%, 04/01/08 250 251
MASSACHUSETTS--3.7%
Housing Finance Agency, Insured Rental
Housing, Series A (RB) (AMBAC) (AMT)
4.900%, 01/01/97 250 251
MINNESOTA--32.4%
Crosby, Minnesota Power & Light (RB)
4.600%, 06/01/96 (A) 240 240
Dakota County, Housing & Redevelopment
Authority, Callable 04/01/05 @ 102 (RB)
(AMT) (GNMA/FNMA)
6.000%, 10/01/14 250 248
Fridley, Commercial Development,
Mandatory Put @ 100 (RB) (AMT)
4.900%, 09/01/96 (B) 235 236
Housing Finance Agency, Single Family
Mortgage, Series C (RB)
5.800%, 07/01/96 $ 180 $ 181
Minneapolis, Special School District #1
(COP) (MLO)
4.750%, 06/01/96 300 301
Northern Municipal Power Agency (RB)
7.000%, 01/01/97 220 226
Southern Municipal Power Agency (RB)
5.000%, 01/01/98 250 253
St Paul, Independent School District
#625 (GO) (ISF)
6.500%, 02/01/97 300 312
West St. Paul, School District #197
(GO) (ISF) (MBIA)
0.000%, 02/01/98 250 226
2,223
MISSISSIPPI--7.3%
Delta Correctional Facilities Authority
(RB) (CGIC) (MLO)
4.450%, 07/01/98 500 501
TENNESSEE--4.0%
Local Development Authority,
Community Provider Loan Program (RB)
4.600%, 10/01/96 275 276
TEXAS--4.8%
State (GO)
6.700%, 12/01/96 320 330
WISCONSIN--3.1%
Williams Bay, School District (GO)
(AMBAC)
7.125%, 04/01/98 200 213
WYOMING--3.7%
State Student Loan Program (RB) (AMT)
6.000%, 12/01/97 250 255
TOTAL MUNICIPAL BONDS
(Cost $6,009) 6,067
CASH EQUIVALENTS--9.6%
Federated Minnesota Municipal Cash
Trust 336,160 336
Federated Tax Free Money Market 324,798 325
TOTAL CASH EQUIVALENTS
(Cost $661) 661
TOTAL INVESTMENTS--98.0%
(Cost $6,670) 6,728
OTHER ASSETS AND LIABILITIES--2.0%
Other Assets and Liabilities, Net 138
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 630,929 outstanding shares $6,281
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based
on 51,708 outstanding shares 512
Undistributed net investment income 16
Accumulated net realized loss on investments (1)
Net unrealized appreciation on investments 58
TOTAL NET ASSETS:--100.0% $6,866
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $10.06
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--
RETAIL CLASS A $10.06
MAXIMUM SALES CHARGE OF 2.00%+ 0.21
OFFERING PRICE PER SHARE--RETAIL CLASS A $10.27
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 2.00%.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995.
(B) Mandatory Put Security--the mandatory put date is shown as the maturity
date on the Statement of Net Assets.
AMT--Alternative Minimum Tax
AMBAC--American Municipal Bond Assurance Company
CGIC--Capital Guaranty Insurance Company
CMI--California Mortgage Insurers
COP--Certificates of Participation
FNMA--Federal National Mortgage Association
FGIC--Financial Guaranty Insurance Corporation
GNMA--Government National Mortgage Association
GO--General Obligation
ISF--Insured by State Funds
MBIA--Municipal Bond Insurance Association
MLO--Municipal Lease Obligation
RB--Revenue Bond
ST--Sumitomo Trust
INTERMEDIATE TAX FREE FUND
Description Par (000)/Shares Value (000)
MUNICIPAL BONDS--94.6%
CALIFORNIA--8.8%
Contra Costa, Water District, Callable
10/01/04 @ 102 (RB) (MBIA)
5.800%, 10/01/07 $1,000 $1,041
Orange County, Refunding Recovery (RB)
(MBIA)
5.000%, 06/01/01 500 503
Orange County, Transportation Authority, Callable
02/15/02 @ 102 (RB)
5.700%, 02/15/03 200 205
San Bernadino County, Medical Center,
Series A (MLO) (MBIA)
4.800%, 08/01/00 500 507
San Diego, District Number 1 Park
Facilities, Callable 01/01/04 @ 101, (RB)
5.625%, 01/01/06 200 208
State Health Facilities Authority,
Callable 10/01/98 @ 102 (RB) (CMI)
7.250%, 10/01/99 500 538
Suisun City, Redevelopment Agency Tax Allocation,
Pre-refunded @ 102 (RB)
7.250%, 04/01/00 (A) 1,000 1,131
4,133
COLORADO--8.5%
Arvada, Sales & Use Tax, Callable
12/01/2002 @ 100 (RB) (FGIC)
5.900%, 12/01/05 1,000 1,045
Colorado Springs Utilities, Crossover
Refunding, Series A (RB)
6.350%, 11/15/01 1,000 1,105
State Health Facilities Authority, Vail
Valley Medical Center, Series A (RB)
5.300%, 01/15/00 500 500
5.450%, 01/15/01 500 500
State Housing Finance Authority, Single
Family Mortgages, Callable 08/01/99 @
102 (RB) (FHA/VA)
7.400%, 08/01/09 815 839
3,989
FLORIDA--2.4%
North Brevard County, Health, Hospital,
& Nursing Home Improvements, Jess
Parish Memorial Hospital (RB) (AMBAC)
6.800%, 09/01/96 15 15
Reedy Creek, Utility, Callable 10/01/97
@ 102 (RB)
8.900%, 10/01/03 1,000 1,105
1,120
ILLINOIS--5.5%
Aurora, Kane, & Dupage Counties, Single
Family Mortgage, Series 1995-A (RB)
(GNMA) (AMT)
6.100%, 04/01/08 $ 750 $ 754
Peoria, Moline, & Freeport, Single
Family Mortgages, Series 1995-A,
Callable 10/01/05 @103 (RB) (AMT)
5.600%, 10/01/10 (B) 1,270 1,272
State Development Finance Authority,
Lockport Township High School
(RB)(FGIC)
0.000%, 01/01/01 750 582
2,608
INDIANA--0.9%
Perry Township, Multi-School Building, Escrowed To
Maturity (RB) (STAID)
7.000%, 07/01/97 15 16
State Housing Finance Authority,
Callable 01/01/98 @ 102.5 (RB) (FPI)
7.800%, 01/01/99 415 429
445
IOWA--0.2%
Davenport, Home Ownership Mortgage,
Series 1994 (RB)
4.000%, 03/01/03 75 74
MICHIGAN--5.0%
Dearborn School District, Callable
05/01/03 @ 101.5 (GO) (MBIA)
4.850%, 05/01/05 1,100 1,079
Detroit, Pre-refunded @ 102 (GO)
8.000%, 04/01/01 (A) 1,000 1,176
St. Joseph, Hospital Finance Authority
(RB) (AMBAC)
4.750%, 01/01/02 100 99
2,354
MINNESOTA--16.3%
Anoka County, Solid Waste Disposal (RB)
(CFC) (AMT)
6.000%, 12/01/98 1,000 1,042
Bloomington, Mall of America, Series A,
Callable 02/01/04 @ 100 (RB)
5.450%, 02/01/09 1,000 1,023
Burnsville Apartment Projects, Series A,
Putable 12/01/98 @ 100, Callable 06/01/95
@ 101 (RB)
5.000%, 12/01/08 1,000 1,000
Minneapolis & St Paul, Housing &
Redevelopment Authority, Callable
11/15/03 @ 102 (RB) (AMBAC)
4.750%, 11/15/18 $1,000 $ 845
Minneapolis, Hennepin Avenue,
Series C (GO)
6.200%, 03/01/02 800 860
Robbinsdale, North Memorial Medical
Center, Callable 05/15/03 @ 102 (RB)
(AMBAC)
5.450%, 05/15/13 1,000 958
Southern Minnesota Municipal Power
Authority, Callable 01/01/03 @ 102 (RB)
(FGIC)
5.000%, 01/01/06 500 496
Wayzata, School District, Series B,
Callable 02/01/03 @ 100 (RB) (FGIC)
4.900%, 02/01/07 1,500 1,435
7,659
MISSISSIPPI--2.0%
Delta Correctional Facilities Authority
(RB) (MLO) (FGIC)
4.950%, 07/01/01 925 934
MISSOURI--2.3%
Kansas City, School District (RB) (MLO) (FGIC)
6.300%, 02/01/00 1,000 1,071
NEW JERSEY--2.2%
State Transportation System, Series A
(RB) (AMBAC)
5.200%, 12/15/00 1,000 1,033
NEW MEXICO--1.7%
Farmington, Utility Systems, Escrowed
to Maturity (RB)
10.000%, 01/01/02 685 814
NEW YORK--3.0%
Environmental Facilities, Pollution Control,
Callable 11/15/04 @ 102 (RB)
6.400%, 05/15/06 1,250 1,405
NORTH DAKOTA--3.4%
Bismarck, Hospital Authority (RB)
(AMBAC)
6.250%, 05/01/99 1,000 1,055
Fargo, Water Utilities, Callable
01/01/2000 @ 100 (RB)
5.900%, 01/01/02 500 523
State Bank Capital Financing Program,
Series E (GO)
6.400%, 12/01/95 20 20
1,598
OHIO--4.4%
Kings County, Local School District,
Callable 12/01/05 @100 (GO) (FGIC)
5.750%, 12/01/10 $1,000 $1,020
West Clermont, Local School District,
Callable 12/01/05 @ 100 (GO) (AMBAC)
5.650%, 12/01/08 1,030 1,061
2,081
OKLAHOMA--0.6%
Oklahoma County, Home Finance
Authority, Pre-refunded @ 100 (RB)
0.000%, 03/01/06 (A) 790 262
OREGON--2.8%
Deschutes & Jefferson Counties,
School District (GO) (MBIA)
5.000%, 06/01/02 500 511
Multnomah County, School District (GO)
5.100%, 06/01/03 500 508
State (GO)
7.000%, 07/01/01 250 283
1,302
PENNSYLVANIA--2.4%
Northumberland County, Commonwealth
Lease, Callable 10/15/01 @ 100 (RB) (MLO)
6.600%, 10/15/02 1,000 1,108
PUERTO RICO--3.0%
Commonwealth (GO) (MBIA)
5.500%, 07/01/01 1,000 1,050
Housing Finance Authority, Single
Family Mortgage (RB) (GNMA)
5.800%, 10/15/00 250 256
6.000%, 02/01/02 110 113
1,419
SOUTH DAKOTA--1.2%
Sioux Falls (GO) (MLO)
6.450%, 08/01/01 500 549
TENNESSEE--1.1%
Nashville & Davidson County,
Metropolitan Government, Callable
12/01/01 @ 100 (GO)
6.200%, 12/01/09 500 528
TEXAS--0.0%
San Antonio, Electric & Gas
Improvement (RB)
6.900%, 02/01/96 15 15
UTAH--1.2%
Intermountain Power, Callable
07/01/98 @ 102 (RB)
7.625%, 07/01/08 $ 500 $ 543
VIRGINIA--8.7%
Peninsula Regional Jail Authority
(RB) (MBIA)
5.300%, 10/01/09 1,000 988
Riverside, Regional Jail Authority,
Callable 07/01/05 @ 102 (RB) (MBIA)
5.700%, 07/01/08 2,000 2,079
Virginia Beach, Callable 11/01/04
@ 102 (GO) (STAID)
5.500%, 11/01/05 1,000 1,018
4,085
WASHINGTON, D.C.--0.4%
District of Columbia, Callable
06/01/98 @ 101.5 (GO) (MBIA)
6.750%, 06/01/01 200 213
WEST VIRGINIA--2.1%
State Hospital Finance Authority,
(RB) (MBIA)
5.000%, 09/01/05 1,000 988
WISCONSIN--4.5%
Milwaukee County, Callable 09/01/02
@ 100 (GO)
5.550%, 09/01/03 1,000 1,039
Oak Creek, Water Works System,
Callable 12/01/95 @ 100 (RB)
5.600%, 12/01/96 25 25
State, Pre-refunded @ 100 (GO)
6.900%, 05/01/98 (A) 1,000 1,062
2,126
TOTAL MUNICIPAL BONDS
(Cost $43,322) 44,456
CASH EQUIVALENTS--3.9%
Federated Minnesota Municipal Cash
Trust 782,812 783
Federated Tax Free Money Market 1,046,031 1,046
TOTAL CASH EQUIVALENTS
(Cost $1,829) 1,829
TOTAL INVESTMENTS--98.5%
(Cost $45,151) 46,285
OTHER ASSETS AND LIABILITIES--1.5%
Other Assets and Liabilities, Net 723
NET ASSETS:
Portfolio shares--Institutional Class ($.0001 par
value--2 billion authorized) based on 4,295,302
outstanding shares $44,561
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 91,683
outstanding shares 977
Undistributed net investment income 1
Accumulated net realized gain on investments 335
Net unrealized appreciation of investments 1,134
TOTAL NET ASSETS:--100.0% $47,008
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.72
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 10.72
MAXIMUM SALES CHARGE OF 3.00%+ 0.33
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 11.05
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.00%.
(A) The Pre-refunded date is shown as the maturity date on the Statement of Net
Assets.
(B) When issued security (Total cost $1,270,000)
AMBAC--American Municipal Bond Assurance Company
AMT--Alternative Minimum Tax
CFC--National Rural Utilities Co-op Finance Corporation
CMI--California Municipal Insurers
COP--Certificates of Participation
FGIC--Federal Guaranty Insurance Company
FHA--Federal Housing Authority
FPI--Foremost Pool Insurance
GO--General Obligation
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Insurance Association
MLO--Municipal Lease Obligation
RB--Revenue Bond
STAID--State Aid Withholding
VA--Veterans Administration
COLORADO INTERMEDIATE TAX FREE FUND
Description Par (000)/Shares Value (000)
MUNICIPAL BONDS--97.2%
COLORADO--97.2%
Adams County, School District #12,
Callable 12/15/96 @ 101 (GO)
7.650%, 12/15/03 $ 975 $1,018
Arapahoe County, Cherry Creek School
District #5, Callable 12/15/00 @ 101
(GO)
6.800%, 12/15/01 1,000 1,111
Arapahoe County, Cherry Creek School
District #5, Callable 12/15/95 @ 102
(GO)
5.600%, 12/15/97 1,000 1,023
Auraria, Higher Education Center,
Callable 04/01/2003 @ 101 (RB) (FSA)
5.000%, 04/01/05 500 494
Aurora, Callable 12/01/04 @ 101 (COP) (MLO)
6.000%, 12/01/06 1,000 1,031
Aurora, Community College Project (RB)
(MLO) (CLE)
5.750%, 10/15/04 500 524
Boulder County, Sales & Use Tax
(RB) (FGIC)
5.750%, 12/15/05 1,000 1,048
Boulder Valley, School District #Re 2,
Callable 10/15/01 @ 100 (GO)
5.900%, 10/15/02 500 531
5.900%, 10/15/03 500 527
Boulder Valley, School District #Re 2,
Callable 12/01/04 @ 101, 12/01/06
@ 100 (GO) (STAID)
5.950%, 12/01/07 1,000 1,061
Boulder, Callable 10/01/01 @ 101 (GO)
5.700%, 10/01/04 250 262
Boulder, Larimer, & Weld Counties,
Vrain Valley School District #Re 1JT,
Callable 12/15/02 @ 101 (GO) (MBIA)
6.000%, 12/15/10 1,000 1,036
Boulder, Larimer, & Weld Counties,
Vrain Valley School District,
Pre-refunded @ 101 (GO)
7.200%, 12/15/99 (A) 500 556
Boulder, Urban Renwal Tax Allocation
(RB) (MBIA)
5.700%, 03/01/00 1,250 1,309
Brighton, Callable 12/01/01
@ 101 (GO) (MBIA)
6.350%, 12/01/05 500 536
Broomfield, Callable 11/01/96
@ 101 (GO)
7.600%, 11/01/03 1,000 1,040
Centennial Water & Sanitation, Series A,
Callable 12/01/96 @ 101 (GO) (SWB)
4.750%, 12/01/97 $ 500 $ 508
Colorado Springs, Series A, Callable
11/15/01 @ 102 (RB)
6.625%, 11/15/04 1,000 1,111
6.500%, 11/15/15 945 990
Denver, City & County Airport, Series C,
Mandatory Put @ 100 (RB) (ST)
6.000%, 12/01/25 (B) 1,250 1,281
Denver, City & County Airport, Series D
(RB) (MORG)
4.500%, 11/15/25 500 500
Denver, City & County School District
#1, Series A (GO)
5.200%, 12/01/03 250 254
Douglas & Elbert Counties, School
District #1, Callable 12/15/04 @ 101
(GO) (MBIA)
6.400%, 12/15/11 1,000 1,060
Eagle, Garfield, & Routt Counties,
School District #50 J, Callable
12/01/04 @ 102 (GO) (FGIC)
6.125%, 12/01/09 1,290 1,348
El Paso County, School District
#2 Harrison (GO)
7.050%, 12/01/04 1,000 1,134
El Paso County, School District
#20 (COP) (MLO)
6.100%, 12/01/99 250 261
Fort Collins, Callable 12/01/02
@ 101 (GO)
5.550%, 12/01/03 500 526
6.400%, 12/01/09 575 612
Garfield, Pitkin, & Eagle Counties,
School District #1 (GO) (MBIA)
6.000%, 12/15/04 1,000 1,078
Jefferson County, Industrial
Development (RB)
6.625%, 09/01/01 250 270
Jefferson County, Metropolitain Y.M.C.A.,
Callable 08/01/04 @ 100 (RB)
7.500%, 08/01/08 1,000 1,024
Jefferson County, School District #R 1,
Callable 12/15/02 @ 101 (GO) (AMBAC)
5.900%, 12/15/04 1,000 1,064
La Plata County, School Districts #9 &
Durango, Callable 11/01/02 @ 101 (GO)
(FGIC)
6.200%, 11/01/05 1,000 1,069
Larimer County, School District #R 1
Poudre (GO)
5.400%, 12/15/04 $ 750 $ 756
Larimer, Weld, & Boulder Counties,
School District #R 2J Thompson,
Callable 12/15/04 @ 100 (GO)
5.900%, 12/15/06 1,000 1,039
Longmont, Callable 09/01/01 @ 100 (GO)
6.000%, 09/01/03 500 526
Louisville, Callable 06/01/98 @ 101
(GO) (FGIC)
7.200%, 12/01/04 465 496
Morgan City, Pollution Control, Series
A, Callable 6/01/03 @ 101, 6/01/04 @
100 (RB) (MBIA)
5.500%, 06/01/12 1,000 976
Northglenn, Callable 11/01/96 @ 101
(GO) (MBIA)
6.400%, 11/01/98 500 516
7.125%, 11/01/06 500 516
Platte River Power Authority,
Series BB (RB)
5.500%, 06/01/02 500 524
Poudre Valley, Hospital District,
Pre-refunded @ 101 (RB)
6.700%, 11/15/98 (A) 500 538
Pueblo County, Single Family Mortgage,
Callable 11/01/04 @ 102 (RB)
(GNMA/FNMA)
6.400%, 11/01/13 1,100 1,115
Pueblo, Urban Renewal Authority,
Callable 12/1/03 @ 101 (RB) (AMBAC)
5.800%, 12/01/09 840 860
Regional Transit District (RB)
5.750%, 11/01/01 2,000 2,117
South Suburban Park & Recreation
District (GO) (MBIA)
0.000%, 12/15/01 1,000 748
State Board of Agriculture, Fort Lewis
College (RB) (FGIC)
6.000%, 10/01/02 250 268
State Housing Finance Authority (RB)
5.000%, 06/01/04 160 153
State Housing Finance Authority,
Multi-family Housing,
Series A (RB) (FHA)
5.125%, 10/01/03 695 675
State Housing Finance Authority,
Single Family Mortgage, Series B-1
(RB) (AMT)
5.875%, 06/01/11 1,000 999
State Housing Finance Authority,
Single Family Mortgage, Series C-2
(RB) (FHA) (AMT)
6.850%, 08/01/22 $ 320 $ 324
State Student Loan Obligation
Authority, Series A (RB)
6.250%, 06/01/96 240 242
State Water Resource & Power
Development Authority, Callable
09/01/02 @ 101 (RB) (FSA)
5.900%, 09/01/03 250 266
State Water Resource & Power
Development Authority, Clean Water
Project, Callable 09/01/02 @ 102 (RB)
5.800%, 09/01/06 1,000 1,049
Steamboat Springs, Accommodations
Tax, Callable 03/01/04 @ 100 (RB)
(MBIA)
5.800%, 03/01/10 1,000 1,019
Stonegate Village Metropolitain District,
Callable 12/01/02 @ 100 (GO)
6.300%, 12/01/04 500 536
Summit County, School District #Re 1,
Callable 12/01/04 @ 101 (GO) (FGIC)
6.450%, 12/01/08 1,250 1,350
Thornton (GO) (FGIC)
5.600%, 12/01/02 1,000 1,054
Thornton, Callable 12/01/02 @ 101
(GO) (FGIC)
5.650%, 12/01/03 1,000 1,058
University of Colorado, Callable
06/01/99 @ 101 (RB)
6.800%, 06/01/02 300 322
University of Colorado, Hospital
Authority (RB) (AMBAC)
5.250%, 11/15/99 1,400 1,449
Ute Water Conservancy District,
Callable 06/15/97 @ 100 (RB) (AMBAC)
7.700%, 06/15/02 1,000 1,049
Westminster, Water & Wastewater
Utility Enterprise, Callable 10/01/04
@ 100 (RB) (AMBAC)
5.800%, 12/01/05 1,000 1,055
TOTAL MUNICIPAL BONDS
(Cost $48,781) 50,792
CASH EQUIVALENTS--1.0%
Federated Tax Free Money Market 522,027 522
TOTAL CASH EQUIVALENTS
(Cost $522) 522
TOTAL INVESTMENTS--98.2%
(Cost $49,303) $51,314
OTHER ASSETS AND LIABILITIES--1.8%
Other Assets and Liabilities, Net 946
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 4,763,837 outstanding shares 47,866
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 208,333
outstanding shares 2,148
Undistributed net investment income 2
Accumulated net realized gain on investments 233
Net unrealized appreciation on investments 2,011
TOTAL NET ASSETS:--100.0% $52,260
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE-INSTITUTIONAL CLASS $ 10.51
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 10.51
MAXIMUM SALES CHARGE OF 3.00%+ 0.33
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.84
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.00%
(A) Pre-refunded Security--the pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
(B) Mandatory Put Security--the mandatory put date is shown as the maturity
date on the Statement of Net Assets.
AMT--Alternative Minimum Tax
AMBAC--American Municipal Bond Assurance Company
CLE--Connie Lee
COP--Certificates of Participation
FGIC--Federal Guaranty Insurance Corporation
FHA--Federal Housing Authority
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GO--General Obligation
MBIA--Municipal Bond Insurance Association
MLO--Municipal Lease Obligation
MORG--Morgan Guaranty
RB--Revenue Bond
ST--Sumitomo Trust
STAID--State Aid Withholding
SWB--Swiss Bank
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Description Par (000) Value (000)
MUNICIPAL OBLIGATIONS--95.0%
MINNESOTA--95.0%
Anoka County, Capital Improvement,
Series C (GO)
5.550%, 02/01/05 $2,000 $2,030
Anoka-Hennepin, Callable 02/01/03
@ 100 (GO) (FGIC)
4.875%, 02/01/07 500 476
Becker, Pollution Control, Callable
04/01/99 @ 102 (RB)
6.800%, 04/01/07 2,500 2,691
Becker, Tax Increment-Series D,
Callable 08/01/04 @ 100 (GO) (AMT)
(MBIA)
6.000%, 08/01/07 2,500 2,606
Bloomington, Mall of America Project,
Series A, Callable 02/01/04 @ 100 (RB)
(FSA)
5.450%, 02/01/09 2,850 2,914
Coon Rapids, Single Family Mortgage,
Callable 09/01/04 @ 102 (RB)
5.900%, 09/01/06 430 434
Dakota County, Housing & Redevelopment
Authority, Single Family, Callable
09/01/98 @ 103 (RB) (GNMA,FHA/VA)
7.250%, 03/01/06 770 774
Dakota County, Housing &
Redevelopment, Callable 04/01/05
@ 102 (AMT) (GNMA/FNMA)
6.000%, 10/01/14 1,125 1,118
Dakota, Washington & Stearns Counties,
Single Family Mortgage, Callable
03/01/04 @ 102 (AMT) (RB) (FNMA)
6.000%, 09/01/04 650 661
Duluth, Economic Development Authority, Health
Care Facilities, Callable
11/01/02 @ 102 (RB) (AMBAC)
6.100%, 11/01/04 900 973
Minneapolis & St. Paul Metropolitan
Airports, Callable 01/01/09 @ 102 (RB)
(AMT)
7.800%, 01/01/11 1,000 1,088
Minneapolis & St. Paul, Housing And
Redevelopment Authority, Health Care,
Callable 08/15/00 @ 102 (RB) (MBIA)
7.300%, 08/15/01 1,000 1,123
Minneapolis & St. Paul, Housing
Finance Board, (RB) (AMT) (FNMA/GNMA)
6.800%, 11/01/08 1,500 1,614
Minneapolis & St. Paul, Housing
Finance Board, Single Family Mortgage,
Series A (RB) (AMT) (GNMA,FHA/VA)
7.875%, 12/01/12 40 41
Minneapolis, Community Development
Agency (RB) (MBIA)
7.000%, 03/01/01 $2,500 $2,781
Minneapolis, Convention Center,
Pre-refunded @ 102 (RB) (AMBAC)
7.400%, 04/01/98 (B) 500 519
Minneapolis, Health Care Facilities,
Callable 11/15/03 @ 102 (RB) (MBIA)
5.100%, 11/15/05 1,000 986
Minneapolis, School District No. 1
(RB) (MLO) (AMBAC)
5.300%, 02/01/02 1,000 1,011
Minnesota State Public Facility Authority,
Water Pollution Control, Callable
12/01/99 @ 100 (RB) (CGIC)
6.750%, 03/01/00 1,000 1,094
Minnesota State, Housing &
Redevelopment Authority, Single
Family, Callable 04/01/04 @ 102 (RB)
(AMT) (FNMA)
6.250%, 10/01/04 1,065 1,082
Minnesota State, Housing Financial
Agency, Single Family Mortgage, Series
D, Callable 01/01/04 @ 102 (RB)
(AMBAC)
4.800%, 07/01/04 800 772
Minnesota State, Pre-refunded @ 100 (GO)
6.800%, 08/01/00 (B) 2,790 2,978
Minnesota Tax-Exempt Mortgage Trust,
Series A (RB) (MLO) (Northwestern National)
5.615%, 08/01/96 (A) 105 105
Minnesota Tax-Exempt Mortgage Trust,
Series C (RB) (MLO) (Northwestern National)
7.035%, 09/01/10 (A) 891 885
Northern Minnesota Power Agency,
Callable 01/01/99 @ 102 (RB) (AMBAC)
7.250%, 01/01/00 700 767
Northern Municipal Power Agency,
Minnesota Electric, Series A, Callable
01/01/03 @ 102 (RB) (AMBAC)
5.700%, 01/01/05 2,000 2,080
Olmsted County Minnesota, Pre-refunded
@ 100 (GO)
6.550%, 02/01/98 (B) 1,000 1,031
Olmsted County, Housing And
Redevelopment, Pre-refunded 02/01/01 @
100 (RB)
7.000%, 02/01/05 (B) 1,025 1,143
Olmsted County, Pre-refunded 02/01/97
@ 100 (GO)
6.650%, 02/01/99 (B) 1,000 1,034
Osseo, Independent School District (GO)
5.700%, 02/01/03 2,000 2,053
Osseo, Independent School District,
Callable 02/01/03 @ 100 (GO) (FGIC)
5.400%, 02/01/05 500 505
Plymouth Health Facilities, Callable
06/01/04 @ 102 (RB) (CGIC)
6.200%, 06/01/11 1,360 1,413
Robbinsdale, North Memorial Medical
Center, Series B, Callable 05/15/03
@ 102 (RB) (AMBAC)
5.450%, 05/15/13 $1,000 $ 958
Rochester, St. Mary's Hospital,
Escrowed to Maturity (RB)
5.750%, 10/01/07 3,000 3,145
Rosemount, Independent School
District, Series B (GO) (FGIC)
5.600%, 02/01/98 1,000 1,031
Saint Louis Park, Hospital Revenue
Facilities, Methodist Hospital,
Series C, Pre-refunded @ 102 (RB)
(AMBAC)
7.150%, 07/01/00 (B) 1,240 1,401
Southern Minnesota Municipal Power
Agency (RB) (MBIA)
4.850%, 01/01/07 375 361
Southern Minnesota Municipal Power
Agency, Refunded Balance Series A,
Callable 01/01/03 @ 102 (RB)
5.600%, 01/01/04 255 268
St Paul, Housing & Redevelopment
Authority, Callable 09/01/05 @ 102
(RB) (FNMA)
6.125%, 03/01/17 500 506
St Paul, Independent School District (RB)
6.125%, 02/01/00 525 562
St. Paul, Sewer Revenue Bond, Callable
06/01/03 @ 100 (RB) (AMBAC)
5.350%, 12/01/04 800 810
Stearns County, Housing And
Redevelopment Authority, Callable
02/01/99 @ 102 (RB) (MLO) (AMBAC)
6.750%, 02/01/04 1,665 1,788
Stillwater, Independent School
District, Callable 02/01/02 @ 100
(RB) (FGIC)
5.200%, 02/01/03 2,500 2,547
Washington County, Housing And
Redevelopment Authority, Jail Facility (RB)
6.400%, 02/01/00 1,000 1,070
Washington County, Housing And
Redevelopment Authority,
Pre-refunded @ 100 (RB)
6.800%, 02/01/04 (B) 1,500 1,674
Washington County, Raymie Johnson
Apartments, Series C (GO) (FGIC)
6.000%, 01/01/10 1,340 1,340
Wayzata Independent School District,
Series B, Callable 02/01/03 @ 100
(GO) (AMBAC)
4.900%, 02/01/07 2,000 1,918
West St. Paul, Independent School
District (RB) (MBIA)
0.000%, 02/01/00 545 443
Willmar, Independent School District,
Callable 02/01/02 @ 100 (GO) (AMBAC)
6.150%, 02/01/09 100 104
60,708
TOTAL MUNICIPAL OBLIGATIONS
(Cost $58,482) $60,708
CASH EQUIVALENTS--2.2%
Federated Minnesota Municipal
Cash Trust 1,389,447 1,389
TOTAL CASH EQUIVALENTS
(Cost $1,389) 1,389
TOTAL INVESTMENTS--97.2%
(Cost $59,871) 62,097
OTHER ASSETS AND LIABILITIES--2.8%
Other Assets and Liablities, Net 1,815
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 6,219,198 outstanding shares 59,313
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 223,792
outstanding shares 2,162
Undistributed net investment income 9
Accumulated net realized gain on investments 202
Net unrealized appreciation on investments 2,226
TOTAL NET ASSETS:--100.0% $63,912
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASSS $ 9.92
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 9.92
MAXIMUM SALES CHARGE OF 3.00%+ 0.31
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.23
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 3.00%.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect as of September 30, 1995. The date shown is the longer
of the reset date or demand date.
(B) Mandatory Put Security--the mandatory put date is shown as the maturity
date on the Statement of Net Assets.
AMBAC--American Municipal Bond Assurance Company
AMT--Alternative Minimum Tax
CGIC--Capital Guaranty Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Authority/Veterans Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GO--General Obligation
MBIA--Municipal Bond Insurance Company
MLO--Municipal Lease Obligation
RB--Revenue Bond
ASSET ALLOCATION FUND
Description Shares/Par (000) Value (000)
COMMON STOCK--57.7%
AEROSPACE & DEFENSE--0.5%
Lockheed Martin 1,152 $ 77
Loral 500 29
Raytheon 700 60
Rockwell International 1,300 61
227
AGRICULTURE--0.1%
Pioneer Hi-Bred International 500 23
AIR TRANSPORTATION--0.2%
AMR* 500 36
Delta Air Lines 300 21
Federal Express* 300 25
Southwest Airlines 900 23
U.S. Air Group* 300 3
108
AIRCRAFT--1.0%
AlliedSignal 1,700 75
Boeing 2,100 143
General Dynamics 400 22
McDonnell Douglas 700 58
Northrop 300 18
Teledyne 500 14
Textron 500 34
United Technologies 700 62
426
APPAREL/TEXTILES--0.1%
Fruit of the Loom* 500 10
Liz Claiborne 600 15
Russell 400 10
V.F. 400 21
56
AUTOMOTIVE--1.4%
Chrysler 2,300 122
Dana 600 17
Eaton 500 27
Echlin 400 14
Ford Motor 6,400 199
General Motors 4,500 211
Navistar International* 800 10
Paccar 200 9
TRW 400 30
639
BANKS--3.8%
Banc One 2,352 86
Bank of Boston 700 33
Bank of New York 1,200 56
BankAmerica 2,200 $132
Bankers Trust New York 500 35
Barnett Banks 600 34
Boatmens Bancshare's 800 30
Chase Manhattan 1,000 61
Chemical Banking 1,500 91
Citicorp 2,400 170
CoreStates Financial 800 29
First Chicago 500 34
First Fidelity Bancorp 500 34
First Interstate Bancorp 500 50
First Union 1,000 51
Fleet Financial Group 800 30
Golden West Financial 400 20
Great Western Financial 800 19
H.F. Ahmanson 700 18
J.P. Morgan 1,100 85
KeyCorp 1,400 48
MBNA 900 37
Mellon Bank 900 40
National City 900 28
Nationsbank 1,600 108
NBD Bancorp 900 34
Norwest 2,000 66
PNC Bank 1,400 39
Republic New York 300 18
Shawmut National 800 27
Suntrust Banks 700 46
U.S. Bancorp 600 17
Wachovia 1,000 43
Wells Fargo 300 56
1,705
BEAUTY PRODUCTS--1.0%
Avon Products 400 29
Colgate-Palmolive 900 60
Ecolab 500 14
International Flavors & Fragrances 700 34
Procter & Gamble 4,100 315
452
BROADCASTING, NEWSPAPERS & ADVERTISING--0.8%
Capital Cities ABC 900 106
CBS 425 34
Comcast, Cl A 1,400 28
Interpublic Group 500 20
Tele-Communications, Cl A* 3,900 68
Viacom, Cl B* 2,215 110
366
BUILDING & CONSTRUCTION--0.2%
Centex 400 $ 12
Fluor 500 28
Foster Wheeler 300 11
Halliburton 700 29
Owens Corning Fiberglass* 300 13
93
BUSINESS SUPPLIES--0.0%
W.W. Grainger 300 18
CHEMICALS--1.8%
Air Products & Chemical 700 36
Dow Chemical 1,600 119
E.I. du Pont de Nemours 3,300 227
Eastman Chemical 500 32
FMC* 200 15
Great Lakes Chemical 400 27
Hercules 700 41
Monsanto 700 71
Morton International 900 28
Nalco Chemical 400 14
PPG Industries 1,200 56
Praxair 800 21
Rohm & Haas 400 24
Union Carbide 800 32
W.R. Grace 600 40
783
COMMUNICATIONS EQUIPMENT--1.0%
Andrew* 200 12
DSC Communications* 700 41
General Signal 300 9
Harris 200 11
Motorola 3,500 269
Northern Telecom 1,500 53
Scientific-Atlanta 500 8
Tellabs* 500 21
424
COMPUTERS & SERVICES--2.0%
Apple Computer 700 26
Cabletron Systems* 400 26
Ceridian* 300 13
Compaq Computer* 1,600 77
Digital Equipment* 900 41
Hewlett Packard 3,100 258
IBM 3,400 323
Intergraph* 600 7
Pitney Bowes 900 38
Silicon Graphics* 1,000 34
Tandem Computers* 1,000 12
Tandy 400 24
Unisys* 1,600 13
892
CONTAINERS & PACKAGING--0.1%
Ball 100 $ 3
Crown Cork & Seal* 500 19
Newell 900 23
45
DRUGS--4.5%
Abbott Laboratories 4,800 205
Allergan 400 13
Alza, Cl A* 500 12
American Home Products 1,900 161
Amgen* 1,600 80
Bristol-Myers Squibb 3,000 219
Eli Lilly 1,129 101
Guidant 1,992 58
Johnson & Johnson 3,900 289
Mallinckrodt Group 500 20
Merck 7,400 414
Pfizer 3,800 203
Schering Plough 2,200 113
Upjohn 1,000 45
Warner Lambert 800 76
2,009
ELECTRICAL SERVICES--2.2%
American Electric Power 1,100 40
Baltimore Gas & Electric 900 23
Carolina Power & Light 900 30
Central & South West 1,200 31
Cinergy 900 25
Consolidated Edison New York 1,400 43
Detroit Edison 900 29
Dominion Resources of Virginia 1,000 38
Duke Power 1,200 52
Entergy 1,400 37
FPL Group 1,100 45
General Public Utilities 700 22
Houston Industries 800 35
Niagara Mohawk Power 1,000 13
Northern States Power 400 18
Ohio Edison 900 20
Pacific Gas & Electric 2,500 75
Pacificorp 1,700 32
PECO Energy 1,300 37
Public Service Enterprise Group 1,500 45
Raychem 300 14
SCEcorp 2,700 48
Southern 4,000 94
Texas Utilities 1,400 49
Thomas & Betts 200 13
Unicom 1,300 39
Union Electric 600 22
969
ENTERTAINMENT--0.5%
Harrah's Entertainment* 650 $ 19
King World Productions* 300 11
Walt Disney 3,100 178
208
ENVIRONMENTAL SERVICES--0.3%
Browning Ferris Industries 1,300 39
Laidlaw, Cl B 1,700 15
WMX Technologies 2,900 83
137
FINANCIAL SERVICES--1.4%
American Express 2,900 129
Beneficial 300 16
Dean Witter Discover 1,046 59
FHLMC 1,100 76
FNMA 1,600 165
H & R Block 600 23
Household International 600 37
Merrill Lynch 1,100 69
Salomon 600 23
Transamerica 428 30
627
FOOD, BEVERAGE & TOBACCO--5.1%
Adolph Coors, Cl B 400 7
American Brands 1,100 46
Anheuser Busch 1,500 94
Archer Daniels Midland 3,392 52
Brown Forman, Cl B 400 16
Campbell Soup 1,500 75
Coca Cola 7,600 527
ConAgra 1,500 59
CPC International 900 59
General Mills 1,000 56
H.J. Heinz 1,500 69
Hershey Foods 500 32
Kellogg 1,300 94
PepsiCo 4,700 240
Philip Morris 5,000 418
Quaker Oats 800 27
Ralston-Ralston Purina Group 600 35
Sara Lee 2,900 86
Seagram 2,200 79
Unilever (ADR) 1,000 130
UST 1,200 34
Whitman 600 12
William Wrigley Jr. 700 35
2,282
GAS/NATURAL GAS--0.5%
Coastal 600 $ 20
Columbia Gas Systems* 400 15
Consolidated Natural Gas 600 24
Enron 1,500 50
Nicor 500 14
Pacific Enterprises 500 13
Panhandle Eastern 900 25
Sonat 500 16
Williams 600 23
200
GLASS PRODUCTS--0.1%
Corning 1,400 40
HOTELS & LODGING--0.0%
Hilton Hotels 300 19
HOUSEHOLD FURNITURE & FIXTURES--0.1%
Masco 1,000 28
HOUSEHOLD PRODUCTS--0.5%
Clorox 300 21
Gillette 2,700 129
Maytag 700 12
National Service Industries 400 12
Sherwin Williams 500 18
Snap-On Tools 300 11
Stanley Works 300 13
Whirlpool 400 23
239
INSURANCE--2.4%
Aetna Life & Casualty 700 51
Alexander & Alexander Services 200 5
Allstate 2,717 96
American General 1,200 45
American International Group 2,825 240
Chubb 500 48
Cigna 400 42
General Re 500 76
Jefferson-Pilot 300 19
Lincoln National 600 28
Loew's 400 58
Marsh & McLennan 400 35
Providian 600 25
Safeco 400 26
St. Paul 500 29
Torchmark 400 17
Travelers 1,935 103
U.S. Healthcare 900 32
U.S. Life 450 13
United Healthcare 1,000 49
Unum 400 21
USF & G 700 14
1,072
JEWELRY, PRECIOUS METALS--0.0%
Jostens 500 $ 12
LEISURE--0.0%
Brunswick 600 12
LUMBER & WOOD PRODUCTS--0.0%
Louisiana Pacific 600 14
MACHINERY--2.7%
Applied Materials* 500 51
Baker Hughes 800 16
Black & Decker 500 17
Briggs & Stratton 400 16
Caterpillar 1,200 68
Crane 300 10
Cummins Engine 200 8
Deere 500 41
Dover 700 27
Dresser Industries 1,100 26
Emerson Electric 1,300 93
General Electric 10,200 650
Harnischfeger Industries 300 10
Ingersoll Rand 600 23
McDermott International 400 8
Pall 700 16
Parker Hannifin 450 17
Tenneco 1,100 51
Timken 300 13
Tyco International 500 32
Varity* 300 13
1,206
MEASURING DEVICES--0.2%
Honeywell 800 33
Johnson Controls 200 13
Perkin Elmer 300 11
Tektronix 200 12
69
MEDICAL PRODUCTS & SERVICES--0.9%
Bausch & Lomb 300 12
Baxter International 1,700 70
Becton Dickinson 400 25
Beverly Enterprises* 800 11
Biomet* 700 12
Boston Scientific* 900 38
Columbia/HCA Healthcare 2,637 129
Manor Care 400 14
Medtronic 1,400 75
St. Jude Medical* 300 19
Tenet Healthcare* 1,200 21
United States Surgical 500 13
439
METALS & MINING--0.0%
Cyprus AMAX Minerals 550 $ 15
MISCELLANEOUS BUSINESS SERVICES--1.9%
Autodesk 300 13
Automatic Data Processing 900 61
Cisco Systems* 1,600 110
Computer Associates International 1,400 59
Computer Sciences* 300 19
CUC International* 1,050 37
First Data 700 43
Microsoft* 3,500 318
Novell* 2,200 40
Ogden 500 12
Oracle* 2,600 100
Shared Medical Systems 300 12
Sun Microsystems* 600 38
862
MISCELLANEOUS CONSUMER SERVICES--0.1%
Service International 600 23
MULTI-INDUSTRY--0.5%
Dial 600 15
ITT 700 87
Minnesota Mining & Manufacturing 2,500 141
243
OIL - DOMESTIC--0.7%
Ashland Oil 400 13
Atlantic Richfield 1,000 106
Kerr-McGee 300 17
Louisiana Land & Exploration 300 11
Pennzoil 300 13
Phillips Petroleum 1,600 52
Sun 491 13
Unocal 1,500 43
USX-Marathon Group 1,800 36
304
OIL - INTERNATIONAL--4.0%
Amerada Hess 600 29
Amoco 3,000 192
Chevron 3,900 190
Exxon 7,500 542
Mobil 2,400 239
Royal Dutch Petroleum (ADR) 3,200 393
Schlumberger 1,500 98
Texaco 1,600 103
1,786
PAPER & PAPER PRODUCTS--1.1%
Avery Dennison 300 13
Bemis 400 11
Boise Cascade 300 12
Champion International 600 32
Federal Paper Board 300 $ 12
Georgia Pacific 500 44
International Paper 1,500 63
James River 500 16
Kimberly Clark 1,000 66
Mead 300 18
Potlatch 300 12
Scott Paper 900 44
Stone Container 600 11
Temple Inland 300 16
Union Camp 400 23
Westvaco 400 18
Weyerhaeuser 1,200 55
Willamette Industries 300 20
486
PETROLEUM & FUEL PRODUCTS--0.2%
Burlington Resources 800 31
Enserch 800 13
Helmerich & Payne 400 11
Occidental Petroleum 1,900 42
Western Atlas* 300 14
111
PHOTOGRAPHIC EQUIPMENT & SUPPLIES--0.5%
Eastman Kodak 2,100 124
Polaroid 300 12
Xerox 600 81
217
PRECIOUS METALS--0.3%
Barrick Gold 2,100 54
Echo Bay Mines 1,200 13
Homestake Mining 800 14
Newmont Mining 473 20
Placer Dome 1,400 37
Santa Fe Pacific Gold 900 11
149
PRINTING & PUBLISHING--0.8%
American Greetings, Cl A 400 12
Deluxe 500 17
Dow Jones 600 22
Gannett 800 44
Knight-Ridder 300 18
McGraw-Hill 300 25
Meredith 300 12
Moore 600 12
New York Times, Cl A 600 16
R.R. Donnelley & Sons 900 35
Time Warner 2,300 90
Times Mirror, Cl A 700 20
Tribune 400 27
350
PROFESSIONAL SERVICES--0.2%
Dun & Bradstreet 1,000 $ 58
EG&G 600 12
70
RAILROADS--0.6%
Burlington Northern Santa Fe 879 64
Consolidated Rail 500 34
CSX 600 50
Norfolk Southern 800 60
Union Pacific 1,200 80
288
REPAIR SERVICES--0.0%
Ryder System 500 13
RETAIL--3.5%
Albertson's 1,500 51
American Stores 900 26
Circuit City 600 19
Dayton Hudson 400 30
Dillard Department Stores 700 22
Gap 900 32
Giant Food 400 13
Great Atlantic & Pacific Tea 400 11
Harcourt General 400 17
Hasbro 500 16
Home Depot 2,833 113
J.C. Penney 1,400 69
Kmart 2,800 41
Kroger* 700 24
Longs Drug Stores 300 12
Lowe's Companies 1,000 30
Luby's Cafeterias 500 11
Marriott 800 30
Mattel 1,375 40
May Department Stores 1,500 66
McDonald's 4,200 161
Melville 600 21
Mercantile Stores 300 14
Nordstrom 500 21
Pep Boys-Manny Moe & Jack 400 11
Price/Costco* 1,200 21
Rite Aid 500 14
Sears Roebuck 2,300 85
The Limited 2,100 40
Toys R Us* 1,700 46
Wal-Mart Stores 13,800 340
Walgreen 1,500 42
Wendy's International 600 13
Winn Dixie Stores 500 30
Woolworth 800 13
1,545
RUBBER & PLASTIC--0.5%
Armstrong World Industries 200 $ 11
B.F. Goodrich 200 13
Cooper Tire & Rubber 500 12
Goodyear Tire & Rubber 900 35
Illinois Tool Works 700 41
Nike, Cl B 400 46
Premark International 400 20
Reebok International 500 17
Rubbermaid 900 25
220
SEMI-CONDUCTORS/INSTRUMENTS--1.3%
Advanced Micro Devices* 600 17
AMP 1,300 50
Intel 4,900 296
Micron Technology 1,200 95
National Semiconductor* 700 19
Texas Instruments 1,100 88
565
SPECIALTY MACHINERY--0.1%
Cooper Industries 603 21
Westinghouse Electric 2,400 36
57
STEEL & STEEL WORKS--0.7%
Alcan Aluminium 1,400 45
Aluminum Company of America 1,100 58
Bethlehem Steel* 700 10
Englehard 900 23
Freeport-McMoran Copper
& Gold, Cl B* 1,200 31
Inco 700 24
Inland Steel Industries 400 9
Nucor 500 22
Phelps Dodge 400 25
Reynolds Metals 400 23
USX-U.S. Steel Group 500 16
Worthington Industries 600 11
297
TELEPHONES & TELECOMMUNICATION--5.0%
Airtouch Communications* 3,000 92
Alltel 1,100 33
Ameritech 3,300 172
AT&T 9,500 623
Bell Atlantic 2,600 160
Bellsouth 3,000 219
GTE 5,800 228
MCI Communications 4,100 107
NYNEX 2,600 124
Pacific Telesis Group 2,600 80
SBC Communications 3,700 204
Sprint 2,100 74
U.S. West 2,800 132
2,248
TRUCKING--0.1%
Pittston Services Group 300 $ 8
Roadway Services 300 15
Yellow 300 4
27
WHOLESALE--0.2%
Alco Standard 300 25
Genuine Parts 700 28
Sigma Aldrich 300 15
Supervalu 400 12
Sysco 1,100 30
110
TOTAL COMMON STOCK
(Cost $20,653) 25,825
U. S. TREASURY OBLIGATIONS--8.5%
U. S. Treasury Notes
7.250%, 05/15/04 2,200 2,347
6.500%, 05/15/05 1,425 1,457
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $3,552) 3,804
MASTER NOTES--9.1%
Associates Corporation of North America
5.708%, 10/02/95 (A) $2,025 2,025
Goldman Sachs
5.830%, 10/03/95 (A) 2,040 2,041
TOTAL MASTER NOTES
(Cost $4,066) 4,066
REPURCHASE AGREEMENTS--24.3%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$5,907,698 (collateralized by various
U.S. Treasury STRIPS, total par value
$18,484,498, 11/15/00-11/15/24:
total market value $6,022,971) 5,905 5,905
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$4,975,402 (collateralized by various
U.S. Treasury Bills, total par value
$1,062,433, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$3,116,262, 7.625%-13.750%,
11/15/03-11/15/10:
total market value $5,072,544) 4,973 4,973
TOTAL REPURCHASE AGREEMENTS
(Cost $10,878) 10,878
TOTAL INVESTMENTS--99.6%
(Cost $39,149) 44,573
OTHER ASSETS AND LIABILITIES--0.4%
Other Assets and Liabilities, Net 201
NET ASSETS:
Portfolio
shares--Institutional
Class ($.0001 par
value--2 billion
authorized) based on
3,685,913 outstanding
shares $36,507
Portfolio
shares--Retail Class
A ($.0001 par
value--2 billion
authorized) based on
84,645 outstanding
shares 870
Portfolio
shares--Retail Class
B ($.0001 par
value--2 billion
authorized) based on
48,876 outstanding
shares 531
Undistributed net
investment income 33
Accumulated net
realized gain on
investments 1,409
Net unrealized
appreciation of
investments 5,424
TOTAL NET
ASSETS:--100.0% $44,774
NET ASSET VALUE,
OFFERING PRICE, AND
REDEMPTION PRICE PER
SHARE--INSTITUTIONAL
CLASS $ 11.72
NET ASSET VALUE AND
REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 11.73
MAXIMUM SALES CHARGE
OF 4.50%+ 0.55
OFFERING PRICE PER
SHARE--RETAIL CLASS A $ 12.28
NET ASSET VALUE AND
OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $ 11.68
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset date or demand date.
ADR--American Depository Receipt
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
BALANCED FUND
Description Shares/Par (000) Value (000)
COMMON STOCK--50.0%
AUTOMOTIVE--0.9%
General Motors 42,500 $1,992
BANKS--1.9%
Bay Banks 15,700 1,191
Chemical Banking 46,300 2,819
4,010
CHEMICALS--1.9%
Hercules 36,100 2,093
Olin 29,200 2,008
4,101
COMPUTERS & SERVICES--4.3%
Compaq Computer* 54,100 2,617
Cray Research* 82,700 1,830
Hewlett Packard 30,200 2,518
IBM 23,100 2,180
9,145
CONTAINERS & PACKAGING--0.8%
Ball 60,200 1,783
DRUGS--2.4%
American Home Products 33,000 2,801
Bristol-Myers Squibb 30,500 2,223
5,024
FINANCIAL SERVICES--0.9%
ITT 15,300 1,897
FOOD, BEVERAGE & TOBACCO--3.5%
ConAgra 71,200 2,821
Dole Food 71,500 2,476
Sara Lee 69,400 2,065
7,362
HOME APPLIANCE--0.6%
Whirlpool 22,000 1,271
INSURANCE--1.8%
AMBAC 46,500 2,046
General Re 11,000 1,661
3,707
LEISURE--1.2%
Brunswick 122,800 2,487
MACHINERY--3.3%
Briggs & Stratton 6,900 278
Case Equipment 73,800 2,712
Caterpillar 23,400 1,331
General Electric 40,600 2,588
6,909
MULTI-INDUSTRY--1.5%
Minnesota Mining & Manufacturing 35,200 $ 1,989
U.S. Industries* 78,000 1,209
3,198
OIL - DOMESTIC--1.0%
Unocal 73,200 2,086
OIL - INTERNATIONAL--4.9%
Amerada Hess 38,200 1,857
Exxon 24,600 1,777
Mobil 29,100 2,900
Royal Dutch Petroleum (ADR) 17,500 2,148
Texaco 24,600 1,590
10,272
PAPER & PAPER PRODUCTS--2.6%
Bemis 71,300 1,970
James River 71,100 2,275
Scott Paper 25,800 1,251
5,496
PHOTOGRAPHIC EQUIPMENT & SUPPLIES--2.3%
Eastman Kodak 47,400 2,808
Xerox 15,500 2,083
4,891
PRINTING & PUBLISHING--1.3%
Times Mirror, Cl A 96,700 2,780
REAL ESTATE INVESTMENT TRUSTS--3.0%
Debartolo Realty 106,800 1,495
Duke Realty Investments 39,300 1,223
Equity Residential Properties Trust 55,700 1,678
Simon Property Group 76,000 1,929
6,325
RAILROADS--2.2%
Consolidated Rail 30,800 2,118
CSX 29,000 2,439
4,557
RETAIL--3.6%
Dayton Hudson 25,800 1,958
Gap 50,400 1,814
Sears Roebuck 57,000 2,102
Wal-Mart Stores 68,900 1,714
7,588
SEMICONDUCTORS/INSTRUMENTS--1.2%
AMP 29,800 1,147
Texas Instruments 16,700 1,334
2,481
SPECIALTY MACHINERY--0.6%
York International 27,500 $ 1,158
STEEL & STEEL WORKS--0.7%
Aluminum Company of America 28,300 1,496
TELEPHONES & TELECOMMUNICATION--1.1%
Century Telephone Enterprises 76,000 2,309
WHOLESALE--0.5%
W.W. Grainger 17,800 1,075
TOTAL COMMON STOCK
(Cost $86,331) 105,400
U. S. TREASURY OBLIGATIONS--27.4%
U.S. Treasury Bond
7.125%, 02/15/23 $13,835 14,664
U.S. Treasury Notes
5.500%, 04/30/96 4,875 4,871
5.500%, 07/31/97 14,415 14,332
5.125%, 02/28/98 6,965 6,847
5.125%, 11/30/98 1,310 1,280
6.750%, 04/30/00 6,730 6,919
6.250%, 02/15/03 2,415 2,429
7.250%, 08/15/04 5,750 6,145
U.S. Treasury STRIP
0.000%, 02/15/99 265 218
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $56,439) 57,705
CORPORATE OBLIGATIONS--6.4%
Bear Stearns
9.125%, 04/15/98 770 817
8.750%, 03/15/04 1,150 1,271
Cigna
7.400%, 01/15/03 2,825 2,853
Farmers Group
8.250%, 07/15/96 1,045 1,063
General Foods
6.000%, 06/15/01 860 844
General Motors Acceptance
7.650%, 01/16/98 2,375 2,440
Santander Financial Issuances
6.800%, 07/15/05 2,500 2,459
Torchmark
7.875%, 05/15/23 1,700 1,713
TOTAL CORPORATE OBLIGATIONS
(Cost $13,464) 13,460
OTHER MORTGAGE-BACKED OBLIGATIONS--2.9%
Drexel Burnham Lambert CMO Trust S 2
9.000%, 08/01/18 $ 473 $ 499
GE Capital Mortgage Services 1994-11 A1
6.500%, 03/25/24 1,791 1,781
GE Capital Mortgage Services 1994-17 A6
7.000%, 05/25/24 2,675 2,628
Residential Funding 1992-36 A2
5.700%, 11/25/07 653 643
RTC 1991-M6 (B)
7.000%, 06/25/21 (B) 468 462
TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS
(Cost $5,743) 6,013
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS--2.4%
FHLMC
6.000%, 11/15/08 2,700 2,460
FNMA
5.450%, 10/25/18 2,700 2,585
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $5,290) 5,045
ASSET BACKED SECURITIES--0.8%
BW Home Equity Trust Pool 1990-1 A
9.250%, 09/15/05 45 47
Household Finance 1993-2 A3
4.650%, 12/20/08 1,565 1,522
TOTAL ASSET BACKED SECURITIES
(Cost $1,606) 1,569
MASTER NOTES--1.4%
Goldman Sachs
5.830%, 10/03/95 (A) 3,050 3,050
TOTAL MASTER NOTES
(Cost $3,050) 3,050
REPURCHASE AGREEMENTS--8.4%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$8,515,148 (collateralized by various
U.S. Treasury STRIPS, total par value
$26,641,685, 11/15/00-11/15/24: total
market value $8,680,901) 8,511 8,511
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$9,107,689 (collateralized by various
U.S. Treasury Bills, total par value
$1,944,830, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$5,704,452, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$9,285,512) 9,103 9,103
TOTAL REPURCHASE AGREEMENTS
(Cost $17,614) 17,614
TOTAL INVESTMENTS--99.7%
(Cost $189,537) $209,856
OTHER ASSETS AND LIABILITIES--0.3%
Other Assets and Liabilities, Net 697
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 15,845,649 outstanding shares 166,821
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
1,261,751 outstanding shares 13,117
Portfolio shares--Retail Class B ($.0001
par value--2 billion authorized) based on
257,977 outstanding shares 2,952
Undistributed net investment income 203
Accumulated net realized gain on investments 7,141
Net unrealized appreciation of investments 20,319
TOTAL NET ASSETS:--100.0% $210,553
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 12.13
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--
RETAIL CLASS A $ 12.12
MAXIMUM SALES CHARGE OF 4.50%+ 0.57
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 12.69
NET ASSET VALUE AND OFFERING PRICE PER SHARE--
RETAIL CLASS B (1) $ 12.09
The accompanying notes are an integral part of the financial statements.
* Non-income producing securities + The offer price is calculated by dividing
the net asset value by 1 minus the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset date or demand date.
(B) Security sold within terms of a private placement memorandum, exempt from
registration under Section 144A of the Securities Act of 1993, as amended,
and may be sold only to dealers in that program or other "accredited
investors." These securities have been determined to be liquid under the
guidelines established by the Board of Directors.
ADR--American Depository Receipt
AMBAC--American Municipal Bond Assurance Company
CMO--Collateralized Mortgage Obligation
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
RTC--Resolution Trust Corporation
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
EQUITY INDEX FUND
Description Shares/Par (000) Value (000)
COMMON STOCKS--96.4%
AEROSPACE & DEFENSE--0.9%
Lockheed Martin 9,927 $ 666
Loral 4,300 245
Raytheon 6,100 519
Rockwell International 10,800 510
1,940
AGRICULTURE--0.1%
Pioneer Hi-Bred International 4,200 193
AIR TRANSPORTATION--0.4%
AMR* 3,800 274
Delta Air Lines 2,500 173
Federal Express* 2,800 232
Southwest Airlines 6,900 174
U.S. Air Group* 5,100 59
912
AIRCRAFT--1.6%
Allied Signal 14,100 622
Boeing 17,100 1,167
General Dynamics 3,100 170
McDonnell Douglas 5,600 463
Northrop 2,400 146
Teledyne 3,600 98
Textron 4,200 287
United Technologies 6,100 539
3,492
APPAREL/TEXTILES--0.1%
Liz Claiborne 2,500 63
Russell 1,200 31
Springs Industries 1,100 43
V.F. 3,100 158
295
AUTOMOTIVE--2.4%
Chrysler 19,000 1,007
Dana 5,000 144
Eaton 3,900 207
Echlin 2,800 100
Fleetwood Enterprises 2,600 52
Ford Motor 53,500 1,665
General Motors 37,200 1,744
Navistar International* 6,500 78
Paccar 1,495 70
TRW 3,200 238
5,305
BANKS--6.3%
Banc One 19,467 711
Bank of Boston 5,600 267
Bank of New York 9,600 $ 446
BankAmerica 18,600 1,114
Bankers Trust New York 3,900 274
Barnett Banks 4,800 272
Boatmens Bancshare's 6,100 226
Chase Manhattan 8,700 532
Chemical Banking 12,600 767
Citicorp 19,800 1,398
CoreStates Financial Group 6,900 253
First Chicago 4,400 302
First Fidelity Bancorp 3,900 263
First Interstate Bancorp 3,800 383
First Union 8,600 439
Fleet Financial Group 7,000 264
Golden West Financial 2,900 146
Great Western Financial 6,800 162
H.F. Ahmanson 5,600 142
J.P. Morgan 9,400 727
KeyCorp 11,300 387
MBNA 7,400 308
Mellon Bank 7,250 324
National City 7,300 225
Nationsbank 13,500 908
NBD Bancorp 7,700 295
Norwest 16,200 531
PNC Bank 11,500 321
Republic New York 2,800 164
Shawmut National 6,400 215
Suntrust Banks 5,600 370
U.S. Bancorp 4,900 138
Wachovia 8,500 367
Wells Fargo 2,400 446
14,087
BEAUTY PRODUCTS--1.7%
Avon Products 3,400 244
Colgate Palmolive 7,200 480
Dial 4,400 109
Ecolab 3,200 88
International Flavors & Fragrances 5,500 265
Procter & Gamble 34,200 2,633
3,819
BROADCASTING, NEWSPAPERS & ADVERTISING--1.4%
Capital Cities ABC 7,700 905
CBS 3,240 259
Comcast, Cl A 11,900 238
Interpublic Group 3,900 155
Tele Communications, TCI Group,
Series A* 32,500 569
Viacom, Cl B* 17,991 895
3,021
BUILDING & CONSTRUCTION--0.3%
Centex 1,600 $ 46
Fluor 4,100 230
Foster Wheeler 2,500 88
Halliburton 5,700 239
Kaufman & Broad Home 7,000 88
Pulte 1,800 51
742
CHEMICALS--2.8%
Air Products & Chemical 5,600 292
B.F. Goodrich 1,000 66
Dow Chemical 13,400 998
E.I. du Pont de Nemours 27,600 1,898
Eastman Chemical 4,075 261
FMC* 1,800 137
Great Lakes Chemical 3,200 216
Hercules 5,600 325
Monsanto 5,700 574
Morton International 7,400 229
Nalco Chemical 3,300 113
Praxair 6,900 185
Rohm & Haas 3,400 205
Union Carbide 6,800 270
W.R. Grace 4,700 314
6,083
COMMUNICATIONS EQUIPMENT--1.6%
Andrew* 1,900 116
DSC Communications* 5,700 338
Harris 1,900 104
Motorola 29,400 2,246
Northern Telecom 12,600 449
Scientific-Atlanta 3,800 64
Tellabs* 4,400 185
Zenith Electronics* 3,200 28
3,530
COMPUTERS & SERVICES--3.4%
Apple Computer 6,000 224
Cabletron Systems* 3,600 237
Ceridian* 2,400 107
Compaq Computers* 13,200 639
Cray Research* 3,000 66
Data General* 10,400 108
Digital Equipment* 7,300 333
Hewlett Packard 25,500 2,126
IBM 28,300 2,669
Intergraph* 8,400 102
Pitney Bowes 7,500 315
Silicon Graphics* 7,900 272
Tandem Computers* 5,200 64
Tandy 3,280 $ 199
Unisys* 5,600 44
7,505
CONCRETE & MINERAL PRODUCTS--0.1%
Owens Corning Fiberglass* 2,500 112
CONTAINERS & PACKAGING--0.2%
Ball 1,900 56
Crown Cork & Seal* 4,500 174
Newell 7,900 196
426
DRUGS--7.5%
Abbott Laboratories 39,500 1,684
Allergan 2,200 73
Alza, Cl A* 2,600 60
American Home Products 15,400 1,307
Amgen* 13,200 658
Bristol-Myers Squibb 25,300 1,844
Eli Lilly 9,294 835
Guidant 16,423 480
Johnson & Johnson 32,100 2,379
Mallinckrodt Group 3,700 147
Merck 61,600 3,451
Pfizer 31,400 1,676
Schering Plough 18,500 953
Upjohn 8,500 379
Warner Lambert 6,700 638
16,564
ELECTRICAL UTILITIES--3.5%
American Electric Power 9,300 338
Baltimore Gas & Electric 7,100 184
Carolina Power & Light 7,700 259
Central & South West 9,500 242
Cinergy 7,773 217
Consolidated Edison New York 11,700 355
Detroit Edison 7,300 235
Dominion Resources of Virginia 8,600 324
Duke Power 10,200 442
Entergy 11,300 295
FPL Group 9,200 376
General Public Utilities 5,800 181
Houston Industries 6,500 287
Niagara Mohawk Power 6,000 79
Northern States Power 3,400 154
Ohio Edison 7,300 166
Pacific Gas & Electric 21,100 630
Pacificorp 14,200 270
PECO Energy 10,800 309
Public Service Enterprise Group 12,200 363
SCEcorp 22,200 394
Southern 33,200 $ 784
Texas Utilities 11,200 391
Unicom 10,700 324
Union Electric Power 4,900 183
7,782
ENERGY--0.0%
Zurn Industries 3,700 94
ENTERTAINMENT--0.7%
King World Productions* 1,700 62
Walt Disney 25,900 1,486
1,548
ENVIRONMENTAL SERVICES--0.5%
Browning Ferris Industries 10,600 322
Laidlaw, Cl B 13,300 116
WMX Technologies 24,100 687
1,125
FINANCIAL SERVICES--2.6%
American Express 24,300 1,078
Beneficial 2,600 136
Dean Witter Discover 8,386 472
FHLMC 9,000 622
FNMA 13,600 1,407
Household International 4,900 304
ITT 5,800 719
Merrill Lynch 8,800 550
Salomon Brothers 5,300 203
Transamerica 3,323 237
5,728
FOOD, BEVERAGE & TOBACCO--8.4%
American Brands 9,400 397
Anheuser Busch 12,700 792
Archer Daniels Midland 28,192 433
Brown Forman, Cl B 3,300 128
Campbell Soup 12,400 623
Coca Cola 62,800 4,336
ConAgra 12,200 483
CPC International 7,300 482
General Mills 7,900 440
H.J. Heinz 12,100 554
Hershey Foods 3,900 251
Kellogg 10,900 789
PepsiCo 39,200 1,999
Philip Morris 41,800 3,491
Quaker Oats 6,700 222
Ralston-Ralston Purina Group 5,200 301
Sara Lee 23,900 711
Seagram 18,500 664
Unilever (ADR) 8,000 1,040
UST 9,600 $ 275
Whitman 5,100 105
William Wrigley Jr 5,800 293
18,809
GAS/NATURAL GAS--0.8%
Coastal 5,200 175
Columbia Gas Systems* 2,200 85
Consolidated Natural Gas 4,500 182
Enron 12,500 419
Nicor 2,200 60
Noram Energy 14,100 111
Oneok 4,700 109
Pacific Enterprises 3,900 98
Panhandle Eastern 7,500 204
Peoples Energy 3,500 96
Sonat 4,200 134
Williams 5,100 199
1,872
GLASS PRODUCTS--0.1%
Corning 11,400 326
HOME APPLIANCES--1.1%
Clorox 2,600 186
Gillette 22,100 1,050
Maytag 3,100 54
National Service Industry 2,800 82
PPG Industries 10,100 470
Raychem 2,100 95
Sherwin Williams 4,100 144
Snap-On Tools 1,200 46
Stanley Works 1,800 78
Thomas & Betts 800 52
Whirlpool 3,600 208
2,465
HOTELS & LODGING--0.1%
Hilton Hotels 2,400 153
HOUSEHOLD FURNITURE & FIXTURES--0.1%
Bassett Furniture Industries 1,687 42
Masco 7,900 218
260
HOUSEHOLD PRODUCTS--0.0%
Brown Group 2,000 37
INSURANCE--4.0%
Aetna Life & Casualty 5,600 411
Alexander & Alexander Services 3,900 95
Allstate 22,350 791
American General 10,200 381
American International Group 23,625 2,010
Chubb 4,300 $ 413
Cigna 3,600 375
General Re 4,100 619
Jefferson-Pilot 2,350 151
Lincoln National 4,700 221
Loews 2,900 422
Marsh & McLennan 3,600 316
Providian 4,600 191
Safeco 3,100 203
St. Paul 4,200 245
Torchmark 3,450 145
Travelers 15,925 846
U.S. Healthcare 7,500 265
United Healthcare 8,600 420
Unum 3,500 185
USF & G 5,700 110
USLife 2,100 61
8,876
LEISURE INDUSTRY--0.0%
Brunswick 4,400 89
LUMBER & WOOD PRODUCTS--0.1%
Louisiana Pacific 5,100 123
MACHINERY--4.6%
Applied Materials* 4,400 450
Baker Hughes 6,800 139
Black & Decker 4,300 147
Briggs & Stratton 1,800 72
Caterpillar 9,900 563
Cincinnati Milacron 2,200 69
Crane 1,600 55
Cummins Engine 1,200 46
Deere 4,300 350
Dover 5,600 214
Dresser Industries 9,100 217
Emerson Electric 11,200 801
General Electric 84,300 5,376
General Signal 2,500 73
Giddings & Lewis 5,100 89
Harnischfeger Industries 2,800 93
Ingersoll Rand 5,100 191
McDermott International 3,300 65
Outboard Marine 4,300 92
Pall 5,600 130
Parker Hannifin 3,650 139
Tenneco 9,000 416
Timken 1,500 64
Tyco Laboratories 3,800 239
Varity* 1,900 85
10,175
MEASURING DEVICES--0.3%
Honeywell 6,200 $ 265
Johnson Controls 2,000 127
Perkin Elmer 2,600 93
Tektronix 2,000 118
603
MEDICAL PRODUCTS & SERVICES--1.7%
Bausch & Lomb 2,800 116
Baxter International 13,800 568
Becton Dickinson 3,200 201
Beverly Enterprises* 4,100 56
Biomet* 5,600 97
Boston Scientific* 7,500 320
C.R. Bard 2,700 82
Columbia/HCA Healthcare 22,137 1,076
Community Psychiatric* 5,500 65
Manor Care 3,100 105
Medtronic 11,600 624
St. Jude Medical* 2,300 145
Tenet Healthcare* 10,000 174
United States Surgical 4,000 107
3,736
METALS & MINING--0.1%
Cyprus AMAX Minerals 4,450 125
MISCELLANEOUS BUSINESS SERVICES--3.2%
Autodesk 2,300 101
Automatic Data Processing 7,200 491
Cisco Systems* 13,500 932
Computer Associates International 11,950 505
Computer Sciences* 2,800 180
CUC International* 8,650 302
First Data 5,900 366
Microsoft* 29,200 2,640
Novell* 18,400 336
Oracle Systems* 21,550 827
Safety Kleen 5,100 75
Shared Medical Systems 2,500 104
Sun Microsystems* 4,800 302
7,161
MISCELLANEOUS CONSUMER SERVICES--0.2%
H & R Block 5,200 197
Service International 4,800 188
385
OIL - DOMESTIC--1.1%
Ashland Oil 2,900 97
Atlantic Richfield 8,000 859
Kerr-McGee 2,500 139
Louisiana Land & Exploration 2,500 89
Pennzoil 2,100 $ 92
Phillips Petroleum 13,100 426
Sun 3,974 102
Unocal 12,300 351
USX Marathon Group 14,800 292
2,447
OIL - INTERNATIONAL--6.3%
Amerada Hess 4,500 219
Amoco 24,700 1,584
Chevron 32,500 1,580
Exxon 61,900 4,472
Mobil 19,700 1,963
Royal Dutch Petroleum (ADR) 26,700 3,277
Texaco 12,900 834
13,929
PAPER & PAPER PRODUCTS--2.3%
Avery Dennison 2,600 109
Bemis 2,400 66
Boise Cascade 2,700 109
Champion International 4,800 259
Federal Paper Board 2,600 100
Georgia Pacific 4,500 394
International Paper 12,700 533
James River 3,900 125
Kimberly Clark 8,000 537
Mead 2,700 158
Minnesota Mining & Manufacturing 20,900 1,180
Scott Paper 7,500 364
Stone Container 2,400 46
Temple Inland 2,700 144
Union Camp 3,500 202
Westvaco 3,400 155
Weyerhaeuser 10,100 461
Willamette Industries 2,700 180
5,122
PETROLEUM & FUEL PRODUCTS--0.8%
Burlington Resources 6,300 244
Enserch 5,300 87
Helmerich & Payne 2,100 59
Occidental Petroleum 15,800 348
Oryx Energy* 6,500 85
Rowan* 7,200 54
Santa Fe Energy Resources* 8,400 80
Schlumberger 12,000 783
Western Atlas* 2,600 123
1,863
PHOTOGRAPHIC EQUIPMENT & SUPPLIES--0.8%
Eastman Kodak 17,000 $1,007
Polaroid 2,700 107
Xerox 5,400 726
1,840
PRECIOUS METALS--0.5%
Barrick Gold 17,600 456
Echo Bay Mines 5,600 61
Homestake Mining 6,900 117
Newmont Mining 4,143 176
Placer Dome 11,900 312
Santa Fe Pacific Gold 5,040 64
1,186
PRINTING & PUBLISHING--1.3%
American Greetings, Cl A 3,600 110
Deluxe 4,000 133
Dow Jones 4,800 177
Gannett 7,000 382
John H. Harland 3,900 86
Knight-Ridder 2,400 141
McGraw Hill 2,500 204
Meredith 2,700 107
Moore 4,500 91
New York Times, Cl A 4,800 131
R.R. Donnelly & Sons 7,600 296
Time Warner 19,200 765
Times Mirror, Cl A 5,400 155
Tribune 3,200 212
2,990
PROFESSIONAL SERVICES--0.2%
Dun & Bradstreet 8,400 486
RAILROADS--1.1%
Burlington Northern Santa Fe 7,608 552
Conrail 3,900 268
CSX 5,200 437
Norfolk Southern 6,500 486
Union Pacific 10,200 676
2,419
REPAIR SERVICES--0.0%
Ryder System 2,500 63
RETAIL--5.7%
Albertson's 12,600 430
American Stores 7,400 210
Circuit City Stores 4,800 152
Dayton Hudson 3,600 273
Dillard Department Stores 5,600 179
Gap 7,200 259
Giant Food 2,400 $ 75
Great Atlantic & Pacific 2,200 62
Harcourt General 3,500 147
Hasbro 4,200 131
Home Depot 23,733 946
J.C. Penney 11,300 561
K-Mart 22,800 331
Kroger* 6,100 208
Lowes 8,000 240
Luby's Cafeterias 4,600 99
Marriott International 6,200 232
Mattel 11,065 325
May Department Stores 12,400 543
McDonald's 34,600 1,323
Melville 5,200 179
Mercantile Stores 2,000 90
Nordstrom 4,100 171
Pep Boys-Manny Moe & Jack 2,900 79
Price/Costco* 9,800 168
Rite Aid 4,000 112
Sears Roebuck 19,400 715
Shoney's* 7,800 86
The Limited 17,800 338
TJX 7,800 93
Toys R US* 13,800 373
Wal-Mart Stores 114,400 2,843
Walgreen 12,300 344
Wendy's International 5,100 108
Winn Dixie Stores 3,800 227
Woolworth 5,400 85
12,737
RUBBER & PLASTIC--0.8%
Armstrong World Industries 1,900 105
Cooper Tire & Rubber 4,000 97
Goodyear Tire & Rubber 7,600 299
Illinois Tool Works 5,800 341
Nike, Cl B 3,600 401
Premark International 3,200 163
Reebok International 3,900 134
Rubbermaid 7,700 213
1,753
SEMICONDUCTORS/INSTRUMENTS--2.1%
Advanced Micro Devices* 5,200 151
AMP 10,852 418
Intel 41,000 2,465
Micron Technology 10,300 819
National Semiconductor* 6,200 171
Texas Instruments 9,400 751
4,775
SERVICES - MOTION PICTURE & VIDEOTAPE
PRODUCTION--0.1%
Harrah's Entertainment* 5,100 $ 149
SPECIALTY MACHINERY--0.2%
Cooper Industries 5,328 188
Westinghouse Electric 19,500 292
480
STEEL & STEEL WORKS--1.1%
Alcan Aluminium 11,200 363
Aluminum Company of America 8,900 471
Armco* 12,200 79
Bethlehem Steel* 3,500 49
Englehard 7,112 180
Freeport-McMoran Copper & Gold,
Cl B* 10,100 259
Inco 5,900 202
Inland Steel Industries 2,100 48
Nucor 4,400 197
Phelps Dodge 3,500 219
Reynolds Metal 3,200 185
USX--U.S. Steel Group 4,100 127
Worthington Industries 3,150 58
2,437
TELEPHONES & TELECOMMUNICATION--8.4%
Airtouch Communications* 24,600 753
Alltel 9,400 281
Ameritech 27,600 1,439
AT&T 79,000 5,193
Bell Atlantic 21,700 1,332
Bellsouth 24,700 1,806
GTE 48,300 1,896
MCI Communications 33,800 881
NYNEX 21,300 1,017
Pacific Telesis Group 21,300 655
SBC Communications 30,300 1,667
Sprint 17,400 609
U.S. West 23,400 1,103
18,632
TRUCKING--0.1%
Consolidated Freightways 3,100 77
Pittston Services Group 2,000 54
Roadway Services 1,800 89
Yellow 1,500 21
241
WHOLESALE--0.6%
Alco Standard 2,800 237
Fleming 3,800 91
Genuine Parts 6,150 247
Potlatch 1,700 $ 69
Sigma Aldrich 2,400 116
Super-Valu 3,100 91
Sysco 9,100 249
W.W. Grainger 2,500 151
1,251
TOTAL COMMON STOCKS
(Cost $167,471) 214,298
U.S. TREASURY OBLIGATIONS--0.3%
U.S. Treasury Bill
5.383%, 12/14/95 (A) $ 600 593
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $594) 593
REPURCHASE AGREEMENTS--2.4%
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$5,258,106 (collateralized by various
U.S. Treasury Bills, total par value
$1,122,801, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$3,293,329, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$5,360,768) 5,256 5,256
TOTAL REPURCHASE AGREEMENTS
(Cost $5,256) 5,256
TOTAL INVESTMENTS--99.1%
(Cost $173,321) 220,147
OTHER ASSETS AND LIABILITIES--0.9%
Other Assets and Liabilities, Net 2,122
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 16,409,292 outstanding shares $169,709
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
160,327 outstanding shares 1,784
Portfolio shares--Retail Class B ($.0001
par value--billion authorized) based on
89,979 outstanding shares 1,102
Undistributed net investment income 110
Accumulated net realized gain on investments 2,723
Net unrealized appreciation of investments 46,826
Net unrealized appreciation of futures contracts 15
TOTAL NET ASSETS:--100.0% $222,269
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 13.34
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--
RETAIL CLASS A $ 13.35
MAXIMUM SALES CHARGE OF 4.50%+ 0.63
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 13.98
NET ASSET VALUE AND OFFERING
PRICE PER SHARE--RETAIL CLASS B (1) $ 13.30
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statement.
(A) Security has been deposited as initial margin on open futures contract.
ADR--American Depository Receipt
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
EQUITY INCOME FUND
Description Par (000)/Shares Value (000)
COMMON STOCKS--70.2%
BANKS--5.4%
Citicorp 19,808 $1,401
National City 52,000 1,606
3,007
CHEMICALS--1.9%
E.I. du Pont de Nemours 15,000 1,031
DRUGS--5.8%
Abbott Laboratories 32,000 1,364
Johnson & Johnson 17,000 1,260
Pfizer 11,000 587
3,211
ELECTRICAL SERVICES--5.0%
Detroit Edison 37,000 1,193
FPL Group 17,000 695
Unicom 29,000 877
2,765
FINANCIAL SERVICES--1.2%
American Express 15,000 666
FOOD, BEVERAGE & TOBACCO--7.4%
PepsiCo 16,000 816
Philip Morris 27,000 2,253
Sara Lee 35,000 1,041
4,110
GAS/NATURAL GAS--0.7%
Enron 11,000 369
HOUSEHOLD PRODUCTS--2.5%
Newell 56,000 1,386
INSURANCE--1.2%
Providian 16,000 664
MACHINERY--6.4%
General Electric 40,000 2,550
Tenneco 21,000 971
3,521
MINING--2.2%
Great Northern Iron Ore Properties 26,400 1,241
OIL - DOMESTIC--3.7%
Atlantic Richfield 19,000 2,040
OIL - INTERNATIONAL--7.4%
Amoco 14,000 $ 898
Exxon 17,500 1,264
Mobil 19,500 1,943
4,105
REAL ESTATE INVESTMENT TRUSTS--12.0%
Crescent Real Estate Equities 24,000 738
Healthcare Realty Trust 53,000 1,100
Manufactured Home Communities 56,000 966
National Golf Properties 63,000 1,378
Simon Property Group 52,000 1,320
Weeks 47,000 1,134
6,636
RAILROADS--1.8%
Union Pacific 15,000 994
RETAIL--3.6%
Albertson's 7,000 239
J.C. Penney 35,000 1,737
1,976
TELEPHONES & TELECOMMUNICATION--2.0%
AT&T 17,000 1,118
TOTAL COMMON STOCKS
(Cost $33,349) 38,840
PREFERRED CONVERTIBLE STOCKS--7.0%
AUTOMOTIVE--4.7%
Ford Motor, Ser A, $4.20 18,500 1,894
General Motors, Ser C, $3.25 11,000 714
2,608
BANKS--0.8%
Citicorp, Ser 15, $1.217 21,090 427
STEEL & STEEL WORKS--1.5%
AK Steel, $2.1525 28,000 847
TOTAL PREFERRED CONVERTIBLE STOCKS
(Cost $3,595) 3,882
PREFERRED STOCKS--0.6%
INSURANCE--0.6%
FHP International, Cl A 15,000 356
TOTAL PREFERRED STOCKS
(Cost $349) 356
CONVERTIBLE BONDS--11.3%
Conner Peripherals, 41.666 Shares
6.500%, 03/01/02 $1,575 $ 1,481
General Instrument, 42.1052 Shares
5.000%, 06/15/00 975 1,304
Integrated Health Services, 31.1284
Shares
6.000%, 01/01/03 650 673
Price, 44.3754 Shares
6.750%, 03/01/01 1,025 1,046
Vencor, 38.5615 Shares
6.000%, 10/01/02 1,400 1,742
TOTAL CONVERTIBLE BONDS
(Cost $6,222) 6,246
REPURCHASE AGREEMENTS--10.3%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$2,532,614 (collateralized by U.S.
Treaury STRIPS, total par value
$7,923,891, 11/15/00-11/15/24, total
market value $2,581,913) 2,531 2,531
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$3,148,680 (collateralized by various
U.S. Treasury Bills, total par value
$672,360, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$1,972,124, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$3,210,157) 3,147 3,147
TOTAL REPURCHASE AGREEMENTS
(Cost $5,678) 5,678
TOTAL INVESTMENTS--99.4%
(Cost $49,193) 55,002
OTHER ASSETS AND LIABILITIES--0.6%
Other Assets and Liabilities, Net 352
NET ASSETS:
Portfolio shares--Institutional Class ($.0001
par value--2 billion authorized) based on
4,636,094 outstanding shares $46,419
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 177,562
outstanding shares 1,881
Portfolio shares--Retail Class B ($.0001 par
value--2 billion authorized) based on 110,137
outstanding shares 1,170
Undistributed net investment income 104
Accumulated net realized loss on investments (29)
Net unrealized appreciation of investments 5,809
TOTAL NET ASSETS:--100.0% $55,354
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.24
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 11.24
MAXIMUM SALES CHARGE OF 4.50%+ 0.53
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 11.77
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $11.20
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
possible redemption charge, see the notes to the financial statements.
STRIPS--Separately Trading of Registered Interest and Principle of
Securities
LIMITED VOLATILITY STOCK FUND
Description Shares Value (000)
COMMON STOCKS--92.3%
AEROSPACE & DEFENSE--2.7%
Lockheed Martin 7,000 $ 470
AIR TRANSPORTATION--2.6%
Southwest Airlines 17,500 442
AUTOMOTIVE--3.6%
Paccar 7,500 350
Stewart & Stevenson Services 8,300 268
618
BANKS--7.6%
Bank of New York 10,000 465
Boatmen's Bancshares 11,300 418
Wachovia 9,600 414
1,297
CHEMICALS--2.3%
PPG Industries 8,500 395
COMPUTERS & SERVICES--2.3%
IBM 4,200 396
DRUGS--7.9%
Eli Lilly 5,000 449
Mallinckrodt Group 10,800 428
Merck 8,400 471
1,348
ELECTRICAL SERVICES--8.1%
Delmarva Power & Light 16,200 371
Montana Power 13,700 317
Rochester Gas & Electric 13,500 319
Southwestern Public Service 11,600 378
1,385
FOOD, BEVERAGE & TOBACCO--2.4%
Hershey Foods 6,500 418
GAS/NATURAL GAS--1.8%
Pacific Enterprises 12,000 302
HOUSEHOLD PRODUCTS--2.6%
Clorox 6,300 450
INSURANCE--2.3%
Aon 9,650 394
MACHINERY--4.4%
Dresser Industries 14,800 353
General Electric 6,200 396
749
MEDICAL PRODUCTS & SERVICES--4.6%
Bausch & Lomb 7,300 $ 302
Baxter International 11,600 477
779
METALS & MINING--1.2%
Vulcan Materials 3,800 201
MISCELLANEOUS CONSUMER SERVICES--1.7%
Rollins 12,050 295
MULTI-INDUSTRY--2.6%
Harsco 8,000 445
OIL - INTERNATIONAL--7.6%
Amoco 7,300 468
Chevron 9,100 442
Mobil 4,000 399
1,309
PETROLEUM & FUEL PRODUCTS--2.2%
Questar 11,700 376
PRECIOUS METALS--2.3%
Barrick Gold 14,800 383
Santa Fe Pacific Gold 300 4
387
PRINTING & PUBLISHING--2.0%
Banta 8,100 344
RETAIL--4.3%
Albertson's 10,800 369
J.C. Penney 7,500 372
741
SEMI-CONDUCTORS/INSTRUMENTS--1.7%
Intel 4,800 289
SPECIALTY CONSTRUCTION--2.3%
Clayton Homes 16,600 394
STEEL & STEEL WORKS--4.5%
Carpenter Technology 11,200 438
Phelps Dodge 5,200 326
764
TELEPHONES & TELECOMMUNICATION--2.4%
U.S. West 8,800 415
WHOLESALE--2.3%
Genuine Parts 9,875 396
TOTAL COMMON STOCKS
(Cost $12,877) 15,799
U. S. TREASURY OBLIGATIONS--4.1%
U.S. Treasury Bill
6.183%, 10/19/95 $ 700 $ 698
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $698) 698
CASH EQUIVALENTS--2.0%
AIM Short Term
Prime Obligation 347,654 348
TOTAL CASH EQUIVALENTS
(Cost $348) 348
TOTAL INVESTMENTS--98.4%
(Cost $13,923) 16,845
OTHER ASSETS AND LIABILITIES--1.6%
Other Assets and Liabilities, Net 280
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 1,438,464 outstanding shares 14,326
Undistributed net investment income 8
Accumulated net realized loss on
investments (131)
Net unrealized appreciation of
investments 2,922
TOTAL NET ASSETS:--100.0% $17,125
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE--INSTITUTIONAL
CLASS $ 11.91
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
DIVERSIFIED GROWTH FUND
Description Par (000)/Shares Value (000)
COMMON STOCKS--85.9%
AUTOMOTIVE--2.4%
Ford Motor 105,000 $3,268
BANKS--2.5%
BankAmerica 25,000 1,497
Citicorp 26,900 1,903
3,400
CHEMICALS--2.0%
E.I. du Pont de Nemours 41,000 2,819
COMMUNICATIONS EQUIPMENT--4.4%
Motorola 24,000 1,833
Nokia (ADR) 60,000 4,185
6,018
COMPUTERS & SERVICES--5.3%
Cisco Systems* 68,000 4,692
Compaq Computer* 27,000 1,306
Seagate Technology* 29,000 1,222
7,220
DRUGS--6.5%
Abbott Laboratories 78,000 3,325
Johnson & Johnson 41,000 3,039
Pfizer 47,000 2,509
8,873
ELECTRICAL SERVICES--1.0%
Detroit Edison 40,000 1,290
ENERGY & POWER--1.2%
Thermo Electron* 34,000 1,577
FINANCIAL SERVICES--4.8%
American Express 54,000 2,396
First Financial Management 5,000 488
FNMA 35,000 3,623
6,507
FOOD, BEVERAGE & TOBACCO--5.2%
Nabisco Holdings, Cl A 28,000 830
PepsiCo 37,000 1,887
Philip Morris 35,000 2,922
Sara Lee 47,000 1,398
7,037
GAS/NATURAL GAS--0.6%
Enron 24,000 804
HOUSEHOLD PRODUCTS--1.1%
Newell 59,000 1,460
INSURANCE--0.7%
United Healthcare 21,000 $1,026
MACHINERY--5.7%
Case Equipment 27,000 992
General Electric 69,000 4,399
Tenneco 51,000 2,359
7,750
MARINE TRANSPORTATION--0.2%
Royal Carribean Cruises 14,000 340
MEASURING DEVICES--0.5%
MTS Systems 26,000 735
MEDICAL PRODUCTS & SERVICES--4.8%
Columbia/HCA Healthcare 68,000 3,307
Medtronic 60,000 3,225
6,532
MISCELLANEOUS BUSINESS SERVICES--6.7%
General Motors, Cl E 27,000 1,229
Informix* 53,000 1,721
Novell* 71,000 1,296
Oracle Systems* 90,000 3,451
Synopsys* 16,000 492
The Bisys Group* 39,000 995
9,184
OIL - DOMESTIC--2.1%
Atlantic Richfield 27,000 2,899
OIL - INTERNATIONAL--4.7%
Amoco 30,000 1,924
Exxon 29,000 2,095
Mobil 16,000 1,594
Union Texas Petroleum 42,000 767
6,380
PAPER & PAPER PRODUCTS--1.4%
Weyerhaeuser 42,000 1,916
PRINTING & PUBLISHING--0.9%
News (ADR) 54,000 1,188
REAL ESTATE INVESTMENT TRUSTS--3.2%
Debartolo Realty 82,000 1,148
National Golf Properties 49,000 1,072
Simon Property Group 84,000 2,132
4,352
RAILROADS--1.7%
Southern Pacific Rail* 93,000 $ 2,255
RETAIL--6.2%
Dayton Hudson 26,000 1,973
J.C. Penney 53,000 2,630
McDonald's 85,000 3,251
Orchard Supply Hardware Stores* 41,000 595
8,449
SPECIALTY MACHINERY--2.2%
York International 73,000 3,075
STEEL & STEEL WORKS--1.9%
AK Steel Holding* 39,000 1,151
Inland Steel 37,000 842
Rouge Steel 23,500 546
2,539
TELEPHONES & TELECOMMUNICATION--4.5%
Airtouch Communications* 48,000 1,470
L.M. Ericsson Telephone (ADR) 58,000 1,421
Tele Danmark (ADR) 16,000 414
Vodafone (ADR) 71,000 2,911
6,216
TRUCKING--1.5%
Fritz* 28,000 2,063
TOTAL COMMON STOCKS
(Cost $95,561) 117,172
PREFERRED CONVERTIBLE STOCKS--0.4%
BANKS--0.4%
Citicorp, Ser 15, $1.217 24,010 486
TOTAL PREFERRED CONVERTIBLE STOCKS
(Cost $470) 486
CONVERTIBLE BONDS--1.6%
General Instrument, 42.1052 shares
5.000%, 06/15/00 $ 1,650 2,207
TOTAL CONVERTIBLE BONDS
(Cost $2,218) 2,207
REPURCHASE AGREEMENTS--11.6%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$7,802,086 (collateralized by U.S.
Treasury STRIPS, total par value
$24,410,698, 11/15/00-11/15/24, total
market value $7,953,959) $7,798 $ 7,798
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$7,976,609 (collateralized by various
U.S. Treasury Bills, total par value
$1,703,302, 03/07/96-09/19/96: U.S.
Treasury Notes, total par value
$4,996,019, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$8,132,349) 7,973 7,973
TOTAL REPURCHASE AGREEMENTS
(Cost $15,771) 15,771
TOTAL INVESTMENTS--99.5%
(Cost $114,020) 135,636
OTHER ASSETS AND LIABILITIES--0.5%
Other Assets and Liabilities, Net 747
NET ASSETS:
Portfolio Shares--Institutional Class (.0001
par value--2 billion authorized) based on
11,276,198 outstanding shares 112,233
Portfolio Shares--Retail Class A (.0001 par
value--2 billion authorized) based on 230,527
outstanding shares 2,416
Portfolio Shares--Retail Class B (.0001 par
value--2 billion authorized) based on 69,894
outstanding 762
Undistributed net investment income 146
Accumulated net realized loss on investments (790)
Net unrealized appreciation of investments 21,616
TOTAL NET ASSETS:--100.0% $136,383
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.78
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL A $ 11.75
MAXIMUM SALES CHARGE OF 4.50%+ 0.55
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 12.30
NET ASSET VALUE AND OFFERING
PRICE PER SHARE--RETAIL CLASS B (1) $ 11.73
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offering price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statement.
ADR--American Depository Receipt
FNMA--Federal National Mortgage Association
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
STOCK FUND
Description Par (000)/Shares Value (000)
COMMON STOCK--83.3%
AUTOMOTIVE--1.6%
General Motors 110,500 $ 5,180
BANKS--3.2%
Bay Banks 41,500 3,149
Chemical Banking 121,300 7,384
10,533
CHEMICALS--3.2%
Hercules 96,600 5,603
Olin 75,100 5,163
10,766
COMPUTERS & SERVICES--7.3%
Compaq Computer* 143,100 6,923
Cray Research* 218,100 4,825
Hewlett Packard 79,800 6,653
IBM 63,000 5,946
24,347
CONTAINERS & PACKAGING--1.4%
Ball 155,500 4,607
DRUGS--4.0%
American Home Products 86,900 7,376
Bristol-Myers Squibb 80,000 5,830
13,206
FINANCIAL SERVICES--1.5%
ITT 40,400 5,010
FOOD, BEVERAGE & TOBACCO--5.8%
ConAgra 186,700 7,398
Dole Food 188,900 6,541
Sara Lee 178,100 5,298
19,237
HOME APPLIANCES--1.0%
Whirlpool 58,100 3,355
INSURANCE--3.0%
AMBAC 129,800 5,711
General Re 29,100 4,394
10,105
LEISURE--2.0%
Brunswick 324,500 6,571
MACHINERY--6.3%
Briggs & Stratton 18,100 729
Case Equipment 193,300 7,104
Caterpillar 58,100 3,304
General Electric 107,200 6,834
York International 74,400 3,134
21,105
MULTI-INDUSTRY--2.5%
Minnesota Mining & Manufacturing 92,800 $ 5,243
U.S. Industries* 203,000 3,147
8,390
PAPER & PAPER PRODUCTS--4.3%
Bemis 185,800 5,133
James River 188,500 6,031
Scott Paper 67,600 3,279
14,443
PETROLEUM REFINING--9.8%
Amerada Hess 98,700 4,799
Exxon 65,300 4,718
Mobil 78,100 7,782
Royal Dutch Petroleum (ADR) 45,600 5,597
Texaco 65,100 4,207
Unocal 194,000 5,529
32,632
PHOTOGRAPHIC EQUIPMENT & SUPPLIES--3.8%
Eastman Kodak 124,400 7,371
Xerox 40,100 5,388
12,759
PRINTING & PUBLISHING--2.2%
Times Mirror, Cl A 249,400 7,170
REAL ESTATE INVESTMENT TRUSTS--5.1%
Debartolo Realty 278,000 3,892
Duke Realty Investments 104,000 3,237
Equity Residential Properties Trust 155,600 4,687
Simon Property Group 199,900 5,072
16,888
RAILROADS--3.5%
Consolidated Rail 80,300 5,521
CSX 74,500 6,267
11,788
RETAIL--6.0%
Dayton Hudson 66,700 5,061
Gap 135,900 4,892
Sears Roebuck 151,300 5,579
Wal-Mart Stores 179,400 4,463
19,995
SEMI-CONDUCTORS/INSTRUMENTS--2.0%
AMP 80,200 $ 3,088
Texas Instruments 43,500 3,474
6,562
STEEL & STEEL WORKS--1.2%
Aluminum Company of America 74,000 3,913
TELEPHONES & TELECOMMUNICATION--1.8%
Century Telephone Enterprises 200,900 6,102
WHOLESALE--0.8%
W.W. Grainger 46,000 2,777
TOTAL COMMON STOCK
(Cost $233,799) 277,441
MASTER NOTES--4.7%
Associates Corporation of North
America
5.708%, 10/02/95 (A) $ 5,717 5,717
Goldman Sachs
5.830%, 10/03/95 (A) 9,744 9,744
TOTAL MASTER NOTES
(Cost $15,461) 15,461
REPURCHASE AGREEMENTS--12.0%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$18,251,112 (collateralized by various
U.S. Treasury STRIPS, total par value
$57,102,985, 05/15/00-05/15/24: total
market value $18,606,382) 18,241 18,241
Merrill Lynch 5.830%, date 09/29/95,
matures 10/02/95, repurchase price
$21,562,888 (collaterlized by various
U.S. Treasury Bills, total par value
$4,604,478, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$13,505,563, 7.625%-13.75%,
11/15/03-11/15/10: total market value
$21,983,894) 21,553 21,553
TOTAL REPURCHASE AGREEMENTS
(Cost $39,794) 39,794
TOTAL INVESTMENTS--100.0%
(Cost $289,054) 332,696
OTHER ASSETS AND LIABILITIES--0.0%
Other Assets and Liabilities, Net (10)
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 15,975,824 outstanding shares $253,795
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 668,325
outstanding shares 10,526
Portfolio shares--Retail Class B ($.0001 par
value--2 billion authorized) based on 361,726
outstanding shares 6,547
Undistributed net investment income 235
Accumulated net realized gain on investments 17,941
Net unrealized appreciation of investments 43,642
TOTAL NET ASSETS:--100.0% $332,686
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 19.56
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--
RETAIL CLASS A $ 19.57
MAXIMUM SALES CHARGE OF 4.50%+ 0.92
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 20.49
NET ASSET VALUE AND OFFERING PRICE PER SHARE--
RETAIL CLASS B (1) $ 19.49
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset or demand date.
ADR--American Depository Receipt
AMBAC--American Municipal Bond Assurance Company
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
SPECIAL EQUITY FUND
Description Par (000)/Shares Value (000)
COMMON STOCK--73.8%
AGRICULTURE--1.6%
Pioneer Hi-Bred International 78,200 $3,597
AUTOMOTIVE--0.4%
Oshkosh Truck, Cl B 53,200 811
BANKS--0.6%
Chemical Banking 20,200 1,230
CHEMICALS--1.8%
IMC Global 63,600 4,031
COMMUNICATIONS EQUIPMENT--0.7%
Aydin* 84,400 1,456
CONSTRUCTION MATERIALS--0.8%
Lafarge 98,400 1,808
DRUGS--0.2%
Hauser Chemical Research* 93,400 531
ELECTRICAL UTILITIES--1.7%
Unicom 124,600 3,769
FINANCIAL SERVICES--0.7%
Carr Realty 77,200 1,448
MACHINERY--0.8%
Brown & Sharpe Manufacturing* 171,000 1,817
MARINE TRANSPORTATION--6.1%
London & Overseas Freighters (ADR) 40,300 589
Overseas Shipholding Group 229,600 4,563
Stolt-Nielsen 217,700 6,967
Teekay Shipping* 46,700 1,121
13,240
METALS & MINING--20.1%
AK Steel Holding* 129,100 3,808
Allegheny Ludlum 92,700 1,889
Aluminum Company of America 81,200 4,293
Asarco 168,000 5,292
Ashland Coal 75,100 2,262
Cleveland-Cliffs 41,200 1,694
Freeport-McMoran Copper & Gold 273,300 7,005
INCO 171,400 5,870
LTV* 235,200 3,293
Lukens 64,200 1,870
Phelps Dodge 36,600 2,292
Republic Engineered Steels* 113,000 848
Reynolds Metals 59,000 3,407
43,823
NATURAL GAS DISTRIBUTION--1.0%
MCN 115,500 2,281
OIL SERVICES--12.0%
Atwood Oceanic* 44,500 921
Baker Hughes 145,000 2,954
Dresser Industries 167,800 4,006
Halliburton 117,300 4,897
Helmerich & Payne 236,200 6,643
Horsham 458,000 $ 6,011
Pride Petroleum Services* 36,300 363
Stolt Comex Seaway* 36,100 393
26,188
OIL - DOMESTIC--14.8%
Amerada Hess 20,100 977
Anadarko Petroleum 67,700 3,207
Ashland 39,900 1,332
Diamond Shamrock 33,900 835
Holly 120,700 2,776
Louisiana Land & Exploration 121,200 4,318
Murphy Oil 34,700 1,388
Nuevo Energy* 47,500 1,069
Petrocorp* 40,800 337
Sun 34,206 881
USX-Marathon Group 357,300 7,055
Valero Energy 241,700 5,801
Wiser Oil 161,500 2,221
32,197
OIL - INTERNATIONAL--3.1%
Texaco 104,200 6,734
PRECIOUS METALS--6.5%
Coeur D'Alene Mines 149,800 3,033
Hecla Mining* 175,300 2,126
Hemlo Gold Mines 250,300 2,503
Newmont Mining 109,499 4,654
Santa Fe Pacific Gold 141,100 1,781
14,097
RETAIL--0.9%
Dayton Hudson 26,400 2,003
TOTAL COMMON STOCK
(Cost $146,045) 161,061
MASTER NOTES--8.4%
Associates Corporation of North America
5.708%, 10/02/95 (A) $ 8,735 8,735
Goldman Sachs
5.830%, 10/03/95 (A) 9,534 9,534
TOTAL MASTER NOTE
(Cost $18,269) 18,269
REPURCHASE AGREEMENT--16.9%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$18,568,887 (collateralized by various
U.S. Treasury STRIPS, total par value
$58,097,221, 05/15/00-05/15/24: total
market value $18,930,343) 18,559 18,559
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$18,370,295, (collateralized by
various U.S. Treasury Bills, total par
value $3,922,741, 03/07/96-09/19/96:
U.S. Treasury Bonds, total par value
$11,505,934, 7.625%-13.75%,
11/15/03-11/15/10: total market value
$18,728,967) $ 18,361 $ 18,361
TOTAL REPURCHASE AGREEMENT
(Cost $36,920) 36,920
TOTAL INVESTMENTS--99.1%
(Cost $201,234) 216,250
OTHER ASSETS AND LIABILITIES--0.9%
Other Assets and Liabilities, Net 1,992
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 11,278,581 outstanding shares 173,630
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
648,950 outstanding shares 10,058
Portfolio shares--Retail Class B ($.0001
par value--2 billion authorized) based on
271,858 outstanding shares 4,525
Undistributed net investment income 75
Accumulated net realized gain on investments 14,938
Net unrealized appreciation of investments 15,016
TOTAL NET ASSETS:--100.0% $218,242
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 17.89
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--
RETAIL CLASS A $ 17.89
MAXIMUM SALES CHARGE OF 4.50%+ 0.84
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 18.73
NET ASSET VALUE AND OFFERING PRICE PER SHARE--
RETAIL CLASS B (1) $ 17.83
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security with Demand Features--the rate reported on the
Statement of Net Assets is the rate in effect as of September 30, 1995. The
date shown is the longer of the reset or demand date.
ADR--American Depository Receipt
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
REGIONAL EQUITY FUND
Description Shares/Par (000) Value (000)
INVESTMENTS IN SECURITIES OF UNAFFILIATED
ISSUERS--80.5%
COMMON STOCKS--65.3%
APPAREL/TEXTILES--0.5%
Raven Industries 54,100 $ 974
AUTOMOTIVE--2.4%
Tower Automotive* 365,000 5,019
BANKS--5.6%
Community First Bankshares 250,000 4,813
TCF Financial 120,000 6,990
11,803
BROADCASTING, NEWSPAPERS &
ADVERTISING--1.2%
Lodgenet Entertainment* 240,000 2,520
CHEMICALS--0.6%
W.H. Brady 16,200 1,183
COMMUNICATIONS EQUIPMENT--3.1%
Communications Systems 440,000 6,490
COMPUTERS & SERVICES--9.7%
Control Data Systems* 450,000 5,456
Cray Research* 350,000 7,744
Digi International* 220,000 6,215
Netstar* 96,800 1,016
20,431
DRUGS--2.2%
Lifecore Biomedical* 350,000 4,681
ENVIRONMENTAL SERVICES--0.1%
Appliance Recycling Centers of
America* 34,300 223
FINANCIAL SERVICES--2.0%
General Growth Properties 200,000 4,125
FOOD, BEVERAGE & TOBACCO--4.7%
Grist Mill* 210,000 1,969
International Multifoods 190,000 4,085
Michael Foods 290,000 3,879
9,933
INSURANCE--0.6%
Crop Growers* 90,000 1,328
MACHINERY--8.2%
Alliant Techsystems* 50,000 2,350
BMC Industries 161,500 6,238
Donaldson 200,000 4,925
Pentair 85,000 3,825
17,338
MEDICAL--5.7%
Angeion* 555,000 4,163
ATS Medical* 186,400 1,631
Biovascular* 266,400 4,795
CNS* 58,900 773
Empi* 44,300 875
12,237
METALS & MINING--1.0%
Varlen 80,600 $ 2,196
MISCELLANEOUS BUSINESS SERVICES--3.1%
National Computer Systems 300,000 6,450
MISCELLANEOUS CONSUMER SERVICES--3.1%
Regis 300,000 6,450
MISCELLANEOUS TRANSPORTATION--0.7%
Arctco 120,000 1,530
PRINTING & PUBLISHING--1.9%
IPI* 198,300 793
Merrill 175,200 3,241
4,034
RETAIL--5.5%
Buffets* 178,700 2,234
Damark International, Cl A* 200,000 1,425
Fingerhut 350,000 5,644
Vicorp Restaurants* 200,000 2,400
11,703
SPECIALTY CONSTRUCTION--0.1%
Apogee Enterprises 19,500 293
TELEPHONES & TELECOMMUNICATION--0.9%
Marketlink* 485,000 1,841
WHOLESALE--2.4%
A.M. Castle 133,500 2,970
Hawkins Chemical 298,000 2,161
5,131
TOTAL COMMON STOCKS
(Cost $106,569) 137,913
CONVERTIBLE BONDS--0.8%
Hector Communications
8.500%, 02/15/02 $ 1,630 1,622
TOTAL CONVERTIBLE BONDS
(Cost $1,630) 1,622
WARRANTS--0.4%
ENTERTAINMENT--0.0%
Canterbury Park Holdings* 177,500 67
MEDICAL--0.4%
Angeion* 430,000 644
ATS Medical* 186,400 105
749
TOTAL WARRANTS
(Cost $196) 816
MASTER NOTES--4.0%
Associates Corporation of North America
5.708%, 10/02/95 (A) 2,304 2,304
Goldman Sachs
5.830%, 10/03/95 (A) 6,168 6,168
TOTAL MASTER NOTES
(Cost $8,472) $ 8,472
REPURCHASE AGREEMENTS--10.0%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$10,186,211 (collateralized by various
U.S. Treasury STRIPS, total par value
$31,870,007, 11/15/00-11/15/24: total
market value $10,384,493) $ 10,181 10,181
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$10,948,751 (collateralized by various
U.S. Treasury Bills, total par value
$2,337,965, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$6,857,572, 7.625%-13.750%,
11/15/03-11/15/10: total market value
$11,162,521) 10,943 10,943
TOTAL REPURCHASE AGREEMENTS
(Cost $21,124) 21,124
TOTAL INVESTMENTS IN SECURITIES OF UNAFFILIATED
ISSUERS
(Cost $137,991) 169,947
INVESTMENTS IN COMMON STOCK OF AFFILIATES--19.6%
Aequitron Medical* (B) 360,000 3,330
Aetrium* (B) 680,000 14,618
Alternate Postal Delivery* (B) 241,900 1,391
Audio King* (B) 265,000 894
Canterbury Park Holdings* (B) 177,500 422
Deflecta-Shield* (B) 250,000 1,781
Dynamic Healthcare
Technologies* (B) 350,000 328
Navarre* (B) 260,000 2,210
Norstan* (B) 240,000 6,240
Orphan Medical* (B) 275,000 2,028
Rehabilicare* (B) 471,400 1,768
Rimage* (B) 235,000 1,630
TSI (B) 430,000 4,838
TOTAL INVESTMENTS IN COMMON STOCK OF AFFILIATES
(Cost $26,431) 41,478
TOTAL INVESTMENTS--100.1%
(Cost $164,422) 211,425
OTHER ASSETS AND LIABILITIES--(0.1)%
Other Assets and Liabilities, Net (295)
NET ASSETS:
Portfolio Shares--Institutional Class ($.0001 par
value-2 billion authorized) based on 11,006,811
outstanding shares 131,400
Portfolio Shares--Retail Class A ($.0001 par
value-2 billion authorized) based on 871,282
outstanding shares $ 10,222
Portfolio Shares--Retail Class B ($.0001 par
value-2 billion authorized) based on 449,114
outstanding shares 6,649
Undistributed net investment income 317
Accumulated net realized gain on investments 15,539
Net unrealized appreciation of investments 47,003
TOTAL NET ASSETS $211,130
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 17.13
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 17.12
MAXIMUM SALES CHARGE OF 4.50%+ 0.81
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 17.93
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $ 16.99
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statements.
(A) Variable Rate Security--the rate reported on the Statement of Net Assets is
the rate in effect at September 30,1995. The date shown is the next reset
date.
(B) Investments are representing five percent or more of the outstanding voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940 at or during the annual fiscal year ended
September 30, 1995. The activity for these securities is listed below.
Terrano Incorporated changed its name to Dynamic Healthcare Technologies
during the year.
<TABLE>
<CAPTION>
SHARES SHARES REALIZED
DESCRIPTION AT 9/30/94 AT 9/30/95 DIFFERENCE DIVIDENDS GAINS/LOSSES
<S> <C> <C> <C> <C> <C>
Aequitron
Medical -- 360,000 360,000 $ -- $ --
Aetrium 248,000 680,000 432,000 -- --
Alternate Postal
Delivery -- 241,900 241,900 -- --
Audio King 262,112 265,000 2,888 -- --
Canterbury Park
Holdings 177,500 177,500 -- -- --
Deflecta-Shield 101,100 250,000 148,900 -- --
Dynamic
Healthcare
Technologies 350,000 350,000 -- -- --
Navarre 152,200 260,000 107,800 -- --
Norstan 185,000 240,000 55,000 -- --
Northwest
Teleproductions 170,000 -- (170,000) -- (296,275)
Orphan Medical -- 275,000 275,000 -- --
Rehabilicare -- 471,400 471,400 -- --
Rimage 216,000 235,000 19,000 -- --
TSI 310,000 430,000 120,000 42,885 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
STRIPS--Separately Trading of Registered Interest and Principal of
Securities.
EMERGING GROWTH FUND
Description Shares/Par (000) Value (000)
COMMON STOCK--89.0%
AEROSPACE & DEFENSE--1.1%
Tracor* 27,000 $ 446
APPAREL/TEXTILES--0.4%
Cutter & Buck* 24,000 177
AUTOMOTIVE--2.1%
Deflecta-Shield* 63,000 449
Tower Automotive* 34,000 467
916
BROADCASTING, NEWSPAPERS &
ADVERTISING--2.0%
Bell Cablemedia (ADR)* 20,000 365
National Wireless Holdings* 19,000 247
Pricellular, Cl A* 21,000 265
877
CHEMICALS--2.8%
Applied Extrusion Technologies* 29,000 533
Cambrex 13,000 523
H.B. Fuller 4,500 142
1,198
COMMUNICATIONS EQUIPMENT--7.2%
Checkpoint Systems* 19,000 501
Communications Systems 38,000 561
General Datacomm Industries* 12,000 177
Numerex, Cl A* 53,000 444
Picturetel* 9,000 407
Telebit* 24,000 105
Telewest Communications (ADR)* 6,000 183
Tellabs* 16,000 674
3,052
COMPUTERS & SERVICES--1.2%
Mackie Designs* 24,000 348
Mylex* 6,000 102
Netstar* 6,000 63
513
DRUGS--4.4%
Genzyme* 9,000 522
Idexx Labs* 36,000 1,341
1,863
ENERGY & POWER--0.9%
California Energy* 18,000 369
ENTERTAINMENT--0.7%
Avid Technology* 7,000 301
FINANCIAL SERVICES--7.9%
Advanta, Cl A 8,000 360
Advanta, Cl B 13,000 553
First USA 11,000 597
Fiserv* 24,000 692
SPS Transaction Services* 17,000 493
The Bisys Group* 25,200 643
3,338
HAZARDOUS WASTE MANAGEMENT--2.2%
Molton Metal Technology* 29,000 $ 939
HOUSEHOLD PRODUCTS--1.4%
Coleman* 16,000 600
INSURANCE--2.9%
Partnerre Holdings 15,000 371
Vesta Insurance Group 22,000 853
1,224
MACHINERY--0.8%
Shaw Group* 39,000 356
MEASURING DEVICES--0.7%
Quickturn Design Systems* 29,000 301
MEDICAL PRODUCTS & SERVICES--13.1%
American Medical Response* 11,000 312
ATS Medical* 58,100 508
Cerner* 12,000 411
HBO 13,000 813
Healthsource* 14,000 674
Quorum Health Group* 35,000 792
Target Therapeutics* 17,000 1,187
Vencor* 27,000 864
5,561
METALS & MINING--0.8%
Republic Engineered Steels* 43,000 323
METALWORKING, MACHINERY, & EQUIPMENT--2.6%
Greenfield Industries 23,000 707
Wolverine Tube* 10,000 379
1,086
MISCELLANEOUS BUSINESS SERVICES--3.5%
Keane* 20,000 578
Landmark Graphics* 26,000 733
Spectrum Holobyte* 15,000 189
1,500
MISCELLANEOUS FURNITURE & FIXTURES--0.4%
Falcon Building Products, Cl A* 20,000 175
OIL - DOMESTIC--2.1%
Belden & Blake* 25,200 479
Cairn Energy USA* 32,000 408
887
PRINTING & PUBLISHING--1.3%
Thomas Nelson 21,000 530
RETAIL--6.2%
Buffets* 18,000 225
Hometown Buffet* 36,000 504
Orchard Supply Hardware Stores* 26,000 377
Santa Isabel (ADR)* 21,000 454
Today's Man* 39,000 361
West Marine* 22,000 704
2,625
SEMI-CONDUCTORS/INSTRUMENTS--0.7%
Fusion Systems* 10,900 $ 319
SERVICES - SECURITY--1.2%
ITI Technologies* 18,000 488
SERVICES - PREPACKAGED SOFTWARE--9.3%
Aspen Technologies* 19,000 570
BTG* 58,000 580
Datalogix International* 20,000 285
Hyperion Software* 8,000 454
Imnet Systems* 22,500 579
National Instruments* 18,000 365
Network Peripherals* 28,000 441
Platinum Software* 19,000 221
Summit Medical Systems* 1,500 23
Transaction Systems Architects* 15,000 401
3,919
SPECIALTY CONSTRUCTION--0.9%
Insituform Mid-America Cl A 23,000 368
TELEPHONES & TELECOMMUNICATION--3.8%
A+ Communications* 24,000 366
American Paging* 19,000 147
Broadband Technologies* 11,000 237
International Cabletel* 30,000 840
1,590
TRUCKING--4.4%
Fritz* 12,500 921
Landstar System* 39,000 941
1,862
TOTAL COMMON STOCK
(Cost $31,780) 37,703
PREFERRED STOCKS--0.4%
MISCELLANEOUS BUSINESS SERVICES--0.4%
Network Imaging 11,000 184
TOTAL PREFERRED STOCKS
(Cost $181) 184
WARRANTS--0.1%
MEDICAL PRODUCTS & SERVICES--0.1%
ATS Medical* 43,000 24
TOTAL WARRANTS
(Cost $12) 24
REPURCHASE AGREEMENTS--10.1%
J.P. Morgan 6.358%, dated 09/29/95,
matures, 10/02/95, repurchase price
$1,967,540 (collateralized by various
U.S. Treasury STRIPS, total par value
$6,155,924, 05/15/00-05/15/24: total
market value $2,005,840) $ 1,966 1,966
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$2,338,497, (collateralized by various
U.S. Treasury Bills, total par value
$499,356, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value
$1,464,680, 7.625%-13.75%,
11/15/03-11/15/10: total market value
$2,384,156) $ 2,338 $ 2,338
TOTAL REPURCHASE AGREEMENT
(Cost $4,304) 4,304
TOTAL INVESTMENTS--99.6%
(Cost $36,277) 42,215
OTHER ASSETS AND LIABILITIES--0.4%
Other Assets and Liabilities, Net 155
NET ASSETS:
Portfolio shares--Institutional Class ($.0001 par
value--2 billion authorized) based on 3,111,893
outstanding shares 34,819
Portfolio shares--Retail Class A ($.0001 par
value--2 billion authorized) based on 28,829
outstanding shares 331
Portfolio shares--Retail Class B ($.0001 par
value--2 billion authorized) based on 20,143
outstanding shares 234
Undistributed net investment income 19
Accumulated net realized gain on investments 1,029
Net unrealized appreciation of investments 5,938
TOTAL NET ASSETS:--100.0% $42,370
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $ 13.41
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 13.40
MAXIMUM SALES CHARGE OF 4.50%+ 0.63
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 14.03
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $ 13.29
The accompanying notes are an integral part of the financial statements.
* Non-income producing security.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statements.
ADR--American Depository Receipt
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
TECHNOLOGY FUND
Description Shares/Par (000) Value (000)
COMMON STOCK--91.5%
COMMUNICATION SERVICES--0.4%
Performance Systems International* 500 $ 11
UUNET Technologies* 2,800 129
140
COMMUNICATIONS EQUIPMENT--21.3%
ACT Networks* 1,500 16
ADC Telecommunications* 11,700 532
Ascend Communications* 3,800 304
BroadBand Technologies* 12,100 260
DSC Communications* 21,800 1,293
General Datacomm Industries* 16,300 240
General Instrument* 14,700 441
L.M. Ericsson Telephone (ADR) 29,200 715
MRV Communications* 14,400 308
Nokia (ADR) 18,400 1,283
Picturetel* 11,600 525
Plaintree Systems* 16,000 136
Telebit* 31,100 136
Tellabs* 15,400 649
VideoServer* 3,700 130
6,968
COMPUTERS & SERVICES--16.2%
Cabletron Systems* 5,700 375
Cirrus Logic* 14,200 813
Cisco Systems* 22,300 1,540
Compaq Computer* 21,400 1,035
Concentra* 6,900 72
Convex Computer* 27,400 123
Diamond Multimedia Systems* 250 8
Mackie Designs* 16,000 232
Mylex* 6,500 111
NetStar* 6,500 68
Seagate Technology* 13,200 556
Silicon Graphics* 8,900 306
StorMedia* 1,800 81
5,320
SEMI-CONDUCTORS/INSTRUMENTS--12.8%
Adaptec* 9,900 408
ANADIGICS* 2,807 78
Applied Materials* 6,200 634
C.P. Clare* 700 18
Fusion Systems* 8,200 240
LSI Logic* 14,400 832
Micron Technology 13,400 1,065
Paradigm Technology* 200 6
Quickturn Design Systems* 21,000 218
S3* 10,700 373
SDL* 2,100 59
Solectron* 4,800 190
TelCom Semiconductor* 6,000 69
4,190
SERVICES - PREPACKAGED SOFTWARE--40.8%
ArcSys* 500 $ 21
Aspen Technologies* 12,300 369
Autodesk 12,200 534
Avid Technology* 6,000 258
Baan, N.V.* 9,500 428
BDM International* 2,700 74
BTG* 21,200 212
C*ATS Software* 500 4
CFI Proservices* 20,000 325
Checkfree* 2,000 40
Computer Associates International 11,650 492
Datalogix International* 26,800 382
Dataware Technologies* 8,100 103
Dendrite International* 10,600 162
Discreet Logic* 2,000 110
Firefox Communications* 1,000 25
Harbinger* 300 4
Hyperion Software* 8,400 477
Imnet Systems* 12,200 314
Inference* 5,300 80
Informix* 55,300 1,795
Legato Systems* 400 11
Macromedia* 5,200 297
McAfee Associates* 6,689 344
National Instruments* 16,700 338
Network Peripherals* 14,000 221
Novell* 21,200 387
ON Technology* 500 9
Oracle Systems* 36,000 1,382
Parametric Technology* 9,400 578
Peoplesoft* 8,400 763
Pinnacle Systems* 1,500 46
Platinum Technology* 14,800 307
Pure Software* 2,500 89
Seer Technology* 500 8
Smith Micro Software* 500 5
Softdesk* 8,200 207
Softkey International* 7,700 341
Spectrum Holobyte* 27,400 346
Spyglass* 100 5
Synopsys* 13,600 418
System Software Associates 14,200 570
TGV Software* 500 8
Transaction Systems Architects* 18,400 492
13,381
TOTAL COMMON STOCK
(Cost $23,247) 29,999
PREFERRED STOCKS--0.4%
SERVICES - PREPACKAGED SOFTWARE--0.4%
Network Imaging 6,800 114
TOTAL PREFERRED STOCKS
(Cost $128) 114
REPURCHASE AGREEMENTS--7.4%
J.P. Morgan 6.358%, dated 09/29/95,
matures 10/02/95, repurchase price
$1,025,274 (collateralized by various
U.S. Treasury STRIPS, total par value
$3,207,966, 11/15/00-11/15/24: total
market value $1,045,281) $1,025 $ 1,025
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price $1,385,418
(collateralized by various U.S. Treasury Bills,
total par value $295,838, 03/07/96-09/19/95:
U.S. Treasury Bonds, total par value $867,734,
7.625%-13.750%, 11/15/03-11/15/10: total market
value $1,412,467) 1,385 1,385
TOTAL REPURCHASE AGREEMENTS (Cost $2,410) 2,410
TOTAL INVESTMENTS--99.3% (Cost $25,785) 32,523
OTHER ASSETS AND LIABILITIES--0.7%
Other Assets and Liabilities, Net 244
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion shares authorized)
based on 1,605,061 outstanding shares 19,697
Portfolio shares--Retail Class A
($.0001 par value--2 billion authorized)
based on 80,253 outstanding shares 1,250
Portfolio shares--Retail Class B ($.0001
par value--2 billion authorized) based on
112,734 outstanding shares 1,788
Accumulated net realized gain on investments 3,294
Net unrealized appreciation of investments 6,738
TOTAL NET ASSETS:--100.0% $32,767
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE--INSTITUTIONAL CLASS $ 18.24
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 18.24
MAXIMUM SALES CHARGE OF 4.50%+ 0.86
OFFERING PRICE PER SHARE--RETAIL CLASS A $ 19.10
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $ 18.02
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statement.
ADR--American Depository Receipt
STRIPS--Separately Trading of Registered Interest and Principal of
Securities
INTERNATIONAL FUND
Description Shares/Par (000) Value (000)
FOREIGN COMMON STOCKS--91.7%
ARGENTINA--1.8%
Banco Frances Rio Plata (ADR) 15,700 $ 340
Cementera Argentina* 100,000 435
Commercial del Plata* 79,000 186
Dycasa Dragados, Cl B 60,000 141
Irsa, Cl B* 113,450 270
Polledo* 140,000 96
Quilmes Industrial 12,300 227
1,695
AUSTRALIA--0.8%
Newscorp 135,800 755
CHILE--0.4%
Madeco (ADR) 10,000 235
Santa Isabel (ADR) 8,200 177
412
FINLAND--5.0%
Nokia, Cl A 68,000 4,772
FRANCE--1.9%
Axa 7,950 420
Business Objects (ADR)* 6,700 285
Castorama 1,705 278
Cie Bancaire 3,965 370
SGS-Thomson (ADR)* 9,300 452
1,805
GERMANY--1.3%
Siemens 875 440
Veba 20,250 802
1,242
HONG KONG--5.5%
Cheung Kong Holdings 115,000 626
Citic Pacific 157,700 476
First Pacific 1,699,000 1,813
HSBC Holdings 92,200 1,282
Hutchison Whampoa 85,000 461
Sun Hung Kai Properties 69,000 560
5,218
INDIA--0.7%
East India Hotels (A) (GDR)* 7,100 135
I.T.C. (A) (ADR)* 46,500 418
Ranbaxy Laboratories (A) (GDR) 5,500 154
707
INDONESIA--1.1%
Indonesian Satellite (ADR) 30,000 1,054
IRELAND--0.4%
Elan (ADR)* 10,000 $ 415
ISRAEL--0.4%
ECI Telecommunications 16,000 358
ITALY--2.3%
Assicurazioni Generali 18,000 416
Falck* 100,000 245
Fila Holdings (ADR) 8,000 283
Instituto Mobiliare 22,000 132
Mediobanca 28,000 208
Telecom Italia 539,000 899
2,183
JAPAN--25.2%
Advantest 19,000 1,123
Alpine Electronics 26,000 399
Best Denki 11,000 166
Bridgestone 26,000 386
Canon 13,000 232
Canon Sales 6,000 155
Daini Denden 210 1,733
Daiwa Securities 57,000 719
Fanuc 4,000 178
Hirose Electric 6,300 395
Ito Yokado 20,000 1,106
Keyence 3,800 472
KOA 35,000 554
Kokusai Electric 31,000 707
Komatsu 48,000 386
Kubota 62,000 418
Kurita Water Industries 9,000 245
Kyocera 24,000 1,974
Makita 13,000 206
Marui 14,000 261
Matsushita Electric 16,000 245
Mitsubishi Electric 34,000 266
Mitsubishi Estate 54,000 605
Mitsubishi Trust & Banking 16,000 250
Mitsui Fudosan 40,000 480
Murata Manufacturing 26,000 976
NEC 141,000 1,965
Nikon 75,000 969
Nippon Telegraph & Telephone 36 310
Nissan Motors 41,000 295
Nomura Securities 33,000 646
NTT Data Communications 19 443
Sankyo 8,000 182
Sanwa Bank 25,000 469
Sharp 33,000 463
Sony 8,000 415
Sumitomo Bank 18,000 349
Sumitomo Trust & Banking 35,000 $ 480
TDK 4,000 206
Tokyo Electronics 30,000 1,305
Toray 50,000 304
Toyota Motor 19,000 362
Ushio 16,000 177
Yamanouchi Pharmaceutical 8,000 173
24,150
LUXEMBOURG--0.2%
Millicom International* 6,000 193
MALAYSIA--3.5%
Arab-Malaysian Merchant Bank 98,000 1,210
Malayan Banking 53,000 428
New Straits Times Press 100,000 283
Sime Darby Malaysia 125,000 333
Technology Resources* 296,000 772
United Engineers, F 55,000 353
3,379
MEXICO--2.6%
Bufete Industrial (ADR)* 10,500 169
Cemex, Cl A 51,750 218
Cifra 117,000 146
Grupo Carso (ADR)* 17,400 191
Grupo Financiero Banamex, Cl B 170,000 340
Grupo Financiero Banamex, Cl L 8,500 17
Grupo Financiero Inbursa, Cl C 200,000 631
Grupo Iusacell (ADS)* 15,510 202
Grupo Modelo 34,000 138
Grupo Posadas, Cl A* 600,000 235
Grupo Synkro (ADR)* 250,000 69
Kimberly Clark, Cl A 11,000 147
2,503
NETHERLANDS--4.1%
Advanced Semi-Conductor (ADR)* 4,800 242
ASM Litho Holdings (ADR)* 12,000 526
Baan (ADR)* 16,000 720
Elsevier 18,500 237
Getronics 3,800 187
International Nederlanden 4,200 244
Madge Networks (ADR)* 8,300 266
Philips Electronics 8,800 429
Polygram 10,000 650
Wolters Kluwer 4,200 385
3,886
NEW ZEALAND--0.8%
Telecom New Zealand (ADR) 13,100 809
NORWAY--1.3%
Hafslund Nycomed, Cl B 10,000 $ 259
Petroleum Geo-Services (ADR)* 39,300 963
1,222
PERU--2.2%
Banco de Credito del Peru, Cl C 122,000 229
Banco Wiese (ADR) 53,748 363
Cementos Norte Pacasmayo 50,000 117
Cia de Minas Buenaventura, Cl T 33,883 193
Cia Peruana de Telefonos, Cl B 481,559 927
El Pacifico Peruana Suiza 8,431 207
Telefonos 2000* 73,899 72
2,108
PHILIPPINES--0.7%
San Miguel, Cl B 181,000 639
SINGAPORE--2.6%
Cerebos Pacific 40,000 239
City Developments 87,600 542
Creative Technology (ADR)* 8,600 117
Flextronics (ADR)* 12,200 314
Singapore Press, F 12,000 184
Straits Steamship Land 104,000 285
United Overseas Bank, F 88,640 768
2,449
SOUTH KOREA--3.4%
Korea Fund 20,750 459
Korea Mobile Telecom (A) (GDR)* 18,900 671
Samsung Electric Non-Voting (GDS)
New* 1,781 107
Samsung Electric Non-Voting (GDS)* 28,400 1,989
Samsung Electric Voting (GDR) New* 70 8
Samsung Electric Voting (GDR) New* 135 15
Samsung Electric Voting (A) (GDR)* 354 42
3,291
SWEDEN--7.7%
Allgan Free, Cl B 20,300 454
Asea Free, Cl B 9,950 987
Astra Free, Cl B 26,200 922
Autoliv 14,500 884
Ericsson Telephone (ADR) 168,000 4,116
7,363
SWITZERLAND--4.1%
Brown Boveri & Cie Bearer 375 434
Ciba Geigy 450 361
Roche Holdings 230 1,624
Sandoz Pharmaceutical 1,940 1,477
3,896
THAILAND--1.8%
Advanced Info Service, F 57,000 $ 897
Land And House, F 9,400 148
Total Access Communications (ADR)* 50,000 313
United Communication 25,000 325
1,683
UNITED KINGDOM--9.9%
B.A.T. 24,000 200
Barclays Bank 41,000 485
British Sky Broadcasting (ADR) 45,000 1,627
Commercial Union 47,600 440
GlaxoWellcome 52,000 630
Logica 31,000 239
Next 104,400 669
Reuters 103,900 917
Smithkline Beecham 127,900 1,270
Takare 82,400 289
Tele-Communications (ADR), Cl A 49,200 917
Vodafone Group 157,800 662
WPP Group 87,300 205
Zeneca Group 56,000 1,012
9,562
TOTAL FOREIGN COMMON STOCKS
(Cost $78,518) 87,749
FOREIGN PREFERRED STOCKS--2.0%
GERMANY--2.0%
SAP 11,500 1,871
TOTAL FOREIGN PREFERRED STOCKS
(Cost $1,433) 1,871
REPURCHASE AGREEMENT--6.4%
Merrill Lynch 5.830%, dated 9/29/95,
matures 10/2/95, repurchase price
$6,080,345 (collateralized by various
U.S. Treasury Bills, total par value
$1,298,379, 3/07/96 - 9/19/96: U.S.
Treasury Bonds, total par value
$3,808,324, 8.250% - 13.750%,
11/15/03 - 11/15/10: total market
value $6,199,061) $ 6,077 6,077
TOTAL REPURCHASE AGREEMENT
(Cost $6,077) 6,077
TOTAL INVESTMENTS--100.1%
(Cost $86,028) 95,697
OTHER ASSETS AND LIABILITIES--(0.1%)
OTHER ASSETS AND LIABILITIES, NET (115)
NET ASSETS:
Portfolio shares of
Institutional ($.0001
par value--2 billion
authorized) based on
9,166,192 outstanding
shares $89,600
Portfolio shares of
Retail class A
($.0001 par value--2
billion authorized)
based on 85,174
outstanding shares 832
Portfolio shares of
Retail class B
($.0001 par value--2
billion authorized)
based on 30,086
outstanding shares 284
Undistributed net
investment income 1,609
Accumulated net
realized loss on
investments and
foreign currency
transactions (6,170)
Net unrealized
depreciation on
forward foreign
currency contracts,
foreign currency and
translation of other
assets and
liabilities in
foreign currency (242)
Net unrealized
appreciation on
investments 9,669
TOTAL NET
ASSETS:--100.0% $95,582
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PRICE PER
SHARE--INSTITUTIONAL
CLASS $ 10.30
NET ASSET VALUE AND
REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $ 10.28
MAXIMUM SALES CHARGE
OF 4.50%+ 0.48
OFFERING PRICE PER
SHARE--RETAIL CLASS A $ 10.76
NET ASSET VALUE AND
OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $ 10.20
The accompanying notes are an integral part of the financial statements.
* Non-income producing security
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statement.
(A) Securities sold within terms of a private placement memorandum, exempt from
registration under Section 144A of the Securities Act of 1993, as amended,
and may be sold only to dealers in that program or other "accredited
investors." These securities have been determined to be liquid under the
guidelines established by the Board of Directors.
ADR--American Depository Receipts
ADS--American Depository Shares
GDR--Global Depository Receipts
GDS--Global Depository Shares
F--Foreign Registry Shares
REAL ESTATE SECURITIES FUND
Description Shares/Par (000) Value (000)
COMMON STOCK--95.7%
REAL ESTATE INVESTMENT TRUSTS--95.7%
HEALTHCARE FACILITIES--11.3%
Health & Retirement Property Trust 10,700 $ 167
Health Care Property Investors 5,100 173
National Health 4,500 136
Nationwide Health Properties 4,300 176
652
HOTELS--3.2%
Hospitality Properties Trust 7,000 184
OFFICE/INDUSTRIAL--33.7%
Cali Realty 12,400 251
Duke Realty Investments 4,500 140
Highwoods Properties 7,200 190
Liberty Property Trust 11,300 240
Security Capital Industrial Trust 10,000 163
Shurgard Storage Centers 6,200 154
Sovran Self Storage 5,600 139
Spieker Properties 10,500 251
Storage Trust 5,000 102
Storage USA 5,700 176
Weeks 5,500 133
1,939
RESIDENTIAL--25.3%
Bay Apartment Communities 6,600 142
Chateau Properties 4,000 87
Equity Residential Properties Trust 8,100 244
Evans Withycombe Residential 8,100 164
Post Properties 3,800 118
ROC Communities 5,900 136
Summit Properties 11,700 221
Sun Communities 5,500 143
Wellsford Real Estate 9,500 203
1,458
RETAIL--22.2%
CBL & Associates Properties 6,000 125
DeBartolo Realty 8,400 118
Developers Diversified Realty 5,600 167
Excel Realty Trust 6,000 119
Federal Realty Investment Trust 6,000 140
JDN Realty 6,000 128
Macerich 6,200 132
Mid-America Realty Investments 14,400 113
Simon Property Group 4,800 122
Weingarten Realty Investors 3,200 113
1,277
TOTAL COMMON STOCK
(Cost $5,340) 5,510
REPURCHASE AGREEMENT--7.7%
Merrill Lynch 5.830%, dated 09/29/95,
matures 10/02/95, repurchase price
$443,780, (collateralized by various
U.S. Treasury Bills, total par value
$94,764, 03/07/96-09/19/96: U.S.
Treasury Bonds, total par value $277,955,
7.625%-13.750%, 11/15/03-11/15/10: total
market value $452,445) $444 $ 444
TOTAL REPURCHASE AGREEMENT (Cost $444) 444
TOTAL INVESTMENTS--103.4% (Cost $5,784) 5,954
OTHER ASSETS AND LIABILITIES--(3.4%)
Other Assets and Liabilities, Net (196)
NET ASSETS:
Portfolio shares--Institutional Class
($.0001 par value--2 billion authorized)
based on 555,059 outstanding shares 5,575
Portfolio shares--Retail Class A ($.0001
par value--2 billion authorized) based on
92 outstanding shares 1
Portfolio shares--Retail Class B ($.0001
par value--2 billion authorized) based on
96 outstanding shares 1
Undistributed net investment income 11
Net unrealized appreciation of investments 170
TOTAL NET ASSETS:--100.0% $5,758
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PRICE PER SHARE--INSTITUTIONAL CLASS $10.37
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE--RETAIL CLASS A $10.38
MAXIMUM SALES CHARGE OF 4.50%+ 0.49
OFFERING PRICE PER SHARE $10.87
NET ASSET VALUE AND OFFERING PRICE PER
SHARE--RETAIL CLASS B (1) $10.38
The accompanying notes are an integral part of the financial statements.
+ The offer price is calculated by dividing the net asset value by 1 minus
the maximum sales charge of 4.50%.
(1) Retail Class B has a contingent deferred sales charge. For a description of
a possible redemption charge, see the notes to the financial statement.
STATEMENTS OF OPERATIONS (000)
For the period ended September 30, 1995
<TABLE>
<CAPTION>
PRIME GOVERNMENT TREASURY
OBLIGATIONS OBLIGATIONS OBLIGATIONS
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $107,082 $42,675 $53,757
EXPENSES:
Investment advisory fees 7,154 2,881 3,996
Distribution Fees -- Institutional Class 571 263 --
Distribution fees -- Retail Class A 140 -- --
Distribution Fees -- Corporate Trust
Class 7 200 982
Administrator fees 1,252 504 656
Custodian fees 538 216 281
Registration fees 660 157 267
Professional fees 201 76 110
Transfer agent fees 117 51 63
Printing 60 42 43
Directors' fees 56 23 28
Amortization of organizational costs 2 2 --
Other 118 38 46
TOTAL EXPENSES 10,876 4,453 6,472
LESS: EXPENSES WAIVED (2,689) (1,009) (902)
TOTAL NET EXPENSES 8,187 3,444 5,570
INVESTMENT INCOME--NET 98,895 39,231 48,187
NET REALIZED GAIN (LOSS) ON INVESTMENTS 3 (36) 31
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 98,898 $39,195 $48,218
</TABLE>
The accompanying notes are an integral part of the financial statements.
For the period ended September 30, 1995
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE FIXED
TERM TERM INCOME
INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,700 $5,440 $13,903
EXPENSES:
Investment advisory fees 749 573 1,395
Administrator fees 149 118 275
Transfer agent fees 22 21 35
Amortization of organizational costs 4 4 --
Custodian fees 14 7 15
Directors' fees 3 3 5
Registration fees 26 12 87
Professional fees 19 9 21
Printing 41 17 35
Distribution fees--Retail Class A 24 7 18
Distribution fees--Retail Class B -- -- 24
Other 13 8 17
TOTAL EXPENSES 1,064 779 1,927
LESS: EXPENSES WAIVED OR ABSORBED (422) (206) (497)
TOTAL NET EXPENSES 642 573 1,430
INVESTMENT INCOME--NET 6,058 4,867 12,473
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS--NET:
Net realized gain (loss) on investments (1,327) 542 3,351
Net change in unrealized appreciation of investments 2,575 3,016 9,685
NET GAIN (LOSS) ON INVESTMENTS 1,248 3,558 13,036
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,306 $8,425 $25,509
</TABLE>
(table continued)
<TABLE>
<CAPTION>
MINNESOTA
LIMITED COLORADO INSURED
INTERMEDIATE MORTGAGE TERM TAX INTERMEDIATE INTERMEDIATE INTERMEDIATE
GOVERNMENT SECURITIES FREE INCOME TAX FREE TAX FREE TAX FREE
BOND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
$5,520 $1,926 $ 634 $1,587 $2,251 $2,942
566 197 100 206 284 377
111 50 50 50 57 74
21 20 19 19 20 20
-- 4 7 -- 5 6
8 6 4 9 12 16
2 1 1 1 1 1
35 3 1 16 19 18
11 4 6 4 4 6
14 8 8 3 5 10
5 1 2 2 3 5
-- -- -- -- -- --
6 4 3 2 3 4
779 298 201 312 413 537
(214) (100) (116) (114) (129) (160)
565 198 85 198 284 377
4,955 1,728 549 1,389 1,967 2,565
(76) 32 14 376 234 214
3,665 1,379 138 1,232 2,043 2,478
3,589 1,411 152 1,608 2,277 2,692
$8,544 $3,139 $ 701 $2,997 $4,244 $5,257
</TABLE>
The accompanying notes are an integral part of the financial statements.
For the period ended September 30, 1995
<TABLE>
<CAPTION>
LIMITED
ASSET EQUITY EQUITY VOLATILITY
ALLOCATION BALANCED INDEX INCOME STOCK
FUND FUND FUND FUND FUND (1)
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $1,245 $ 5,139 $ 422 $ 519 $ 70
Dividends 599 2,249 4,610 1,499 385
Less: Foreign taxes withheld -- -- -- -- --
Total investment income 1,844 7,388 5,032 2,018 455
EXPENSES:
Investment advisory fees 299 1,175 1,277 290 91
Administrator fees 63 240 262 57 44
Transfer agent fees 29 39 36 27 6
Amortization of organizational costs 5 4 4 10 2
Custodian fees 12 17 22 12 4
Directors' fees 2 5 6 1 --
Registration fees 1 30 36 15 5
Professional fees 4 17 22 10 2
Printing 12 39 45 11 2
Distribution fees--Retail Class A 2 35 3 5 --
Distribution fees--Retail Class B 2 11 3 3 --
Other 6 14 20 4 1
TOTAL EXPENSES 437 1,626 1,736 445 157
LESS: EXPENSES WAIVED OR ABSORBED (97) (262) (1,091) (128) (60)
TOTAL NET EXPENSES 340 1,364 645 317 97
INVESTMENT INCOME (LOSS)--NET 1,504 6,024 4,387 1,701 358
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS--NET:
Net realized gain (loss) on investments 1,590 7,484 1,499 435 (131)
Net realized gain on futures contracts -- -- 1,525 -- --
Net realized gain on forward foreign currency contracts
and foreign currency transactions -- -- -- -- --
Net change in unrealized appreciation of investments 4,397 18,934 40,664 5,876 2,922
Net change in unrealized appreciation on futures
contract -- -- 15 -- --
Net change in unrealized depreciation on forward foreign
currency contracts, foreign currency and translation
of other assets and liabilities in foreign currency -- -- -- -- --
NET GAIN ON INVESTMENTS 5,987 26,418 43,703 6,311 2,791
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,491 $32,442 $48,090 $8,012 $3,149
</TABLE>
(table continued)
<TABLE>
<CAPTION>
REAL
DIVERSIFIED SPECIAL REGIONAL EMERGING ESTATE
GROWTH STOCK EQUITY EQUITY GROWTH TECHNOLOGY INTERNATIONAL SECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 508 $ 1,676 $ 2,559 $ 1,125 $ 178 $ 22 $ 312 $ 8
1,497 5,358 3,070 1,181* 50 70 1,094 70
-- -- -- -- -- -- (110) --
2,005 7,034 5,629 2,306 228 92 1,296 78
574 1,705 1,241 995 153 121 869 8
111 341 252 200 50 50 95 13
30 45 46 42 28 28 30 2
9 -- -- 4 5 5 5 1
25 29 17 15 7 5 193 --
2 7 5 4 1 1 2 --
35 71 43 32 12 8 23 2
16 28 21 14 2 2 10 --
21 51 40 31 3 3 14 1
5 25 22 26 -- 1 1 --
3 24 23 22 1 5 1 --
8 23 18 13 1 1 20 --
839 2,349 1,728 1,398 263 230 1,263 27
(218) (378) (128) (160) (77) (71) (49) (18)
621 1,971 1,600 1,238 186 159 1,214 9
1,384 5,063 4,029 1,068 42 (67) 82 69
2,291 17,763 15,970 16,157* 1,122 3,397 (5,987) --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- 1,921 --
21,333 35,581 4,572 37,100* 5,699 6,007 8,360 170
-- -- -- -- -- -- -- --
-- -- -- -- -- -- (202) --
23,624 53,344 20,542 53,257 6,821 9,404 4,092 170
$25,008 $58,407 $24,571 $ 54,325 $6,863 $9,337 $ 4,174 $239
</TABLE>
The accompanying notes are an integral part of the financial statements.
* Includes the following amounts due to Investments in Common Stocks of
Affiliates (000): $43 of dividend income, $296 of realized gains, and
$14,582 of change in unrealized appreciation of investments.
(1) The Limited Volatility Stock Fund commenced operations on November 15,
1994.
(2) The Real Estate Securities Fund commenced operations on June 30, 1995.
STATEMENTS OF CHANGES IN NET ASSETS (000)
<TABLE>
<CAPTION>
PRIME GOVERNMENT TREASURY
OBLIGATIONS FUND OBLIGATIONS FUND OBLIGATIONS FUND
10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/4/93(1)
TO TO TO TO TO TO
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Investment income--net $ 98,895 $ 35,066 $ 39,231 $ 11,389 $ 48,187 $ 18,457
Net realized gain (loss) on investments 3 -- (36) 42 31 --
Net increase in net assets resulting
from operations 98,898 35,066 39,195 11,431 48,218 18,457
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income--net
Institutional class (95,604) (35,064) (31,983) (11,389) (1,945) --
Retail class A (3,049) -- -- -- -- --
Retail class B -- -- -- -- -- --
Corporate Trust class (244) -- (7,248) -- (46,242) (18,457)
Net realized gain on investments
Institutional class -- -- -- (17) -- --
Retail class A -- -- -- -- -- --
Retail class B -- -- -- -- -- --
Corporate Trust class -- -- -- -- -- --
Total distributions (98,897) (35,064) (39,231) (11,406) (48,187) (18,457)
CAPITAL SHARE TRANSACTIONS
AT NET ASSET VALUE OF $1.00 PER SHARE:
Institutional Class
Proceeds from sales 11,741,658 7,496,942 4,886,718 3,213,046 417,680 --
Reinvestment of distributions 33,427 13,344 16,078 5,280 1,201 --
Payments for redemptions (10,171,378) (6,885,929) (4,807,345) (2,999,813) (301,711) --
Increase in net assets from
Institutional Class transactions 1,603,707 624,357 95,451 218,513 117,170 --
Retail Class A:
Proceeds from sales 105,193 -- -- -- -- --
Shares issued in connection with
acquisition of Money Fund 63,816 -- -- -- -- --
Reinvestment of distributions 2,635 -- -- -- -- --
Payments for redemptions (75,561) -- -- -- -- --
Increase in net assets from Retail Class A
transactions 96,083 -- -- -- -- --
Retail Class B:
Proceeds from sales 14 -- -- -- -- --
Reinvestment of distributions -- -- -- -- -- --
Payments for redemptions -- -- -- -- -- --
Increase in net assets from Retail Class B
transactions 14 -- -- -- -- --
Corporate Trust Class:
Proceeds from sales 35,254 -- 427,493 -- 3,746,678 3,642,667
Shares issued in connection with acquisition
of CT Government Fund -- -- 156,260 -- -- --
Reinvestment of distributions -- -- -- -- -- --
Payments for redemptions (25,519) -- (384,892) -- (3,453,980) (2,896,577)
Increase in net assets from Corporate Trust
Class transactions 9,735 -- 198,861 -- 292,698 746,090
Increase in net assets from capital share
transactions 1,709,539 624,357 294,312 218,513 409,868 746,090
Total increase in net assets 1,709,540 624,359 294,276 218,538 409,899 746,090
Net assets at beginning of period 1,307,347 682,988 455,869 237,331 746,090 --
Net assets at end of period (2) $ 3,016,887 $ 1,307,347 $ 750,145 $ 455,869 $ 1,155,989 $ 746,090
</TABLE>
The accompanying notes are an integral part of the financial statements.
(1) The Treasury Obligations Fund commenced operations on October 4, 1993.
(2) Including undistributed net investment income (000) of $0 and $2 for Prime
Obligations Fund at September 30, 1995 and September 30, 1994,
respectively. The accompanying notes are an integral part of the financial
statements.
<TABLE>
<CAPTION>
INTERMEDIATE FIXED INTERMEDIATE
LIMITED TERM TERM INCOME INCOME GOVERNMENT
INCOME FUND FUND FUND BOND FUND
10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93
to to to to to to to to
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Investment income--net $ 6,058 $ 4,118 $ 4,867 $ 2,960 $ 12,473 $ 3,345 $ 4,955 $ 325
Net realized gain (loss) on investments (1,327) 29 542 (863) 3,351 (188) (76) (78)
Net change in unrealized appreciation
(depreciation) of investments 2,575 (2,149) 3,016 (2,753) 9,685 (5,201) 3,665 (344)
Net increase (decrease) in net assets
resulting from operations 7,306 1,998 8,425 (656) 25,509 (2,044) 8,544 (97)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income--net:
Institutional class (5,548) (2,182) (4,708) (1,900) (11,794) (2,150) (4,819) (217)
Retail class A (544) (1,862) (158) (1,064) (424) (1,197) (127) (109)
Retail class B -- -- -- (127) -- -- --
Net realized gain on investments:
Institutional class (20) -- (23) -- (440) -- -- --
Retail class A (3) -- (1) (685) (22) (574) -- (18)
Retail class B -- -- -- -- (1) -- -- --
TOTAL DISTRIBUTIONS (6,115) (4,044) (4,890) (3,649) (12,808) (3,921) (4,946) (344)
CAPITAL SHARE TRANSACTIONS (1):
Institutional class:
Transfer from Retail class A -- 82,491 -- 59,843 -- 44,936 -- 2,156
Proceeds from sales 35,097 16,209 32,461 25,019 225,170 58,825 83,288 27,456
Shares issued in connection with
acquisition of Managed Income Fund 38,342 -- -- -- -- -- -- --
Reinvestment of distributions 4,773 2,151 3,568 1,829 4,951 1,749 315 81
Payments for redemptions (38,162) (29,445) (19,532) (15,273) (42,680) (12,069) (14,740) (1,614)
Increase (decrease) in net assets from
Institutional class transactions 40,050 71,406 16,497 71,418 187,441 93,441 68,863 28,079
Retail class A:
Proceeds from sales 2,920 28,721 200 4,929 2,212 12,649 1,260 1,156
Shares issued in connection with
acquisition of Managed Income Fund 4,574 -- -- -- -- -- -- --
Reinvestment of distributions 482 1,645 143 1,744 387 1,635 99 117
Payments for redemptions (7,576) (59,260) (1,216) (9,581) (3,165) (12,211) (545) (718)
Transfer to Institutional class -- (82,491) -- (59,843) -- (44,936) -- (2,156)
Increase (decrease) in net assets from
Retail class A transactions 400 (111,385) (873) (62,751) (566) (42,863) 814 (1,601)
Retail class B:
Proceeds from sales 1 1 -- -- 7,180 116 -- --
Reinvestment of distributions -- -- -- -- 118 -- -- --
Payments for redemptions (2) -- -- -- (255) -- -- --
Increase (decrease) in net assets from
Retail class B transactions (1) 1 -- -- 7,043 116 -- --
Increase (decrease) in net assets from
capital share transactions 40,449 (39,978) 15,624 8,667 193,918 50,694 69,677 26,478
Total increase (decrease) in net assets 41,640 (42,024) 19,159 4,362 206,619 44,729 73,275 26,037
NET ASSETS AT BEGINNING OF PERIOD 79,776 121,800 71,653 67,291 98,330 53,601 29,753 3,716
NET ASSETS AT END OF PERIOD (2) $121,416 $ 79,776 $ 90,812 $ 71,653 $304,949 $ 98,330 $103,028 $29,753
(1)Capital share transactions:
Institutional class:
Transfer from retail class A -- 8,255 -- 5,960 -- 4,120 -- 229
Proceeds from sales 3,569 1,636 3,367 2,597 21,255 5,555 9,271 3,034
Shares issued in connection with
acquisition of Managed Income Fund 3,917 -- -- -- -- -- -- --
Reinvestment of distributions 484 218 369 188 467 165 34 9
Payments for redemptions (3,873) (2,975) (2,012) (1,581) (4,012) (1,140) (1,614) (177)
Total Institutional class transactions 4,097 7,134 1,724 7,164 17,710 8,700 7,691 3,095
Retail class A:
Proceeds from sales 297 2,860 20 506 205 1,128 137 123
Shares issued in connection with
acquisition of Managed Income Fund 468 -- -- -- -- -- -- --
Reinvestment of distributions 49 164 15 174 37 147 11 13
Payments for redemptions (773) (5,916) (126) (967) (301) (1,092) (60) (78)
Transfer to Institutional class -- (8,255) -- (5,960) -- (4,120) -- (229)
Total Retail class A transactions 41 (11,147) (91) (6,247) (59) (3,937) 88 (171)
Retail class B:
Proceeds from sales -- -- -- -- 667 11 -- --
Reinvestment of distributions -- -- -- -- 11 -- -- --
Payments for redemptions -- -- -- -- (23) -- -- --
Total Retail class B transactions -- -- -- -- 655 11 -- --
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS 4,138 (4,013) 1,633 917 18,306 4,774 7,779 2,924
</TABLE>
(table continued)
<TABLE>
<CAPTION>
COLORADO MINNESOTA INSURED
MORTGAGE LIMITED TERM INTERMEDIATE INTERMEDIATE INTERMEDIATE
SECURITIES FUND TAX FREE INCOME FUND TAX FREE FUND TAX FREE FUND TAX FREE FUND
10/1/94 10/1/93 10/1/94 12/1/93 10/1/94 10/1/93 10/1/94 4/4/94(4) 10/1/94 2/28/94(5)
to to to to to to to to to to
9/30/95 9/30/94 9/30/95 9/30/94(3) 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,728 $1,780 $549 $ 396 $ 1,389 $ 152 $ 1,967 $ 42 $ 2,565 $ 282
32 (62) 14 (13) 376 (38) 234 1 214 (12)
1,379 (1,966) 138 (115) 1,232 (178) 2,043 (32) 2,478 (252)
3,139 (248) 701 268 2,997 (64) 4,244 11 5,257 18
(1,713) (1,208) (515) (93) (1,344) (78) (1,904) (30) (2,470) (254)
(16) (572) (33) (315) (44) (74) (63) (10) (86) (28)
-- -- -- -- -- -- -- -- -- --
(1) -- -- -- -- -- (2) -- -- --
-- (10) -- -- -- (21) -- -- -- --
-- -- -- -- -- -- -- -- -- --
(1,730) (1,790) (548) (408) (1,388) (173) (1,969) (40) (2,556) (282)
-- 32,357 -- 15,896 -- 2,109 -- -- -- --
1,263 4,386 1,405 1,082 49,729 6,147 47,042 7,465 69,842 21,192
-- -- -- -- -- -- -- -- -- --
1,617 1,182 213 45 64 40 14 10 82 41
(6,723) (8,219) (11,764) (582) (11,501) (2,027) (6,496) (169) (31,135) (709)
(3,843) 29,706 (10,146) 16,441 38,292 6,269 40,560 7,306 38,789 20,524
53 3,906 786 3,189 397 802 1,496 691 878 1,606
-- -- -- -- -- -- -- -- -- --
12 582 32 152 36 83 29 6 71 28
(147) (1,640) (907) (6,128) (622) (481) (74) -- (307) (114)
-- (32,357) -- (15,896) -- (2,109) -- -- -- --
(82) (29,509) (89) (18,683) (189) (1,705) 1,451 697 642 1,520
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
(3,925) 197 (10,235) (2,242) 38,103 4,564 42,011 8,003 39,431 22,044
(2,516) (1,841) (10,082) (2,382) 39,712 4,327 44,286 7,974 42,132 21,780
28,674 30,515 16,948 19,330 7,296 2,969 7,974 -- 21,780 --
$ 26,158 $28,674 $ 6,866 $ 16,948 $ 47,008 $ 7,296 $ 52,260 $7,974 $ 63,912 $ 21,780
-- 3,201 -- 1,589 -- 199 -- -- -- --
129 438 141 108 4,792 592 4,676 732 7,280 2,183
-- -- -- -- -- -- -- -- -- --
164 120 21 4 6 4 2 1 8 4
(673) (833) (1,174) (58) (1,103) (195) (631) (16) (3,183) (73)
(380) 2,926 (1,012) 1,643 3,695 600 4,047 717 4,105 2,114
5 379 78 319 37 74 144 68 90 166
-- -- -- -- -- -- -- -- -- --
1 57 3 15 4 8 3 -- 8 3
(14) (159) (90) (612) (59) (45) (7) -- (31) (12)
-- (3,201) -- (1,589) -- (199) -- -- -- --
(8) (2,924) (9) (1,867) (18) (162) 140 68 67 157
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
(388) 2 (1,021) (224) 3,677 438 4,187 785 4,172 2,271
</TABLE>
The accompanying notes are an integral part of the financial statements.
(2) Included undistributed (distributions in excess of) net investment income
(000) of $38 and $72 for Limited Term Income Fund, $1 and $0 for
Intermediate Term Income Fund, $134 and $6 for Fixed Income Fund, $9 and $0
Intermediate Government Bond Fund, $16 and $0 for Limited Term Tax Free
Income Fund, $1 and $0 for Intermediate Tax Free Income Fund, $2 and $2 for
Colorado Intermediate Tax Free Income Fund, and $9 and $0 Minnesota Insured
Intermediate Tax Free Fund at September 30, 1995 and September 30, 1994,
respectively.
(3) On April 28, 1994, the Board of Directors approved a change in this Fund's
fiscal year end from November 30 to September 30, effective September 30,
1994.
(4) The Colorado Intermediate Tax Free Fund commenced operations on April 4,
1994.
(5) The Minnesota Insured Intermediate Tax Free Fund commenced operations on
February 28, 1994.
<TABLE>
<CAPTION>
ASSET EQUITY EQUITY
ALLOCATION FUND BALANCED FUND INDEX FUND INCOME FUND
10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 12/1/93
to to to to to to to to
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94(4)
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss)--net $ 1,504 $ 1,373 $ 6,024 $ 4,192 $ 4,387 $ 3,793 $ 1,701 $ 959
Net realized gain (loss) on investments 1,590 1,042 7,484 2,435 1,499 1,237 435 (442)
Net realized gain on futures contracts -- -- -- -- 1,525 -- -- --
Net realized gain (loss) on forward foreign currency
contracts and foreign currency transactions -- -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) of investments 4,397 (1,588) 18,934 (3,010) 40,664 56 5,876 334
Net change in unrealized appreciation on
futures contract -- -- -- -- 15 -- -- --
Net change in unrealized depreciation on forward
foreign currency contracts, foreign currency and
translation of other assets and liabilities in
foreign currency -- -- -- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operations 7,491 827 32,442 3,617 48,090 5,086 8,012 851
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income--net:
Institutional class (1,451) (991) (5,355) (2,793) (4,282) (2,885) (1,562) (61)
Retail class A (24) (384) (458) (1,366) (28) (912) (70) (880)
Retail class B (6) -- (32) -- (5) -- (11) --
Net realized gain on investments:
Institutional class (1,084) -- (1,857) -- (1,427) -- -- --
Retail class A (15) (713) (188) (1,884) (7) (188) -- --
Retail class B (1) -- (7) -- (1) -- -- --
Return of capital:
Institutional class -- -- -- -- -- -- -- --
Total distributions (2,581) (2,088) (7,897) (6,043) (5,750) (3,985) (1,643) (941)
CAPITAL SHARE TRANSACTIONS (1):
Institutional class:
Transfer from Retail class A -- 51,261 -- 109,870 -- 143,478 -- 6,302
Proceeds from sales 8,308 6,840 76,127 28,604 47,941 33,718 35,073 12,340
Reinvestment of distributions 2,516 987 7,075 2,773 5,459 2,867 196 20
Payments for redemptions (19,615) (13,790) (38,755) (18,873) (40,076) (23,678) (6,696) (800)
Increase (decrease) in net assets from
Institutional class transactions (8,791) 45,298 44,447 122,374 13,324 156,385 28,573 17,862
Retail class A:
Proceeds from sales 298 3,688 1,737 24,928 1,205 17,529 623 3,926
Reinvestment of distributions 37 1,097 640 3,244 33 1,100 67 737
Payments for redemptions (145) (6,020) (2,783) (10,460) (181) (8,148) (789) (25,578)
Transfer to Institutional class -- (51,261) -- (109,870) -- (143,478) -- (6,302)
Increase (decrease) in net assets from
Retail class A transactions 190 (52,496) (406) (92,158) 1,057 (132,997) (99) (27,217)
Retail class B:
Proceeds from sales 543 11 2,775 274 1,092 29 1,241 1
Reinvestment of distributions 7 -- 37 -- 5 -- 10 --
Payments for redemptions (30) -- (134) -- (24) -- (82) --
Increase in net assets from Retail class B
transactions 520 11 2,678 274 1,073 29 1,169 1
Increase (decrease) in net assets from capital
share transactions (8,081) (7,187) 46,719 30,490 15,454 23,417 29,643 (9,354)
Total increase (decrease) in net assets (3,171) (8,448) 71,264 28,064 57,794 24,518 36,012 (9,444)
NET ASSETS AT BEGINNING OF PERIOD 47,945 56,393 139,289 111,225 164,475 139,957 19,342 28,786
NET ASSETS AT END OF PERIOD (2) $ 44,774 $ 47,945 $210,553 $ 139,289 $222,269 $ 164,475 $ 55,354 $ 19,342
(1)Capital share transactions:
Institutional class:
Transfer from Retail class A -- 5,136 -- 10,707 -- 14,112 -- 600
Proceeds from sales 765 658 6,800 2,697 4,043 3,201 3,492 1,247
Reinvestment of distributions 241 95 648 261 484 271 19 2
Payments for redemptions (1,868) (1,341) (3,493) (1,774) (3,454) (2,248) (643) (81)
Total Institutional class transactions (862) 4,548 3,955 11,891 1,073 15,336 2,868 1,768
Retail class A:
Proceeds from sales 28 345 155 2,312 102 1,626 58 397
Reinvestment of distributions 3 103 59 303 3 102 7 75
Payments for redemptions (14) (564) (255) (967) (16) (753) (75) (2,600)
Transfer to Institutional class -- (5,136) -- (10,707) -- (14,112) -- (600)
Total Retail class A transactions 17 (5,252) (41) (9,059) 89 (13,137) (10) (2,728)
Retail class B:
Proceeds from sales 50 1 241 26 89 3 117 --
Reinvestment of distributions 1 -- 3 -- -- -- 1 --
Payments for redemptions (3) -- (12) -- (2) -- (8) --
Total Retail class B transactions 48 1 232 26 87 3 110 --
NET INCREASE (DECREASE) IN CAPITAL SHARES (797) (703) 4,146 2,858 1,249 2,202 2,968 (960)
</TABLE>
(table continued)
<TABLE>
<CAPTION>
LIMITED
VOLATILITY
STOCK DIVERSIFIED SPECIAL REGIONAL EMERGING
FUND GROWTH FUND STOCK FUND EQUITY FUND EQUITY FUND GROWTH FUND
11/15/94(3) 10/1/94 12/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 4/4/94(5)
to to to to to to to to to to to
9/30/95 9/30/95 9/30/94(4) 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 358 $ 1,384 $ 304 $ 5,063 $ 2,724 $ 4,029 $ 2,024 $ 1,068 $ 611 $ 42 $ 4
(131) 2,291 (3,037) 17,763 7,831 15,970 8,668 16,157 2,221 1,122 66
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
2,922 21,333 1,902 35,581 319 4,572 7,538 37,100 2,652 5,699 239
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
3,149 25,008 (831) 58,407 10,874 24,571 18,230 54,325 5,484 6,863 309
(350) (1,245) (95) (4,669) (2,082) (3,740) (1,518) (705) (486) (24) (3)
-- (29) (242) (182) (608) (182) (490) (45) (112) -- --
-- (2) -- (29) (2) (32) (1) (1) -- -- --
-- -- -- (6,156) -- (8,609) -- (2,571) -- (158) --
-- -- -- (307) (3,673) (473) (5,674) (216) (888) (1) --
-- -- -- (26) -- (52) -- (10) -- -- --
-- -- -- -- -- -- -- -- -- -- --
(350) (1,276) (337) (11,369) (6,365) (13,088) (7,683) (3,548) (1,486) (183) (3)
-- -- 2,393 -- 110,876 -- 88,018 -- 61,030 -- --
15,144 91,647 32,761 155,804 52,481 72,724 29,156 60,768 27,827 30,230 6,695
247 411 68 7,982 1,908 10,320 1,418 3,115 471 54 1
(1,065) (14,227) (803) (50,899) (24,357) (20,701) (7,305) (17,586) (4,225) (2,013) (148)
14,326 77,831 34,419 112,887 140,908 62,343 111,287 46,297 85,103 28,271 6,548
-- 877 2,689 3,938 20,003 5,207 18,076 4,213 23,298 275 86
-- 29 229 463 4,166 649 5,968 261 997 1 --
-- (622) (31,086) (1,552) (29,532) (2,109) (3,615) (1,456) (6,404) (31) --
-- -- (2,393) -- (110,876) -- (88,018) -- (61,030) -- --
-- 284 (30,561) 2,849 (116,239) 3,747 (67,589) 3,018 (43,139) 245 86
-- 765 13 6,337 350 4,195 364 6,573 186 249 18
-- 2 -- 54 2 79 1 9 -- -- --
-- (18) -- (195) -- (114) -- (119) -- (33) --
-- 749 13 6,196 352 4,160 365 6,463 186 216 18
14,326 78,864 3,871 121,932 25,021 70,250 44,063 55,778 42,150 28,732 6,652
17,125 102,596 2,703 168,970 29,530 81,733 54,610 106,555 46,148 35,412 6,958
-- 33,787 31,084 163,716 134,186 136,509 81,899 104,575 58,427 6,958 --
$ 17,125 $136,383 $ 33,787 $332,686 $ 163,716 $218,242 $136,509 $211,130 $104,575 $ 42,370 $ 6,958
-- -- 223 -- 7,556 -- 6,040 -- 5,673 -- --
1,511 9,131 3,361 9,002 3,185 4,412 1,778 4,305 2,308 2,628 664
22 41 7 487 116 658 85 261 38 5 --
(95) (1,398) (89) (2,902) (1,469) (1,236) (457) (1,227) (351) (170) (15)
1,438 7,774 3,502 6,587 9,388 3,834 7,446 3,339 7,668 2,463 649
-- 82 295 218 1,225 305 1,122 289 1,910 22 9
-- 3 25 28 260 41 383 22 84 -- --
-- (63) (3,198) (88) (1,808) (121) (224) (106) (539) (2) --
-- -- (223) -- (7,556) -- (6,040) -- (5,673) -- --
-- 22 (3,101) 158 (7,879) 225 (4,759) 205 (4,218) 20 9
-- 70 1 348 21 252 21 441 15 21 2
-- -- -- 3 -- 5 -- 1 -- -- --
-- (1) -- (10) -- (6) -- (8) -- (3) --
-- 69 1 341 21 251 21 434 15 18 2
1,438 7,865 402 7,086 1,530 4,310 2,708 3,978 3,465 2,501 660
(table continued)
REAL
ESTATE
TECHNOLOGY INTERNATIONAL SECURITIES
FUND FUND FUND
10/1/94 4/4/94(5) 10/1/94 4/4/94(5) 6/30/95(6)
to to to to to
9/30/95 9/30/94 9/30/95 9/30/94 9/30/95
$ (67) $ (3) $ 82 $ (29) $ 69
3,397 143 (5,987) (177) --
-- -- -- -- --
-- -- 1,921 (443) --
6,007 731 8,360 1,309 170
-- -- -- -- --
-- -- (202) (40) --
9,337 871 4,174 620 239
-- -- -- -- (58)
-- -- -- -- --
-- -- -- -- --
(174) -- -- -- --
(2) -- -- -- --
-- -- -- -- --
-- -- -- -- (20)
(176) -- -- -- (78)
-- -- -- -- --
15,964 5,773 50,343 47,575 5,595
26 -- -- -- --
(1,921) (145) (8,022) (225) --
14,069 5,628 42,321 47,350 5,595
1,267 53 463 459 1
2 -- -- -- --
(72) -- (87) (2) --
-- -- -- -- --
1,197 53 376 457 1
1,825 2 294 22 1
-- -- -- -- --
(39) -- (32) -- --
1,786 2 262 22 1
17,052 5,683 42,959 47,829 5,597
26,213 6,554 47,133 48,449 5,758
6,554 -- 48,449 -- --
$ 32,767 $ 6,554 $ 95,582 $ 48,449 $ 5,758
-- -- -- -- --
1,158 595 5,347 4,717 555
2 -- -- -- --
(136) (15) (876) (22) --
1,024 580 4,471 4,695 555
79 6 49 45 --
-- -- -- -- --
(4) -- (9) -- --
-- -- -- -- --
75 6 40 45 --
115 -- 31 2 --
-- -- -- -- --
(2) -- (3) -- --
113 -- 28 2 --
1,212 586 4,539 4,742 555
</TABLE>
The accompanying notes are an integral part of the financial statements.
(2) Included undistributed (distributions in excess of) net investment income
(000) of $33 and $10 for Asset Allocation, $203 and $24 for Balanced, $110
and $38 for Equity Index, $104 and $30 for Equity Income, $8 for Limited
Volatility, $146 and $20 for Diversified Growth, $235 and $52 for Stock,
$75 and $0 for Special Equity, $317 and $0 for Regional Equity, $19 and $1
for Emerging Growth, $11 for the Real Estate Securities Fund, and
accumulated net investment (loss) of ($0) and ($3) for Technology Fund, and
undistributed net investment income $1,609 and net operating loss ($415)
for International at September 30, 1995 and September 30, 1994,
respectively.
(3) The Limited Volatility Stock Fund commenced operations on November 15,
1994.
(4) On April 28, 1994, the Board of Directors approved a change in this Fund's
fiscal year end from November 30 to September 30, effective September 30,
1994.
(5) The Emerging Growth, International, and Technology Fund commenced
operations on April 4, 1994.
(6) The Real Estate Securities Fund commenced operations on June 30, 1995.
FINANCIAL HIGHLIGHTS
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET DIVIDENDS NET ASSET RATIO OF INVESTMENT AVERAGE
VALUE NET FROM NET VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS
BEGINNING INVESTMENT INVESTMENT END OF END OF AVERAGE AVERAGE (EXCLUDING
OF PERIOD INCOME INCOME PERIOD TOTAL RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME OBLIGATIONS
INSTITUTIONAL CLASS
1995 $1.00 $0.055 $(0.055) $1.00 5.64% $2,911,055 0.45% 5.53% 0.60%
1994 1.00 0.035 (0.035) 1.00 3.56 1,307,347 0.45 3.58 0.60
1993 1.00 0.030 (0.030) 1.00 3.02 682,988 0.45 2.97 0.62
1992 1.00 0.039 (0.039) 1.00 4.02 203,765 0.45 3.90 0.59
1991 1.00 0.064 (0.064) 1.00 6.60 193,650 0.45 6.43 0.57
1990(1) 1.00 0.046 (0.046) 1.00 4.73+ 239,231 0.45 7.90 0.55
RETAIL CLASS A
1995(3)* $1.00 $0.038 $(0.038) $1.00 3.84%+ $ 96,083 0.70% 5.43% 0.82%
RETAIL CLASS B
1995(4)* $1.00 $0.032 $(0.032) $1.00 3.28%+ $ 14 1.45% 4.70% 1.57%
CORPORATE TRUST CLASS
1995(5)* $1.00 $0.038 $(0.038) $1.00 3.86%+ $ 9,735 0.60% 5.51% 0.72%
GOVERNMENT OBLIGATIONS
INSTITUTIONAL CLASS
1995 $1.00 $0.054 $(0.054) $1.00 5.55% $ 551,286 0.45% 5.44% 0.60%
1994 1.00 0.034 (0.034) 1.00 3.48 455,869 0.45 3.61 0.61
1993 1.00 0.028 (0.028) 1.00 2.87 237,331 0.45 2.83 0.65
1992 1.00 0.038 (0.038) 1.00 3.85 93,770 0.45 3.71 0.64
1991 1.00 0.060 (0.060) 1.00 6.22 72,824 0.45 5.90 0.68
1990(1) 1.00 0.045 (0.045) 1.00 4.56+ 29,704 0.45 7.60 0.98
CORPORATE TRUST CLASS
1995(3)* $1.00 $0.038 $(0.038) $1.00 3.85%+ $ 198,859 0.60% 5.45% 0.70%
TREASURY OBLIGATIONS
INSTITUTIONAL CLASS
1995(5)* $1.00 $0.038 $(0.038) $1.00 3.83%+ $ 117,171 0.45% 5.50% 0.55%
CORPORATE TRUST CLASS
1995 $1.00 $0.051 $(0.051) $1.00 5.22% $1,038,818 0.60% 5.13% 0.70%
1994(2) 1.00 0.031 (0.031) 1.00 3.12+ 746,090 0.58 3.19 0.68
</TABLE>
The accompanying notes are an integral part of the financial statements.
+ Returns are for the period indicated and have not been annualized
* All ratios for the periods have been annualized.
(1) Commenced operations on March 1, 1990. All ratios for the period have been
annualized.
(2) Commenced operations on October 4, 1993. All ratios for the period have
been annualized.
(3) Commenced operations on January 21, 1995. All ratios for the period have
been annualized.
(4) Commenced operations on January 23, 1995. All ratios for the period have
been annualized.
(5) Commenced operations on January 24, 1995. All ratios for the period have
been annualized.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS NET ASSET
VALUE NET GAINS OR FROM NET DISTRIBUTIONS VALUE NET ASSETS
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM END OF END OF
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS PERIOD TOTAL RETURN PERIOD (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIMITED TERM INCOME
INSTITUTIONAL CLASS
1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- $ 9.92 6.57% $111,439
1994(1) 10.02 0.29 (0.17) (0.29) -- 9.85 1.24%+ 70,266
RETAIL CLASS A
1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- $ 9.92 6.57% $ 9,977
1994 10.06 0.44 (0.22) (0.43) -- 9.85 2.21% 9,509
1993(2) 10.00 0.29 0.07 (0.30) -- 10.06 3.61%+ 121,800
RETAIL CLASS B
1995(3) $ 9.84 $0.13 $(0.08) $(0.14) $ -- $ -- 0.52%+ $ --
1994(4) 9.86 0.04 0.01 (0.07) -- 9.84 0.51%+ 1
INTERMEDIATE TERM INCOME
INSTITUTIONAL CLASS
1995 $ 9.55 $0.58 $ 0.39 $(0.58) $ -- $ 9.94 10.51% $ 88,375
1994(1) 10.01 0.31 (0.46) (0.31) -- 9.55 (1.48%)+ 68,445
RETAIL CLASS A
1995 $ 9.55 $0.59 $ 0.38 $(0.58) $ -- $ 9.94 10.51% $ 2,437
1994 10.22 0.46 (0.56) (0.46) (0.11) 9.55 (1.05%) 3,208
1993(2) 10.00 0.41 0.29 (0.41) (0.07) 10.22 7.21%+ 67,291
FIXED INCOME
INSTITUTIONAL CLASS
1995 $10.37 $0.66 $ 0.62 $(0.65) $(0.03) $10.97 12.86% $289,816
1994(1) 11.11 0.38 (0.74) (0.38) -- 10.37 (3.23%)+ 90,187
RETAIL CLASS A
1995 $10.37 $0.66 $ 0.61 $(0.63) $(0.03) $10.98 12.78% $ 7,853
1994 11.38 0.57 (0.89) (0.57) (0.12) 10.37 (2.92%) 8,028
1993 11.13 0.62 0.36 (0.61) (0.12) 11.38 9.20% 53,601
1992 10.59 0.66 0.60 (0.66) (0.06) 11.13 12.34% 5,645
1991(5) 10.01 0.65 0.58 (0.65) -- 10.59 12.48%+ 6,045
1990(6) 10.44 0.74 (0.26) (0.74) (0.17) 10.01 5.14% 2,209
1989(6) 10.13 0.74 0.31 (0.74) -- 10.44 10.93% 555
1988(6)(7) 10.03 0.62 0.13 (0.65) -- 10.13 8.07%+ 240
RETAIL CLASS B
1995 $10.35 $0.58 $ 0.60 $(0.56) $(0.03) $10.94 11.75% $ 7,280
1994(4) 10.54 0.08 (0.17) (0.10) -- 10.35 (0.88%)+ 115
INTERMEDIATE GOVERNMENT BOND
INSTITUTIONAL CLASS
1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- $ 9.29 9.82% $100,168
1994(1) 9.41 0.27 (0.43) (0.27) -- 8.98 (1.66%)+ 27,776
RETAIL CLASS A
1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- $ 9.29 9.82% $ 2,860
1994 9.52 0.41 (0.51) (0.39) (0.05) 8.98 (1.13%) 1,977
1993 10.18 0.44 0.02 (0.44) (0.68) 9.52 4.99% 3,716
1992 10.25 0.60 0.28 (0.60) (0.35) 10.18 8.88% 589
1991(5) 10.01 0.65 0.24 (0.65) -- 10.25 9.13%+ 1,756
1990(6) 10.05 0.75 (0.04) (0.75) -- 10.01 7.41% 1,573
1989(6) 9.99 0.74 0.06 (0.74) -- 10.05 8.35% 1,501
1988(6)(7) 10.03 0.58 (0.01) (0.61) -- 9.99 6.18%+ 375
MORTGAGE SECURITIES
INSTITUTIONAL CLASS
1995 $ 9.71 $0.61 $ 0.49 $(0.61) $ -- $10.20 11.84% $ 25,970
1994(1) 10.30 0.38 (0.59) (0.38) -- 9.71 (2.15%)+ 28,418
RETAIL CLASS A
1995 $ 9.71 $0.61 $ 0.49 $(0.61) $ -- $10.20 11.84% $ 188
1994 10.34 0.56 (0.63) (0.56) -- 9.71 (0.79%) 256
1993(2) 10.00 0.42 0.34 (0.42) -- 10.34 7.76%+ 30,515
LIMITED TERM TAX FREE INCOME
INSTITUTIONAL CLASS
1995 $ 9.95 $0.39 $ 0.11 $(0.39) $ -- $10.06 5.16% $ 6,346
1994(8) 9.98 0.06 (0.03) (0.06) -- 9.95 0.27%+ 16,349
RETAIL CLASS A
1995 $ 9.95 $0.39 $ 0.11 $(0.39) $ -- $10.06 5.16% $ 520
1994(9) 10.03 0.22 (0.07) (0.23) -- 9.95 1.50%+ 599
1993(10)(11) 10.00 0.18 0.02 (0.17) -- 10.03 2.02%+ 19,330
INTERMEDIATE TAX FREE
INSTITUTIONAL CLASS
1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- $10.72 9.15% $ 46,025
1994(1) 10.89 0.29 (0.61) (0.29) -- 10.28 (2.91%)+ 6,168
RETAIL CLASS A
1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- $10.72 9.15% $ 983
1994 10.92 0.44 (0.57) (0.44) (0.07) 10.28 (1.25%) 1,128
1993 10.56 0.47 0.42 (0.47) (0.06) 10.92 8.66% 2,969
1992 10.34 0.53 0.22 (0.53) -- 10.56 7.23% 725
1991(5) 10.04 0.50 0.31 (0.50) (0.01) 10.34 8.15%+ 637
1990(6) 10.08 0.56 (0.04) (0.56) -- 10.04 5.31% 537
1989(6) 10.19 0.56 (0.11) (0.56) -- 10.08 4.57% 491
1988(6)(7) 10.03 0.47 0.16 (0.47) -- 10.19 6.73%+ 425
COLORADO INTERMEDIATE TAX FREE
INSTITUTIONAL CLASS
1995 $10.16 $0.48 $ 0.36 $(0.49) $ -- $10.51 8.47% $ 50,071
1994(13) 10.00 0.22 0.16 (0.22) -- 10.16 3.76%+ 7,281
RETAIL CLASS A
1995 $10.15 $0.49 $ 0.36 $(0.49) $ -- $10.51 8.57% $ 2,189
1994(13) 10.00 0.21 0.16 (0.22) -- 10.15 3.66%+ 693
MINNESOTA INSURED INTERMEDIATE TAX FREE
INSTITUTIONAL CLASS
1995 $ 9.59 $0.45 $ 0.33 $(0.45) $ -- $ 9.92 8.34% $ 61,693
1994(12) 10.00 0.25 (0.41) (0.25) -- 9.59 (1.58%)+ 20,272
RETAIL CLASS A
1995 $ 9.58 $0.46 $ 0.33 $(0.45) $ -- $ 9.92 8.46% $ 2,219
1994(12) 10.00 0.25 (0.42) (0.25) -- 9.58 (1.68%)+ 1,508
ASSET ALLOCATION
INSTITUTIONAL CLASS
1995 $10.38 $0.38 $ 1.58 $(0.37) $(0.25) $11.72 19.75% $ 43,210
1994(1) 10.68 0.20 (0.30) (0.20) -- 10.38 (0.90%)+ 47,227
RETAIL CLASS A
1995 $10.39 $0.36 $ 1.58 $(0.35) $(0.25) $11.73 19.51% $ 993
1994 10.60 0.27 (0.08) (0.26) (0.14) 10.39 1.81% 707
1993(2) 10.00 0.19 0.60 (0.19) -- 10.60 8.01%+ 56,393
RETAIL CLASS B
1995 $10.37 $0.27 $ 1.57 $(0.28) $(0.25) $11.68 18.51% $ 571
1994(4) 10.40 0.05 (0.03) (0.05) -- 10.37 0.19% 11
BALANCED
INSTITUTIONAL CLASS
1995 $10.54 $0.40 $ 1.73 $(0.39) $(0.15) $12.13 20.89% $192,145
1994(1) 10.86 0.25 (0.32) (0.25) -- 10.54 (0.64%)+ 125,285
RETAIL CLASS A
1995 $10.54 $0.38 $ 1.72 $(0.37) $(0.15) $12.12 20.57% $ 15,288
1994 10.73 0.34 (0.02) (0.34) (0.17) 10.54 3.02% 13,734
1993(2) 10.00 0.28 0.75 (0.28) (0.02) 10.73 10.39%+ 111,225
RETAIL CLASS B
1995 $10.53 $0.29 $ 1.71 $(0.29) $(0.15) $12.09 19.58% $ 3,120
1994(4) 10.66 0.06 (0.12) (0.07) -- 10.53 (0.55%)+ 270
(table continued)
RATIO OF RATIO OF
NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE
EXPENSES TO INCOME TO NET ASSETS
AVERAGE AVERAGE (EXCLUDING PORTFOLIO
NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE
0.60% 5.67% 0.97% 120%
0.60 4.40 1.03 48
0.60% 5.60% 1.22% 120%
0.60 4.17 1.23 48
0.60 3.61 1.27 104
1.60% 5.22% 1.97% 120%
1.60 3.50 2.03 48
0.70% 5.94% 0.94% 69%
0.58 4.81 1.07 177
0.70% 5.97% 1.19% 69%
0.69 2.48 1.24 177
0.70 4.90 1.29 163
0.70% 6.28% 0.94% 106%
0.61 5.53 0.92 142
0.86% 6.14% 1.19% 106%
0.68 3.83 1.06 142
0.70 5.65 1.14 91
0.99 6.12 2.68 180
0.99 6.85 4.11 176
1.07 7.49 5.46 144
1.22 7.26 22.44 157
0.96 7.18 20.70 93
1.70% 5.12% 1.94% 106%
1.70 4.89 1.92 142
0.70% 6.13% 0.97% 17%
0.36 5.32 1.45 74
0.70% 6.10% 1.22% 17%
0.53 4.49 2.14 74
0.71 4.00 4.73 182
0.99 6.03 14.14 101
0.99 6.99 6.76 100
1.08 7.57 5.55 40
1.19 7.49 9.65 72
0.95 6.78 17.20 0
0.70% 6.13% 1.05% 31%
0.56 5.79 1.07 35
0.70% 6.11% 1.30% 31%
0.70 5.12 1.30 35
0.70 5.24 1.42 29
0.60% 3.83% 1.39% 55%
0.60 3.26 1.28 57
0.60% 3.97% 1.64% 55%
0.90 2.47 1.53 57
0.81 2.30 1.76 22
0.67% 4.73% 1.05% 68%
0.45 4.48 2.20 52
0.67% 4.71% 1.30% 68%
0.59 4.13 2.78 52
0.71 4.31 5.09 27
0.99 4.83 16.09 23
0.99 5.35 15.48 15
1.08 5.58 13.85 4
1.09 5.57 19.55 4
0.84 5.87 13.60 0
0.70% 4.84% 1.02% 19%
0.69 4.51 4.71 4
0.70% 4.83% 1.27% 19%
0.69 4.51 4.96 4
0.70% 4.76% 1.00% 38%
0.67 4.57 1.59 22
0.70% 4.74% 1.25% 38%
0.67 4.57 1.84 22
0.79% 3.53% 1.01% 87%
0.75 2.91 1.12 32
0.99% 3.29% 1.26% 87%
0.75 2.01 1.29 32
0.75 2.40 1.34 31
1.79% 2.35% 2.01% 87%
1.75 1.94 2.12 32
0.79% 3.61% 0.94% 77%
0.75 3.51 1.05 98
0.99% 3.41% 1.19% 77%
0.77 2.63 1.24 98
0.75 3.31 1.29 77
1.79% 2.60% 1.94% 77%
1.75 2.80 2.05 98
</TABLE>
The accompanying notes are an integral part of the financial statements.
+ Returns, excluding sales charges, are for the period indicated and have not
been annualized.
(1) Institutional Class shares have been offered since February 4, 1994. All
ratios for the period have been annualized.
(2) Commenced operations on December 14, 1992. All ratios for the period have
been annualized.
(3) Closed operations on January 31, 1995. All ratios for the period have been
annualized.
(4) Retail Class B shares have been offered since August 15, 1994. All ratios
for the period have been annualized.
(5) On September 3, 1991, the Board of Directors of FAIF approved a change in
the FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(6) For the period ended October 31.
(7) Commenced operations on December 22, 1987. All ratios for the period have
been annualized.
(8) Institutional Class shares have been offered since August 2, 1994. All
ratios for the period have been annualized.
(9) On April 28, 1994 the Board of Directors approved a change in this Fund's
fiscal year end from November 30 to September 30, effective September 30,
1994. All ratios for the period have been annualized.
(10) For the period ended November 30.
(11) Commenced operations on February 19, 1993. All ratios for the period have
been annualized.
(12) Commenced operations on February 28, 1994. All ratios for the period have
been annualized.
(13) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS NET ASSET
VALUE NET GAINS OR FROM NET DISTRIBUTIONS VALUE NET ASSETS
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM END OF END OF
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS PERIOD TOTAL RETURN PERIOD (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INDEX
INSTITUTIONAL CLASS
1995 $10.67 $0.28 $ 2.75 $(0.27) $(0.09) $13.34 29.17% $218,932
1994(1) 10.85 0.20 (0.18) (0.20) -- 10.67 0.18%+ 163,688
RETAIL CLASS A
1995 $10.68 $0.25 $ 2.76 $(0.25) $(0.09) $13.35 28.90% $ 2,140
1994 10.60 0.25 0.09 (0.25) (0.01) 10.68 3.25% 758
1993(2) 10.00 0.20 0.60 (0.20) -- 10.60 8.02%+ 139,957
RETAIL CLASS B
1995 $10.66 $0.23 $ 2.68 $(0.18) $(0.09) $13.30 27.87% $ 1,197
1994(3) 10.68 0.01 0.04 (0.07) -- 10.66 0.48%+ 29
EQUITY INCOME
INSTITUTIONAL CLASS
1995 $ 9.89 $0.41 $ 1.35 $(0.41) $ -- $11.24 18.24% $ 52,126
1994(4) 9.90 0.07 (0.03) (0.05) -- 9.89 0.45%+ 17,489
RETAIL CLASS A
1995 $ 9.89 $0.41 $ 1.33 $(0.39) $ -- $11.24 18.06% $ 1,995
1994(5) 9.87 0.41 -- (0.39) -- 9.89 4.22%+ 1,852
1993(6)(7) 10.00 0.57 (0.14) (0.56) -- 9.87 4.44%+ 28,786
RETAIL CLASS B
1995 $ 9.88 $0.33 $ 1.32 $(0.33) $ -- $11.20 17.10% $ 1,233
1994(3) 9.87 0.04 0.02 (0.05) -- 9.88 0.57%+ 1
LIMITED VOLATILITY STOCK
INSTITUTIONAL CLASS
1995(8) $10.00 $0.26 $ 1.90 $(0.25) $ -- $11.91 21.93% $ 17,125
DIVERSIFIED GROWTH
INSTITUTIONAL CLASS
1995 $ 9.10 $0.17 $ 2.67 $(0.16) $ -- $11.78 31.57% $132,854
1994(4) 8.92 0.03 0.18 (0.03) -- 9.10 2.36%+ 31,875
RETAIL CLASS A
1995 $ 9.09 $0.15 $ 2.66 $(0.15) $ -- $11.75 31.21% $ 2,710
1994(5) 9.39 0.10 (0.29) (0.11) -- 9.09 (2.07%)+ 1,900
1993(6)(7) 10.00 0.11 (0.63) (0.09) -- 9.39 (5.18%)+ 31,084
RETAIL CLASS B
1995 $ 9.09 $0.09 $ 2.65 $(0.10) $ -- $11.73 30.29% $ 819
1994(3) 8.87 0.01 0.23 (0.02) -- 9.09 2.75%+ 12
STOCK
INSTITUTIONAL CLASS
1995 $16.50 $0.36 $ 3.64 $(0.35) $(0.59) $19.56 25.50% $312,559
1994(1) 16.47 0.25 0.03 (0.25) -- 16.50 1.70%+ 154,949
RETAIL CLASS A
1995 $16.51 $0.33 $ 3.64 $(0.32) $(0.59) $19.57 25.26% $ 13,076
1994 16.00 0.31 1.00 (0.30) (0.50) 16.51 8.35% 8,421
1993 14.04 0.22 1.99 (0.23) (0.02) 16.00 15.82% 134,186
1992 13.62 0.24 0.81 (0.29) (0.34) 14.04 7.88% 3,644
1991(9) 10.64 0.28 2.95 (0.22) (0.03) 13.62 30.49%+ 2,386
1990(10) 12.09 0.25 (1.17) (0.25) (0.28) 10.64 (8.22%) 1,161
1989(10) 10.35 0.25 1.70 (0.20) (0.01) 12.09 20.33% 323
1988(10)(11) 10.03 0.27 0.35 (0.30) -- 10.35 6.40%+ 206
RETAIL CLASS B
1995 $16.49 $0.26 $ 3.55 $(0.22) $(0.59) $19.49 24.20% $ 7,051
1994(3) 16.65 0.03 (0.10) (0.09) -- 16.49 (0.43%)+ 346
SPECIAL EQUITY
INSTITUTIONAL CLASS
1995 $17.30 $0.38 $ 1.61 $(0.38) $(1.02) $17.89 12.84% $201,786
1994(1) 16.34 0.22 0.96 (0.22) -- 17.30 7.31%+ 128,806
RETAIL CLASS A
1995 $17.30 $0.35 $ 1.60 $(0.34) $(1.02) $17.89 12.63% $ 11,609
1994 15.81 0.28 2.52 (0.28) (1.03) 17.30 18.70% 7,333
1993 13.61 0.23 2.32 (0.25) (0.10) 15.81 18.91% 81,899
1992 12.98 0.21 1.61 (0.27) (0.92) 13.61 15.17% 3,586
1991(9) 10.33 0.30 2.61 (0.26) -- 12.98 28.38%+ 3,423
1990(10) 12.96 0.47 (2.03) (0.46) (0.61) 10.33 (13.24%) 2,761
1989(10) 11.55 0.47 1.39 (0.41) (0.04) 12.96 17.41% 2,000
1988(10)(11) 10.03 0.34 1.57 (0.39) -- 11.55 19.56%+ 578
RETAIL CLASS B
1995 $17.29 $0.29 $ 1.51 $(0.24) $(1.02) $17.83 11.64% $ 4,847
1994(3) 16.51 0.01 0.85 (0.08) -- 17.29 5.22%+ 370
(table continued)
RATIO OF RATIO OF
NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE
EXPENSES TO INCOME TO NET ASSETS
AVERAGE AVERAGE (EXCLUDING PORTFOLIO
NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE
0.35% 2.41% 0.95% 9%
0.35 2.59 1.03 11
0.57% 2.16% 1.20% 9%
0.35 2.23 1.23 11
0.35 2.52 1.30 1
1.35% 1.34% 1.95% 9%
1.35 1.68 2.03 11
0.75% 4.11% 1.06% 23%
0.75 5.61 1.14 108
0.92% 3.91% 1.31% 23%
0.88 4.88 1.39 108
0.75 6.09 1.36 68
1.75% 3.05% 2.06% 23%
1.75 4.39 2.14 108
0.75% 2.75% 1.21% 28%
0.75% 1.69% 1.01% 28%
0.75 2.37 1.08 101
0.92% 1.52% 1.26% 28%
0.90 1.15 1.33 101
0.78 1.26 1.25 5
1.75% 0.58% 2.01% 28%
1.75 1.20 2.08 101
0.79% 2.10% 0.94% 52%
0.75 2.28 1.01 65
1.00% 1.89% 1.19% 52%
0.76 1.51 1.20 65
0.75 1.94 1.28 48
1.45 1.75 4.46 39
1.45 2.47 7.42 76
1.45 2.24 9.47 41
1.24 2.26 36.39 74
1.02 2.67 28.60 80
1.79% 1.10% 1.94% 52%
1.75 1.58 2.01 65
0.88% 2.30% 0.95% 72%
0.79 1.93 1.03 116
1.09% 2.08% 1.20% 72%
0.81 1.88 1.23 116
0.81 2.07 1.31 104
1.50 1.61 4.18 146
1.50 2.60 5.13 116
1.50 4.09 4.21 113
1.38 4.07 8.68 102
1.20 4.02 15.60 51
1.88% 1.22% 1.95% 72%
1.68 0.47 2.03 116
</TABLE>
<TABLE>
<CAPTION>
REALIZED
AND
UNREALIZED DIVIDENDS DISTRIBUTIONS NET ASSET
NET ASSET NET GAINS OR FROM NET DISTRIBUTIONS FROM VALUE
VALUE BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM RETURN END OF
OF PERIOD INCOME (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF CAPITAL PERIOD TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REGIONAL EQUITY
INSTITUTIONAL CLASS
1995 $12.52 $ 0.11 $4.90 $(0.08) $(0.32) $-- $17.13 41.40%
1994(1) 12.41 0.07 0.11 (0.07) -- -- 12.52 1.46%+
RETAIL CLASS A
1995 $12.52 $ 0.08 $4.90 $(0.06) $(0.32) $-- $17.12 41.17%
1994 11.96 0.08 0.71 (0.07) (0.16) -- 12.52 6.76%
1993(2) 10.00 0.05 1.96 (0.05) -- -- 11.96 20.17%+
RETAIL CLASS B
1995 $12.50 $ 0.04 $4.80 $(0.03) $(0.32) $-- $16.99 39.98%
1994(3) 12.19 -- 0.33 (0.02) -- -- 12.50 2.73%+
EMERGING GROWTH
INSTITUTIONAL CLASS
1995 $10.56 $ 0.03 $2.99 $(0.02) $(0.15) $-- $13.41 29.16%
1994(12) 10.00 0.01 0.56 (0.01) -- -- 10.56 5.68%+
RETAIL CLASS A
1995 $10.57 $ 0.01 $2.99 $(0.02) $(0.15) $-- $13.40 28.82%
1994(12) 10.00 0.01 0.57 (0.01) -- -- 10.57 5.88%+
RETAIL CLASS B
1995 $10.55 $(0.03) $2.92 $ -- $(0.15) $-- $13.29 27.89%
1994(3) 9.89 (0.01) 0.67 -- -- -- 10.55 6.67%+
TECHNOLOGY
INSTITUTIONAL CLASS
1995 $11.19 $(0.03) $7.31 $ -- $(0.23) $-- $18.24 66.22%
1994(12) 10.00 (0.01) 1.20 -- -- -- 11.19 11.90%+
RETAIL CLASS A
1995 $11.19 $(0.03) $ 7.31 $ -- $(0.23) $ -- $18.24 66.22%
1994(12) 10.00 (0.01) 1.20 -- -- -- 11.19 11.90%+
RETAIL CLASS B
1995 $11.17 $(0.04) $ 7.12 $ -- $(0.23) $ -- $18.02 64.52%
1994(3) 9.85 (0.02) 1.34 -- -- -- 11.17 13.40%+
INTERNATIONAL
INSTITUTIONAL CLASS
1995 $10.22 $ 0.01 $ 0.07 $ -- $ -- $ -- $10.30 0.78%
1994(12) 10.00 (0.01) 0.23 -- -- -- 10.22 2.20%+
RETAIL CLASS A
1995 $10.21 $ -- $ 0.07 $ -- $ -- $ -- $10.28 .69%
1994(13) 9.98 (0.01) 0.24 -- -- -- 10.21 2.30%+
RETAIL CLASS B
1995 $10.21 $(0.03) $ 0.02 $ -- $ -- $ -- $10.20 (0.10)%
1994(3) 10.23 (0.01) (0.01) -- -- -- 10.21 (0.20)%+
REAL ESTATE SECURITIES FUND
INSTITUTIONAL CLASS
1995(14) $10.00 $ 0.13 $ 0.39 $(0.11) $ -- $(0.04) $10.37 5.19%+
RETAIL CLASS A
1995(15) $10.37 $ -- $ 0.01 $ -- $ -- $ -- $10.38 0.00%
RETAIL CLASS B
1995(15) $10.37 $ -- $ -- $ -- $ -- $ -- $10.37 0.00%
(table continued)
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE
NET ASSETS EXPENSES TO INCOME (LOSS) NET ASSETS PORTFOLIO
END OF AVERAGE TO AVERAGE (EXCLUDING TURNOVER
PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE
$188,583 0.84% 0.78% 0.95% 42%
96,045 0.80 0.82 1.05 41
$ 14,917 1.05% 0.58% 1.20% 42%
8,345 0.82 0.59 1.25 41
58,427 0.80 0.59 1.30 28
$ 7,630 1.84% (0.25)% 1.95% 42%
185 1.80 (0.41) 2.05 41
$ 41,716 0.84% 0.20% 1.19% 51%
6,849 0.80 0.23 2.59 19
$ 386 1.04% 0.00% 1.44% 51%
91 0.79 0.23 2.84 19
$ 268 1.84% (0.83)% 2.19% 51%
18 1.80 (0.85) 3.59 19
$ 29,272 0.88% (0.35)% 1.30% 74%
6,491 0.80 (0.21) 3.12 43
$ 1,464 1.13% (0.61)% 1.55% 74%
61 0.80 (0.21) 3.37 43
$ 2,031 1.88% (1.41)% 2.30% 74%
2 1.80 (1.44) 4.12 43
$ 94,400 1.74% 0.12% 1.81% 57%
47,963 1.75 (0.19) 2.05 16
$ 876 1.93% (0.13)% 2.06% 57%
464 1.75 (0.26) 2.30 16
$ 306 2.76% (0.95)% 2.81% 57%
22 2.75 (0.71) 3.05 16
$ 5,756 0.80% 6.01% 2.34% 0%
$ 1 1.05% 0.00% 2.59% 0%
$ 1 1.80% 0.00% 3.34% 0%
</TABLE>
The accompanying notes are an integral part of the financial statements.
+ Returns, excluding sales charges, are for the period indicated and have not
been annualized.
(1) Institutional Class shares have been offered since February 4, 1994. All
ratios for the period have been annualized.
(2) Commenced operations on December 14, 1992. All ratios for the period have
been annualized.
(3) Retail Class B shares have been offered since August 15, 1994. All ratios
for the period have been annualized.
(4) Institutional Class shares have been offered since August 2, 1994. All
ratios for the period have been annualized.
(5) On April 28, 1994 the Board of Directors approved a change in this Fund's
fiscal year end from November 30 to September 30, effective September 30,
1994. All ratios for the period have been annualized.
(6) For the period ended November 30.
(7) Commenced operations on December 18, 1992. All ratios for the period have
been annualized.
(8) Commenced operations on November 15, 1994. All ratios for the period have
been annualized.
(9) On September 3, 1991, the Board of Directors of FAIF approved a change in
the FAIF's fiscal year end from October 31 to September 30, effective
September 30, 1991. All ratios for the period have been annualized.
(10) For the period ended October 31.
(11) Commenced operations on December 22, 1987. All ratios for the period have
been annualized.
(12) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
(13) Retail Class A shares have been offered since April 7, 1994. All ratios for
the period have been annualized.
(14) Commenced operations on June 30, 1995. All ratios for the period have been
annualized.
(15) Commenced operations on September 29, 1995. All ratios for the period have
been annualized.
NOTES TO FINANCIAL STATEMENTS----SEPTEMBER 30, 1995
1 ORGANIZATION
The First American Prime Obligations Fund, Government Obligations Fund and
Treasury Obligations Fund are funds offered by First American Funds, Inc. (FAF).
The First American Limited Term Income Fund, Intermediate Term Income Fund,
Fixed Income Fund, Intermediate Government Bond Fund, Mortgage Securities Fund,
Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Colorado
Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, Asset
Allocation Fund, Balanced Fund, Equity Index Fund, Equity Income Fund, Limited
Volatility Stock Fund, Diversified Growth, Stock Fund, Special Equity Fund,
Regional Equity Fund, Emerging Growth Fund, Technology Fund, International Fund
and Real Estate Securities Fund are funds offered by First American Investment
Funds, Inc. (FAIF). FAF and FAIF (collectively the "Funds") are registered under
the Investment Company Act of 1940, as amended, as open end, management
investment companies. The Funds' articles of incorporation permit the Board of
Directors to create additional funds in the future.
FAF offers Class A, Class B, Class C and Class D shares. Class B shares are only
available pursuant to an exchange for Class B shares of another fund in the
First American family. Class B shares may also be subject to a contingent
deferred sales charge for six years and automatically convert to Class A shares
after eight years. Class C and D shares are offered only to qualifying
institutional investors. Class A and B shares are not offered by the Government
Obligations Fund or Treasury Obligations Fund.
FAIF offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares may be subject to a contingent deferred
sales charge for six years and automatically convert to Class A shares after
eight years. Class C shares have no sales charge and are offered only to
qualifying institutional investors.
All classes of shares in FAF and FAIF have identical voting, dividend,
liquidation and other rights, and the same terms and conditions, except that the
level of distribution fees charged may differ among classes.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Funds are as follows:
Security Valuation -- Investment securities held by the FAF Funds are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
FAIF Fund investments in equity securities which are traded on a national
securities exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt obligations
exceeding sixty days to maturity which are actively traded are valued by an
independent pricing service at the most recently quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued at
their amortized cost. Foreign securities are valued based upon quotation from
the primary market in which they are traded. When market quotations are not
readily available, securities are valued at fair value as determined in good
faith by procedures established and approved by the Board of Directors.
Security Transactions and Investment Income -- The Funds record security
transactions on the trade date of the security purchase or sale. Dividend income
is recorded on the ex-dividend date. Interest income, including amortization of
bond premium and discount, is recorded on the accrual basis. Security gains and
losses are determined on the basis of identified cost, which is the same basis
used for Federal income tax purposes.
Distributions to Shareholders -- Distributions from net investment income for
the FAF funds are declared on a daily basis and are payable on the first
business day of the following month.
Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund,
Intermediate Government Bond Fund, Mortgage Securities Fund, Limited Tax Free
Income Fund, Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund,
Minnesota Insured Intermediate Tax Free Fund, Asset Allocation Fund, Balanced
Fund, Equity Index Fund, Equity Income Fund, Limited Volatility Stock Fund,
Diversified Growth, Stock Fund and Special Equity Fund declare and pay income
dividends monthly. Regional Equity Fund, Emerging Growth Fund, Technology Fund
and Real Estate Securities Fund declare and pay income dividends quarterly. A
portion of the quarterly distributions of the Real Estate Securities Fund may be
a return of capital. International Fund declares and pays dividends annually.
Any net realized capital gains on sales of securities for a fund are distributed
to shareholders at least annually.
Federal Taxes -- It is each Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required. For Federal
income tax purposes, required distributions related to realized gains from
security transactions are computed as of October 31st.
The amounts of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from those amounts determined under generally accepted accounting
principles. These book/tax differences are either temporary or permanent in
nature. These differences are primarily due to wash sales, foreign currency
gains and losses, the character of distributions made during the year from net
investment income or net realized gains, and the timing of distributions where
the fiscal year in which the amounts are distributed may differ from the year
that the income or realized gains (losses) were recorded by the fund. To the
extent these differences are permanent, adjustments are made to the appropriate
accounts in the period that the difference arises.
On the Statement of Net Assets the following adjustments were made (000):
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
GAIN (LOSS) INCOME PAID-IN-CAPITAL
<S> <C> <C> <C>
Mortgage Securities Fund $ -- $ 1 $ (1)
Limited Term Tax Free Income
Fund -- 16 (16)
Equity Income Fund 2 16 (18)
Diversified Growth Fund -- 18 (18)
Technology Fund (70) 70 --
International Fund (1,870) 1,942 (72)
</TABLE>
Futures Transactions -- In order to gain exposure to or protect against changes
in the market, certain Funds may enter into S&P Stock Index futures contracts
and other stock futures contracts.
Upon entering into a futures contract, the Fund is required to deposit cash or
pledge "U.S." Government securities in an amount equal to five percent of the
purchase price indicated in the futures contract (initial margin). Subsequent
payments, which are dependent on the daily fluctuations in the value of the
underlying security or securities, are made or received by the Fund each day
(daily variation margin) and are recorded as unrealized gains or losses until
the contracts are closed. When the contracts are closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Fund's basis in the contracts. Risks of
entering into futures contracts, in general, include the possibility that there
will not be a perfect price correlation between the futures contracts and the
underlying securities. Second, it is possible that a lack of liquidity for
futures contracts could exist in the secondary market, resulting in an inability
to close a futures position prior to its maturity date. Third, the purchase of a
futures contract involves the risk that a Fund could lose more than the original
margin deposit required to initiate a futures transaction. Unrealized gains or
losses on outstanding positions in futures contracts held at the close of the
year will be recognized as capital gains or losses for Federal income tax
purposes.
Repurchase Agreements -- The Funds may enter into repurchase agreements with
member banks of the Federal Deposit Insurance Company or registered broker
dealers whom the Adviser or Sub-Adviser deems creditworthy under guidelines
approved by the Board of Directors, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates.
Securities pledged as collateral for repurchase agreements are held by the
custodian bank until the respective agreements mature. The Portfolios may also
invest in tri-party repurchase agreements. Securities held as collateral for
tri-party repurchase agreements are maintained in a segregated account by the
broker's custodian bank until the maturity of the repurchase agreement.
Provisions of the repurchase agreements ensure that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default of the counterparty. If the counterparty defaults and the value of the
collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Funds may be delayed or limited.
Securities Purchased on a When-Issued Basis -- Delivery and payment for
securities which have been purchased by a Fund on a forward commitment or
when-issued basis can take place up to a month or more after the transaction
date. During this period, such securities are subject to market fluctuations and
the portfolio maintains, in a segregated account with its custodian, assets with
a market value equal to or greater than the amount of its purchase commitments.
Foreign Currency Translation -- The books and records of the International Fund
are maintained in U.S. dollars on the following bases:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Fund does not isolate that portion of gains and losses on
investments in equity securities which is due to changes in the foreign exchange
rates from that which is due to change in market prices of equity securities.
The International Fund reports certain foreign currency related transactions as
components of realized gains for financial reporting purposes, whereas such
components are treated as ordinary income for Federal income tax purposes.
Forward Foreign Currency Contracts -- The International Fund enters into forward
foreign currency contracts as hedges against either specific transactions or
fund positions. The aggregate principal amount of the contracts are not recorded
as the International Fund intends to settle the contracts prior to delivery. All
commitments are "marked-to-market" daily at the applicable foreign exchange rate
and any resulting unrealized gains or losses are recorded currently. The
International Fund realizes gains or losses at the time the forward contracts
are extinguished. Unrealized gains or losses on outstanding positions in forward
foreign currency contracts held at the close of the year will be recognized as
ordinary income or loss for Federal income tax purposes.
Expenses -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses are prorated to the Funds on the
basis of relative net asset value. Class specific expenses, such as the 12b-1
fees, are borne by that class. Income, other expenses and realized and
unrealized gains and losses of a Fund are allocated to the respective class on
the basis of the relative net asset value each day.
Reclassifications--Certain 1994 amounts have been reclassified to conform to the
1995 presentation.
3 INVESTMENT SECURITY TRANSACTIONS
During the period ended September 30, 1995, purchases of securities and proceeds
from sales of securities, other than temporary investments in short-term
securities, were as follows (000):
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
PURCHASES SALES PURCHASES SALES
LIMITED TERM INCOME
FUND $ -- $ -- $ 74,585 $ 81,308
Intermediate Term
Income Fund 59,322 48,029 7,233 3,305
Fixed Income Fund 284,883 187,929 90,278 4,145
Intermediate
Government
Bond Fund 80,785 12,073 -- --
Mortgage Securities
Fund 7,556 9,626 -- 828
Limited Term Tax
Free Income Fund -- -- 6,690 16,610
Intermediate Tax
Free Fund -- -- 54,813 18,684
Colorado
Intermediate
Tax Free Fund -- -- 47,203 6,978
Minnesota Insured
Intermediate Tax
Free Fund -- -- 56,348 18,913
Asset Allocation
Fund 18,135 25,225 8,538 17,094
Balanced Fund 81,725 69,853 61,094 48,355
Equity Index Fund -- -- 23,845 15,271
Equity Income Fund -- -- 35,119 8,248
Limited Volatility
Stock Fund -- -- 16,771 3,764
Diversified Growth
Fund -- -- 88,212 20,985
Stock Fund -- -- 185,121 112,466
Special Equity Fund -- -- 129,316 96,874
Regional Equity Fund -- -- 90,522 52,378
Emerging Growth Fund -- -- 35,381 9,769
Technology Fund -- -- 26,509 12,106
International Fund -- -- 81,374 37,836
Real Estate
Securities Fund -- -- 5,351 10
At September 30, 1995 the total cost of securities for Federal Income Tax
purposes, was not materially different from amounts reported for financial
reporting purposes. The aggregate gross unrealized appreciation and depreciation
for securities held by the Funds at September 30, 1995 is as follows (000):
AGGREGATE AGGREGATE
GROSS GROSS
APPRECIATION DEPRECIATION NET
LIMITED TERM INCOME FUND $ 517 $ (492) $ 25
Intermediate Term Income Fund 1,319 (462) 857
Fixed Income Fund 7,056 (552) 6,504
Intermediate Government Bond Fund 3,355 (14) 3,341
Mortgage Securities Fund 394 (252) 142
Limited Term Tax Free Income Fund 60 (2) 58
Intermediate Tax Free Fund 1,174 (40) 1,134
Colorado Intermediate Tax Free Fund 2,017 (6) 2,011
Minnesota Insured Intermediate
Tax Free Fund 2,253 (27) 2,226
Asset Allocation Fund 5,860 (436) 5,424
Balanced Fund 21,781 (1,462) 20,319
Equity Index Fund 50,873 (4,047) 46,826
Equity Income Fund 6,217 (408) 5,809
Limited Volatility Stock Fund 2,964 (42) 2,922
Diversified Growth Fund 22,650 (1,034) 21,616
Stock Fund 46,444 (2,802) 43,642
Special Equity Fund 18,642 (3,626) 15,016
Regional Equity Fund 52,684 (5,681) 47,003
Emerging Growth Fund 7,308 (1,370) 5,938
Technology Fund 7,751 (1,013) 6,738
International Fund 13,763 (4,094) 9,669
Real Estate Securities Fund 211 (41) 170
At September 30, 1995 the following funds have capital loss carrryforwards
(000):
EXPIRATION
AMOUNT DATE
PRIME OBLIGATIONS FUND $ 4 2001
Government Obligations Fund 35 2003
Limited Term Income* 3,907 2000-2004
Intermediate Term Income Fund 260 2003
Intermediate Government
Bond Fund 139 2002-2004
Mortgage Securities Fund 31 2004
Limited Term Tax Free
Income Fund 1 2003
Limited Volatility Stock Fund 131 2004
Diversified Growth Fund 761 2002
International Fund 5,975 2003-2004
* Includes carryover acquired in connection with Managed Income merger; the
ability to utilize these losses to offset gains may be limited in future
years.
4 FEES AND EXPENSES
Pursuant to an investment advisory agreement (the Agreement), First Bank
National Association (the Adviser) manages each Fund's assets and furnishes
related office facilities, equipment, research and personnel. The Agreement
requires each Fund to pay the Adviser a monthly fee based upon average daily net
assets. The fee for each of the FAF Funds is equal to an annual rate of .40% of
the average daily net assets. The fee for each of the FAIF Funds, other than the
International Fund, is equal to an annual rate of .70% of the average daily net
assets. The fee for the International Fund is equal to an annual rate of 1.25%
of average daily net assets. Through a separate contractual agreement, First
Trust National Association, an affiliate of the Adviser, serves as the Funds'
custodian. Marvin & Palmer Associates, Inc., serves as Sub-Adviser to the
International Fund pursuant to a Sub-Advisory Agreement with the Adviser.
SEI Financial Services Company (SFS) and SEI Financial Management Corporation,
(SFM) serve as distributor and administrator of the Funds, respectively. Under
the distribution plan, each of the Funds pay SFS a monthly distribution fee of
.25% of each Fund's average daily net assets of the Retail Class A shares, 1.00%
of the Retail Class B shares and .15% of the Corporate Trust Class D shares,
which may be used by SFS to provide compensation for sales support and
distribution activities. No distribution fees are paid by Institutional Class C
shares. Prior to January 20, 1995 the FAF Funds paid SFS a monthly distribution
fee of .20% of each Fund's average daily net assets of the Retail Class A shares
under $100 million, .15% of the average daily net assets from $100 million to
less than $250 million and .10% of average daily net assets of $250 million or
more. The Institutional Class C shares paid SFS a monthly distribution fee of up
to .05% on average daily net assets under $500 million, .04% on the average
daily net assets from $500 million to less than $1 billion and .03% of average
daily net assets of $1 billion or more. SFM provides administrative services,
including certain accounting, legal and shareholder services, at an annual rate
of .07% of each FAF Fund's, and .12% of each FAIF Fund's, average daily net
assets, with a minimum annual fee of $50,000 per Fund. Prior to January 31, 1995
the FAIF Funds paid SFM at an annual rate of .20% of each Fund's average daily
net assets with a minimum annual fee of $50,000 per Fund.
In addition to the investment advisory and management fees, custodian fees,
distribution fees, administrator and transfer agent fees, each fund is
responsible for paying most other operating expenses including organization
costs, fees and expenses of outside directors, registration fees, printing
shareholder reports, legal, auditing, insurance and other miscellaneous
expenses.
During the period ended September 30, 1995, the Adviser and other parties waived
a portion of their contractual fees in order to assist the Funds in maintaining
competitive expense ratios. Expenses were waived as follows (000):
WAIVER OF
INVESTMENT WAIVER OF WAIVER OF
ADVISORY ADMINISTRATOR DISTRIBUTION
FEES FEES FEES (1)
PRIME OBLIGATIONS FUND* $2,118 $-- $571
Government Obligations Fund* 746 -- 263
Treasury Obligations Fund 902 -- --
Limited Term Income Fund 375 23 24
Intermediate Term Income
Fund 179 20 7
Fixed Income Fund 449 42 6
Intermediate Government
Bond Fund 198 11 5
Mortgage Securities Fund 99 -- 1
Limited Term Tax Free
Income Fund 112 2 2
Intermediate Tax Free Fund 112 -- 2
Colorado Intermediate Tax
Free Fund 126 -- 3
Minnesota Insured
Intermediate Tax Free Fund 149 6 5
Asset Allocation Fund 89 8 --
Balanced Fund 215 40 7
Equity Index Fund 1,054 37 --
Equity Income Fund 125 2 1
Limited Volatility
Stock Fund 60 -- --
Diversified Growth Fund 207 10 1
Stock Fund 327 47 4
Special Equity Fund 83 41 4
Regional Equity Fund 125 31 4
Emerging Growth Fund 77 -- --
Technology Fund 71 -- --
International Fund 44 5 --
Real Estate Securities Fund 18 -- --
(1) Retail Class A
* Distribution Waiver is for Institutional Class
For the period ended September 30, 1995, legal fees and expenses were paid to a
law firm of which the Secretary of the Funds is a partner.
Effective April 14, 1995, Supervised Service Company was acquired by DST
Systems, Inc. DST Systems, Inc. now provides transfer agent services for the
Funds.
A Contingent Deferred Sales Charge (CDSL) is imposed on redemptions made in the
Retail Class B. The CDSL varies depending on the number of years from time of
payment for the purchase of Class B shares until the redemption of such shares.
CONTINGENT DEFERRED SALES
CHARGE
YEAR SINCE AS A PERCENTAGE OF DOLLAR
PURCHASE AMOUNT SUBJECT TO CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh 0.00%
Eighth 0.00%
For the period ended September 30, 1995, sales charges retained by SFS for
distributing the Funds' shares were approximately $110,000.
5 DEFERRED ORGANIZATIONAL COSTS
The Funds incurred organization expenses in connection with their start-up and
initial registration. These costs are being amortized over 60 months on a
straight-line basis.
6 FORWARD FOREIGN CURRENCY CONTRACTS
The International Fund enters into forward foreign currency exchange contracts
as hedges against portfolio positions. Such contracts, which protect the value
of the Portfolio's investment securities against a decline in the value of the
hedged currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
The following forward foreign currency contracts were outstanding at September
30, 1995.
INTERNATIONAL FUND
NET
CONTRACTS TO IN UNREALIZED
DELIVER/ EXCHANGE APPRECIATION/
SETTLEMENT RECEIVE FOR (DEPRECIATION)
DATES (000) (000) (000)
Foreign Currency
Sales 10/04/95 CH 2,750 $ (2,259) $(120)
10/04/95 CH 390 (321) (16)
10/27/95 CH 2,110 (1,856) 26
10/04/95 DM 2,210 (1,503) (44)
10/04/95 DM 270 (183) (6)
10/04/95 DM 420 (283) (11)
10/27/95 DM 2,220 (1,571) 16
10/04/95 FI 16,500 (3,762) (98)
10/27/95 FI 10,320 (2,414) 0
10/04/95 FF 5,850 (1,162) (27)
10/04/95 FF 870 (172) (5)
10/27/95 FF 4,200 (854) 1
10/04/95 UK 4,080 (6,301) (141)
10/04/95 UK 410 (634) (14)
10/27/95 UK 3,060 (4,831) 6
10/05/95 UK 225 (355) 0
10/04/95 JY 2,048,240 (21,140) 468
10/04/95 JY 181,180 (1,818) (10)
10/04/95 JY 940,460 (9,369) (123)
10/27/95 JY 1,115,370 (11,349) 48
10/02/95 JY 20,364 (204) (1)
10/04/95 NG 650 (391) (15)
10/04/95 NG 4,010 (2,437) (69)
10/04/95 NG 670 (405) (13)
10/27/95 NG 3,470 (2,190) 19
10/03/95 NG 341 (214) 0
10/04/95 NO 6,240 (965) (29)
10/27/95 NO 3,920 (629) 5
10/04/95 SK 65,630 (8,901) (565)
10/27/95 SK 25,770 (3,650) (59)
10/03/95 SG 58 (41) 0
10/05/95 SG 62 (44) 0
$(92,208) $(777)
INTERNATIONAL FUND
NET
CONTRACTS TO IN UNREALIZED
DELIVER/ EXCHANGE APPRECIATION/
SETTLEMENT RECEIVE FOR (DEPRECIATION)
DATES (000) (000) (000)
Foreign Currency
Purchases 10/4/95 CH 1,030 $ 905 $ (14)
10/4/95 CH 1,720 1,511 (23)
10/4/95 CH 390 343 (5)
10/4/95 CH 211 185 (2)
10/4/95 DM 680 477 (1)
10/4/95 DM 1,530 1,081 (11)
10/4/95 DM 270 191 (2)
10/4/95 DM 420 297 (3)
10/4/95 FI 6,230 1,458 --
10/4/95 FI 10,270 2,403 --
10/4/95 FF 800 157 5
10/4/95 FF 1,750 356 --
10/4/95 FF 3,300 672 (2)
10/4/95 FF 870 177 --
10/4/95 UK 1,450 2,292 (3)
10/4/95 UK 2,630 4,155 (3)
10/4/95 UK 410 648 --
10/4/95 JY 409,850 3,931 205
10/4/95 JY 631,130 6,052 317
10/4/95 JY 1,007,260 10,218 (52)
10/4/95 JY 181,180 1,838 (9)
10/4/95 JY 940,460 9,540 (48)
10/2/95 JY 32,689 328 2
10/2/95 JY 14,004 140 1
10/3/95 JY 8,924 90 --
10/4/95 NG 1,830 1,146 (2)
10/4/95 NG 2,180 1,374 (12)
10/4/95 NG 670 422 (4)
10/4/95 NG 650 410 (4)
10/4/95 NO 2,160 345 (1)
10/4/95 NO 4,080 655 (5)
10/4/95 SK 24,710 3,440 123
10/4/95 SK 15,440 2,194 33
10/4/95 SK 25,480 3,618 57
$63,049 $ 537
$(240)
CURRENCY LEGEND
CH Switzerland
DM Germany
FI Finnish Mark
FF French Francs
JY Japanese Yen
NG Netherlands Guilder
NO Norwegian Krona
SG Singapore Dollar
SK Swedish Krona
UK British Pounds Sterling
7 FUTURES CONTRACTS
The Equity Index Fund's investment in S&P 500 Index futures contracts is
designed to maintain sufficient liquidity to meet redemption requests and to
increase the level of Fund assets devoted to replicating the composition of the
S&P 500 Index while reducing transaction costs. Risks of entering into S&P 500
Index futures contracts include the possibility that there may be an illiquid
market and that a change in the value of the contract may not correlate with
changes in the underlying securities. At September 30, 1995, open long S&P 500
Index futures contracts were as follows:
NUMBER UNREALIZED
OF TRADE SETTLEMENT GAIN/(LOSS)
CONTRACTS PRICE MONTH (000)
4 $588.00 DECEMBER 1995 $ 0
3 584.35 December 1995 6
3 584.50 December 1995 6
3 590.05 December 1995 (3)
2 583.55 December 1995 5
2 588.15 December 1995 0
1 586.30 December 1995 1
1 587.20 December 1995 0
1 588.55 December 1995 0
$15
8 CONCENTRATION OF CREDIT RISK
The Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Colorado
Intermediate Tax Free Fund, and Minnesota Insured Intermediate Tax Free Fund
invest in debt instruments of municipal issuers. Although these Funds monitor
investment concentration, the issuers ability to meet their obligations may be
affected by economic developments in a specific state or region.
The Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Minnesota
Insured Intermediate Tax Free Fund, and Colorado Intermediate Tax Free Fund
invest in securities which include revenue bonds, tax and revenue anticipation
notes, and general obligation bonds. At September 30, 1995, the percentage of
portfolio investments by each revenue source was as follows:
LIMITED MINNESOTA
TERM INSURED
TAX FREE INTERMEDIATE INTERMEDIATE COLORADO
INCOME TAX FREE TAX FREE INTERMEDIATE
FUND FUND FUND TAX FREE FUND
REVENUE BONDS:
Education Bonds 4% 4% 6% 4%
Health Care Bonds 4 13 13 4
Transportation
Bonds 6 3 2 8
Utility Bonds 11 12 7 8
Housing Bonds 14 12 23 6
Pollution Control
Bonds 0 5 6 4
Public Facility
Bonds 7 6 1 2
Industrial Bonds 8 0 0 1
Other 10 14 11 11
GENERAL
OBLIGATIONS: 36 29 26 52
ANTICIPATION
NOTES: 0 2 5 0
100% 100% 100% 100%
The rating of long-term debt as a percentage of total value of investments at
September 30, 1995 is as follows:
LIMITED
TERM MINNESOTA COLORADO
TAX FREE INTERMEDIATE INSURED INTERMEDIATE
INCOME TAX FREE INTERMEDIATE TAX FREE
FUND FUND TAX FREE FUND FUND
STANDARD &
POORS/MOODY'S
RATINGS:
AAA/Aaa 39% 63% 74% 50%
AA/Aa 22 20 9 31
A/A 26 9 10 15
BBB/Baa 0 4 0 1
NR 13 4 7 3
100% 100% 100% 100%
Securities rated by only one agency are shown in that category. Securities rated
by both agencies are shown with their highest rating.
9 FUND MERGERS
Prior to January 20, 1995, five different mutual funds existed as separate
series of FAF: Money Fund, Institutional Money Fund, CT Government Fund,
Institutional Government Fund and CT Treasury Fund. On December 16, 1994, FAF
shareholders approved a plan of reorganization. Effective January 20, 1995,
Money Fund was merged with and into Institutional Money Fund and the combined
entity is now the Prime Obligations Fund. Also effective on such date, CT
Government Fund was merged with and into Institutional Government Fund and the
combined entity is now the Government Obligations Fund. In addition, the name of
CT Treasury Fund was changed to Treasury Obligations Fund. The mergers were
accompanied by a tax-free exchange of 63,816,319 shares of Money Fund for
63,816,319 shares of Prime Obligations Retail Class A and an exchange of
156,260,107 shares of CT Government Fund for 156,260,107 shares of Government
Obligations Corporate Trust Class as of the close of business on January 20,
1995. The aggregate net assets of Prime Obligations Fund and Money Fund before
the acquisition were $1,498,492,068 and $63,816,316, respectively, resulting in
combined net assets of $1,562,308,384 on January 20, 1995, and the aggregate net
assets of Government Obligations Fund and CT Government Fund before the
acquisition were $602,905,803 and $156,260,107, respectively, resulting in
combined net assets of $759,165,910 on January 20, 1995.
On February 3, 1995 Limited Term Income Fund acquired all net assets of First
American Mutual Fund (FAMF) Managed Income Fund pursuant to a plan of
reorganization approved by the FAMF shareholders on December 16, 1994. The
acquisition was accompanied by a tax-free exchange of 4,045,016 shares of
Managed Income Fund Institutional Class for 3,916,789 shares of Limited Term
Income Fund Institutional Class, and 482,125 shares of Managed Income Fund
Retail Class A for 467,560 shares of Limited Term Income Fund Retail Class A
outstanding as of the close of business on February 3, 1995. Managed Income Fund
net assets at the date were combined with those of Limited Term Income Fund. The
aggregate net assets of Limited Term Income Fund and Managed Income Fund before
the acquisition were $77,167,375 and $42,915,945 (including $2,579,628 of
accumulated net realized loss on investments, $1,131,202 of net unrealized
depreciation of investments, and $41,584,512 of paid-in capital for
Institutional Class, and $5,042,263 of paid-in capital for Retail Class A),
respectively, resulting in combined net assets of $120,083,320 on February 3,
1995.
In addition, under the reorganization agreement the FAMF Limited Term Tax Free
Income, FAMF Equity Income, and FAMF Diversified Growth Funds, were merged into
a new FAIF fund which was identical to the respective FAMF fund.
10 PROPOSED FUND MERGER OF LIMITED VOLATILITY STOCK FUND AND STOCK FUND
The Board of Directors of the Funds have approved, subject to shareholder
approval, the acquisition of the FAIF Limited Volatility Stock Fund by the FAIF
Stock Fund. The acquisition will be accounted for by the method of accounting
for tax free mergers of investment companies (sometimes referred to as the
pooling without restatement method). Under the proposed merger agreement and
plan of reorganization, Institutional Class shares of the FAIF Limited
Volatility Stock Fund will be exchanged for Institutional Class shares of the
FAIF Stock Fund. If the exchange were to have occurred as of September 30, 1995,
one share of the FAIF Limited Volatility Stock Fund Institutional Class would
have been exchanged for 0.6089 shares of the FAIF Stock Fund Institutional
Class.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
First American Funds, Inc.
First American Investment Funds, Inc.:
We have audited the accompanying statements of net assets as of September 30,
1995, and the related statements of operations, the statements of changes in net
assets and the financial highlights for each of the three funds constituting
First American Funds, Inc. and each of the twenty-two funds constituting First
American Investment Funds, Inc. for each of the periods presented. These
financial statements and the financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits. The
financial highlights of Limited Term Tax Free Income Fund, Equity Income Fund
and Diversified Growth Fund for the periods presented ended November 30, 1993
were audited by other auditors whose reports dated January 20, 1994 expressed
unqualified opinions on this information.
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 the financial
highlights are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are confirmed to us
by the custodian. As to securities purchased and sold but not received or
delivered, we request confirmations from brokers and where replies are not
received, we carry out other appropriate auditing procedures. 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 the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the three funds constituting First American Funds, Inc. and each of the
twenty-two funds constituting First American Investment Funds, Inc. as of
September 30, 1995, and the results of their operations, changes in their net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 3, 1995
